Good afternoon. My name is Ty, and I will be your conference operator today. At this time, I would like to welcome everyone to the Delek US Holdings Q1 2017 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then 1 on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Mr. Johnson, you may begin your conference.
Thank you, Ty. Good afternoon. I would like to thank everyone for joining us on today's conference call to discuss Delek US Holdings' first quarter 2017 results. Joining me on today's call will be Uzi Yemin, our Chairman, President, and CEO, Assi Ginzburg, CFO, Danny Norris, CAO, and other members of our management team. As a reminder, this conference call may contain forward-looking statements as that term is defined under federal securities laws. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects, and similar expressions are intended to identify forward-looking statements. You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release.
As a result, actual operations or results may differ materially from the results discussed in the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise. On today's call, Assi will begin with a few opening remarks on the financial performance of the quarter. Danny will cover the financial details before turning it over to Uzi to offer a few closing strategic comments. With that, I'll turn the call over to Assi.
Thank you, Keith. For the first quarter 2017, Delek US reported net income of $11.2 million, or $0.18 per diluted share, compared to a net loss of $29.2 million or $0.47 per basic share in the first quarter last year. We continue to make progress towards the acquisition of the remaining outstanding common stock of Alon that we do not already own in an all-stock transaction. We received a clearance from the FTC in early April, and we expect to close this transaction on July 1, subject to approval of both Alon and Delek shareholders. We ended the first quarter with approximately $591 million of cash on a consolidated basis and $234 million of net debt. Excluding debt at Delek Logistics, we had net cash of approximately $159 million as of March 31st, 2017. Now, I will turn it over to Danny to discuss additional financial details.
Thank you, Assi. For the first quarter of 2017, Delek US reported adjusted net income of $10.1 million or $0.16 per diluted share, compared to an adjusted net loss of $53.4 million or $0.86 per basic share in the prior year period. A reconciliation of reported results to adjusted results is included in the financial tables of our press release. The primary driver of the change on a year-over-year basis was improved performance in our refining segment, which I will discuss in more detail in a few minutes. Our 47% investment in Alon USA resulted in a pre-tax income of $2.8 million in the first quarter of this year compared to a loss of $17.8 million in the prior year period. Our operating expenses declined by $7.8 million compared to the first quarter of 2016. This decline was driven primarily by reduced outside services and maintenance expenses.
During the first quarter of 2017, our Tyler refinery underwent 16 days of planned downtime, and the majority of the costs associated with that work were capitalized. General and administrative expenses decreased $2.5 million on a year-over-year basis. This decline was primarily due to reduced outside services. Finally, our income tax rate, excluding the non-controlling interest income associated with Delek Logistics of $4.1 million, was 30.9% in the first quarter of this year. Turning now to capital spending. Our capital expenditures during the period were approximately $15.2 million, compared to $6.5 million in the first quarter of 2016. During the first quarter of this year, we spent $10.8 million in our refining segment, $2.8 million in our logistics segment, and $1.6 million at a corporate level. Our 2017 capital expenditures are forecast to be $89.2 million, which compares to $46.3 million in 2016.
This amount includes $65.1 million in our refining segment, $18.3 million in our logistics segment, and $5.8 million at the corporate level. This compares to our previous estimate of $80.7 million. I would like to discuss our results by segment. In our refining segment, we reported a contribution margin of $64.4 million compared to a contribution margin of $23.5 million in the first quarter of 2016. Contribution margin in the first quarter of 2017 included approximately $47.5 million benefit from the RINs waiver, and the first quarter 2016 contribution margin included a $42.4 million benefit from business interruption insurance proceeds. Both the RINs waiver and insurance proceeds benefited El Dorado. Improved market conditions positively affected the year-over-year performance. The Gulf Coast 5-3-2 crack spread increased to $10.50 per barrel for the first quarter of this year, compared to $7.68 per barrel for the same period in 2016.
Second, a declining RINs price environment had an indirect effect of improved netbacks across the wholesale system, and it also had a direct effect of lower RINs expense. Third, there was an inventory benefit of $2.8 million in the first quarter of 2017, compared to a charge of $12.3 million in the prior year period. Finally, the first quarter 2017 included a net hedging loss of $800,000 compared to a $7.6 million hedging loss in the prior year period. Operating expenses declined $7.5 million on a year-over-year basis. We were able to achieve per-barrel operating expense of $3.71 in the first quarter of 2017 despite the planned downtime at Tyler, compared to $4.12 per barrel in the first quarter of 2016. Those benefits were partially offset by planned downtime at the Tyler refinery during the first quarter of 2017.
On a year-over-year basis, the first quarter of 2016 benefited from a low crude oil price environment that improved residual product margins as compared to the first quarter of this year. During the first quarter of 2017, the Tyler refinery had 16 days of scheduled downtime for a turnaround. We expect that as a result of this work, the amount of time between turnarounds at the Tyler refinery can be extended into 2021 from our previous planned 2020 turnaround. The combined Contango and Midland-Cushing differential benefit declined by approximately $1.19 per barrel on a year-over-year basis. This consists of the differential between Midland and Cushing that averaged $0.53 per barrel premium in the first quarter of this year, compared to a premium of $0.14 per barrel in the prior year period.
Contango in the crude oil future market was $1 per barrel in the first quarter of 2017, compared to Contango of $1.80 per barrel in the prior year period. In March 2017, the El Dorado, Arkansas refinery received approval from the Environmental Protection Agency for a small refinery exemption from the requirements of their Renewable Fuel Standard for the 2016 calendar year. This waiver resulted in approximately $47.5 million of RINs expense reduction in the first quarter, which amounts to $0.46 per share after tax. I would like to review our logistics segment, which is comprised of the results from Delek Logistics Partners. Our logistics segment contribution margin was $26.6 million in the first quarter of this year, compared to $26.8 million in the first quarter of last year.
On a year-over-year basis, improved performance in the West Texas wholesale business partially offset lower performance from the Paline Pipeline and the SALA Gathering System. I will turn the call over to Uzi for his closing remarks.
Thank you, Danny. Increased drilling activity in the Permian Basin began to benefit our operations in a number of ways late in the first quarter. In refining, the Midland to Cushing WTI differential moved to a discount as we entered the second quarter. In addition, increased crude oil production has improved gathering economics in our business. In logistics, the gross margin per barrel in West Texas increased, and crude oil price differentials support increased shipments on the Paline Pipeline. We expect our presence in the Permian Basin to increase upon a successful acquisition of Alon. We believe that we can create approximately $95 million of annual pre-tax synergies and have the potential to unlock $78 million of EBITDA from logistics assets that currently reside within Alon.
This will create a Permian-focused refining system with approximately 200,000 barrels per day of access on a combined basis, and our logistics II system is well-positioned to support this larger operation. We ended the quarter with approximately $591 million in cash and are well-positioned to use this financial flexibility as we move forward with the next stage in our growth while remaining focused on creating long-term value for our shareholders. Before I turn the call over to Q&A, I want to welcome Kevin Kremke to the team. He has been with us since early April and will become CFO on June 1st. I also want to thank my dear friend and partner, Assi Ginzburg, for his contribution as CFO. On June 1st, Assi will transition from that position into a new role with the company in strategic planning or business development. Assi, you're not going anywhere.
With that, Ty, will you open the call for questions?
Ty, can we turn it over to Q&A?
Ty. If you would like to ask a question, press star one on your telephone keypad. That is star one. We do have a question. Our first question comes from the line of Brad Heffern with RBC Capital.
Hi, everyone.
Hey, Brad.
Hey. Uzi or maybe Assi, I'm not sure. I wonder if you could go into a little more detail on El Dorado getting the RFS exemption. Correct me if I'm wrong, but I think in the past, that facility hasn't gotten one before. I was wondering what changed this time around. I was also wondering, it looked like the gain on RINs that you reported this quarter was actually more than the RIN expense you guys reported last year. I was wondering if that exemption actually meant that you were net long RINs in 2016.
Let me take it one by one. I think there are three questions here, Brad. I'll answer the first one, try to answer the second one, and I'm sure Assi will answer the third one. The first one, if El Dorado got it in the past, the short answer is yes, it did get it in the past. It wasn't as meaningful. And obviously, RINs at that time weren't a dollar. To answer your question, yes, we did. The second question about the expenses, I'm not sure I understand what the question is. If you can clarify that question, and then I'll let Assi answer the third one.
I was just saying that I think that the gain that you guys reported this quarter, $46.5 million or $47.5 million. I think last year, the RIN expense that you guys reported was like $40 million. I was wondering if getting this exemption meant that basically you had like a net gain on RINs for last year.
First, I will say, on the first question that Uzi answered, in the last 2 years, El Dorado did not have a waiver. I think the last time it was 2012, probably. Maybe 2013. Since the RIN is meaningful, we didn't have a waiver. Second, once we got the waiver, we had RINs on hand and we were long, but the value of those RINs went down. I'm not sure exactly. When we reported the cost of RINs, what we reported was what we actually bought in the market, and that was what we paid for it. In some cases, $0.80-$0.90 to even $1.00 a RIN. Those are two separate basically aspects when you look at it. What we do know is that the value of what we got was $47.5 million.
Okay. I'll take that offline. It's kind of complex. I guess secondly, I was curious on the Tyler margins this quarter. Typically, we don't see Tyler and El Dorado so close on realized margins. Was that just the impact of the turnarounds, or was there anything else going on there?
Well, obviously, there's a lot of noise with turnaround. Building product, shipping product from the Gulf to supplement that. You don't make money on that. Shutting it down, restarting. Sometimes you don't get the right products for the first few days. A lot of noise. I wouldn't read much into it this quarter. That's the reason we were very specific on the 16 days shutdown.
Okay, got it. Finally, Assi, if you could just give your updated thoughts on, or sorry for Uzi, on Permian spreads. You talked in the past about how important you thought it was for production levels to get above the sort of take or pay agreements. Where do you think we are versus that now, and what's the outlook?
We are probably not far away from being break even. For a while, I thought that we were there, but with the filling up of the Dakota Access Pipeline, which, as you know, starts the ETP pipeline that starts June 1st, there's noise in the area. I believe that the take or pay will exhaust themselves. If they didn't already, it's happening any day, and we'll go to transportation cost. We already saw Midland moving from +$0.50 to a -$1. Now it's a little less than that. It's -$0.70 or -$0.80, I think. I didn't look today. We see the differential between Midland and LLS moving out. That's basically what we need to look at. The next leg, obviously, is how much of that production, including the Bakken production, can be absorbed in the Gulf Coast refineries.
I don't know that you probably know, I said it in the past, you guys probably know that number better than I do. I don't know that number. There will be a point that capacity will exhaust itself, it needs to clear the export market, we're talking about a completely different ballgame. Do we think that it's going to be $5? Maybe for a short period of time. Do we think that $1 is sustainable? Probably not. The break even in our models show about $0.50-$2 under long-term differential.
Okay, thanks for all the color.
Next question comes from the line of Neil Mehta with Goldman Sachs.
Good afternoon, guys.
Hey, Neil, good afternoon.
Kevin, welcome. Assi, congratulations. The question I had was related to the Alon transaction, and just what steps in the process remain to get this across the finish line on July 1st, and then I had some follow-ups on this topic.
I think the main step is to basically announce the record date and set up the meeting in order for the two shareholders to vote. We're in a process to get it done in the next few weeks.
Okay, great. The target is July 1st, right?
We wouldn't publish a specific day if we weren't confident that this is achievable.
Thanks, Uzi. The follow-up relates to two different topics as it relates to this transaction. The first is just Krotz Springs, Uzi, any early thoughts on that asset and different options there? The second is just around ALDW. Obviously, ALDW had a very good trading day today. Just how you think about what the right strategy is about folding that asset into the company.
Let's go one by one. I'm taking this as my capacity as the chairman of Alon, and in a way, CEO of Delek, I'll be a little muted on that. As I told you that, as we told the market in the past, Krotz Springs is an asset that will need attention. We don't take the idea of shutting down a refinery very lightly. That's not something that we do very lightly, especially in light of the, and you saw Alon's results today, Krotz Springs did pretty good in the first quarter without all the help that it needs. It needs attention in three main areas. First, the transportation of the crude, the transportation, not the crude itself. The transportation is very expensive. Second, the operation itself including the Alky project as well as the DHT and the sulfur plant.
The third one is making sure that the netbacks are good from Krotz. We just need to remember one thing, I don't want to read much into it, Krotz was designed, this is a lightweight refinery. It was designed to run lightweight barrels. In today's environment, when we see Mars and Midland at par, let's put it this way. Its disadvantage to the crude oil to the Gulf Coast refineries is diminishing because of the price of crude. It doesn't mean that it doesn't need attention from these three areas, which when we get in, we'll update the market because I think we're developing a detailed plan. I'll leave it to that, Neil. The second one, ALDW. ALDW or Big Spring is a great asset. I'm not surprised, obviously, with the results that Big Spring is delivering.
We said it all along that once the differentials in West Texas will widen as well as the wholesale margin will increase, and we see it in DKL West Texas margins as well, Big Spring will do very well. ALDW, that depends on the yield, and obviously, we show the market that we are patient. If it makes sense to our shareholders, we'll look at that. If it's not, we'll continue with this structure, and we believe that this is a very good asset. I want to be clear, though. I don't believe in having four public companies for four refineries. That will need to change. As we all said, we waited for two years to complete the Alon transaction. We have the time and patience, and we need to make sure that we create the right value for our shareholders.
I leave it to that, Neil. I hope that wasn't too long.
That was great, Uzi. Last question for me, just going back to this RINs stuff in the quarter. Just want to be clear on this. The waiver that you got, we should treat this as a one-time benefit, or is there the potential for you to go back to the EPA for additional waivers?
As we said we got in the past, I don't remember if 2012, 2013, I believe both years we got. That's something that we look at it carefully. You can treat it any way you want. I just want to clarify one thing, that this is an ongoing process that we evaluate that, and we talk to people all the time about this situation. I want to clarify one more thing that I think wasn't clear with our announcement. That waiver basically allowed us to sell RINs that we had as inventory. I want to make sure that you don't treat this as a non-cash event. Every penny of the $47.5 million found itself back as cash to the company. As a matter of fact, some of it will find itself back during the second quarter. Because we sold it later after we got the waiver.
That's great, Uzi. Thank you.
Our next question comes from the line of Paul Cheng with Barclays.
Hey, guys. Good afternoon.
Mr. Cheng, welcome back.
Yeah. Hey, first, Kevin, welcome, and Assi, best of luck with your new assignment. Maybe this is for Assi. At the end of the first quarter, can you share with us what is your RIN liability on the balance sheet? Is it a negative number or is it a positive number?
It's very close to zero, the liability on the balance sheet.
Right.
We still have to collect some of the RINs that we sold during the quarter.
You still have some cash coming in from the sale of the RIN in the first quarter, but that you're not going to have a lot of RIN to be sold in the second quarter.
Correct. We had basically a surplus of around $15 million of RIN. On top of it, we had roughly $20 million of RIN that we sold and haven't collected yet.
$20 million you haven't collected. Okay.
20. 2, 0.
Oh, 20. Sorry. Okay. The second one, Uzi Yemin. Talk about the $95 million synergy and the $78 million, the potential drop down in the Alon asset. Out of that $78 million, how much of them is actually sitting in ALDW? Also there for the $95 million and also the $78 million, can you maybe give us a little bit more elaboration in terms of into different buckets?
Yeah. Let's start with the synergies. The second one, Assi will give you an answer on the different buckets. We have it in our presentation, but I do not have the presentation in front of me. In the $95 million, there are four buckets. The first one, which is basically the most difficult one, is the overhead, is dealing with people, that is the first bucket. That bucket, Pete is kind enough to give me that number. It is between $33 million and $35 million. That is basically reducing the cost of a public company, reduce the number of people in the overhead, and take some other actions. We expect that to happen pretty quickly. That is $33 million-$35 million. Then we have around $20 million, $19 million-$20 million of the cost of capital.
That means some of the LCs that Alon uses, refinance of different areas, utilizing the cost of capital of DK that is much lower than Alon' s. We have a detailed plan on that. If you want, Kevin and Assi can expand on that little later. The third one is operation. That is basically insurance, procurement. That is not a big number. It is between $13 million and $15 million. We think actually that that number has the potential to grow. The last one is commercial. That is between $20 million and $35 million. That is the purchasing power that does not go to the expenses but goes to the gross profit, i.e., the premiums, gathering the ability to buy other feedstocks cheaper, and utilize other assets in a better way. That is the $95 million or $85 million-$105 million number. Again, it is on our presentation. Assi, if you want to talk about the drop downs.
On the drop downs, the piece that is part of ALDW is the asphalt terminal that we think is between $9 million-$11 million of annual EBITDA. The Big Spring other assets, mainly the storage, which is $8 million-$10 million of annual EBITDA. The Big Spring wholesale marketing that we estimated to be around $15 million. When you add all those up, it's around $30 million-$33 million of annual EBITDA that we believe we could drop to DKL.
The majority of them is actually sitting in the ALDW then. Until you resolve that, you may have some difficulty to drop it down, I presume?
I'll let Assi answer that. I wouldn't assume that. Obviously, you're talking about two different public companies with conflict committees, it was done in the past within DK, I'm not sure why you say it's more difficult. Assi.
There is no doubt that dropping the other asphalt terminals and some of the things that they have in California makes more sense. That's what we plan to do in stage 1. We have two more buckets, which each one of them is around $30 million, which is one piece is ALDW and one piece is at Krotz Springs. With that being said, as Uzi mentioned, these are two public companies. They all need to look at what's best for their shareholders. I think that even for ALDW, it makes sense to be leveraging the company over time, especially with the fact that ALDW is paying over 10% of all in cost as part of their interest cost. There is benefit for ALDW to drop those assets even in this environment.
Mm-hmm. Okay. Just curious there. When I'm looking at last year in 2016, Alon, the refining EBITDA is about $61 million. That if we're looking at DK is about $100, it's around $160. From that standpoint, is there a concern that if we're indeed dropping the entire $78 or that $68 million, if you're excluding the asphalt into the logistics, that ratio may be too much to be sustained by the company in the bottom half of the down cycle?
First, when we look at our business in 2016, it was in our mind a unique scenario where we had RIN at the highest cost that we've seen, and we already got most of that money back the following year. We had Midland trading above WTI for the full year, and as a result of that, some of that negatively impacted us. In addition to that, when we speak about Krotz Springs, which is $30 million out of that $75 million of drop of the EBITDA, we will not drop it unless at the same time we'll do some project to increase the amount of EBITDA for Krotz. If you look, for example, on what Alon announced in the past, that project, for example, the RK, has a $40 million potential return in a year, and that will enable us to do some of what we discussed.
Mm-hmm. Okay. Assi, do you have a number? What is the DD&A either close-up or reduction once you fully acquire Alon going to look like?
I refer you to the S-4. We have provided an estimate over there. Right now, based on our preliminary estimates, what we have filed, when you combine the both company, the total distribution on an annual base will go down by approximately $65 million. Correct me, Danny.
Depreciation.
Yeah, depreciation will go down by around $65 million.
$65 million on the pro forma.
On an annual base. If you take the Alon depreciation today-
plus the Delek depreciation today-
estimate that the total depreciation will go down by $65 million. If you think about it on an after-tax basis, that can be worth to us around $0.50 a barrel or more.
A share.
A share.
Yeah. Thank you.
Our next question comes from the line of Paul Sankey with Wolfe Research.
Hi, everyone, and Kevin, again, welcome, and Assi, good luck. I was going to ask Uzi about sort of a normalized EBITDA type question. I'm not sure whether we've just covered that. I guess the point was that Q1 was pretty weak from a cash flow point of view, but there's some noise in there, and we've got a lot going on in terms of corporate action. You've always done a good job in terms of explaining what the normalized cash flow value of Delek would be. I don't know, as I say, if we've just covered that. I'm a bit confused, quite frankly. Is there something you can add, just to make it clear, where you see the business in terms of some kind of mid-cycle view of the various components?
If you feel like you've already answered that, I'll ask you another one which is, could you just talk a bit more about the Permian and how you're doing there and what you see happening there? Thanks.
Okay, Mr. Sankey. We always are happy to answer your questions regardless if we answered them 50 times before that. The honest answer would be.
I'm not sure if you've already answered it or not.
We know you are British. You have a really British manner, we want to welcome that culture.
Thank you.
The truth of the matter is that we didn't answer the first question. Let me answer that one. The second one we did, otherwise I will repeat myself. The first one, a normalized EBITDA. One thing that we may need to remember that's very important is that during the first quarter, we had three big noise in the quarter. Even though we reported $0.16 that came from the waiver. We had three things that impacted us not so great. The first one, Midland, was a premium of, I believe, $0.50. Since then, it turned to a negative of, call it $1, a little less than that. In our mind, we're talking about Midland being back $0.50 to $2 normalized under. If you take that's $2 versus what you see with the first quarter.
Between us and Alon, we are processing 70 million barrels, you're talking about another $150 million. The second one that was very messy this quarter is the turnaround in Tyler. We don't expect to have turnaround every quarter, hopefully. That impacted Tyler's performance, and we need to clean this up. The third one is that some of the assets we have, because of the Permian activity, you don't see it immediately, but we see it now already. The West Texas margin, the Paline, the
Gathering all being impacted by the activity in the Permian as well as the RINs. If we maintain RINs at the level of $0.40, which my personal belief is that it's going to go down from here, that's just a guess, you need to add all that into your model. That's on top of one big thing, which is the synergies, which we feel very comfortable about that. I'm sure Keith and Assi will be happy to walk you through the model after the call, these are the components that we would like you to consider as mid-cycle normalized EBITDA. This without mentioning, and I'm not planning to mention anything about crack spread. Crack spread will do whatever crack spread want to do.
When you see Mars and Midland at the same price, you know that you benefit the light barrel versus the heavy barrel, I'll leave it to that.
Yeah. Understood. As I say, the previous questions did go some way to answering parts of that. It feels like the biggest uncertainty looking forward is Krotz Springs, probably.
Well, we answered that as well, but I'll be very brief on that. The idea with Krotz is to look very carefully if we can improve the three components. The cost to bring barrel to the refinery, not the cost of the barrel itself, because Cross can run very comfortably Midland barrel. The problem is that it costs a lot of money to bring it over there, and we need to look at that. The second one is the operation itself, because Alon did great job reducing their debt, even this quarter. They didn't do a lot about Cross and that will require attention. The third one is to make sure that the wholesale and the products are being sold at premium versus the situation today. Cross has, in situations like today, a benefit. It runs sweet barrel. It produces a lot of light products.
Also, with RINs being at this price, wholesale is not as bad. You can see in Alon's results that Cross has done decent, not great, decent under these circumstances. Obviously, as I said, the refinery will require a lot of attention. I'll leave it to that.
Okay. Yeah. You feel like you've answered. I'll go back through the transcript, but I guess you feel like you said what you need to say about the Permian then?
Yes, I did. Obviously, I'm willing to take it offline with you and give you some education.
Okay
as I see it. I'm sure you know about that as much as I do, if not more.
We were in Midland, and we saw a very nice-looking Delek tank.
Shortly you will see a very nice-looking refinery.
Okay, good. Thanks, Uzi.
Our next question comes from the line of Roger Read with Wells Fargo.
Good afternoon. How are y'all?
Mr. Read, I think good evening for you, no? Not almost.
Evening, afternoon. We'll roll with it either way. Hey, a couple of questions. One on the demand side, it's been a lot of conjecture that we've got weaker gasoline demand, depending on which numbers you pay the most attention to. I know you don't have your retail outlet anymore, but just curious what you were seeing in the whole markets there.
Obviously, we lost our binoculars, if you will. That's an opportunity for me to wish again, MAPCO all the best. I do obviously see, we do see wholesale and some sales. I do believe that demand, as I said in the past, is down. Is it down 3%? Probably not. Is it down 1%? I believe so. I'm surprised with that. Looks like demand is a little softer. I must say that in our refineries, the four refineries that we see, because we see the Alon refineries as well, demand was pretty strong. Overall, I think along the Colonial Pipeline demand is softer.
Okay, thanks. Tier 3 got talked about a lot latter part of last year, potentially having an impact this year. Maybe with gasoline demand a little softer, it hasn't been a big problem, and we're just now entering summertime. Just curious if you were seeing any pricing issues in the market or impacts on margins from that.
I don't know much about it yet. I'm just going to say that I think octane is still a little short, and we see the differentials between premium and regular widening a little bit. I think it's too early to say something about that. Obviously, the people that are subject to this, if you remember, we had the small refinery exemption until 2020. We don't have as much visibility as the people that need to be in compliance with that. I do think that based on my knowledge or our knowledge of our company, that there should be some octane hit. I don't know the magnitude yet. That's probably something that you guys can ask our colleagues and peers. I can't imagine that there's no octane hit in result to this Tier 3.
Okay, great. Assi, I'm going to throw one last question at you before you get to be the special projects guy, and then Kevin will catch you on the next call. Cash flow in the quarter, roughly $100 million decline. You talked about the $20 million of RINs that you've sold, and you haven't got any cash back yet. I was just curious, was there anything else in the quarter, an inventory build, something that should come back in the next couple of quarters here?
We did build, during the quarter, $50 million of accounts receivable, slightly even over that. Some of it is the results of the buy and sell we're doing in Midland. It was even a bigger impact on the quarter because of the overall turnaround in Tyler, that we didn't get the normalized working capital. I would say a big part of it should come back over the year.
Okay, great. Thank you.
Our next question comes from the line of Edward Westlake with Credit Suisse.
Congratulations. We're getting closer. A quick question on post-close July 1st. What's the communication plan? There's obviously self-help tension at Krotz. Also ALDW's talked about Big Spring. There's lots of corporate restructuring benefit of disintermediating crude. Just wondering if you're going to do some kind of analyst update on that Q2 call.
Once we get it done, our idea is to put our plan together. Obviously, we need to put our plan together. We're putting it as we speak. We actually, I think, put it already together. That we'll tweak it and then maybe in the month of July, we'll consider an analyst day, just to update the market. I don't want to commit on anything right now. It depends on the circumstances. Obviously, there are a lot of questions in regard to the merger that the market wants answers, and we want to be as transparent as we can, giving these answers.
Then as you come up with that plan, do you imagine that there's a room for an ongoing buyback as well as the dividend? Obviously, given the cash on the balance sheet, you have an authorization. Given the merger, I guess it's been less used than it could be post-merger with the synergies coming through and if Permian dips expand.
Well, we obviously have that flexibility. What we want to see is, as we said it in the past, that's in the cards. We spoke to our board about that in the last couple of days as they were here. One thing I'd like you to remember. Alon, while did great job reducing debt, have left several projects with good IRR and good return. The balance will be between the two. I imagine that we can do both at the same time, depends on the market condition. Honestly, we want to drive value, anywhere we can. I guess this combination will need to find itself as we finalize our CapEx projects in the logistics as well as the Alon areas.
Thanks. I look forward to it.
Thank you.
Our last question comes from the line of Fernando Valle with Citi.
Hi, guys. Good afternoon. I just want to follow up on the ALDW question. If you were to take it over, would Delek have a vote on a venture acquisition? How would the actual roll-up occur as far as the mechanics of it? Would it be up to just minorities, or would DK also have a vote on it?
That's a legal question that we will need to focus. I think there are both ways doing that. We just don't want to take risks that are not needed. We will look at that situation carefully as the time matures, and it gets closer to doing something like that. Obviously, something like that is not feasible between now and closing. We have time to think about that. I do think that both options exist.
Okay, fair enough. I guess just to follow on the previous question, if you could just at a high level, you think the call on capital once we close the deal is you have enough flexibility to grow both the logistics and do these quick hit programs at Alon, so both Krotz and Big Spring, the smaller projects in as well as finance growth within DKL. Is that correct?
That's a great question. Over the years, you all know that we were blamed to be too conservative. While I'll take the blame, I think it served our company very well. That allowed us to make acquisitions during tough times and bring value to our shareholders. We're hoping that the last example is Alon. We don't want to take the balance sheet and stretch it. However, we believe that this situation with Midland will get even better, that will allow us to be very competitive in the marketplace. If this happens, we don't see any reason why we can't do both, especially in light of the fact that the situation at DKL is not tied from a leverage standpoint.
I guess this might be a question more for the DKL part, but would you focus primarily on the gathering and transportation side or are there other areas of the infrastructure bottlenecks in the Permian where DKL could play as well?
I think that the areas that we like the most is, we said all along that we want to be a Permian company. I think that DKL said the same thing. I actually know they did. I think that the Permian area is a main focus for us. I don't know of any other refinery in the Permian once we get Alon. That brings tremendous amount of opportunity. Again, as I said, Alon did great job doing a lot of things. Alon did not gather barrels into the refinery direct, and we believe that that's the first thing and the most natural thing, as we hear from producers, that we basically need to do so.
Great. I'll leave it there. Thanks again.
Thank you.
To ask a question, press star one on your telephone keypad. That is star one. There are no more questions at this time, Mr. Johnson.
I'd like to thank my colleagues around the room. I'd like to thank the board of directors for their confidence in us. I'd like to thank you guys for listening to us and your confidence in our company, but mostly I'd like to thank our employees for making this company what it is. Have a great day. Thank you.
This concludes today's conference call. Thank you for your participation. You may now disconnect.