Hello, everyone. Thank you for joining us, and welcome to the Delek US Holdings third quarter 2026 earnings call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Robert Wright, EVP and CFO. Robert, please go ahead.
Thank you, and good morning, everyone. We appreciate you joining us today. Participants joining me on today's call will include Avigal Soreq, President and CEO, Mohit Bhardwaj, EVP, Strategy and Investor Relations, as well as other members of our management team. Today's earnings release and management call presentation material can be found on the Investor Relations section of the Delek US website. Before we get started, I want to remind everyone that our comments today may include forward-looking statements reflecting management's current expectations and assumptions.
These statements involve risk and uncertainties, and actual results may differ materially from those discussed today. For additional information regarding the factors that could cause actual results to differ, please refer to our filings with the Securities and Exchange Commission. Except as required by applicable law, we do not undertake any obligation to update these forward-looking statements. I will now turn the call over to Avigal for opening remarks. Avigal?
Thank you, Robert. Good morning, and thank you for joining us today. Third quarter was a landmark quarter for us. Given our performance, we finished the quarter in a strong financial position. We are taking incremental steps in Q4 to advance our financial transformation. Our transformation has been made possible by our strong operation and our surgical execution to capture the market opportunities. Our operation play an essential role in the communities we serve by providing reliable fuel supply that support everyday needs and economic activities. We take great pride in being committed community partner. Highlight in the third quarter includes, one, we continue to successfully navigate the volatility in the crude and product markets caused by the events in Middle East and Eastern Europe. Second, we made further progress in increasing our free cash flow profile and have increased our EOP improvement guidance to at least $250 million.
And third, we've also maintained our disciplined and balanced approach to capital allocation through balance sheet improvement, dividend increase, and strong buybacks. As I've mentioned in the past, maintaining discipline is critically important during periods of strong margins. We maintain prudent approach reflected in our disciplined capital deployment, focused on creating sustainable long-term shareholder value. As I mentioned during our last earning call, the events in the Middle East and Eastern Europe have created many ripple effects in the markets. We continue to see elevated freight rates that impact crack spread and crude differentials. In the current environment, we believe that we have a key advantage through access to pipeline-delivered inland crude, limited exposure to elevated freight cost, high distillate yield, and most importantly, the ability to respond quickly to changes in the market conditions. These advantage are critical to maintaining operational flexibility and delivering strong performance.
Now, I will cover some of our third quarter highlights and strategic initiative in detail. Starting with refining. Our refining system operated reliably with all four refineries running well. Big Spring has shown strong operating performance since its turnaround. It's exceeding its value creation target of improved reliability, higher crude slate flexibility, improvement in overall product yield, and higher octane and blending capabilities. I'm very pleased with this improvement, and I'm confident that the Big Spring team will further improve this important asset. With no planned turnaround for the remainder of the year, our refining system is well-positioned to capture the continued strength in crack spread. Moving to EOP. Enterprise Optimization Plan continue to drive significant value. We are again increasing our EOP target to at least $250 million on an annual run rate basis.
During the third quarter of 2026, we estimate approximately $60 million of EOP contribution to our P&L. We have come a long way from our initial target of $100 million of annual free cash flow improvement, and I'm proud of the continuous improvement culture that we have created. Our sum-of-the-parts initiative also continue to progress with raising strength of our midstream business. DKL today raised its 2026 EBITDA guidance to $530 million-$560 million. DKL is also on target to add an additional $60 million in EBITDA in 2027 from its organic growth project on a run rate basis. This is an addition to the $15 million that we have realized in 2026. DKL is completed the construction of the first sour compressor station and AGI well and is in the process of commissioning the facility.
The sour gas solution will provide DKL the ability to fully capitalize on its growth opportunity in the Delaware Basin and maintain its best-in-class EBITDA growth and yield. On a pro forma basis, we continue to expect DKL third-party annual adjusted EBITDA to exceed 80%. This level of economic separation is a cornerstone of our sum-of-the-parts strategy and continues to bring us closer to our deconsolidation goal. DKL is on the right path, and we continue to work hard to write the next chapter in its growth story. As I mentioned last quarter, we are pursuing a proactive strategy to manage our obligation under the RFS. The SRE provision of the RFS serves the important purpose of mitigating the impact felt on small refineries from the RFS burden.
We have felt this burden in the past and are pleased to have received all four small refinery exemptions for the 2025 period. This will allow us to reduce our 2025 RVO burden and expect to receive approximately $425 million in proceeds in the fourth quarter. We expect the EPA to continue to provide the relief to small refineries for the year 2026 and beyond. We believe the current administration, Senate, Congress, and EPA realize the importance of SREs, not only for the refineries which qualify under the program, but also to the local communities they serve. The final piece of our strategy is being shareholder-friendly and having a strong balance sheet. During the quarter, we paid approximately $16 million in dividends and $50 million in buyback.
Our strong balance sheet, improved reliability, EOP, and confidence in our outlook continue to support a disciplined approach to capital allocation, to continuing dividends and buyback. We remain committed to a balanced and disciplined capital allocation strategy and are dedicated to rewarding our shareholders. In this regard, we have increased our quarterly dividend by approximately 18% to $0.30 per share. After buying back $50 million worth of our shares in Q3, we expect to do approximately $100 million in share buyback between now and the end of the year. In closing, thank you to our team for the hard work and dedication. I am immensely proud of the progress Delek has made, and I look forward to building on this momentum for the remainder of the year and beyond. Now, I will turn the call over to Robert, who will provide additional color on the quarter.
Thank you, Avigal. For the third quarter, Delek reported net income of approximately $1.13 billion, or $18.22 per share, with EBITDA of approximately $1.64 billion. On an adjusted basis, net income came in at approximately $843 million, or $13.55 per share, with adjusted EBITDA of approximately $1.28 billion. Turning to our investor presentation, on slide four, we show the breakdown of adjusted EBITDA and adjusted EPS for the quarter. Excluding the 50% RVO adjustment and the impact of small refinery exemptions, or SREs, granted during the quarter, adjusted EBITDA was approximately $1.04 billion, and adjusted EPS was approximately $10.53 per share.
On slide five, we walk through the bridge in adjusted EBITDA from the second quarter to the third quarter on the same basis, excluding the 50% RVO adjustment and the impacts of SREs. Quarter-over-quarter performance was led by stronger refining margins and higher capture rates. Supply and marketing margin was approximately $37 million in the quarter, with wholesale marketing contributing $36.7 million, driven by continued success of our EOP efforts and strong market environment. Asphalt was a loss of $4.6 million, fully offset by a $4.6 million profit from our supply business. Our logistics segment continues to deliver strong results, posting approximately $143 million in adjusted EBITDA for the third quarter, as momentum continued across our crude, gas, and water offerings. Let's move to slide six for a review of cash flow. Cash flow from operations was $567 million for the quarter.
This reflects net income adjusted for non-cash items, offset by a net working capital outflow of approximately $809 million. Excluding working capital, operating cash flow for the quarter was approximately $1.38 billion. As for the working capital outflow, the majority of this was related to SRE receivables of approximately $425 million, and we expect these proceeds to come in the fourth quarter. The remainder of the impact is split between timing-related items of roughly $200 million, which we expect to normalize in the coming quarters, and roughly $160 million, which is tied to other financing-related items. Investing activities were a use of $117 million for the quarter. This includes capital expenditures of approximately $111 million, with $55 million associated with DKL.
Of that $55 million, $48 million of that went to growth projects at DKL, and the remainder supported scheduled maintenance and regulatory spending across our system, ensuring our ability to run safely and reliably in the current macro environment. Financing activities provided approximately $256 million of net cash during the quarter. Inflows were approximately $415 million of net proceeds from our zero-coupon convertible notes offering and approximately $220 million of net proceeds from the DKL equity offering. These were partially offset by $247 million of DKL revolver payments, $50 million of share repurchases, $16 million in dividend payments, and approximately $22 million in DKL distribution payments to public unitholders.
In addition, as Avigal mentioned, we are pleased to announce we are increasing our dividend to $0.30 per share and are expecting to spend approximately $100 million on buybacks in the fourth quarter. Slide 18 breaks out our net debt position between Delek and Delek Logistics. On a standalone basis, excluding Delek Logistics, Delek's net debt has improved $224 million versus the second quarter and has moved to a net cash position of approximately $22 million. Now turning to slide 19 and our outlook for the fourth quarter, our total throughput guidance is as follows: Tyler, 75,000- 80,000 bpd , El Dorado, 67,000- 72,000 bpd , Big Spring, 68,000- 73,000 bpd , and Krotz Springs, 78,000- 83,000 bpd .
Taken together, this implies a total system throughput target of 288,000- 308,000 bpd for the fourth quarter. In addition to the throughput guidance, for the fourth quarter of 2026, we expect operating expenses to be between $225 million and $235 million, G&A between $50 million and $55 million, and D&A to be between $115 million and $125 million. As committed last quarter, we are also breaking out our interest expense between Delek and Delek Logistics. We expect total net interest expense between $52 million and $67 million, with DK contributing between $12 million and $17 million and DKL contributing between $40 million and $50 million. As shown on slide eight, on a run rate basis post the term loan payout, we expect interest expense on a DK standalone basis to be around $10 million. With that, we will now open the call for questions.
We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Doug Leggate with Wolfe Research. Doug, your line is open. Please go ahead.
This is John Abbott for Doug Leggate. Thank you very much for taking our questions. Our first question is on RINs. Can you provide any update on legacy RINs, the status of the court case, and any visibility on expectations you have for RINs, say, for the remainder of the current administration EPA?
Yeah, absolutely, John, and our regards to Doug. I will answer a small refinery exemption in a broader context, and I will get into the cases just a little bit. We need to remember SREs are disproportionate economic harm. That's the essence of the law, right? We need to make it clear that it's not a Delek issue. It's between We've seen in that in August 31st that it's big companies, small companies, with 40 refineries around the nation. It's maintaining fuel supply, maintaining jobs in rural areas, and it's very important. Obviously, we have seen very important litigation happening, the Chevron deference, the DC Circuit, the Supreme Court, which the bottom line that you probably understand it, but you need to remember that that's reduced the EPA discretionary going forward. That's something that is very, very important.
Around the question, a bit more specific of the cases we have, what the slang says, zombie RINs, we need to remember, I want to make one statement that everyone needs to remember, that relief and eligibility are not discretionary. They are coming together. We believe that we have a very strong case. We gave guidance about that in the past in terms of how much we believe in it, and we are very optimistic about it. Even in any calculation of our valuation, this is not showing up at all. There is a huge upside here for investor. You can see today that we are not related to the SREs, but we are rewarding investors with the increase in dividend by 18% and obviously do a very significant buyback Q3 and Q4. You want to add anything? Okay. Thank you, John.
Appreciate it. For our follow-up question here, it is really on use of cash. If we look at your free cash flow for 4Q, it looks like it could be significant, and it is not even included in your deleveraging guidance. 2027 could be significant as well. The question is, what do you do with the cash? Is DKL restructuring even a consideration given the value gap you perceive?
Yeah. Let us start with what we are not going to do. We are not going to be not disciplined. As you can see, that we stay very disciplined to our capital guidance. We ran the course, we improved our balance sheet, we increased dividend, we did a significant buyback. We are, among our peers, actually, you can see the numbers better than I can see, we are a leading peer in terms of return to investors. It is now close to 10% of our market cap, and there is tremendous amount of value. I think that, by every map that I have seen, we are probably the cheapest refinery in the U.S. and maybe even beyond that. So we are very cheap. So what we are going to do is going to stick to what we said we are going to do.
We are going to stick to a strong dividend through the cycle. We are going to stick to a balance sheet and the buyback, a balanced approach between them, and that is the focus we have. We are in a bipolar industry, and it is very easy to get confused on those time and make investment that does not make sense on a downturn. So we are going to stay disciplined and going to stick to the capital allocation we have. Mohit, please go ahead.
Yeah. John, I just want to add what Avigal is talking about. The transformation that this company has had in terms of what our free cash flow generating power is, and you are talking in terms of fourth quarter 2026 and 2027. But even on a mid-cycle basis, the transformation is completely different versus where we were in the past. We expect to generate $700 million-$800 million of mid-cycle free cash flow. On a 10% free cash flow yield, that is a triple-digit stock price. So as Avigal just mentioned, that we are the cheapest refining stock. Our multiple is the lowest. We are not going to be holding excess cash on our balance sheet, and our capital allocation strategy is pretty straightforward.
Thank you very much for taking our questions.
Thank you.
Your next question comes from the line of Alexa Breno with Goldman Sachs. Alexa, your line is open. Please go ahead.
Morning, team, and thanks for taking our question. We wanted to just dig a little deeper on the last question around capital allocation and free cash flow. Can you just talk a little bit? The buybacks this quarter were notable, as well as the commentary for Q4. As we think about 2027, balance sheet in a very strong place, SRE RIN monetization, any color on how we can think about that buyback number on a run rate basis in 2027, or what the approach is there?
Yeah. First of all, Alexa, thank you so much for joining our call. As I said, we are going to stay disciplined, and we are not going to do something that is going to regret on a bad cycle. That is my commitment to you and the rest of the market. Obviously, that is the first time this quarter that we are giving guidance for buyback going forward. I think the markets need to see it as a positive change. Obviously, 2027 is still ahead of us.
We are still putting all our ducks in a row, so you need to stay tuned for that. But as Mohit just said, a very important comment, we do not have any strategy to hold any excess cash on our balance sheet just for having the cash. We want to reward investors. We want to make sure that we have a strong balance sheet, and we have a very good buyback program among our peers, and we are very proud of that. Mohit, you want to chime in?
Yeah. Alexa, and from a balance sheet standpoint, as we have highlighted in our materials, we have done most of our work, very little debt, if any, left on our balance sheet apart from the convert. And our interest expense on a go-forward basis, on a DK standalone basis, is going to be sub $10 million on a quarterly run rate. That is around $10 million of interest expense on a go-forward basis. So, a lot of the stuff that we have, we will be rewarding our shareholders. That is a commitment that we have had, and we do not want to hold any excess cash on our balance sheet. But as you said, 2027, we still have to see how the year plays out, and we will be rewarding our shareholders. That is a commitment that we have given in the past.
Thanks. Appreciate the color. And then just to follow up, captures have improved this year. When we just look at that improvement, can you walk us through how much you would attribute to structural changes you have made in the system, and then how much has that been a function of some of the macro backdrop?
Yeah. I am so happy that you asked that question. That is a very important aspect in our structural change that we did in the company. I would say the first reasoning for that is obviously EOP, Enterprise Optimization Plan. You have seen that, Alexa, that our EOP is a lifestyle. It is someone that everyone in this company is taking pride of. It is someone that everyone in this company wants to excel. There is no limit to our imagination around it and how far we can take it. We are very happy about the progress we have done. We have more than 90 projects we are running around it. We are working on that on a daily, weekly basis, and I am very proud. There is a small project and a big project, and everyone is taking part of that.
I think we raised the EOP target of a free cash flow basis mid-cycle, like six times, seven times, sorry. Now it is at least $250 million. That is an extraordinary achievement. I am proud. It is not me. It is the organization that I am proud of, and every one of our employee that take part of that important initiative. I just want to say, to take the opportunity to say thank you for all of you, because safe and reliable operation together with EOP is a very key foundation of this company and something that we really, our employees are leading and we are really excelling in. That is the essence of this.
Yeah. Alexa, that is the structural change is why we have so much confidence in our mid-cycle free cash flow, and that is why we want to talk about that.
Thank you both. We will turn it over.
Thank you.
Your next question comes from the line of Matthew Blair with TPH Research. Matthew, your line is open. Please go ahead.
Thank you, and good morning. Avigal and Robert, congrats on the strong results. Maybe that is a good place to start. Your marketing and supply profitability took a big step up overall in the third quarter, very strong on an absolute basis. Could you talk about the moving parts in the third quarter that pushed that up, and what are you seeing so far in the fourth quarter?
Matt, first of all, thank you for joining the call. We really appreciate you. We usually do not give guidance on DKTS because there is a lot of market dynamics into that. I will give you something. Some of the structural change that we have seen through EOP are going into DKTS. That is the reason that over time, when you cancel the noise, you see an elevated number over there.
Ismail and his team are leading a very good, tight organization, very focused, very value chain optimization towards the value chain, and I am very proud of the progress they are doing. They are not standing still. Every day, I hear more ideas, more projects, more excitement around that. While I am not going to give you what you want in terms of guidance for DKTS, I am telling you that I am very happy, and we see a structural progress around it.
Yeah. Matthew, as Avigal just mentioned, and I think Robert had it in his script, that we had supply and marketing contribute around $37 million for the quarter. A lot of the contribution, as Robert mentioned, came from wholesale. Wholesale is where our focus has been, as we have said in previous calls. We are very excited about the progress that we are making in that segment. There is still some market volatility in the segment, that is why we do not really provide any guidance. But we are very happy with the way that things are proceeding as far as supply and marketing and what we call our DKTS line item is.
Sounds good. Thank you. In the third quarter, you recorded an SRE benefit of, it looks like $335 million when RINs were above $2 a gallon. Slide 17 implies that full SREs should be worth about $760 million to Delek at $1.50 RIN prices. So, at $2, let us just round that to [inaudible] or so. I guess, could you just help us understand why the SRE benefit was not larger in the third quarter? Ultimately, would you agree that at $2 a gallon, the economic benefit to full SREs should be worth around $1 billion or so? Thank you.
Yeah, absolutely. Robert will give you the highlights of the accounting reconciliation of the SREs, but I am very happy about the progress we have done around that. That is a good opportunity to thank Misty for the strong relationship we have in D.C., across D.C., and how important it is, and how important that everyone understands that we, as a nation, we are lacking refineries.
The first objective here is to make sure that we are maintaining the one we have, especially in a rural area, that the fuel supply is so important, especially around the area that we are working in and other 40 refineries in the nation. That is something that it is in the essence of the law, and we are committed to keep working towards and to make sure that we have good jobs to our employees and supplying those communities. Robert, why don't you take it from here?
Yeah, sure. Thanks, Avigal. Yeah, I think, Matt, if you look at it based on current RIN prices and the small refinery exemptions that we were granted, we will recognize a total accounting benefit of around $750 million-$800 million. This is really tied to three main things. First, as outlined in this morning's release, and as you know, we recognize a realized gain from SREs of $335 million. Second, within the release, we also disclosed that we recognize an unrealized gain of approximately $274 million, which represents the mark-to-market valuation increase of those RINs since 2025. Beyond those two disclosed items, we expect another $150 million-$200 million to come in through the next several quarters, as we apply the excess RINs against future compliance obligations. So, all in, it's that $750 million-$800 million mark at current prices.
Great. Thank you very much.
Thank you, Matt. Appreciate you.
Your next question comes from Manav Gupta with UBS. Manav, your line is open. Please go ahead.
Guys, hopefully you will not mind. I wanted to pick your brain a little bit more on the diesel market. You have a higher leverage to diesel than many of your peers. I just wanted to understand, based on your crystal ball, what is your outlook for the diesel margins for the next 6-12 months?
Yeah. Thank you for that question, Manav. Your questions are always great. Big picture, you see that we have three events in the world that we are seeing, the Middle East one, the Eastern Europe, and obviously China. The China event is because you saw VLCC from the Gulf Coast to China is around 25 today, maybe this morning $24 for VL, which is like five times more expensive versus what it used to be a year ago. So, all in, we have like 5 million-7 million barrels outside the market with tanker prices. Some of the changes that we have seen are going to be more structural. We have seen even on the lead time of new VLCCs, and it looks like three to four years, and there is a lot of booking of new VLCC in 2029, et cetera.
We might see some lingering effect on that very important of transportation cost because of everything we see, mainly the ship-to-ship. Bottom line on the diesel, you have seen the inventories are low in the U.S. It is probably across the globe, and it is something that is going to take a second to fix. We have seen the economy so far, the main street is doing pretty well. You see the job number this morning, and the GDP is growing. So, all of that requires diesel and a lot of diesel. We are up to the winter, so that is another tailwind for diesel prices. It is more to come, but I do not see, other than those three events that I do not have a crystal ball, something materially change in the outlook of diesel.
Yeah, Manav, I'll add a few more things to this. So, obviously, as you rightly pointed out, we have one of the highest jet distillate yield across our peers, so it's something very important for us. And equally important for us to make sure that the communities that we serve, like in Arkansas, and the airports that we serve from a jet fuel standpoint and from a diesel standpoint, they are satisfied as well. As far as the cracks are concerned, as Avigal talked about, the freight rates are going to put a floor on overall crack, including the distillate crack, which is holding the entire crack together.
The second point to understand is, to meet the European-grade diesel, you also have to blend some jet fuel from in the exports that happen out of the U.S. It is going to create some shortening for jet fuel as well. As a result, people like us, we have to make sure that our total liquid volume yield is sufficient so that we can supply locally as well as globally. So overall, we still are extremely positive about the outlook for distillate and jet cracks.
Perfect. My quick follow-up here is, as you now point out, like your capture rates, and thank you for that, three of the four refineries are mid-60 to approaching 70, and probably there's further scope of improvement. El Dorado is somewhere still in the low 50s, and I'm trying to understand what are the next steps to get this first towards mid-50s and then hopefully towards 60% or so. If you could talk a little bit about that.
Yeah, absolutely. So, we have disclosed in the past that we have improved El Dorado $2 last year, and as part of EOP, you remember we spoke about a few times that El Dorado did a jet and other initiatives that improved it by around $2. You have seen those numbers in El Dorado improving. I think there is even a slide that Mohit provided you that showed the capture rate is going up. Down the road, we see an additional improvement in El Dorado in many areas.
We are obviously going to disclose it in the future, but the DKTS, the supply and marketing, are working extremely hard to make sure that every barrel land or every gallon lands where it needs to land with the right quality and with the right tight operation that we have seen. El Dorado, as you can see very easily, has improved the capture rate significantly, and we see another outlook to improve it even more by a dollar or even more down the road. So stay tuned. You will see and hear more about it.
Yeah. Manav, El Dorado. Yeah, Manav, just to add to what Avigal said, $30 million is what we have highlighted today, and dollar per barrel improvement, just like Avigal said, a very strong team at El Dorado, and I think we are very excited to capture this improvement as well.
Thank you, Mohit.
Manav, are you okay? You sound a little down. Hope you're okay.
Your next question comes from the line of Jason Gabelman with TD Cowen. Jason, your line is open. Please go ahead.
Yeah. Hey. Morning. Thanks for taking my question.
Hey, Jason.
I wanted to go back—
Absolutely,
—wanted to go back to the small refinery exemptions, if I could, and appreciate the disclosure on the $425 million that you are going to monetize in 4Q, but it is still not really clear what the current RIN length is that you have. I think there is a fear that maybe you are selling these RINs now, but are still going to have a short that you are hoping will be covered by future SREs. Your peers have been very straightforward that they are current on their RINs. I think it would be helpful to the market and clear a lot of confusion up if you could kind of provide some color as to what your actual RIN length is after you have received these SREs. Thanks.
Yeah, absolutely. Jason, just to make it very clear, our strategy all along is stay in compliance. We stay in compliance all along, and that is going to be the strategy going forward. Obviously, we are actively managing the position. We are happy about the way we manage the position. We have a clear view about the RIN market, and I will let Mohit finish the answer.
Yeah. Thanks, Avigal. Jason, thank you for the question, and you and I have talked about this at length multiple times. If you look at from a cash proceeds standpoint, first, let us just clear that part out. $50 million or so were included in the third quarter, and $425 million will be coming in the fourth quarter. Now, based upon all of our SRE grants, what we have to do is to manage a few things. The first is the cash need for the business. We just talked about. You actually not talked about on the call, but we have highlighted that we will be taking out our term loan, so part of the proceeds will go for that. We also have to manage our overall compliance, so part of the RINs will be used for that.
We also have to think about how the company is doing from a flat price risk standpoint for the RINs and also the overall tax situations. Based upon that, we decide what RINs to monetize and how many of them we need to keep for compliance. That is going to be our strategy, as Avigal focused on, that we always want to stay in compliance, and that is also going to be our strategy on a go-forward basis.
Okay. If I am hearing you correctly, you are compliant but not necessarily current, and then also the $425 million is going to be after taxes?
Yeah. I think, Jason, we can take that offline, but for us, as we have highlighted multiple times, we do not disclose our RIN buying strategy, but we also want to make sure that we always stay in compliance with our obligations. That is our strategy, and that will continue on a go-forward basis.
Okay. I will leave that there. My follow-up is just, there was some reporting out there that Delek was receiving Defense Production Act proceeds to expand refining capacity. Just wondering if you could touch on that point at all, if you are receiving those proceeds and if you are pursuing projects to expand your capacity. Thanks.
Yeah, absolutely. We are still talking to the administration, but to make it very clear, Tyler is going to stay at 75,000 bpd of crude. There is no material CapEx that we need to disclose, and we are talking about shifting between different kind of products, and that is it. There is not much more to it. We are obviously very thankful for the administration for helping rural refineries in the U.S. We are obviously very thankful of the administration of understanding that jobs in those areas are extremely important, and affordability is extremely important. But from a materiality standpoint, it does not meet our threshold at all.
Great. Thanks for the time.
Your next question comes from the line of Joe Laetsch with Morgan Stanley. Joe, your line is open. Please go ahead.
Hey, good morning, Avigal and team, and thanks for taking my questions.
Sure. Good morning.
Good morning. I wanted to go back to the refining macro a bit. You talked about the diesel cracks, but could you also just give us an update on the latest dynamics that you're seeing in Group three from both a demand perspective, margin, crude cost standpoint as well? Thank you.
Yeah. Group three, yes, we looked at it yesterday, working to our expectation. It is actually doing slightly better versus typical November. The high crack spread is obviously part of that equation, and we see that as a positive for us. That is also going well to where we are. That is on the tactical side. On the more strategic side, we obviously see the Western Gateway Pipeline project coming down the road, which will support tremendously Group three, so that is very helpful for our position.
We see that line as a very good use for Delek because it is going to clear most of the group, and we are not going to pay for the movement of those barrels. It is two wins for us. On the tactical side, the group is working well at these 10 seconds. On the strategic side, we have seen more and more barrels from the group going west to compensate closed refineries in the West Coast. Both tactically and strategically, we are in a good spot.
Yeah. Just to add, Joe, we also have the Magellan 10 pipeline taking additional barrels into Denver. We have seen some of those barrels start to move, and there is scope for that pipeline to expand as well. We have seen group clearing out very well. As Avigal mentioned, we are pleasantly surprised by the lack of seasonality that we have seen in the past.
Great. Thanks. That's helpful. I just wanted to go back to the balance sheet if I could. So from a capital structure standpoint, after the term loan is paid off, the only debt left, I think, will be the converts. How do you think about the optimal capital structure for Delek? Is it a net cash position? You also mentioned no desire to hold excess cash on the balance sheet. Could you just remind us what the right level of cash balance is for the company to hold? Thank you.
Yeah, absolutely. Let's start with the bottom line, right? The $10 million DK solo interest rate in an increasing interest rate environment is extraordinary achievement, and we are very happy about where we are. As we said all along, our strategy is to reward investors by increasing buyback that we did today from 50- 100 on Q4, and by doing dividend through the cycle that we are very confident on that, right? What got us here is a few things. One of them, and the most important on the structural thing, is the Enterprise Optimization Plan that we are very proud, and you can see the capture rate improving. So that's where we are.
As we said, we didn't give a clear cash number that we're going to hold on the balance sheet, but we have no desire to hold any excess cash, and we want to make sure that we are the cheapest. We've seen few transactions lately in our space, and our best acquisition is ourselves because we are the cheapest refinery in the U.S., and that's what we did this quarter. We maintain very disciplined to our capital allocation strategy, and I will leave it to that.
Great. Thanks. That's helpful. Appreciate it.
As a reminder, if you would like to ask a question, please press star one to raise your hand. Your next question comes from the line of John Royall with Piper Sandler. John, your line is open. Please go ahead.
Hi, good morning. Thanks for taking my question. My first question is on the sum-of-the-parts unlock. You are currently at 58%, I think, DKL ownership. That has been coming down pretty steadily. Can you talk about your path to hitting below 50% at this point? Do you have a timeframe in mind for when you may get there?
Yeah. First of all, I am surprised that that question hit the conference so late. Thank you for bringing it up. I am really proud of what we did this quarter. I am very proud of the primary that Robert and Mark led. Very nice, and I am very happy about that. Let us take a step back and look at the progress we have done, right? We have done two very good acquisitions on the right timing before water became in the spotlight. We have done another, we built another gas plant. I said today on the call, and I am saying that again, that we might need to expand the capacity that we have in Libby even more to serve our producers and our customers.
We actually developed a very clear, clean strategy of providing crude, gas, and water in the most prolific area of the Permian Basin, and that strategy working very well for us. You can see, if you are looking on each one of our assets, and you are extremely smart and do the math, and you can see that our intrinsic value, John, is the number, it needs to have nine handle on the DKL unit. We are not there just yet, but with one of the best unit in the space in terms of return and growth, I think it is actually the best one, but let us call it one of the best one. We are very happy about our company. We are very happy about the trajectory. Mark and his leadership team in DKL are doing a very good job, and we made it bigger.
It is going to be one four way, one for the right value, we are always open to sell it. For the right value, we are open to sell assets, like we have done in the past. We did a bolt-on acquisition that was very good for us, and we did also tax-efficient buyback between DK and DKL. As you can see, we steadily, smartly, not rashly, we did not rush, reduce our interest from 79- 58, and stay tuned, more to come.
Great. Thank you. My follow-up is just on turnarounds. I know you are done with your 2026 program at this point. Not sure if you are going to answer this, but do you have any early view on what 2027 could look like from a turnaround perspective?
Yeah. We are still putting our ducks in a row for 2027. Usually our cycle is to give guidance about it in the next earnings call, and we will stick to our cadence.
Understood. Thank you.
We have reached the end of our Q&A session. I will now turn the call back to Avigal Soreq, CEO, for closing remarks.
Thank you. Thank you for my colleagues around this table and the management team. I want to thank our board of director in trusting us, and mostly, and to our employees that make this company as good as we all can. Thank you for our investor to sticking to our story and believing in us, and we will talk again next quarter. Thank you.
This concludes today's call. Thank you for attending. You may now disconnect.