Keith Johnson - Vice President of Investor Relations Kevin Kremke - Executive Vice President and Chief Financial Officer Frederec Green - Executive Vice President and Chief Operating Officer Ezra Uzi Yemin - Chairman, President and Chief Executive Officer.

Neil Mehta - Goldman Sachs Paul Cheng - Barclays Prashant Rao - Citi Group Brad Heffern - RBC Capital Markets Blake Fernandez - Howard Weil Phil Gresh - JPMorgan Ryan Todd - Deutsche Bank Matthew Blair - Tudor, Pickering, Holt Roger Read - Wells Fargo Kalei Akamine - Bank of America.

Good morning, my name is Tasha, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Delek US Holdings Q4 and Full Year 2017 Earnings Call. [Operator Instructions] Thank you. I’d now like to turn the call over to your host, Mr. Keith Johnson. Please go ahead..

Thank you, Tasha. Good morning. I would like to thank everyone for joining us on today's conference call and webcast to discuss Delek U.S. Holdings fourth quarter and full-year 2017 financial results.

Joining me on today's call is Uzi Yemin, our Chairman, President and CEO; Kevin Kremke, EVP and CFO; and Fred Green, EVP and COO, as well as 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 believe, anticipates, plans, expects and similar expressions are intended to identify are 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 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. In addition to reporting financial results in accordance with generally accepted accounting principles, we report certain non-GAAP financial results.

Investors are encouraged to review the reconciliation of these non-GAAP financial measures to comparable GAAP results, which can be found in the press release, which is posted on the Investor Relations section of our website.

On today's call, Kevin will begin with a review of the financial performance of the quarter before turning it over to Fred for an update on some key initiatives. And Uzi will offer a few closing strategic comments. With that, I’ll turn the call over to Kevin..

Thanks Keith. For the fourth quarter of 2017, Delek U.S. reported net income of $211.1 million or $2.56 per diluted share, compared to a net loss of $44.2 million or $0.72 per diluted share in the fourth quarter of 2016.

On an adjusted basis, for the fourth quarter of 2017, Delek US reported adjusted net income of $40.7 million, or $0.50 per diluted share, compared to an adjusted net loss of $27.9 million or $0.45 per basic share in the prior year period.

Our adjusted EBITDA was $154 million in the fourth quarter of 2017, compared to negative $10.4 million in the prior year period. A reconciliation of reported results to adjusted results is included in the financial tables of our press release.

Improved market conditions in the refining segment and the addition of the Alon assets following the transaction closed on July1 were the primary drivers of the increase in earnings on a year-over-year basis, which I will discuss in more detail in a few minutes.

On a consolidated basis, line items such as operating expenses, G&A, and interest increased primarily due to the addition of Alon. I would like to note that G&A expenses did include approximately $2.3 million of transaction costs this quarter.

Our income tax rate, excluding the noncontrolling interest income associated with Delek Logistics and Alon USA Partners are $14 million with a benefit of 195% in the fourth quarter of 2017. This rate included a $166.9 million income tax related benefit from remeasuring certain net deferred tax liabilities as a result of Tax Cuts and Jobs Act.

Excluding the Tax Cuts and Jobs Act impact, the income tax rate was approximately 36.3%. For full-year 2018, we expect the combined annual effective tax rate to be in a range of approximately 21% to 23%.

Turning now to capital spending, our capital expenditures during the period were approximately $78.8 million, compared to $22.1 million in the fourth quarter of 2016.

During the fourth quarter of 2017, we spent $58.6 million in our refining segment, $9.7 million in our logistics segment, $1.1 million in our retail segment, and $9.4 million at corporate. Our 2018 CapEx forecast is right at $211.4 million.

This amount includes $163 million in our refining segment, $17.5 million in our logistics segment, $20 million in our retail segment, and $10.9 million at corporate. This amount for 2018 does not include approximately $40 million of Midstream projects to enhance our position in the Permian Basin. In 2017, CapEx was $177.5 million total.

We ended the fourth quarter with approximately $932 million of cash on a consolidated basis and $533.8 million of net debt. Excluding net debt at Delek Logistics of $418 million we had net debt of approximately $116 million at December 31, 2017. Next, I would like to discuss our results by segment.

In our refining segment, we reported a contribution margin of $185.8 million, compared to contribution of $13.2 million in the fourth quarter of 2016.

The year-over-year increase in contribution margin is primarily due to improved market conditions [indiscernible] Tyler and El Dorado combined with the addition of Big Spring and Krotz Springs refineries from the Alon transaction.

Market conditions as measured by the Gulf Coast 5-3-2 crack spread increased on a year-over-year basis to $14.66 per barrel for the fourth quarter of 2017, compared to $9.33 per barrel for the same period in 2016.

In addition, the refining system benefited from the Midland WTI crude differential to Brent Crude that was an average discount of $5.95 per barrel, compared to $1.63 per barrel in the prior year period. RINs expense was $25.9 million in the refining segment, compared to $10 million in the year ago period.

This increase is primarily due to the addition of Big Spring and Krotz Springs refineries. Our logistics segment contribution margin was $32.7 million in the fourth quarter of this year, compared to $27.1 million in the prior year period.

On a year-over-year basis, improved performance was primarily due to the West Texas wholesale business in the Paline pipeline.

Contribution margin in the retail segment was $13.3 million, merchandise sales were approximately $84.2 million with an average margin of 31.5%, and approximately $53.2 million retail fuel gallons sold at an average margin of $0.17 per gallon. There is no year-over-year comparison for this segment as it was acquired in the Alon transaction on July1.

Contribution margin for the corporate/other segment was negative $17.5 million in the fourth quarter of 2017, compared to negative $23.4 million in the prior year period. Included in these results was a net hedging loss of $5.9 million for the fourth quarter of 2017, compared to a loss of $16.8 million in the prior year period.

This hedging amount represents systemwide hedges that are not applicable to specific refinery. Now, I will turn the call over to Fred..

Thanks, Kevin. I’d like to give you an update on some of our initiatives. First our alkylation unit project at the crop springs refinery is moving forward and on schedule to be completed in the first quarter of 2019. Through December 2017 we spent $29 million and we expect to spend approximately $59 million in 2018.

The expected total cost remains $103 million and we expect annual EBITDA from this project to be $35 million to $40 million. As a reminder, this project should provide additional production flexibility as it improves the ability to convert low value isobutane into higher value gasoline products such as low RVP summer grades and premium gasoline.

We’ve made progress to divest non-core assets on the West Coast. On February 12, we entered into an agreement to sell some of our West Coast asphalt terminals for $75 million. Work continues to divest the Long Beach and Paramount, California assets. As a reminder, the Paramount and Long Beach assets are included in discontinued operations.

Our drop down of the logistics assets at Big Spring should close in March with an effective date of March 1 for $315 million in cash. These assets are expected to generate approximately $40.2 million of EBITDA to DKL that should support its growth.

We have approximately $32 million of logistics EBITDA remaining at the Krotz Springs refinery, that could be a future potential drop down to DKL. From a modelling standpoint, I wanted to discuss our crude oil throughput expectations for the first quarter of 2018.

Due mostly the planned work at the Big Spring and Tyler refineries, we expect total crude oil throughput to average approximately 267,000 barrels per day.

By refinery, we expect crude oil throughput to average 60,000 barrels per day at Big Spring, 65,000 barrels per day at Tyler, 68,000 barrels per day at El Dorado, and 74,000 barrels per day at Krotz Springs for the quarter. Now, I’ll turn the call over to Uzi..

Thank you, Fred. With a strong finish to 2017, during the second half of the year we generated approximately $350 million of adjusted EBITDA from our large operating platform. Our teammate's substantial progress on the integration of ALJ. As of December, we have captured $89 million of synergies on an annual basis since July1 2017.

These exceeds our previous targeted range of $85 million to $105 million. We now believe that we can capture $105 million to $120 million of synergies on an annualized basis in 2018. On February 7, we completed our strategic initiative to acquire the remaining units of ALDW. We did not own an in an all-stock transaction.

This was the final step in the Alon transaction and simplifies our corporate structure to DK and DKL. It would also reduce public company costs and then allows us to allocate ALDW distribution to a high return capital investment in the company. We ended 2017 with a cash balance of approximately $932 million.

We became active in repurchasing Delek shares in December 2017. February 23, 2018, we have repurchased 3.3 million shares for approximately $119 million under our $160 million repurchase program.

To further support our ability to retain cash to shareholders, our Board of Directors approved a new $150 million repurchase plan and a 33% increase in our quarterly dividend. As we continue to explore opportunities created by a larger more diverse company, we remain focused on creating long-term value for our shareholders.

With that, Tasha, would you please open the call for questions..

Thank you. [Operator Instructions] Our first question comes from the line of Neil Mehta from Goldman Sachs. Your line is open..

HI, Uzi and team congrats on a great quarter. Uzi, I just wanted to start with the big pic, your question is, what do you do with all this cash, with the dropdowns, the potential monetization of all players will still to come, plus the asphalt monetization, you guys are going to be in a strong balance sheet position.

So, how do you think about the allocation between going forward here?.

Well, thanks Neil. Obviously, we feel very good with the quarter and feel very good with the company as we start the year. You raised a great question. For a modeling standpoint though, I would like to point a couple of things here. As we sold the 2017 RIN obligation, our team did it in January.

So, as we did it that had around $150 million obligation, and that would sell with cash. We can talk about that a little later, but just for all of us to remember. So, still we have a very, very good cash position and that’s the reason what we did is, we increased the dividend and obviously increased the buyback.

If you look, in the quarter, we bought a little less than $100 million so far of shares. So, we promised ourselves and the shareholders that we are going to be very aggressive once we see that the market is stabilizing and integration of Alon is going the way we want. And that that situation allows us to buy almost $100 million of shares.

We do look at the market opportunities. We had an opportunity to buy the two-terminal together with the GP. That was a great deal and expect to create synergies of both on DK and DKL.

We think that there are more opportunities around the gathering and the logistics assets, especially in-light of the fact that we are in the Permian and the Permian is growing substantially all year-over-year.

So, the balance between logistics assets returning cash to shareholders, and improving our assets, obviously if we see that the situation continues will continue to be aggressive..

Thanks Uzi.

And on the synergy raise, what was the driver of the Delta versus your initial expectations?.

Three areas. First of all, commercial delivered a strong ending to the year, supported Brent-WTI. Second, the cost of capital, we actually supply to the goods. We have a couple of good supplies to come in the next few weeks with the cost of capital.

We did not finish that yet, but the cost of capital is going to be lower than what we expected, and also other three - the corporate side we kept some savings in our back pocket, and now that we see that it matures, we don't hesitate to talk about that..

Last question for me, was the Permian differentials you had [indiscernible] come online, so those tightened up a little bit, but there is no real pipeline capacity for the balance of 2018, at least in our numbers.

So, how do you see these spreads playing out from your Brent versus Middle?.

Well, Neil when you hosted us for a call, three months ago, we were expecting this to time to around middle and Brent to 424 [ph] and today we are at a little more than $4, $3.60 plus $0.50 or $0.60. The Midland differentials, we expect them to widen, especially in-light of the fact that crude is now - or WTI is $53 - $52 or $53 [ph].

I wouldn't be surprised if we get back to the $2 or to handle towards the fourth quarter and mainly first quarter of next year..

Okay. Thanks Uzi, congrats again..

Thank you, Neil..

Your next question comes from the line of Paul Cheng from Barclays. Your line is open..

Hi guys good morning..

Mr. Cheng welcome back..

Thank you.

Couple of things, you see, one of the most impressive in the quarter is the margin category of Krotz Springs, and maybe this is for Fred, is there any one-off item in there we should be aware that this is really is a good baseline or what may have changed since you took over Alon to make such an impressive improvement in capture rate?.

Well first of all as we discussed in the past Paul. We took across the major initiative for us. I think their refinery is performing very well. If you look, we performed work in the fourth quarter that will allow us and as Fred said to run close to capacity in the first quarter. For the operation itself, it is doing very well.

Second, we had an initiative to play between LLS and Midland, and as Midland LLS was wide, during the fourth quarter we ran almost 60% of Midland Base, and together with the ability to utilize the Paline pipeline and we would use transportation cost that helps on that side of the business.

Third, we are starting to work on the wholesale along the colonial.

If you remember, we said in the past that the fact that Krotz is selling everything at the refinery gate that has served the refinery very well, and with the fact that we have colonial space, as a combined company that allows us to shift on colonial and capture more or higher margin on the wholesale side.

This component again, we had two quarters we expect the first quarter to continue with that trend. I wouldn't declare victory as we continue to improve, but I'm going to give you another piece of news on the Alki project, which is progressing very well and we are hoping to finish it towards the end of the first quarter of next year i.e.

a year from now, with the widening or the increase of WTI price and the fact that either of us did not keep up with that. We see bare margins in result of the Alki Project. In the past, we used to say $35 million to $40 million, that we now believe based on Krotz market that this number is higher.

Our goal is to get Krotz to a situation that it is a viable refinery. And last point, because of the good operation out cost and the leadership of the refinery manager, we are able to improve the year losses or year again. In the quarter, we were enjoying 101.5 i.e. 1.5% bare or year again versus in the past some lower numbers.

So, these are the factors that contribute to the performance of the refinery..

You say order incremental Midland crude that you attribute to Krotz Spring, is it also the Pipeline, including the Paline or that some of them just bode well?.

I'm sorry, I'm not sure I understood the question Paul, can you just repeat?.

You have been able to run more benign crew [ph] in the Krotz Spring in the fourth quarter, is the incremental running of the crew from the Midland, those shifts to in the refinery, also the pipeline or some of them incrementally is from the railroad or the other alternative transportation?.

I understood the question. There is no railroad. All pipes are, remember we have both as part designated to us the annual pipeline and also the Paline Pipeline that we own. So that together with the fact that we continue to gather barrels in the Big Spring area helps the situation. So, there is no rail..

And yes, the 60% is the maximum?.

Well, it depends on market condition, obviously fourth quarter was good margin. The way we expect the market to behave in the third and fourth quarter with the Midland differentials that we expect to widen because of no optic capacity coming online, we will probably try to push that number to higher percentage, if you will, maybe 70% or 75%..

Two final question.

One is, really short, Fred you were saying that the total hedging loss is 5.9, so that means that [indiscernible] is 3.9 and I've presume that is also in the corporate? And also, that you used to have some long-term contact and have no hedging, if those hedging gain or loss is also in the corporate or whether that is included as part of your cost of goods sold and reflected in your resale or refining margin?.

So, the physical ethanol that we're buying that physical change is actually the refinery, but if there is some hedging the NO’s [ph] into it, it will be incorporated because we don't allocate those hedging to the refineries, and with the same general that there is almost - there was very limited hedging happening in the refinery level, almost all of it is in the Delek U.S.

on an overall basis..

Okay, final one, do you see that for DKM on the GP and [indiscernible] the other logistic company that sponsored by the refinery has seen a change by collapsing the idea into the LP, is there something that you guys will look at in order to permanently reduce the cost of capital in the subsidiary?.

Well Paul obviously you know that we are looking at that - we should look at that very carefully.

We still think that we are not as matured as some of our peers, but - and also, we think that we have very, very good project DKL, for I had mentioned logistics project that we expect to come to the market with some good ideas as the Permian growth, but at the end of the day, we will need to look at it very carefully over the next 24 to 36 months..

Okay.

But it is not over in the next 12 months, it is going to be, say two years to three years old?.

Probably not, not in 2018..

Okay. Thank you. Bye, bye..

Our next question comes from the line of Prashant Rao from Citi Group Citigroup. Your line is open..

Good morning. Thanks for taking the question. Wanted to drill down a little bit on the synergies, the rays on the guide there.

On the cost of capital part, just wanted to get a sense of how much low or what kind of a step down we could see? And then maybe longer-term is there more there in terms of bringing down the cost of capital, kind of, I understand that we will get to more detail in the coming weeks, but maybe bigger picture just wanted a sense of your thinking there, and so how we should be thinking about in terms of value and cash flows on a go forward basis?.

This is Kevin. On the cost of capital synergies, we - it increased our total synergy captured to the $30 million range based on several things.

So, the lower interest expense on our debt is certainly a part of it and some of the opportunities that we're seeing as we're looking at kind of recapitalizing the balance sheet are driving some meaningful savings there, but in addition to that we’ve got a reduction in letters of credit that is driving probably in the order of $7 million or so in annual cost savings.

And then some of the JR [ph] agreements that we are looking at are also reducing interest expense considerably. But, the opportunities on kind of recapitalizing the balance sheet and getting rid of all the stuff at the DK level and consolidating into one new credit facility is a significant portion of that new $30 million of revise target..

Okay. That’s really helpful. Thanks. And then turning to California, you guys made good progress on getting those asphalt terminals sold in.

I wanted to ask about Long Beach and Paramount, we have gotten questions about some volatility obviously in the margin environment in Pad 5 [ph] and people doing the work to figure out in just near term or how much longer that could have been in 2018, can you talk maybe a little bit about how that affects the sale process for those assets or sort of agnostic to that maybe how you're thinking about the progress on those two assets as we sort of return the [indiscernible] here in 2018?.

Well, obviously, we put them below the line for a reason. We did not think that we can sell them they were in there. And we did not change our mind and move them back up. So, I think Fred and Melissa did a great job finishing the asphalt terminal.

We were busy buying the two terminals, the two mid-continent terminals that will sell DKL and DK together with GPIE [ph] and we will continue to believe that the sale is of Paramount and Long Beach should happen over the next few months..

Okay.

Thanks for that, and just one quick one on Big Spring, that is at the, and you accrued [indiscernible] the towers that you are using picked up a little bit and just sort of wanted to get a sense of you know if we could be, how we should be thinking about crude play at Big Spring if you are running a higher throughput as Tyler in 2018 and maybe if there is anything to call out as to what that Q-on-Q improvement was?.

You are touching a great point. I will explain behind 2018. First of all, 2018, if the market stays the way it is, we will continue to run mainly Sweet. However, both our Big Spring and is El Dorado have the flexibility to run [indiscernible] crudes if needed.

And in-light of the 2020 IMO, we look at that optionality and consider that as we continue to optimize our [indiscernible]..

Okay.

So, you would be able to - you would look at that in - to flex up as we get towards the IMO deadline than would be the right way to kind of think at it?.

Right..

Perfect. Well, thank you very much for the time gentlemen. Appreciate it. I will turn it over..

Thank you..

Our next question comes from Brad Heffern from RBC Capital Markets. Your line is open..

Hi, good morning everyone.

Uzi, you’ve talked about it couple of times now, the Green Plains JV, I was wondering if you could just go into a little more detail as to how that helps that DK refining system and any sort of quantification you could give in terms of EBITDA are or anything else of the benefit of that for DK?.

Well, absolutely. The two best markets, well, let me start all over. Let's go one by one. Tyler, if you look at the capture rate of Tyler, in the third quarter and fourth quarter, capture rate at Tyler exceeds expectation. And third quarter, it was blamed on the hurricanes and we send another - there is a step change here.

And now in the fourth quarter we are proving it again. And the reason for that is exports to Mexico. We do export to Mexico out of both Tyler and El Dorado and that allows the niche market to grow and as to enjoy their netback.

Now that we are buying the Caddo terminal, which is basically North Dallas, we will be able, we are looking at a plan to connect Tyler, we have several pipelines that we own in the area, we're looking at optionality to connect these two assets and capture more our netback that we increase the niche in the area.

Now obviously the Caddo pipeline is now full. I am sorry, the Caddo terminal is full and we do have the Greenville terminal, which is only 200 feet away. So, we connect that and now increase the capacity. So, both our companies and DK and DKL can enjoy from that.

On the North Little Rock, we all know the biggest market for El Dorado outside the trucking is North Little Rock, and we believe that that will allow us to increase the throughput both to the benefit of DK and DKL..

Okay. Thanks for all that color Uzi. And then maybe a couple for Kevin.

So, OpEx on the refining front was pretty low this quarter, so I was wondering if you could talk about whether that’s a run rate and then also on the G&A front what’s the run rate there?.

Well on the OpEx we have a target to stay always below $4. We just need to remember that we are in the refineries very hard in the fourth quarter with the exception of the turnaround that we had Krotz. So, we at the current situation we don't expect much change with, as long as we are running full.

I am going to remind you that we are conducting both in Big Spring and in Tyler, so per barrel you should see an increase in the cost. In regards to G&A and that is an area that probably we may confuse several people, what happened in the quarter, our bonus program is based on the progress we made during the year.

And until the third quarter, we weren't sure that we will pay bonuses, because we had minimum target, which - bonuses are being paid only if we exceed that target.

So, we have booked some bonuses accruals were around $5 million in the third quarter, but the fourth quarter was strong and compared to the fourth quarter last year than we booked the majority of the bonuses in the fourth quarter and that number is around $14 million or $15 million. Half of it is on the OpEx and half of it is on the G&A.

We don't expect this to continue on a normalized basis. So, for the quarter, we are probably in the normalized G&A and normalized OpEx should have been lower by $11 million. We did not want to confuse people by putting it in the press release, but we just want to give an explanation here..

Okay that is great..

And the quarter also included $2.3 million of transaction cost, which I mentioned. So, subtracting the bonus and the transaction cost I would say normalized run rate G&A probably in the $45 million to $50 million per quarter range..

Okay got it.

And then finally, Kevin you gave the cash tax, the tax rate guidance in the prepared comment, can you talk about the cash taxes specifically, I don't think you guys have actually paid meaningful cash taxes since 2014, how do you think about that now as it relates to the higher bonus depreciation provisions, but at the same time the market being better than it has been in a couple of years?.

Right. So, from a cash tax standpoint, the effective cash tax rate, when you account for now expensing CapEx - and then to remind you the way the rules work is that you can only expense the capital when the project actually comes in service. So, you can’t expect to expense all of your capital in any given year.

So, if you assume that we can expense capital in the 50% to 75% range cash taxes are $60 million to $70 million a year..

Okay. Thanks for that. I’ll turn it back..

And our next question comes from the line of Blake Fernandez from Howard Weil. Your line is open..

Hi guys congrats on the results.

I wanted to go back to the cash question earlier, what do you think the kind of level is that you need to maintain on hand in order to just kind of operate the business?.

Good morning Blake. Great to hear from you. All along, we say to ourselves that we want at least $100 million per refinery, and another $100 million at the corporate. So, call it $500 million. That’s what we need to operate the business profitably.

Obviously, we are in higher situation today and with the things that are happening within our company, we expect this to continue. That’s the reason we are more aggressive on the buyback in the quarter. I mean, the first quarter, so - and we will continue to do that.

I do want to emphasize that’s a very important point that we do see opportunities in the Permian area where our majority of our assets are and we want to maintain the flexibility, especially on the logistics side..

Understood okay.

Secondly, can you give us an update on both the RIN waiver and biodiesel tax credits?.

Well, let’s start with the easy ones. The biodiesel credits was passed two weeks ago, and obviously that will assure good benefit for our company in the first quarter. Some of it will go to discontinued ops because of the ultra-situation, some of it will go to our partners, but the benefit is there. That’s the easy question.

It is gone into - in their pocket or in the sack if you will..

Can I stop you there real quick, is that our dollar amount you can quantify or is it [indiscernible]?.

Yes, obviously we can do that.

The two, now we are looking that as you remember you will not see it as a special item because we are located to the refineries, but the two plans that we have that supports the DK Tyler and El Dorado, their capacity is around $20 million gallon and the rent loss to capacity? So, the other one is the Ultra, Ultra is around $30 million.

However, some of it will be on the discontinued ops and we do have a partner over there that will get 40% of these wins. For the impact is 50, but if you take the partner portion of 40% or out of 30 that is altogether 38..

Got it..

That is already - that is inclusive of our optimism. Good catch by the way. The waiver, which is another good catch, there is no update yet. However, first we believe that some of the administration will do something about it in 2018 or 2019 and the waver is only for 2017. So, we continue to believe that there is a fair chance that we get it.

Obviously, once we get or if we get, we will continue to work with the administration and if we get and one we get we will update the market..

Okay, fair enough. The last one just for you.

I know you kind of outlined the Crude slate in the press release and maybe I’m totally mistaken, but I thought in the past there were some discussion of railing WCS down to some of your facilities and all, and then just given the blowout in some of those differentials, can you remind us, is there any access to WCS to maybe get some of those barrels down to your system?.

Absolutely, we have some flexibility to get to El Dorado. We're looking at that. We haven't done much of it yet, and also, we’re now connected to Cushing with pipeline, so it is continuing - we may not even use the rail, but some blended barrel of Midland and WCS to bring to El Dorado..

Okay. Thank you, guys. I’ll turn it over..

Our next question comes from the line of Phil Gresh from JPMorgan. Your line is open..

Hi good morning.

First question, just to clarify in your answer to Blake's question of $38 million net on the biodiesel credit, you said some of that goes to discounts or is that the net to you guys before discounts?.

No, some of it will go to discounts..

Okay, got it. Thank you.

In terms of the dividend, pretty big hike in the dividend this quarter, when I look at the numbers, the dividend as a percent of CFO or free cash flow actually still looks pretty conservative relative to some of your peers, I guess you can count on whether you would agree with that or not, but how do you think about this dividend increase in the context of the longer-term view?.

If we compare our peers Phil to our buyback in the first quarter, I don't that there is any company that bought as much shares in the first quarter or in terms of percentage, obviously, it was part of our market cap.

That’s a balance that we want to find between dividend and buyback, obviously, we're very familiar with the fact that we are still little below the market, as our confident grows we will continue to look at that and obviously the market will make different decisions, but we felt that hiking the dividend buying shares, almost $5 million in the first quarter.

And then hiking the share repurchase program by another 150 should be more than sufficient at this point for investors..

Understood. The question is more just to understand if we should we should expect these types of dividend increases kind of ongoing annual basis since it’s been a little while since we have seen a dividend increase..

You are absolutely right and we will continue to look at that you bring up a great point..

Okay.

Second question, I guess it kind of relates to what was asked before on the buybacks in the cash on the balance sheet, do you see an ability to do buybacks up to the point that you would get to the target leverage or kind of net of the cash flow on the balance sheet or would you like to maintain additional flexibility for other M&A or other opportunities?.

We obviously over the years Phil and you know it very well, tried to be nimble in the market and look at what is available for us.

Obviously, don't want to overpay I said it in the past, we said it in the past that we are not going pay high multiples not for refining assets and not for logistics assets the domestic logistic assets, we will not pay more than 10 times for logistic assets than many assets we would pass.

At the same time, we want to be mindful to the shareholders needs and to return shareholders so all that creates some balance that we are trying to find in between leaving cash on the balance sheet and ready for acquisitions, be aggressive on the buyback and the dividend.

And obviously get ready for, if there are ready days to be able to have ample liquidity..

Okay.

And just one last one just on the throughput for the first quarter, obviously lower than the second half of last year because of these turn outs you mentioned, just kind of wondering how you think about the year from a throughput perspective, if you have any color there should we be expecting any other maintenance effects or should we be running more like the second half of 2017 for the rest of the year?.

We are actually hoping to do better than the second half and I will tell you why, because we are - first of all, there is not turnaround this year in - the work we are doing allows us to push turnaround further up. So, that’s one thing.

Second, we are hoping to run Big Spring, Big Spring was running in the last few months at 70,000 and we are hoping to get up to 73,000.

We have got in the guidelines because we still need to prove that we are just completing the work and we still need to prove it to ourselves, but if we can do that and also in light of the fact that Krotz and Tyler don't need any work anymore, we're hoping to run total capacity as you can see once margins are there we try to push as much as we can and Tyler had a record throughput for the fourth quarter..

Okay. Thanks a lot..

Thank you, Phil..

Our next question comes from the line of Ryan Todd from Deutsche Bank. Your line is open..

Hi thanks. Good morning guys.

Maybe if you can just mention in the last one about acquisitions, can you talk about your current appetite for deals and maybe how you would characterize the markets either in refining midstream or retail?.

Good morning, Ryan. These are all great questions. So, let me start one by one. On the refining side, as we all know, we all had a great year. We are all swimming in cash. So, M&A activities in that area, I see as the low probability.

On the corporate side, there will be still assets here and there that can be picked, but for the most part everybody is not everybody leaves their lives pretty comfortably. On the logistics side, it is a different animal. A lot of MLPs are under pressure. With year [ph] it is not sustainable.

We need to ask ourselves how this business needs to work, but we think that there is opportunity over there. I want to be clear there is nothing that we are doing actively today, but we keep our ears open. As I said earlier, we do not plan to pay double-digit multiple on EBITDA.

And the last example is the, two terminals that we just picked and so we will be very cautious about overpaying here.

The last thing we will need to remember is that there are opportunities for organic growth, especially around the big premium refinery and the Permian area that is growing substantially and we are looking at these opportunities as well to bring value to the shareholder..

Okay great. Thanks.

And then maybe one on midstream drops, I mean congrats again on the dropdown complete, the EBITDA range on the dropped asset that you just announced is probably even a little above the high end of the range, can you maybe mention what it was that drove the increase in the range there and then perhaps any comments you would have on the timeline of the drop at Krotz Springs, is that - is that something that’s contingent on some of the activities that we have going out in Krotz, or how should we think about that, how that plays out over time?.

In regards to Krotz, we want to still continue to see the improvement in Krotz. And so, we will update the market when we feel comfortable to drop it down. We don't want to create damage over that. In regards to Big Spring Kevin spent a lot of time doing it, so I will let him take that..

Yes, so the increase in EBITDA is driven by a couple of things.

As we dug in and kind of further analyzed the assets once we took operational control, the OpEx was lower than our original expectations and then to bring the minimum volume commitments and revenue in-line with president transactions, including our own previous drops, the EBITDA just materialized higher than what we originally modeled out..

Great. Thanks guys..

And our next question comes from the line of Matthew Blair from Tudor, Pickering, Holt. Your line is open..

HI. Good morning Uzi and Kevin. I want to follow up on the potential asset divestitures, so you mentioned that you’re looking to sell Long Beach Paramount in Alt Air.

Could you provide an update on the Bakersfield plant, what are your options going forward there, and then also, I believe that the current drag on all these California assets is about $40 million in operating cost, do you have a breakout of how much Bakersfield makes up of that 40 million and how much of that 40 million is attributable to Long Beach Paramount in Alt Air? Thanks..

First of all, Matthew, good luck. I'm sure you'll do great. Second, that was a long question, so that will be a long answer with it. I would try to give enough color with that. First, we do believe that in the next few months there is a good chance that both Long Beach Paramount and Alt Air will be sold. And that’s the reason we put them below the line.

The tall drag on California it is $40 million to $50 million, it was $40 million to $50 million. We just need to remember that we said it all along just without the tax credit. So, if you take the tax credit and you imply your $80 million I just mentioned, it’s around $20 million or $25 million drag on California.

Out of these 20 to 25, 10 million is Bakersfield. You asked about the plans, the plans for Bakersfield and I want to give some color on that. We are looking, we have active interested parties looking at it, I think we had six or eight people looking at that, obviously there is an option for us to do something with it.

That the reason is not below the line, but we will - we believe today that all these assets can be, if we decide can be monetized over the next few quarters..

Got it. Thank you.

And then I guess maybe a question for Kevin, so on the logistics side, in terms of the drop it looks like the Big Spring assets, the $315 million will come in all in cash, do you have an estimate on what kind of tax rate we should expect on that sale and then for the 2019 Krotz Springs will just tax drop, any early thoughts on how you finance that and would that again be all cashback to DK and what kind of tax should we expect there? Thanks..

Sure. The tax hit on the Big Spring, as you would expect, the tax basis on those assets is pretty low. So, the current estimate of cash taxes on the Big Spring drop is in the $60 million-$65 million range. And then on Krotz, you know it is still a year away before that dropdown happens.

We have plans to increase the capacity on the DKL revolver, so we have plenty of debt capacity then we just run into leverage constrain issues and I think it’s a little early to tell whether we will need equity or not, see how 2018 goes and we will make that determination in Q1 of next year.

And then also on the cash taxes for the Krotz dropdown, similar type of relative cash tax impact, pretty low basis, tax basis on those assets..

Very helpful. Thank you..

Our next question comes from the line of Roger Read from Wells Fargo. Your line is open..

Hi, good morning..

Good morning Roger..

Got to say congratulations on what you did at Krotz Springs this quarter because at the time of the acquisition, I remember the thought was, this thing was like a Thoroughbred with a broken leg and should be treated as - but really impressive performance on that..

Roger, we [indiscernible] we told you, don't discount on this one..

No, no. I have listened.

Jumping into a couple of quick questions here, good job obviously on the integration process here of Alon, as you think about additional acquisitions, let’s say more on the meaningful side as opposed to a bolt-on transaction here there, do you feel you have the positioning and the capacity at this point to do something, thinking of a single unit refining acquisition or something along those lines?.

Well, as I said earlier, we keep our eyes looking - we will keep our eyes open and we look all the time, we do not want to overpay. And we feel that what we did with the Alon acquisition and before that the El Dorado acquisition that the timing was good. We knew what we were going into or getting into, and we don't want to overpay.

So, do we look at stuff all the time yes. Our commitment to you as the investment community is that we will not overpay..

Certainly, appreciate that. Next question for you, obviously a lot more production is going to come out of the middle and basin over the next several years.

Big Spring pretty well locked in, Tyler locked in presumably, incremental capacity to take Midland barrels at El Dorado and Krotz as you can get the barrels there, what do you see in terms of potential of bringing more Midland or let’s call it discounted Inland barrels to those two locations or referring back to some of the previous commentary on maybe running more salary [ph] barrels that’s really the way we should think about what happens at El Dorado?.

Well it depends on the differential, we want to maintain the flexibility. So, we will probably look very carefully to increase the ability to get more Midland barrels into both Krotz as you said in El Dorado.

However, we do want to maintain flexibility and we do think that there will be other opportunities to do with the barrels that we gather as we continue to see tremendous growth in our gathering system in the area, so that’s something that we will continue to look at it very carefully..

Okay. And then the last question is to follow up on the third part of the improved, I'm sorry second part of the improved synergies or lower cost of capital.

I presume that’s lower debt financing cost, we're going to see something on shortly?.

That’s exactly right Roger..

Okay, great. Thank you, guys..

And our next question comes from the line of Kalei Akamine from Bank of America. Your line is open..

Hi there. Thanks for getting me on, a lot of it has been touched, but I got a couple of quick ones. Just a follow-up on the old years of a new bolt [ph], facility, just wondering at the blenders tax credit with the facility if it was sold and how much is the working capital piece at the terminal sold in the quarter? And, I will leave it there guys.

Thanks..

That’s a great question. Thanks for the BTC there, blended tax credit is 2017 event, it is not 2018 event. So, if being sold then the 2017 regardless, if we are going to stay with us. Second, on the working capital, I am not sure it is material. So, I don't know of the top of my head what that number is..

There are no further questions at this time. I turn the call back over to the presenters..

Well, that was a great quarter and a great year. I would love to thank our Board of Directors, the new investors in our list for trust in us. We don't take this lightly and we feel obligated to satisfy the investment community as well as our Board of Directors.

I would like to thank my colleagues around the table here for creating this company or making this company what it is, but mostly I would like to thank our employees who did a great job over the last year, both the Alon employees, as well as the DK employees creating value for all of us. Thank you, have a great day, we will talk to you soon..

This concludes today's conference. You may now disconnect..

Thank you, guys..