Good morning. My name is Prince, and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter Earnings Call for Delek Holdings Incorporated. All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session [Operator Instructions]. Thank you. I'd like to turn the call over to Keith Johnson. You may begin..

Thank you, Prince. Good morning. I'd like to thank everyone for joining us on today's conference call and webcast to discuss DK second quarter 2019 financial results.

Joining me on today's call is Uzi Yemin, our Chairman, President and CEO; Assi Ginzburg, EVP and CFO; Blake Fernandez, SVP of IR; and Fred Greene, EVP and COO, as well as other members of our management team. Presentation materials we'll be using on today's call can be found on Investor Relations section of Delek U.S.'s Web site.

As a reminder, this call may contain forward-looking statements as that term is defined under federal securities laws. Please see Slide 2 for the Safe Harbor statements. In addition to reporting financial results in accordance with GAAP, we report certain non-GAAP financial results.

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

Our prepared remarks are being made assuming that the earnings press release has been reviewed as we are covering less segment and market information that is incorporated in the 2Q release.

On today's call; Assi, will give an overview of results; Blake, will review financial performance; and then, Fred, will cover operations for the quarter; then Uzi, will offer few closing strategic comments. With that, I'll turn the call over to Uzi..

Thanks Keith. We had a great financial result this quarter during the period of lower Midland crude oil discount. As you can see on Slide 3, on an adjusted basis for the second quarter 2019, Delek U.S.

reported adjusted net income of $90.6 million, or $1.17 per diluted share compared to an adjusted net income of $78.9 million or $0.92 per diluted share in the prior-year period. Our adjusted EBITDA increased by 10% to $204.9 million in the second quarter 2019 compared to $186.1 million in the prior-year period.

As Fred will discuss in a few minutes, we continue to develop our midterm initiative with the enhancement of our participation in the Wink to Webster associated ongoing efforts to expand our gathering system and DKL's acquisition of Red River JV.

Our balance sheet gives us the flexibility to evaluate options to finance at least 75% of our Wink to Webster JV investment. This could include project financing, expanding our existing credit facility, which should allow us to preserve cash on hand. Now, I will turn it over to Blake to discuss our financial performance for the quarter..

Thanks Uzi. Delek U.S. reported net income of $77.3 billion or $1 per diluted share compared to net income of $79.1 million or $0.89 per diluted share in the second quarter of 2018.

This was led by an increase in market conditions, including crack spreads, contribution from new investments, including the alkylation unit at the Krotz Springs and Red River JV, along with continued commercial execution.

As mentioned in the press release, prior year results were reduced by approximately $21.8 million related to a mark-to-market of RINs inventory position. On Slide 4, we provide a cash flow waterfall. In the second quarter of 2019, we generated approximately $102 million of cash from continuing operations.

I should point out that this includes a negative impact of $44.5 million from working capital movements.

Strong underlying cash flow combined with solid financial position supported investing in the business with cash capital expenditures of $76 million along with returning approximately $80 million of cash to our shareholders between buybacks and dividends.

Of note, overall investing activities in the quarter include equity investments, including the Red River acquisition. Slide 5 highlights our capitalization. We ended the second quarter with approximately $951 million of cash on a consolidated basis and $965 million of net debt.

Excluding net debt of Delek Logistics of $835 million, we had net debt of approximately $130 million at June 30, 2019. On Slide 6, I want to provide some third quarter guidance and a few data points that maybe helpful for modeling purposes.

We estimate based on the forward curve that our realized Midland discount and our gross margin would be in the range of $1 to $1.20 per barrel. Secondly, G&A was elevated in the second quarter due to bonus accrual, stock based compensation and legal expenses.

Our third quarter G&A is expected to be in the range of $63 million to $68 million, which reflects bonus accrual and stock based compensation, stemming from strong financial performance. Thirdly, a portion of the contribution from commercial activities, mainly hedging, is allocated to the corporate and other line item.

This explains the increase year-over-year. Finally, I think it's important to point out that the Red River pipeline is expanded in the first half of 2020. Our increased access of 65,000 barrels a day creates an option to displace Midland barrels with cushing barrels should that arbitrage exist.

While our annual earnings sensitivity of $75 million for every $1 per barrel change still exists to the upside. Theoretically, this sensitivity would be reduced to about 50 million per dollar a barrel change on the downside. Hopefully, that is useful. And with that, I will now turn the call over to Fred to discuss operations..

Thanks Blake. During the second quarter, our total refined system crude oil throughput was approximately 263,000 barrels per day. As shown on Slide 6, for the third quarter of 2019, we expect crude oil throughput in the refining system to average between 270,000 and 280,000 barrels per day. On Slide 7, I want to highlight our capital spending.

Capital expenditures during the second quarter were $86 million compared to $55 million in the second quarter 2018. Our 2019 capital expenditures for the full year are forecast to be $396 million.

This amount includes $239 million in our refining segment, $9 million in logistics, $21 million in our retail segment and $128 million at the corporate level. I should point out that CapEx excludes JV investments at both Red River and Wink to Webster.

The spending on the Big Spring gathering system is included at the corporate level for 2019, and is approximately $123 million. We now have over 250,000 dedicated acres in our gathering system. We continue to target $40 million to $50 million of annualized EBITDA by 2022, including the crude oil quality uplift in our refining segment.

We've continued to move forward with our midstream initiatives. As shown on Slide 8, we've taken 15% interest in the Wink to Webster pipeline. We anticipate our net investment in the range of $340 million to $380 million.

This project has multiple potential benefits, including attractive returns, integration, additional service to producers to our gathering systems and more stable earnings over time. This pipeline is underpinned by significant volume of long-term commitments. Moving to Slide 9.

In May, DKL announced the acquisition of 33% interest in the Red River pipeline. Upon completion of the expansion of this system in the first half of 2020, we expect adjusted EBITDA of $20 million to $25 million on an annualized basis. Next, I'll turn the call over to Uzi for closing comments..

Thanks, Fred, and good morning, everybody. As illustrated on Slide 10, we've taken strategic actions over time to unlock value and high grade our portfolio. They're starting to be reflected in our performance with resilient results in the first half of the year even in a compressing Midland differential environment.

The alkylation unit at Krotz and the Red River JV are already contributing to bottom line performance and we continue expanding our midstream footprint. We are pleased to announce participation in the Wink to Webster JV with such a strong set of partners. We've been working on this for some time.

This is a great investment that should generate a return well above our 15% targeted return for logistic projects. As shown on Slide 11, our portfolio of midstream assets, including Wink to Webster, Red River and Big Spring Gathering, all progress us toward our goal of achieving $370 million to $395 million of annualized EBITDA by 2023.

As shown on Slide 12, cash returned to shareholders remain the priority -- remains a priority. Over the last 12 months, through June 30th, we have returned $439 million or about 14% of our market cap to investors. Our capital allocation program balances cash to shareholders with potential opportunities for growth.

We intend to repurchase $40 million of Delek stock in the third quarter 2019. In addition, our Board of Directors approved 3.6% increase in our regular quarterly dividend, which marks our fifth consecutive increase since the first quarter 2018.

We remain focused on creating long-term value as we balance returning cash to our shareholders, investing in our business and exploring opportunities to develop the next stage of our company.

With that, Prince, could you please open the call for questions?.

[Operator Instructions] And we have our first question from Manav Gupta from Credit Suisse. Your line is now open..

Uzi, a quick question on Wink to Webster. If I'm doing my math's right, your EBITDA from that project could be about $65 million to $70 million on an annualized basis.

So if you could confirm that number? And what I'm trying to understand is, that tells me that you got into this pipeline at about 6.25 times versus, generally people pay 9 to 10 times to get into the pipeline. So I'm trying to understand the leverage Delek has.

So that you could get in at a much lower multiple versus paying 9 to 10 times?.

Well, that's a great question. First, I'm not going to comment about the numbers. I'm just going to say that our threshold is 15% is well above that 15% threshold, that's one thing. Second, this is on unleveraged basis, so Assi will talking about the financing of the pipeline shortly. But this is a straightforward return. We just need to remember.

We were very vocal about it in the past. We don't believe that all the pipelines that were announced will be built. And many people choose to join Wink to Webster and the returns are fixing to be pretty good. So for us it was only naturally and it fits us very well with a footprint to join that project..

Assi, if you could comment on the project financing?.

So as we stated in our press release and we already discussed it in the script. We believe that we can finance above 75% of it, either through project financing or through our own acreage facilities. We have a Term Loan B that we can expand like we did in May. And we think that this can be done through the time of construction.

So we will be able to preserve cash on hand at a very low interest rate cost..

And a quick follow-up on the overall strategy of paying shareholder returns. I think if I'm right, but from 4Q '17 your dividend has going up 90%.

So I'm trying to understand what the strategy be to continuously raise the dividend to get to a very competitive yield, or would you actually be putting buybacks in front of the dividend hikes in the near-term?.

We got lucky with -- every quarter we get lucky, and this was another one. And we continue to buy back stock. So if you look at the total increased costs to DK from the increase in the dividend, it's actually nominal. And in the last few quarter its coming down.

So overall, our ability to pay $80 million of dividend a year is pretty easy with our excess cash flow. And therefore we think, we can continue and increase the dividend as we continue to put good results..

Your next question comes from the line of Roger Read from Wells Fargo. You may ask your questions..

And I'll say congratulations to Mr. Blake Fernandez, who escaped the cell site for the greener pastures of the corporate..

Thanks Roger. I appreciate it. To me, we told you, it would depend on the past performance..

Well, we'll see what happens, future is always open. Anyway, I just wanted to hit on the crude differential flexibility, the Red River JV pipeline there. And then understand maybe how quickly you can switch if we think about arb we are going one direction or the other.

Is this the typical 30 to 60 days, or do you think you can move quicker given both operational and consumer size of this transaction?.

Well, the flexibility between Midland and….

Roger, if you're on speaker, we're getting a bit of background noise….

Yes, we have background noise….

Sorry, is that better?.

Much better. Thank you..

Okay, sorry about that. .

Our ability to switch between Midland and Cushing is pretty eminent, so probably nomination of one-month, if you will. And that allows us the flexibility to move between Midland and Cushing..

So pretty standard, not really a change in terms of timing just really when the arb opens, your ability to jump will be as good as -- or better than anybody else?.

That is correct. .

And then since it's been our little favorite topic, I mean in the earning seasons -- your earnings season, excuse me, two or three kind of give us an idea of how you're set up. I know the Alki unit across springs had a good quarter obviously and that's a key component going forward.

But I was just curious you look across the three units, how you're set up and how things have been running year-to-date?.

So, hey, Roger, it's Fred. So I'll take this one. Of the four refineries, two already meet the 10 PPM level, Big Spring filer can already do it without any significant change in our ability to supply the market with premium gasoline and octane disruption.

Krotz Springs and El Dorado can both be close to the 10 PPM, but we do plan to spend roughly $28 million in the next year to allow them both to get well below 10 and continue to preserve octane. So not a huge amount of money and not much complexity in the scope, but we believe we're in pretty good position..

Next question comes from Patrick Flam from Simmons Energy. Your line is now open..

Hey guys, thanks for taking my question.

I was hoping you’d give us an update on your latest thoughts around the small refinery exemption process and any other regulatory issues that have been outstanding recently?.

Well, these are two different types of questions, I think. So I'll take the small refinery exemption first. We continue to work with the government and we continue to believe that some of our refineries qualify for the small refinery exemption. And we'll see what happens in the near future.

I think the administrators said that they are planning to issue a decision over the next few weeks. I think publicly he said that last Monday we'll see what happens, we're pretty optimistic around that area. Around the BTC over biodiesel credit that's another area that we believe that the House and the Senate will work hard.

And we believe that in the first -- I should say, maybe the first opportunity that they have, they'll pass that one. The value for these two is excess of $100 million for us. And if you need to need to gauge our process, I would say that it's likely that we will get both of them..

I guess as a follow-up there, your thoughts around RINs expense and where you expect that market to go in the near future? I know it's definitely tied to the small refinery exemptions piece as well.

But any other thoughts you can give us to frame that up?.

Well, it's around $0.20 as you know right now. We believe that it will continue to move around that number. I don't see a spike of $0.90. And at the same time, I don't expect this to go to $0.05..

Next question is from Neil Mehta from Goldman Sachs..

Good morning team, and congrats to Blake as well. Welcome aboard Delek there. The first question I had was just on some of the hedging gains and corporate and commercial initiatives that showed up in the quarter.

Can you guys flush that out a little bit more? And how should we think about those? We think of them as nonrecurring items, or is there an element of this that we need to carry forward?.

Well, I think I'll let Avigal, our Chief Commercial Officer, take that one..

So as we discussed last quarter, Neil, we think about the commercial initiative as a toolbox. And I will give you example, its wholesale, lease buying, hedge paper, physical inventories and others.

Our goal in the commercial group is to apply the right tool in the right market conditions, so it might vary between one quarter to another but we're looking that as a toolbox, as a general rule..

And in terms of, of the -- because the hedging gains did look very substantial and the commercial gains look very substantial in the quarter as we think, on a go forward basis, which -- what if this is recurring versus nonrecurring, any guidance here?.

So Neil, what you don't see is the first -- this is Assi, good morning. What you don't see is that the refineries actually in the refining itself, there's a $25 million of inventory losses and they will offset. But what you saw in the corporate, because we're doing what we call a system wide hedging to offset some of the inventory losses.

So in the Delek U.S. Q2 results, we don't see anything that is a one time in nature when talking about the inventory or hedging..

And follow-up for Uzi, just kind of a big picture question about consolidation. You've made the comment in the past -- we've made a couple comments around M&A, one is there's there could be advantage in consolidating the midcon, but at the same time the only refiners that Delek wants to buy is its own stock price back.

But so just curious on your thoughts in terms of consolidation and the role that you see Delek playing in that?.

Well, as we all know, CVI was very loud around our desire to be purchased or sold. And we are not participating in that gain with CVI. We will need to see what happens with CVI before we consider other consolidation in the market. But I do expect more consolidation to come over the next three to five years..

Next question Phil Gresh from JP Morgan. Your line is now open..

First question would just be as we think about looking ahead to the 2020 CapEx picture. Realizing that you still would want to try and figure out the project financing opportunity. If there were no project financing and we think about the gathering projects and the potential spending for the Wink to Webster.

Generally speaking, what ballpark should we be thinking about?.

So first, let's talk about the numbers excluding the Wink to Webster. We see a slight uptick in CapEx, excluding Wink to Webster for next year. This is, as Fred mentioned earlier, we had some tier 3 investments, and we continue to invest into the gathering. Of course, the gathering will generate more EBITDA.

Second, on the Wink to Webster, as we mentioned, the total investment needed is $340 million to $380 million. So we do believe we have access to credit facilities. We can even borrow on our current revolver that is basically only utilized for $75 million this quarter.

So we have no issues of doing it with at least 75% debt, I actually thought it will be higher, Uzi asked me to be conservative here. I think we can do even more than 75% on that front..

So basically take midpoint of the $360 million and the vast majority of that within 2020 with mostly debt financing.

Is that reasonable?.

Part of this would already be in 2019, and it will be to, not to CapEx, it will go to JV. So it will not show up in the CapEx line. It will all be JV investment. And its right, the financing will go alongside with it. We expect to finish the financing in the next probably two quarters..

Second question just be -- you've continued to talk about dropdown opportunities, Krotz. I presume, perhaps Wink to Webster would be another consideration for a dropdown.

Is that reasonable? And how do you think about the potential timing of dropdown? Is there still something under consideration in 2019 at this point?.

At this point, the right way to drop the JV long haul is probably after we completed the construction. And there is already a cash flow being generated from the business. As of the drop of the Krotz Springs, I don't think we'll do it this year as the leverage of DKL is slightly higher.

And we have a great project inside DKL that's generating a lot of cash flow. As you can see in our presentation, we expect right now $20 million of EBITDA from Red River once we complete the project. So right now, I don't see it go up for 2019..

And then just in terms of the $150 million of the midstream EBITDA opportunity between the gathering project and Wink to Webster. I guess, it sounds like you've now lined up, or you have line of sight to the vast majority of that 150, I guess.

Is there -- are there more things that you're thinking about here in terms of potential spending to hit the 150 over the next one to two years? Or do you think that this is what you have in hand is what you're focused on?.

Phil, this is Uzi. We say -- we were very vocal that this is going to be by 2023. We are well ahead of our plan. And if anything, we may up these numbers in the future. For example, we're evaluating the Paline Pipeline expansion idea and creating another half at Longview that is not in the numbers, as well as other means that we are looking at.

So we feel good, especially in the light of in fact both gathering and Wink to Webster meet handsomely our threshold of minimum 15% on leverage that we will achieve this 370 to 395, and even up the number in the future..

And last somewhat philosophical question, Uzi. I mean, obviously, you guys have been buying back stock, and you have decent amount of stock here. And you can keep doing that, or even buyback even more stock if you didn't do the project at a 5 times multiple, or you could build a project pipeline 5, maybe 6 times and drop it and get some uplift there.

But I guess philosophically, is the idea here that you feel like you can just get a better multiple for the company by moving more into midstream as opposed to just buyback stock?.

Well, let's be clear. Let's talk about Wink to Webster. Assi was very vocal about that. We are saying that we are well above our 15%. This is on unleveraged. We think that the project financing is feasible. So this is an area that if we're doing that, the return is enormous, if we look at the leverage.

That doesn't prevent us from continuing buying the stock. We believe that what we're doing and we were, again, very vocal about it. Even in an environment that the midland operations were $1.70 or so in the quarter, we produced above $200 million EBITDA, and in a quarter that we had turnaround.

So let's just not loose site that the free cash flow that is coming from the company is substantial. So there's no reason to believe that we won't do gathering, Wink to Webster and continue to buy shares..

Next question is from Silvio Micheloto from Mizuho. Your line is now open..

Hi everyone, it's Paul Sankey, actually..

Good morning, Paul..

Can you hear me? Sorry, I thought maybe if I put Silvio's name, and I would be asked -- to ask a question earlier. Guys, Blake, welcome. Uzi, I was just wondering nowadays best practice is to have a structure for cash return, some kind of a form of structure for cash return, and maybe an idea about CapEx, I know it's always difficult.

First of all, the question is really, can you give us an idea about long term CapEx and how you think about it? And then secondly, have you thought about putting in a structure for how much cash return you want to generate? I liked Assi's comment about being lucky every quarter.

But maybe something a little bit more mathematical?.

So Uzi directed me to take that question, so I will take it. Good morning, Paul. As we put your name, maybe we'd have put you earlier, so we're sorry for that and we apologize to you..

You'll have an opportunity to shoot Keith..

We still have somewhere right now between $900 million to $1 billion EBITDA company that's what we've been generating, it's our run rate and that's what we've been to do in the last two years. And we expect to do so also in a $900 million environment and also after that when the pipeline will come on.

On a $900 million to $1 billion, we think that our CapEx, including some growth, shouldn't be more than 30% of that number. So overall, I would say that around $300 million. And that will include some growth CapEx and one turnaround a year for the refinery. As you can see, that will leave us with a lot of free cash flow on hand.

And then that's why when you look at us in the last year, we have bought basically together with the dividends close to 14%, brought 40% yield, which is extremely high. I don't know if we can do 14% every year.

But when you look at this year, we're tracking to do a buyback of $200 million, based on the $150 million we had bought so far for the year plus almost $100 million of dividend gets you to around 10% yield for 2019.

So we want to be on the high end of our peers when you add buyback and dividend, and we want to be somewhere in the mid when we are of the dividend, just the dividend yield. We are loyal to dividend yield, that's why we've been increasing every quarter since 2017..

And Uzi, I was surprised that you said -- well, I wasn't surprised, but your view of consolidation.

Did you mean that you expect more refining consolidation? I understand that there's a couple of bits and pieces around that, but it feels like the industry now is reaching terminal consolidation really since marathon endeavor?.

Well, when I said it, yes, I thought that there would be a couple of -- two, three more deals in the next three to five years to consolidate our industry. I did mean refining..

And then just finally from me any observations on demand, it's obviously very controversial subject right now. But I just always appreciate your perspective? And I'll see you later, thank you guys..

Paul, obviously, demand in our areas is very strong, because of the drilling and the growth in our areas. We don't have good visibility right now to the northeast, which we used to have. But we don't see a big issue in our areas..

Next question is from Doug Leggate from Bank of America..

Let me add my congrats to Blake, without the volatility, Blake, you might hang on without saying hello here a bit longer, but anyway congratulations. So I thought -- my first question, Uzi, if I may, is just going to wrap a couple of things that have been asked already, but wrap them into kind of more concise framework.

You've obviously raised slightly the midstream target today. But at the same time, the buyback remains the dominant part of the share return strategy.

So what I'm really trying to understand is, I guess, first of all, what line of side do you think as a percentage of about $370 million to $395 million target do you think you have visibility on today? Maybe not everything disclosed, but in terms of what you think internally, you've got visibility on an end.

And as that evolves, is there a target payout ratio that we should think about in terms of the balance between the dividend and the buyback as your earnings stabilize more towards that midstream over time? So a part midstream part dividend question and I've got a quick follow-up please..

Well, I'll take the first part of the question and I'll let Assi answer the second one. The -- I think the first question was about visibility of the $370 million to $395 million. When we put a number out, we always create set of projects and set of ideas that are more than just ideas, not because we just made up a number.

So to answer your question, absolutely, we have visibility to $370 million to $395 million. And as I said as we progress, we may even up that number as we get more clarity about other projects that we work on. That's the first part. The second part, the combination between buyback and dividends, I'll let Assi take it..

So Doug, if you look at this year. So far we had $450 million of EBITDA, and analyzing is going to be close to $900 million. We are on pace to basically pay almost $100 million of dividend, plus $200 million of buyback. So that will basically give us roughly 30% payout from the EBITDA perspective.

And that's in a year when we are investing heavily in our gathering business. So this is something, I think we can sustain, especially when we expect the CapEx over the years to reduce as we don't expect every year to have such a heavy investment in gathering.

Also, it's going to be much to pay into dividend to a much higher level when the EBITDA will come from logistics versus refining. And that will enable us over time to be extremely competitive on our dividend yield..

Yes, I guess was at the back of my mind Assi is, there's always a lot of controversy over how we should be valuing the sector, in light of the inevitable volatility and dividend discount modeling has become something of a fashion, I guess, in this sector.

So just any visibility you can offer in future in terms of how you're thinking about strategically, I think, would be quite helpful. But I appreciate the answer. My follow-up just a quick one, it's on the Red River comment in the release. And I'm not sure who wants to this one.

But this comment about the incremental 65,000 barrels increases optionality in the event that Cushing becomes more economically attractive. But by inference that implies that Midland is less attractive, which would be a bit of a change from, I guess, the perspective you've offered in recent years.

So are you now concerned that Midland could end up drilling at a premium to Cushing?.

Well, we were very vocal about the idea of Midland drilling at premium Cushing. In order to happen, there should be 900,000 barrels that are flowing now between Midland and Cushing to be reversed. We don't see that happening so easy. However, the Red River gives us the optionality if it happens to change quickly.

At the same time, the Red River together with the Paline Pipeline creates optionality between Cushing and the Gulf. So if we look today at WTI versus LLS, obviously, we're making money selling it to the Gulf. So that deal allows us to move from different markets or different hubs like crude from different hubs depends on the market condition..

I guess, Uzi, the things at the back of my mind was we saw EPIC announced the rate fell below $2 last week. So obviously there's a lot of questions around this issue as well. But guys, I appreciate you taking my questions. Thanks again and congrats again, Blake..

Next question is from Paul Cheng from Scotia Howard Weil. Your line is now open..

Good morning. .

Good morning -- good luck, Paul..

Thank you..

You know, everybody that works at Howard Weil is against us -- for us one day. So be careful now..

Well, but I just want to say congratulations first. Wish you the best of luck over there..

Thank you, Paul. Tell my friends hello for me.

Will you?.

Absolutely. I have a number of short questions, first El Dorado. Maybe Fred, you can help me. Margin seems to be extremely strong given the downtime.

Is there anything unique in this quarter in terms of why the margin capture will be so strong?.

We came back from turnaround. And as a result, there was some change in inventories that were very positive. And that's why we made so much money in that refinery. It was offset by the other refineries, like Big Spring that had negative inventory impact. So it's just a play between the refineries and inventories the way they impacted each refinery..

And you add -- actually, can you tell me how big is the inventory benefit in El Dorado?.

We don't allocate during the call for each refinery, but I think we'll be ready to discuss it later. .

Secondly, on the Webster, the 15% return.

Is that just purely on the tenders that you're going to receive? Or that's through other integrated benefit, or trading opportunities that you foresee?.

First, there are trading opportunities. They are not in the -- when we say well above 15%, that doesn't include commercial initiatives..

So it does include commercial initiatives?.

It does not. It does not..

And Uzi, does it include any tie-up integrated benefit as I think Fred -- what's mentioned earlier?.

I'm sorry, I missed the question?.

Does it include any of the integrated benefits within your system?.

No, no, no..

The 15% is clearly based on your share of whatever is the tender that you will receive?.

They're well above 15%. is purely the project itself..

Clearly, the projects.

And is your commitment is equal to -- and in terms of the shipping volume, equal to the 15% of your working interest?.

We never disclose commitment, and that's something that we are not going to disclose now..

On the Red River, the incremental 65,000 barrels per day, in the event if you take that optionality.

What is your corresponding transportation commitment related to your Midland crude? Is there any among there you have to continue to pay?.

Paul, can you repeat that question just real quick?.

Let's assume in the event that you decide to take the optionality -- that the option to run more of the Cushing crude, and so back away from the Midland. Now the crude oil purchase, the nomination is only one month in terms of the commitment.

But in terms of the transportation arrangement, is there any longer term commitment that you have to continue to pay if you decide not to run the Midland crude?.

So let's start with the fact that there are long term commitments for us even if we're not running the Midland crude for mostly for El Dorado and Tyler. With that being said, when we're going to move more barrels on Red River or on Pailine, these are our pipeline basically. So there will be no additional tarrif for the system.

You're just going to see an uplift in gross margin..

No, I understand.

I'm just saying that for the -- the commitment is on -- within your own system to El Dorado and Tyler?.

No, that's the third-party..

So I guess my question is that can you share with us that how big is that commitment that roughly, if you decide that not to one that's 65,000 barrels a day of the Midland crude?.

As you know, we do have 207,000 barrels a day that we run Midland. Of that, it's roughly 75,000 barrels a day in Big Spring. And then as you know, we are moving through the end of the pipeline up to 40,000 barrels a day to Krotz Springs. So those are the part of our day-to-day business.

The remaining -- a big portion of it is commitment on the West Texas Gulf pipeline..

On the -- Uzi, have you looked at the [Cisco] assets? Seems like that one of the creditor is trying to push it through their bankruptcy?.

We were very vocal. We say that the best refinery to buy is our refinery nowadays. So we haven't looked at any refineries lately..

Final one, Assi that, what -- can you tell me how much is realized hedging gain?.

$38 million..

$33 million….

$38 million..

Do you have a split between the different refineries?.

We do not provide split between the refineries. But you can see that there is a big piece that is actually the corporate level, $10 million..

$10 million in the corporate level.

And so the other $28 million is in the refining segment?.

Yes, that was offset completely by the inventory losses..

Next question is from Matthew Blair from Tudor, Pickering, Holt. Your line is now open..

Assi, you mentioned the Big Spring Gathering business.

Are you willing to provide an EBITDA number for 2Q? And can you just talk generally about the ramp for this project through the back half of the year, and into 2020 and 2021?.

Sure. So far, the EBITDA is very minimal. We just started to see the volume coming in. We expect the volume this year to be around 60,000 barrels a day. And by 2023, it's going to be basically three times that amount. As we mentioned, for 2023, we expect EBITDA to be somewhere $40 million to $50 million. But right now, it's quite minimal..

And then could you talk a little bit more about the Big Spring margin capture in the quarter? It just seemed a little low. Obviously, Midland just came in, but cracks really improved.

It sounds like -- was there like a inventory impact that also flowed throgh Big Spring?.

So when you look at Big Spring this year versus last year, there's actually inventory in Midland, the impact of $2.70 and that was negative in Big Spring. On the other hand, in El Dorado, we saw an uplift. And that's what I mentioned that we're not allocating inventories between the refineries.

But overall for Big Spring, compared to the same time last year, it's $2.70 and that's why you see a lower capture rate. .

And then a final question.

Assi, can you just remind us what is the, I guess, the max leverage limit for the consolidated entity?.

There is no max leverage for DK. With that being said, we are always targeting it on a long term. When you look at the net debt to EBITDA, no more than the 1.5 times..

[Operator Instructions] I'm showing no further questions. I'd like to turn the call over to management..

Thank you, Prince. I'd like to thank my friends around the table here. I'd like to thank my colleagues, to the executive team. I'd like to thank the Board of Directors for their continued support. And you, investors and analysts, for your interest in our company.

But mainly, I'd like to thank each one of the employees who make this company the great company it is. Thanks. We'll talk to you soon..

This concludes today's conference call. Thank you for your participation. You may now disconnect..