Q1 2023 Delek US Holdings Inc Earnings Call
Participants
Avigal Soreq; President, CEO & Director; Delek US Holdings, Inc.
Joseph Israel; EVP of Operations; Delek US Holdings, Inc.
Mark Hobbs; EVP of Corporate Development; Delek US Holdings, Inc.
Reuven Avraham Spiegel; Executive VP & CFO; Delek US Holdings, Inc.
Rosy Zuklic; Head of IR; Delek US Holdings, Inc.
Douglas George Blyth Leggate; MD and Head of US Oil & Gas Equity Research; BofA Securities, Research Division
Jason Daniel Gabelman; Director & Analyst; TD Cowen, Research Division
John Macalister Royall; Analyst; JPMorgan Chase & Co, Research Division
Manav Gupta; Analyst; UBS Investment Bank, Research Division
Matthew Robert Lovseth Blair; MD of Refiners, Chemicals & Renewable Fuels Research; Tudor, Pickering, Holt & Co. Securities, LLC, Research Division
Neil Singhvi Mehta; VP and Integrated Oil & Refining Analyst; Goldman Sachs Group, Inc., Research Division
Paul Cheng; Analyst; Scotiabank Global Banking and Markets, Research Division
Presentation
Operator
Good morning and welcome to the Delek U.S. Holdings 2023 First Quarter Conference Call. (Operator Instructions) And please also note that this event is being recorded today.
I would now like to turn the conference over to Rosy Zuklic, Vice President of Investor Relations. Please go ahead.
Rosy Zuklic
Good morning, and welcome to the Delek US First Quarter Earnings Conference Call. Participants on today's call will include Avigal Soreq, President and CEO; Joseph Israel, EVP, Operations; Reuven Spiegel, EVP and Chief Financial Officer; Mark Hobbs, EVP, Corporate Development.
Today's presentation material can be found on the Investor Relations section of the Delek US website. Slide 2 contains our safe harbor statement. We'll be making forward-looking statements during today's call and actual results may differ materially from today's comments. Factors that could cause actual results to differ are included here as well as in our SEC filings.
With that, I'll turn the call over to Avigal.
Avigal Soreq
Good morning and thank you for joining us today. We reported a strong first quarter. Adjusted EBITDA was $285 million as a first quarter record for Delek US. We generated $395 million cash from operations. In addition, we reduced consolidated debt by $281 million. Our team executed well in the quarter. We generated significant earnings in the refining segment. This was achieved despite the Tyler Refinery major plant turnaround during the quarter. With this turnaround behind us, we are well positioned to capture market opportunities as they present themselves. We do not have a major turnaround in our system scheduled until late Q4 of 2024.
Our logistics segment delivered strong in adjusted EBITDA. This is the results of the investment we have made in our midstream businesses. As an example, compared with last year, we have more than doubled the volume in the Midland Gathering system. We remain focused on our key priorities.
I will now take a few minutes to provide an update on each and every one of them. First, returning value to shareholders and optimizing our balance sheet. During the first quarter, we used excess cash to do what we committed to do. At the Delek U.S. Holding, we paid down $327 million of debt. Given the strong performance, we started buying back our shares in the second quarter. Today, we have -- up to today, we have repurchased $40 million of DK shares.
Also, on May 2, our Board of Directors approved a 4.5% increase to the regular dividend. Second strategic is the vision to create a long-term value to our shareholders. Our team is dedicated. We are working night and day on the sum of the parts initiative. We continue to make progress. We are committed to make a long-term good decision that drive shareholder value. A key focus area since becoming a CEO has been safe and reliable operation. We moved in the right direction during the first quarter. The Tyler turnaround was completed with zero recordable and on time and on budget. As of the end of March, DKL employees and contractors have worked combined 4 million man-hours with zero lost time injuries.
We are being proactive in our approach to improve safety. We are developing and implementing plans that will drive the improvement toward our long-term goal of a top quartile safety and reliability performance. Our final key priority is improving efficiency in our cost structure. We remain focused on this goal. Rosy will provide additional updates on this effort.
To accomplish our key priorities, we must make sure we have the right people in the right roles. Over the past several months, we have made strategic additions to our team that will position ourselves for future success. In March, we welcome Joseph Israel as EVP of Operations. Joseph is a well-rounded industry veteran with over 25 years of energy experience and proving track record of driving safe and reliable operations.
Please join me in welcoming Joseph to the call today. Patrick Reilly has joined us as EVP and Chief Commercial Officer. He brings wealth of experience from best-in-class businesses. His experience and back-out align well with our vision for future growth. We have also strengthened our team with Tommy Chavez joining us as SVP Refining Operation. Tommy brings over 35 years of refining experience. Our team is strong and well positioned to execute on our strategic plans.
In closing, I would like to thank our entire team of over 3,500 employees. Their hard work and dedication are driving our success. I appreciate their effort and look forward to a strong future together. I would also like to thank our investors and Board of Directors for their continued support.
Now I will turn the call over to Joseph, who will provide additional color on our operations.
Joseph Israel
Thank you, Avigal. I'm thrilled to join the Delek family and I have no doubt our strong talent and competitive position across the system are positioning us well for future success. Our safe and reliable operations in the first quarter allowed us to leverage favorable market conditions and deliver strong results. I will now provide additional details about our operations in a slightly modified format with the objective to provide more visibility regarding our performance and plans going forward.
Starting with our Tyler Refinery. As Avigal mentioned, the team successfully executed a 49-day oil-to-oil major turnaround. Beyond routine maintenance and reliability arm grades, the scope included yield improvement projects, mainly around the FCC and DHT with an estimated $0.40 per barrel of margin capture improvement going forward.
Turnaround cost was consistent with our plan at approximately $100 million. Due to the turnaround, total throughput in Tyler in the first quarter was approximately 35,000 barrels per day. Production margin in the quarter was $21.65 per barrel and operating expenses were $8.70 per barrel including approximately $1.25 per barrel of accelerated maintenance due to the turnaround.
In the second quarter, the estimated total throughput in Tyler is in the 74,000 to 77,000 barrels per day range and OpEx is expected to go back to the normal range of $4.50 to $5 per barrel.
In El Dorado, total throughput in the first quarter was approximately 77,000 barrels per day. Our production margin was $13.38 per barrel and operating expenses were $4.47 per barrel. Estimated throughput for the second quarter is in the 78,000 to 81,000 barrels per day range.
In Big Spring, total throughput for the quarter was consistent with plan at approximately 73,000 barrels per day. Production margin was $18.33 per barrel and operating expenses of $5.80 per barrel including approximately $0.60 per barrel of maintenance activities. The estimated throughput for the second quarter is approximately 70,000 barrels per day after completing maintenance work in the month of April.
In Krotz Spring, total throughput was approximately 84,000 barrels per day. Our production margin was $15.47 per barrel and operating expenses were $5.21 per barrel, including $0.35 per barrel maintenance in our reformer and our key units. Planned throughput in the second quarter is in the 80,000 to 82,000 barrels per day range.
Overall, estimated system throughput in the second quarter is in the 301,000 to 311,000 barrels per day range compared with approximately 269,000 barrels per day in the first quarter. We continue to focus on safety, reliability and environmental compliance as our top priorities, and we expect margin capture and cost performance to follow.
As far as market conditions, good day to be an inland refinery in the U.S. Gasoline is tight going to the summer and specifically for Delek, crude oil pricing dynamics are favorable and demand for products is strong across our system.
I will now turn the call over to Rosy for the financial variance.
Rosy Zuklic
Thank you, Joseph.
Starting on Slide 4. For the first quarter of 2023, Delek US had net income of $64 million or $0.95 per share. Adjusted net income was $93 million or $1.37 per share and adjusted EBITDA was $285 million. Cash flow from operations was $395 million.
On Slide 5, we provide a waterfall of our adjusted EBITDA by segment from the fourth quarter of 2022 to the first quarter of 2023. The significant improvement over last quarter was primarily from higher results in refining. As Avigal and Joseph mentioned, during the quarter, we operated well and we're positioned to capture favorable market conditions. In addition, corporate contributed a $16 million benefit over last quarter, primarily due to lower G&A costs. For your reference, we have provided a year-over-year waterfall slide in the backup.
Moving to Slide 6 to discuss cash flow. We built $24 million in cash during the quarter. The $395 million in operating activities reflects the strong cash from operations. In addition, it includes approximately $180 million of the $240 million of cash associated with the 2 year-end timing events disclosed during the fourth quarter earnings call. Investing activities of $222 million is primarily for capital expenditures, the majority being for the Tyler refinery turnaround. Financing activities include the debt pay-down during the quarter, partially offset by approximately $16 million cash inflow for the year-end timing events.
On Slide 7, we show capital expenditures first quarter compared with our full year estimate. For 2023, capital expense will be heavily weighted to the first half of the year. We still estimate the full year to remain at approximately $350 million.
Net debt is broken out between Delek and Delek Logistics on Slide 8. During the quarter, consolidated net debt improved approximately $303 million and Delek US, excluding Delek Logistics improved $346 million.
The last slide covers outlook items for the second quarter of 2023. In addition to the throughput guidance Joseph provided, we expect operating expenses to be between $195 million and $205 million. G&A to be between $70 million and $80 million, D&A to be between $80 million and $90 million, and we expect net interest expense to be between $70 million and $80 million. For interest expense, we have updated our guidance to include noncash deferred financing costs. Prior to the fourth quarter of 2022, when we refinanced various debt facilities, the impact of deferred financing cost was less significant.
Before we move on to Q&A, a few updates. As Avigal mentioned, we have made progress on our cost reduction and process improvement effort. During the quarter, we completed the first phase of this initiative, we realized $3 million of G&A cost savings, which is $12 million on a run rate basis. The next phase is scheduled to start in the second quarter, and we expect to see G&A improvements in the second half of this year. Part of our assessment on cost has been a deep dive to drive industry standard on G&A and OpEx classification. This quarter, we made an adjustment of approximately $6 million between these costs. This adjustment was retrospective. We have provided 2 years of history in our supplemental slides.
Finally, during the quarter, we changed the benchmark for Krotz Spring Refinery to better reflect its product mix. This was also a retrospective change. We have provided 2 years of history in our supplemental slides and detailed disclosures in the supplemental tables of the earnings release.
We will now open the line for questions.
Question and Answer Session
Operator
(Operator Instructions) At this time, we will take our first question, which will come from Neil Mehta with Goldman Sachs.
Neil Singhvi Mehta
Congrats on some good progress here this quarter and that's where I want to start off on the refining segment. It looks like even when you adjust for the G&A, it was better captures than expected in our model, in particular, was that crops, but in Tyler as well. And so just curious on anything you could talk about in terms of the refining business, if you're seeing underlying improvements. And now that we're in a little bit of a tougher margin environment than where we were in Q1, do you think that strength in capture can flow through?
Avigal Soreq
Hi, Neil. Good morning, it's Avigal. Thanks for the question and thank you for the support. Yes, we have experienced a good progress with our initiatives. First of all, we had a self-reliable operation always is a key driver and I think that the team we have is extremely focused around that. So that was a focus, the execution of the turnaround was a great success and a focus and few small projects that helps us well. That's a good opportunity for me to welcome Joseph live and allow him to give some more color around it. Please go with that, Joseph.
Joseph Israel
Thank you and good morning, Neil. Yes, the system executed well from a safety and reliability standpoint like Avigal mentioned. Throughput capture, OpEx for the 4 refineries were in the planned range with Tyler obviously under turnaround. We sourced our domestic crude oil efficiently with a more favorable Midland differentials and the right market structure. We blended low-cost butane in our gasoline. And then on the distillate side, we all know the jet fuel was a good capture component. This quarter for all refineries, including our sales, HSD and octane price well to support our capture. So good quarter all-in-all and we are looking forward for the next one.
Neil Singhvi Mehta
And welcome, Joseph. And that's the follow-up. You talked a lot about the path towards some of the parts realization and there was no update here. So can you talk a little bit about where we stand on the plan and what are the different things that you've rolled in and rolled out.
Avigal Soreq
Hi, Neil, again, thank you. So listen, I can tell you that the team and Mark is here as well, and you can chime in after I finish, is extremely focused on working on the very extensively we continue to make in our mind great progress, meaningful progress, but we all understand that those type of transactions take time. And more than anything, we want to get it right. We do not want to make something quick, which is not right. I'm very optimistic about that. The progress is being done very, very, very well and we are very satisfied with it. And we'll keep you posted. Then, Mark, do you want to say anything?
Mark Hobbs
No. I think that was well articulated. Neil, we continue to work on it. We see opportunities out there for us that we're evaluating. As I said on our fourth quarter call, the thing that we're focused on is positioning all of our businesses to pursue accretive growth and have financial flexibility. So that continues to be a focus on anything and everything we do.
Neil Singhvi Mehta
Just a quick follow-up on that, Mark. Is it fair to say that the area where you see the best opportunity to unlock value is still around logistics assets? Is that what you believe the market is undervaluing.
Mark Hobbs
Yes. I think that's a fair statement, Neil. I mean we obviously have a value benchmark sort of a marker, if you will out there, the trades sort of every day. And we feel like that just given how we're structured right now, we're not getting adequate look through value to our midstream business.
Operator
And our next question will come from Manav Gupta with UBS.
Manav Gupta
A little bit of a follow-up here. Crops used to be one of your weaker assets. It's clearly one of the stronger assets at this point of time. Help us understand what has changed in the last 1.5 or 2 years to make this a much more competitive asset than what it used to be?
Avigal Soreq
Yes, absolutely. Joseph, do you want to take it?
Joseph Israel
Yes. I'll start. Talking about reliability, again, Krotz is a very unique special place. It was just certified as a VPP plant. And I think the story is right there. So 1Q, we have seen a great reliability, which was reflected in our yield. In addition, we have a new catalyst and the reformer that really helps our yields and providing a small gasoline components. Butane blending is very efficient, Krotz Spring, and we make a lot of jet fuel in our crude unit. So when jet is strong and recovering, Krotz Spring is going to do well. So a great team. Favorable market conditions give us good results.
Avigal Soreq
And we cannot undermine the improvement of the alkyl over the last few years. Crops used to have -- to be refinery without alky. Alkyl pricing was good and we see a nice return to our investment we did years ago.
Manav Gupta
Makes sense guys. A quick follow-up here. You mentioned a little bit of this, but it looks like you have made some improvements at Tyler at -- during the 1Q turnaround, which is giving you more confidence of a higher capture, Help us understand what was executed? And what gives you confidence that the capture at Tyler will improve and make it more competitive?
Joseph Israel
Thank you, Manav. Like we said in our prepared remarks, beyond just reliability projects and the addressing risk, we have done some upgrades I think the most significant one is a revamp of our vacuum tower, which helps the feed quality to the FCC. So the FCC is performing much better with better conversion, better yields. In addition, we replaced the catalyst in the DHT that gives us a much better liquid recovery and better well. So we think this 1Q story is just a snapshot. We are here for to capture those benefits in the future. And I think personally, $0.40 is probably on the conservative side.
Manav Gupta
Perfect, guys. I'll leave it there, but I do want to say one thing. We are seeing the way you report earnings has improved a lot. There's a lot more consistency and I think the feedback we're getting from shareholders is that this is exactly what they wanted. So all those who are involved in making it a lot more consistent and easier to understand reporting, I would like to congratulate them.
Avigal Soreq
Manav, point taken. Thank you.
Operator
Our next question will come from John Royall with JPMorgan.
John Macalister Royall
I would also like to echo the Manav's comments on the reporting. I think it's been much easier to get through on earnings dates. So my first question is on capital allocation and specifically being out of the buyback market in 1Q despite a big quarter from a cash flow perspective. I assume it had to do with the turnaround, but any color on that. And then the $40 million pace for 2Q to date is pretty robust. Is there some catch-up there? Should we think of that as a good pace going forward? And I think $75 million to $100 million was something you had said for the full year? And maybe if you could just comment on that if that's still a good number.
Avigal Soreq
Yes. Thank you, John, for the question. Obviously, I will take a bit broader look on our capital allocation. Obviously, we cannot lose sight from the fact that we are increasing dividend for 3 or 4 quarters in a row now. So we see that dividend going through the cycle and we are committed as much as we can to continue that through the cycle, so that's point number one. Point number two, around the buyback, we obviously wanted to make sure that we are clearing any risk from our profile this year or a major -- pretty significant risk with the Tyler turnaround behind us.
And as you probably can know, we are taking ourselves as a first tier return to shareholder company, and we are there, right. You can see us there on the 19% last 12 months, which is where we want to be. We want to be very competitive and to give a good return to our investors, both on the short term and on the long term. I'm not going to change the guidance we gave to the year on $75 million to $100 million. But I'm going to say that we are actively looking on that and we are using the buyback as a flex. If I can say, it's a flex tool when we have a solid site for margin and operation, we're still going to do it. So that's something we are keep looking at. And obviously, if something change, we'll come back.
John Macalister Royall
Great. And then maybe on the cost reduction program. Maybe just a little more detail on the $12 million captured of the $30 million to $40 million you expect this year? And what are the key sources of what you've captured so far and this year as a portion of the program in general?
Avigal Soreq
Yes, absolutely, John. I will let Reuven, our CFO, to comment on that, if it's fine.
Reuven Avraham Spiegel
Thank you, Avigal. First of all, our guidance that we gave in the fourth quarter for the year was $30 million to $40 million savings and on a run rate of $90 million to $100 million based on Q4/Q1 '24. That number is divided around 65% between OpEx and 35% between G&A. The $3 million that we have materialized in the first quarter are initiatives that we took late in the fourth quarter, early in the first quarter and will impact obviously the run rate of $30 million to $40 million for this year. There are additional -- I mean the program goes throughout the year. We have additional segments that we're going to implement in the second quarter and in the fourth quarter. Some of them are IT related and some of them are not. The initial effort was around G&A org and structure. As we progress in the second and third quarter, it will be more focused on the operation.
Operator
Our next question will come from Doug Leggate with Bank of America.
Douglas George Blyth Leggate
Let me add my welcome to Joe. It's nice to see you. I wonder if I could just hit, first of all, Avigal, the some of the parts question again. To the extent you can, if midstream is the -- is seen as the problem, what are the range of options that you are considering in terms of -- obviously, the balance sheet is one question mark, but how do you see that playing out to the extent you can share at this point of your review?
Avigal Soreq
Yes. So it's a great question, but I'm not going to give too much color about that. All I'm going to say is that we have a line of sight that is going to be very accretive to both DK and DKL. And I'm sure that you're going to be very happy.
Douglas George Blyth Leggate
Okay. And retail, is that part of the discussion as well or not?
Avigal Soreq
So we want to tackle first what moved the needle the most, right? So we have priorities. And the priority is to do what is the most meaningful as first priority. And that's how we work here to make sure that we are being as meaningful as we possibly can with creating value to shareholders.
Douglas George Blyth Leggate
Understood. Just one last one on this topic. Timing, when would you expect to be able to reveal to the market your plan?
Avigal Soreq
So I'm more aggressive than you and I wanted badly -- more badly than you are. So we are on the same side of the equation. But this is not a simple plain vanilla. It requires some work and planning and detail. So we are in the same camp and we want it sooner than later. So...
Douglas George Blyth Leggate
We will watch with interest. My follow-up is maybe for Reuven, I guess it's a housekeeping question we already tried to walk through with Rosy. But I think it would be good for everyone to hear this. Your cash flow was obviously pretty strong, but you don't break out, at least not in the release the working capital move. So we're trying to understand what the -- I guess the underlying cash flow was in the quarter, and more importantly, how much of the working capital is -- will reverse in the future? In other words, is this a onetime benefit? Or is it something we can look to is more of an underlying improvement. So what the underlying cash flow, I guess, is the question on the nature of the working capital.
Reuven Avraham Spiegel
Right. So thank you for the question. I think the one number to remember is on the fourth quarter call. We mentioned that we had a timing issue with the intermediation agreement with Citi and $180 million are supposed to come in, in January and they did come in. And I think that is the number that probably should be taken out of the reported number because that was the fourth quarter event that reconciled itself in the first quarter. Other than that, what impacted the working capital cash flow was the Tyler turnaround and on the negative side, the capital expenditure, which was higher in the first quarter as expected.
Douglas George Blyth Leggate
And below the operating line, Reuven?
Rosy Zuklic
$140 million is the difference and is up in the financing activities, right? Yes, that makes up the full $240 million.
Operator
And our next question will come from Matthew Blair with Tudor Pickering Holt.
Matthew Robert Lovseth Blair
Joseph, it looks like Southwest cracks are still at new 5-year highs, whereas most other regions are roughly around 5-year averages or even a little bit below. Could you talk about the drivers that are supporting the strong margin environment in the Southwest? And is that something that you can capitalize on in Q2? Or does the big spring maintenance in April take you out of the picture there.
Avigal Soreq
Yes. Thanks for the question. Actually, we are very optimistic about what we see on the demand side. We see a strong netbacks and a strong pool from our racks and the demand in our side of the world looks solid as this could be. There is a different discussion between the macro and the micro and the micro in our inland is solid and robust, and we see that on the results.
Joseph Israel
Yes. And if I can add, the Southwest market, you're right, is probably the strongest in the country these days. And fortunately, this is where a lot of our businesses. So you can see it in the office Iraq versus Gulf Coast, and we capture that and it's coming back to the refining, not through the big spring number, but definitely through our profitability. As far as the second quarter dynamics and I'll say specifically in Big Spring, look, we think the fundamentals are favorable from inventory standpoint, right? I mean gasoline is tight going to the summer.
Global economic trends are still a concern, but we don't have a crystal ball to predict future trends. But the great thing about our system, we are well insulated within our niche market. We have seen strong demand going into April and the marketing uplift really reflect our reallocation advantage. We continue to leverage our advantage of the crude pricing, octane capabilities and now asphalt capabilities as we move to the second quarter.
Matthew Robert Lovseth Blair
Okay. Sounds good. And then on the retail side, it looks like your same-store volumes were down 1.7% in Q1. Do you have a rough number on what that's looking like so far in Q2.
Avigal Soreq
So we are not going to give a forecast for Q2, but we are going to say on the other side, merchandise was higher. So all-in-all, retail is doing good.
Operator
And our next question will come from Paul Cheng with Scotia Bank.
Paul Cheng
Two questions, please. One, hopefully, that's simple maybe is for Reuven. Trading and supply in the first quarter, it's a loss of about $18 million. And last year is $105 million. Is it a wheel loss or it's just one side of the 2 trades that you lost on -- you report a loss there, and then you actually have the VNI hedge gain on the other side on the physical market in the physical barrel. So just trying to understand whether it's a real loss or that is just is sort of like accounting, how you report it. If it is a real loss, what contribute to the loss. The second question maybe is for Avigal that how important is M&A acquisition for your strategy over the next 3 years in refining, logistics and retail. And if it is important or even if it is not, what type of financial main tricks you would be using when you're looking at potential targets?
Avigal Soreq
Yes. So Paul, with your permission, I will start with the strategic question and then we'll talk -- we'll go to the tactics. So M&A is obviously a tool that sells Delek in the past very successfully and very good but M&A, we're going to do it only if we're going to be disciplined, right? And when I mean disciplined, it seems to be accretive for investors. We are not going to do M&A just to check the box. We're going to do it when it makes sense, strategic, synergetic and we can drive value to shareholder period, end of story. That's what's going to drive us.
Obviously, on the refining side, it's more accretive versus retail, which is 10x. So we're not probably going to do M&A on the retail side because it's not accretive. So that's in the strategic side, but we are obviously looking and if we'll find something that will make sense on the short term and on the long term, we were not shy about it. We were not shy about that in the past. But again, it needs to be accretive and makes sense. Around the split between refining, I don't have all the technicalities in front of me, Paul, but it's -- there is nothing weird in those -- in that. It's mainly the way we split between refining and the different assets. So I can ask Jose to look into that and come back to you with more color. I don't have it in front of me.
Paul Cheng
Can I ask that on refining, if you do go into any acquisition, is there a particular regions that you will be interested or that you are not really focusing on the region?
Avigal Soreq
So again, we are not going to be specific, but I think the rules that we have. It's we need to have add value to any assets need to be accretive, and we are not going to rush ourselves, Paul. We're going to make something that's going to make sense for the long term and can bring and going to be accretive for our share price. So there is no rush, but if something is going to come up, we'll do it right.
Operator
Our next question will come from Jason Gabelman with Cowen.
Jason Daniel Gabelman
I want to first go back to capital allocation and pay down a lot of debt in 1Q. Does that get the parent balance sheet in an appropriate place excluding MLT debt? Or do you want to pay down additional debt and kind of on the topic of the balance sheet and capital allocation. You had previously discussed a 1:1 ratio between buybacks and debt pay down. Is that kind of the right split moving forward? Or do you have a different allocation plan going forward?
Avigal Soreq
Yes. So thank you for the question. I will start and Reuven will continue. So on the DK side, we probably have the best balance sheet among our peers with only $200 million of debt. Most of our debt is well known, is on the DKL side and have a completely different level of income against it. So it's 2 different volume and we cannot lose sight out of that. And obviously, we have very high level of third-party income. So that's the philosophy behind it. So we said in the past and we are sticking to it, especially on a higher interest environment that we are at that we will have a balanced approach between reducing debt and buyback we demonstrate in the last 4 months that we are not shy of doing buyback and the market continues to be good. We will use that tool in the past -- in the future like we used it in the past. Reuven, maybe you can if you want to.
Reuven Avraham Spiegel
Yes. As you recall, during the fourth quarter, we had to increase our debt as a result of the intermediation agreement timing. So going into the first quarter, we had 2 priorities. One is to pay down back that debt. And the other one was to support the elevated capital expenditure level of the first quarter, which are mainly as a result of the Tyler turnaround. Once we realize we can accomplish that and it's a very strong quarter, we did additional $60 million of debt from the original plan, which put us at the $300 million range. And we started the buyback program and we bought $40 million.
Jason Daniel Gabelman
Got it. And just one clarifying question on that. So going forward, do you expect to be balanced between buybacks and debt pay-down? Or does it swing back the other way, just given 1Q debt pay-down was so high?
Avigal Soreq
Yes. So we didn't change the philosophy. But it doesn't mean that if the market condition change, we'll not change versus what we do. As we said, the philosophy is to have a great return to shareholder, and we are first still around that, and we'll keep being first around that. So we are taking a buyback as a priority. Obviously, interest rate is where it is. So we're going to do both as effective as we possibly can.
Jason Daniel Gabelman
Okay, understood. And my follow-up is on corporate expenses. Those came in a lot lower than expected in 1Q, what drove that? It doesn't seem like you expect that to repeat in the second quarter. So just wondering what the variance was in the first quarter.
Avigal Soreq
Yes. Reuven, do you want to take that?
Reuven Avraham Spiegel
Yes. Thank you. So it's actually a composition of 3 numbers. As part of our cost reduction efforts, we review every line item and we reclassified $6 million from G&A to OpEx, which is in line with industry practices and our peers. In addition to that, there were $3 million of timing expense. And the last component, which is the $3 million that is directly related to the cost efficiency steps that we have taken late in the fourth quarter, early in the first quarter, which will impact the G&A for the remainder of the year with about $12 million.
Operator
Our next question will be a follow-up from Paul Cheng with Scotiabank.
Paul Cheng
Real quick. Avigal, you're looking at logistics, have you guys ever consider have done similar to what some of your peers start to roll up that, that to engines, they spin it off or doing other things that actually take out my royalty pumpings unitholder. And secondly, that do you have a number you can share what is the VNI gain and the RIN expense in the quarter, whether those are any meaningful number, and also that you can talk about what is your hedging strategy going forward?
Avigal Soreq
Yes. Thanks, Paul, for the follow-up. Let's start one by one. Around buying back the asset, we said that we believe that we have a good vehicle. I understand -- we understand why other peers did what we did, what they do. And we'll come back to you again when we have something meaningful to share. We believe that we have much more accretive way for everyone going forward with that. We have seen others that did it and was not as successful as they expected. So we have -- we believe we have a more meaningful way to do it. That's going to be better from a leverage and accretive for both to DK and DKL. Regarding the RIN, we historically didn't provide a special guidance or information around that. But this quarter, I'm sure that you are very pleased from all the new information we got. So we are moving very fast on the right direction to give a lot of clarity.
Operator
And that concludes our question-and-answer session. I'd like to turn the conference back over to Avigal Soreq for any closing remarks.
Avigal Soreq
Yes. So thank you, the investor, the Board of Director and mainly our employees for a great contribution. Our first priority is to have safe and reliable operations and to have a great return to shareholders, and we are committed to do so. Thank you for your time and effort. Appreciate it.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
