Q3 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
Rosy Zuklic; Head of IR; Delek US Holdings, Inc.
Doug Leggate
Jason Daniel Gabelman; Director & Analyst; TD Cowen, Research Division
John Macalister Royall; Analyst; JPMorgan Chase & Co, Research Division
Manav Gupta
Mathew Blair
Neil Mehta
Paul Cheng
Rodger Read
Ryan Todd
Presentation
Operator
Welcome to the Delek US third Quarter Earnings Conference Call. (Operator instructios] After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded.
I would now like to turn the conference over to Rosy Zuklic, Vice President of Investor Relations. Please go ahead.
Rosy Zuklic
Welcome to the Delek US third 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 regarding forward-looking statements. We'll be making forward-looking statements during today's call. The statements involve risks and uncertainties that may cause actual results to differ materially from today's comments. Factors that could cause actual results to differ are included here as well as in our SEC filings. The company assumes no obligation to update any forward-looking statements.
I will now turn the call over to Avigal for opening remarks.
Avigal Soreq
Thank you, Rosy. Thank you for us for joining us today. We delivered strong third quarter results. All segments performed well. Our team remains focused and drove improvements across our businesses. I thank each member of our Delek team for their contribution. From a macro perspective, during the quarter, we saw a significant volatility in the markets. Gasoline crack weakened. -- diesel CAC remained strong, driven by inventory levels continued at 5-year lows. Given our higher distillate production relative to our peers, we're at a competitive advantage. The refining segment ran well. We achieved a record total throughput during the quarter. Joseph will provide more details on our refinery operations in his remarks.
In logistics, we are investing in continued growth of our business. We benefited from our favorable permit location, which led to another record quarter. Given our strong portfolio performance, we are confident in Delek's ability to exceed $100 million in quarterly EBITDA run rate by the fourth quarter of this year.
Moving to Slide 4, reflecting on my first year as the CEO of Delek. We have much to be proud of. When I return to Delek, I outlined my focus areas: safe and reliable operations, being shareholder-friendly and having strong balance sheet, unlocking the sum of the part value and improving the efficiency of our cost structure. We are very focused on these objectives. Our dedication to see each one of them to completion has not wavered. We have made progress in all of them. On the operations side, we enhanced our team with experienced talent. Together, we streamlined the structure and process toward our operation. This has led to a strong safety results. We achieved a total record throughput in our refining system. Earlier in the year, we successfully completed the Tyler turn out with their recordables on time and on budget. Post turnaround, the refinery is performing at higher yield and most importantly, record capturing.
On financial and shareholder return. Over the past year, our logistics business achieved record EBITDA quarters. In Q3, retail achieved its highest EBITDA since COVID. We continue to be shareholder-friendly. Through October, we repurchased $85 million of shares and including the latest increase raised the dividend 5x in a row. We improved our financial position by using our strong cash flow to reduce our net debt by $476 million during the year. From a strategic point of view, our $100 million cost reduction efforts are well underway, and we are seeing early results.
On unlocking value from sum of the part, we have a clear strategy, and we are well on our way to meet our objectives. As you can see, we have been consistent. That resulted in tangible progress. Importantly, the achievements I just outlined position us well for the mid-cycle market environment, both from an operation and financial standpoint. In closing, we are pleased with our strong quarter. We will continue to drive further improvements and unlock value from our business.
Now I would like to turn the call over to Joseph, who will provide additional detail on our operation.
Joseph Israel
Thank you, Avigal. Moving to Slide 5. In the third quarter, our team processed a record high 306,000 barrels per day of total throughput. The focus on people, process and equipment helps us to build a solid organization to support safe and reliable operations. In the third quarter, the combination of favorable market conditions and strong operations performance led to $286 million of adjusted EBITDA contribution by the refining segment.
In Tyler, total throughput in the third quarter was approximately 76,000 barrels per day. Production margin in the quarter was $23.66 per barrel reflecting improved reliability, yield recovery and a strong capture rate of 73%. Operating expenses were $4.74 per barrel, including elevated utility cost at approximately $0.50 per barrel due to high demand for electricity in the state of Texas late in the summer. In the fourth quarter, the estimated total throughput in Thailand is in the 73,000 to 76,000 barrels per day range.
In El Dorado, total throughput in the quarter was approximately 84,000 barrels per day. Our production margin was $12.57 per barrel. Operating expenses were $4.36 per barrel. Estimated throughput for the quarter -- for the fourth quarter is in the 81,000 to 84,000 barrels per day range.
In Big Spring, total throughput for the quarter was approximately 65,000 barrels per day, driven by maintenance work, but still well within our guidance range. Our production margin was $15.92 per barrel, including an estimated unfavorable $3.50 per barrel impact from the maintenance activities. Operating expenses in Big Spring were $1.37 per barrel, including approximately $0.80 per barrel of the unplanned activities and an additional $0.70 per barrel related to the elevated utility cost. In October, we completed a planned outage to replace a reformer catalyst and a couple of reactors. As a result, the estimated fourth quarter throughput in Big Spring is in the 61,000 to 64,000 barrels per day range. We are very excited with our progress and Big Spring refinery. We have the right leadership team in place, and we are pushing operational excellence to the next level.
In the third quarter, we already improved throughput, capture and OpEx compared with the second quarter. And going forward, we are planning for the following improvements at the controllable level. Throughput up approximately 5,000 barrels per day from our year-to-date 66,500 barrels per day performance level. Capture up 15% to 20% from our year-to-date 52.6% level. We are expecting to ionize 65% of the improvement in 2024 and the remaining 35% in 2025.
In Krotz Springs, total throughput was approximately 81,000 barrels per day. Our production margin was $12.45 per barrel and operating expenses were $5 per barrel. Planned throughput in the fourth quarter is in the 77,000 to 81,000 barrels per day range. In the third quarter, wholesale and asphalt marketing added about $35 million to the refining segment earnings compared with $80 million in the second quarter. These results are outside of our reported margins at each of the refineries and their associated capture rates. Wholesale marketing contributed about $20 million, down from approximately $60 million in the second quarter, and effort marketing contributed approximately $15 million compared with about $20 million in the second quarter.
Contribution of both businesses was impacted by rising oil price, but more importantly, allowed us to pull inventory even with record high throughput for our refining system. The resilient demand in our niche markets and the access to rack blending are significant strength of our integrated downstream business model. With regards to the fourth quarter, our refining system plant throughput is in the 292,000 to 305,000 barrels per day range. We are well positioned to capture strong distillate margin environment with our 42% distillate yield capability. As a reminder, no major turnaround is planned until the fourth quarter of 2024 in Krotz Springs. In PKL, the team delivered another record quarter under operational excellence focus and growth.
I will now turn the call over to Rosy for the financial variance.
Rosy Zuklic
Thanks, Joseph. Starting on Slide 6. For the third quarter of 2023, Delek U.S. had a net income of $129 million or $1.97 per share. Adjusted net income was $132 million or $2.02 per share and adjusted EBITDA was $345 million. Cash flow from operations was $433 million.
On Slide 7, we provide a waterfall of our adjusted EBITDA by segment from the second quarter to the third quarter of 2023. The increase was primarily from improved results in refining, driven by higher throughput and cracks in the third quarter. Logistics had a record quarter at nearly $97 million and retail had another strong quarter with EBITDA of $16 million. Corporate segment costs increased compared with last quarter, largely due to bonus accruals.
Moving to Slide 8 to discuss cash flow. We built $80 million in cash during the quarter, ending the third quarter with a balance of $902 million. The $433 million in cash flow from operations reflects the strong performance of the quarter. Included in this amount is $177 million in favorable working capital. This was largely from improved inventory management. Investing activities of $59 million is mainly for capital expenditures. Financing activities of $294 million primarily reflects paydown of debt and return to shareholders. This includes $176 million of debt repayment, $25 million in buybacks, $15 million in dividends and $10 million in distribution payments.
On Slide 9, we show capital expenditures. Year-to-date, total company, we have spent $302 million. We estimate the full year CapEx to be in the range of $380 million to $390 million before any reimbursement. We expect to receive approximately $20 million of insurance proceeds, growth CapEx partially funded by producers as well as other reimbursements. Including this net capital expenditures for the year is in the range of $360 million to $370 million.
Net debt is broken out between Delek and Delek Logistics on Slide 10. During the quarter, we built $80 million of cash and paid down $176 million of debt, ending the quarter with a net cash position.
Slide 11 covers outlook items for the fourth quarter of 2023. In addition to the throughput guidance Joseph provided, we expect operating expenses to be between $210 million and $220 million, G&A to be between $65 million and $70 million, D&A to be between $90 million and $95 million and net interest expense to be between $80 million and $85 million.
We will now open the line for questions.
Question and Answer Session
Operator
Thank you. We will now begin the question-and-answer session. (Operator Instructions). At this time, we will pause momentarily to assemble a roster. Our first question comes from Manav Gupta with UBS.
Manav Gupta
First of all, congratulations big improvement from both Tyler and El Dorado. So help us understand what were the factors helping you out over there? And then as it relates to Big Springs, was it just a turnaround, and we shouldn't be worried that when you actually start running hard in 4Q, some of the issues you saw would be behind you. So if you could talk about those things?
Avigal Soreq
Hey Manav, it's Avigal. Thank you for the question. And yes, you're right. We see a big improvement both places and that we can address for a few areas on Dale, It's a lot of work that's being done over the turnaround. We see the fruit of it, both on the product mix and the yield. Obviously, we are very fortunate with the Tyler market over there. We see the city growing and our ability to deploy a product is great. So that's a very solid market. In El Dorado, to be honest, El Dorado is a great asset with capabilities, hydrogen plant, reformer and other great asset that we are just starting to tap into what we can make out of it, and we are very optimistic about that as well. I think that Joseph touched a little bit on Big Spring in his prepared remarks, but I’ll allow Joseph to finish the answer.
Joseph Israel
Thank you. We are very excited with our poles. So when you look at Tyler, our 45% distillate yield is a big plus, especially end of the third quarter going to this quarter and for the future curve side. Obviously, the lower the oil price and the better margin environment also supported our capture, both in Tyler and El Dorado. With regards to Big Spring, we are very happy with the progress new. We have the right management team. We feel that things are under control as we implement best practice. And we are very confident to share with you our plans in Big Spring increasing throughput and expecting a much higher capture rate. And to answer your question, we are not worried about the turnaround being about 2 years from now. We feel good about the mechanical integrity and our ability to operate it at a higher bar. So excited.
Manav Gupta
Perfect. My quick follow-up here is, as it relates to supply, marketing and other, which was formally your trading and supply. A big swing quarter-over-quarter. I know behind the scenes, Rosy has been working very hard in trying to explain the Street what are the metrics that drive that performance. But if you could help us understand some of the reasons there was such a big swing in this segment quarter-over-quarter.
Avigal Soreq
Yes. Thanks, Manav. And obviously, in that line, there would be a bit more volatility than other lines. And -- but Joseph, I know that you have a lot of question around it, why don't you give a wider view.
Joseph Israel
Okay. So we provided information about the asphalt and wholesale marketing results. Asphalt made $15 million and wholesale marketing made $20 million. Both are lower than previous quarter results due to oil price increase. And you know that lag in pricing provide always a headwind for this type of businesses. The other component in supply and marketing results is the inventory management and the derivatives to really mitigate a risk.
Manav Gupta
Thank you guys and congratulations on a good quarter and good to see pay down of debt. We appreciate it on a win.
Operator
Our next question comes from Neil Mehta with Goldman Sachs.
Neil Mehta
Yes. Thank you. So again, a very good quarter there at Tyler. I would just love your perspective on the markets right now. We see this big dislocation in cracks between gasoline and distillate. And how does this play out as we move into 2024? How much of the weakness in gasoline is just seasonal, as we're trading winter grade versus something more structural? And then do you see the distillate side of the equation normalizing given the weakness in gas through yield switch. So just talk us through the product markets and how they evolve as we set up into 2024.
Avigal Soreq
Yes. I would love to do that. Obviously, ULSD, as you can all see is in the 5-year low in terms of inventories that determined the majority of the crack that the way we see it on the distillate. Obviously, we don't really know what the winter in Europe going to yield, but that's another upside if it's going to yield for a colder winter. On the gasoline side, obviously, we have seen a -- we said that in the prepared remarks, we've seen a weakness. Some of that, as you mentioned, is seasonal and some of that -- I think most of it is seasonal. We believe that the demand for gasoline is solid. Our markets are pretty much resilient for demand. You can see another testimony that we were able to deploy our -- to reduce inventory, while other companies had a problem to deploy products. So that's another testimony to our market resilience, and this is more micro than macro but that's another something to note. The demand in the U.S. as we see it, is still very solid, and I think the market they're going to correct itself. I don't -- I think that we see more supply going off the market, as I mentioned a few times, doing Covid versus the change in demand. So overall, we think it's the right place to be.
Neil Mehta
The follow-up is just on how we're thinking about unlocking some of the parts value. You--Avigal, spent plenty time talking about this as you stepped in. How do you transfer some of the value that fits at DKL and accrue it to the DK at the parent level? Talk about the different strategies that you're approaching this with. And what inning are you in, in terms of actually unlocking that value?
Avigal Soreq
Yes. So Neil, you know that I said many times, and that's my -- our commitment. We're going to make it happen. We're going to make the right things happen for both shareholders and -- and we didn't change our mind or went in the other direction that's going to happen. I will start and then I know Mark wants to have a lot of energy on that and wants to say a few words about that as well. But please remember that while we are still working on that very hard, we came up with a cost reduction, which is a great thing for mid-cycle if it presents itself, the safe and reliability initiative yields in a higher throughput. And we obviously have an EBITDA reduction in order to enhance the balance sheet. And I'm very proud of Reuven and his team being able to be at net 0 debt on the DK level. Saying all of that, some of the parts and allowing the value to be the detail to be on the Delek side is going to happen. And maybe, Mark, do you want to say a few words around that.
Mark Hobbs
Yes, sure. Thanks, Avigal, and thanks, Neil, for the question. As I've mentioned on prior calls and discussions that we've had specifically, we've evaluated a myriad of options and alternatives that are available to us. And we have strong conviction around the actions we need to take and what we would like to achieve through some of the parts. And as Avigal mentioned in his prepared remarks, we're working very hard towards those objectives. I don't want to say anything specific, and I would love to be more specific around timing. But at this point in time, we don't have anything that we feel that we can tell you other than our focus is on preserving our ability to perform well through the cycle for all -- through all the steps that Avigal and others on the call have mentioned. And the other thing that we're really focused on is in anything we do, preserving significant amount of liquidity across our business so that we can take advantage of accretive growth opportunities that we truly believe are in front of us going forward. But look, I would just finish with just saying, look, we are committed to extracting value across our businesses where we see opportunities to do so.
Operator
Our next question comes from Ryan Todd with Piper Sandler.
Ryan Todd
Maybe a question on CapEx for you as we look into 2024. I know that you had said that from a maintenance point of view, you don't have another major turnaround until crops in the fourth quarter of next year. Can you maybe talk about how you would think about some of the moving pieces on capital as we look into 2024 and how we should think about a run rate there in the next year?
Avigal Soreq
Yes, Ryan, thanks for the question. And we are very disciplined about capital deployment. We've demonstrated over and over, both on the shareholder and debt. So that's the puzzle we are working on that every day all day. Regarding 2024, specific to your question, I don't want to be ahead of myself -- we are still finalizing our plan for 2023 to 2024. But directionally, we are looking on a lower number than 2023.
Ryan Todd
Okay. Perfect. And then maybe just a follow-up on your comments. Obviously, you're in a 0 net debt balance sheet position there at Delek on an unconsolidated basis. How should we think about your priorities here? You've been paying down debt. You've been buying back some shares. Is there further work on the balance sheet that you want to do? Or should we expect a shift towards an increase in share of cash flow directed towards shareholder returns or maybe high level, how are you thinking about that as we think about the coming quarters?
Avigal Soreq
Yes, absolutely, Ryan. And I will provide more kind of overview about the way we think about capital allocation. So first of all, we increased dividend 5x in a row, as you can see. And our intent is to be able to maintain dividend towards cycle. So that's pretty clear we said it many times. Regarding that and the return to shareholder, we took a very balanced approach between the 2. Obviously, when we have opportunity to give back to investor, we were not shy, we were aggressive with that, and that's going to be the approach going forward. But we have a balanced approach, and we're still going to do that executing in some of the parts. It's a top priority. We're going to do that, and that's going to play a big role in that equation as well. So stay tuned.
Operator
Our next question comes from Doug Leggate with Bank of America.
Doug Leggate
Thanks for having me on there. I also offer my thoughts for you guys and what Neil said earlier. I'd like to hit a housekeeping point first, if I may, which is I think Rosy mentioned the working capital move in the quarter. And I think you said better inventory management or was it that effect? Is that -- will that reverse? Or are we now looking at in a permanent downward reset in working capital?
Avigal Soreq
Mark Hobbs, talk about working capital just a little bit.
Mark Hobbs
So the short answer is it will not revert itself. The longer answer is that we have been working on a zero-based budget initiatives that included a few components. One of them was the cost reduction initiative and the other one was also changing our process about how we manage inventory. That process change was tested, and that's why we did not execute on it until this quarter. But after it was tested, if we executed on it on the new process this quarter, and that helped us to reduce inventory by roughly 2.5 million barrels. Now there will be some fluctuations going forward, but we're not going to revert back to the old levels of inventory.
Doug Leggate
So we can treat that additional cash flow then as permanent?
Mark Hobbs
Most of it, yes.
Doug Leggate
Okay. My follow-up is really on the reliability improvements. And I'm wondering, I mean, obviously, one of the key things we think about is what the free cash flow capacity of the portfolio looks like at mid-cycle. And a key input to that is obviously operating costs and capital -- sustaining capital costs. So I'm wondering if you can just give us some guidepost on both of those things to achieve the higher reliability, what does it mean for OpEx? What does it mean for sustaining capital?
Avigal Soreq
So Doug, I will start, and I will let Rouven or Joseph chime in. On the OpEx side, you remember that when the margins were at all-time high, pretty much, we started the program at the cost reduction. -- in the beginning, no one really understood what we're -- why we're doing, what we are doing. But we wanted to be to have a long runway in order to do it right. We didn't want to wash into that. And that's obviously going to improve our cost base, both on the OpEx and the G&A on a relative basis versus what we start. Obviously, going to -- always going to have a fluctuation in OpEx and Gas upon performance and based upon electricity power and et cetera, like Joseph outlined. But that over time, make us or making us very much ready for the mid-cycle that might present itself. That's on the -- Joseph, any you want to add on that?
Joseph Israel
I will only add by reminding everyone that previous earnings call, we discussed the $1 per barrel of additional OpEx in Big Spring just for the second half of this year. So it will include the 4Q to really address integrity, reliability opportunities that are giving us those fruits. So not much more than that and really nothing on the CapEx side that we need to accomplish to get all the benefits that we discussed earlier...
Avigal Soreq
So that gives you the kind of more overview, Doug, on the P&L initiative we started ahead of time. Obviously, the balance sheet, as Joseph said, is the working capital in some of the parts. So for us, it's -- we were ahead of the game preparing ourselves and not waited for the clock to term. And also look forward to seeing you next week.
Operator
Our next question comes from Matthew Blair with Tudor Pickard.
Mathew Blair
Joseph, you outlined some big expected improvements in Big Spring refining margin capture. Could you talk a little bit about what's driving that? Does that involve any sort of commercial efforts to perhaps increase your exposure to Arizona? Or is this more on the refining side in terms of reliability and yield improvement?
Joseph Israel
Mathew, at this point, it's really the fundamentals. And this is the low-hanging fruits, no rocket science there, and this is the beauty of it by putting the right leadership team out there and really implementing the best practice and the fundamentals on the process side, on the refining side, will improve reliability -- and as you know, better reliability comes in the capture and the OpEx side. What you are talking about is really my Phase II and III. When it comes to commercial and crude selection and logistics and other opportunities, it will really start to be fun.
Mathew Blair
Looking forward to it. And then on the wholesale and asphalt contribution, I believe it was $35 million in the third quarter versus $80 million in the second quarter. What is like a normalized either quarter or year for this business?
Joseph Israel
Yes. We provided guidance, I think, in the previous quarter when we opened up that supply and marketing line for you guys to model. So our fate season, as you know, first and fourth quarter is about $5 million contribution in average, not including oil price changes. And then in the second and third quarter, you the season is going to be more like $20 million per quarter. Wholesale is more stable. It's going to be between $20 million to $40 million a quarter.
Operator
Our next question comes from Paul Cheng with Scotiabank.
Paul Cheng
Several quick question that open that in the third quarter, is there any meaningful impact from the benefit of mark-to-market on the RVO due to the much lower wind prices?
Avigal Soreq
No.
Paul Cheng
And that maybe this is for Joseph. In the fourth quarter, we have -- in the gas pending market, we are from a margin standpoint at some opposing forces, the butane branding and the line branding economy are extremely good. On the other hand, that the gas crack or sell your pool. So when we combine that, how your gasping yield in the fourth quarter versus the third quarter is going to look like? Historically, I think the industry probably see a couple of increase sequentially. But given the dynamic we see that what is your operating plan currently is suggesting?
Avigal Soreq
You're absolutely right. So the butane is growing our favor, but the crux is going the other way. Also, the RVO is a tailwind other than headwinds for us. So Big picture, gasoline gadspread still low versus what we have seen last year, but it's not off the charts on a 52 basis golf course versus historical at Q4. So we remain very optimistic about the future. I don't know, Joseph, if you have anything to add to that.
Joseph Israel
Yes. Just to wrap it up. So other than KrotzSprings, which is producing light products to the Colonial pipeline, really the rest of our system is rack sales based. And this is what provides us the access to blending and gives us the opportunity versus our average peer to participate in this opportunity. So we are definitely looking on different things in the fourth quarter on butane blending, like you say, and then the sour heavy spreads will motivate us to look at the lower cost grades on the crude side as we're going into it and take the advantage from it.
Paul Cheng
Joseph, do you expect the fourth quarter gas in yield going to be higher than the third quarter?
Joseph Israel
I don't think so. We are a distillate mode, and we will probably be as close as we can to 42%.
Paul Cheng
Okay. So even with more building branding and not that you're not expecting the yield going to be higher?
Joseph Israel
I agree. It's not going to be enough on there is a significant change in gasoline distillate economics later in the quarter, which -- how to believe.
Paul Cheng
Okay. A final one for me. One that you sort of fixed up Big Spring, what's the longer-term low refinery run that we should expect on an annual basis for your system? And also what is the cash operating cost under let's call it, say, $4 Henry Hub, -- any kind of guidance that you can give us? And what is the sustaining CapEx for the company going to look like?
Joseph Israel
Yes, I'll start with the Big Spring throughput. So in our plan, we're basically going back to the Big Spring was in the past. We're not trying to reinvent the wheels. Unfortunately, most of it again is low-hanging fruit. So we gave very precise estimates how we were looking at things. So 66.5% is the yield to-date throughput. We spoke about adding 5,000 barrels per day. And I'm talking about calendar type of throughput, I'm not talking about peak. So you're looking at 71, low 70s really on the ongoing as a new team, and we're talking about starting really in '24, '25. So this is not something for the long run. It's really coming. And with the 71, we are still leaving the normal 4%, 5% downtime for potential surprises, right? So we're going to run it in the normal industry utilization rate. Can you please repeat your area hub...?
Paul Cheng
Yes, I'm just looking at not even just on Big Spring, but your total system for facility that what is a normal abase annualized one way we can assume? And then also under that status, if we assume Henry Hub around $4, what will be a normalized annual cash operating cost in your refining system? And what is the sustaining CapEx we can assume for your refining system?
Joseph Israel
Our quarter our OpEx was $5.48 per barrel for the system. And this happened with still issues in Big Spring. We talk about the several things that affected us $0.80 for the unplanned maintenance, $0.70 for the elevated utility cost and the dollar we gave for reliability. What I'm trying to say big spring is probably more like 550 going forward, then 837.So you're looking at overall OpEx for the system under $5 per barrel. And we think that this is -- will happen even with the long term and we have pricing for natural gas and energy costs.
Paul Cheng
Okay. How about sustaining CapEx?
Joseph Israel
So obviously, it's a bigger question because there is with turnaround and sometimes without turnaround, it's the question is the scope of the turnaround. So I don't think it's going to -- we are going to do a good service by just giving you a number without context. So going back to my earlier comment about the capital -- our commitment is to be very disciplined with capital deployment, like we demonstrate, and that's what we're going to do. But it's very hard to say to pin to a number... I hope…
Paul Cheng
Yes. Thank you.
Operator
Our next question comes from Roger Read with Wells Fargo.
Rodger Read
Yes. Apologies for joining a little late. So if I'm asking a question that's been asked, please let me know. But maybe digging a little deeper into Big Spring and juxtapose that with the performance at Tyler this quarter. Joseph, I know you were brought in to kind of improve operations, is there a takeaway from what we see at Tyler coming out of the turnaround versus what you'd like to do at Big Spring in the coming, let's call it, months, quarters, years until its next scheduled turnaround?
Avigal Soreq
Yes. Roger, with the permission, I will start and then Joseph will add some comments around it. Tyleris the good way to see how good operations become after turnaround in terms of both IRR MTBF and also capture -- and that's something that we obviously can take from one turnaround to another and improve as long as the time goes by. Joseph has a lot of energy at Big Spring and maybe you want to add around that big plan. I think we spoke about it, but... A little bit.
Joseph Israel
I think the turnaround scope was excellent. It was right. And beyond just maintenance, the team improved the vacuum tower bottoms and allow the better quality of Regio going to the FCC providing us with better yields and catalyst replacement on the reform was exactly what we needed, and we see the results. The rest for the system and mainly for WickSpring, is just all about the fundamentals. -- and it's about the focus on the right things, and it's the culture and it's the right people in the right place that we're leading and the processes and the procedures. These are not costly type of investments, but the efforts are bringing us food and allowing us to commit on a much better performance, especially in BigSpring going forward...
Rodger Read
Okay. And then just as a follow-up, curious with Krotz Springs in terms of its product yield, I know it's historically had a little less of a clean diesel yield relative to its total distillate yield. Any changes there or anything you're seeing in terms of how that product is being able to move into the market?
Avigal Soreq
No. Generally speaking, KSR is a refinery that basically is on the colonial. So that's the deployment, that's the distribution channel we have. For the -- we had some improvements with it, but nothing that was the meaningful discussion. We're obviously seeing the fruits of our hard labor and the great commitment over there to a great operation and a great safety record and a great yield. So we are very pleased with KSR,and we see the improvement over time. So more to come. Yes. The one thing to remember about Krotprin, even though it's high sulfur diesel, you're still in the Gulf Coast area, and you have plenty of customers that see a lot of value in this product in different uses. And the other thing, the crude unit configuration is very special with almost 20,000 barrels per day of jet fuel in the code on it. All in all, distillate yield in Krotpring is in the high 30s, which will allow them to compete long term.
Operator
Our next question is from John Royall with JPMorgan.
John Macalister Royall
So my first one is a follow-up on the capital allocation question. You're sitting today at 0 parent net debt, which you've spoken about, which is a great spot to be in. And I'm wondering how capital allocation could be impacted by a lower crack environment. And if you're willing to lever up a little from here, should the environment deteriorate just in the interest of keeping capital returns at a strong pace?
Avigal Soreq
So John, thank you for the question. We're going to remain disciplined. Obviously, there is -- once we feel -- first of all, we want to maintain dividend towards the cycle, that's one thing we need to check the box. If we believe that the allocation capital to buy back, we will not be able to -- we will not be shy to do so like we did in the past. -- we'll do that again. And we're obviously looking at the opportunity that presented themselves in the market. So we have all the toolbox to deploy on the right opportunity and keeping a good return to shareholders is a very high priority for us.
John Macalister Royall
Great. And then last quarter, you had mentioned just very broadly, you had some very high returning and presumably relatively quick hit projects in refining that you may think about for next year. And I think you touched on it again on this call. And can you maybe just give us some color around what those projects are and just expand on those opportunities a little?
Avigal Soreq
Yes. So we -- again, we don't want to get ahead of ourselves and to give exactly because we didn't finish the planning process around it and improving them with our Board of Directors. But we definitely have some very encouraging projects on the table. -- and we'll disclose them once we can. But again, number one thing about capital is disciplined, right? Disciplined and return to shareholders. So we're maintaining very disciplined about the way we deploy capital and want to be good steward of our shareholders. Joseph, you want to add that?
Joseph Israel
Yes, I will just say that they are all low cycle return type of projects that fund themselves in less than 24 months. They are all about liquid yield recovery and this type of project you will expect us to look very closely.
Operator
Our next question comes from Jason Gabelman with Cowen.
Jason Daniel Gabelman
I just wanted to extend my thoughts and hope everyone's families are safe. I wanted to ask first about the supply and marketing line item. And I know you provided some incremental guidance around that new line item last quarter to help us forecast something that was perhaps more ratable. It's been a bit volatile last quarter to this quarter and not necessarily in line with what was forecast. And I'm wondering how much of that is just around trading. And it seems like I think 2Q was a stronger trading quarter in that line and 3Q was weaker. So should we expect to see that in this new line item where the trading impact kind of offset quarter-to-quarter and the underlying results trend in line with what you've guided to? And I have a follow-up.
Avigal Soreq
Yes. Thank you for the question, and thank you for the warm words. First of all, we all understand that Rosy changed the world of marketing and not trading because of the reason, we are looking on that as a risk reduction tool and not adding risk to the table. So we need to remember that. Obviously, when oil prices goes up, there is a bit of a volatility reduce risk and take risk off the table. And as Joseph mentioned a few times on the call, wholesale has a volatility and especially asphalt with the prices goes up. So we are looking on that line, how to reduce risk and how to deploy product and how to get as long a sustainable income as much as we possibly can. It's going to be more volatile than pure capture it, as you can imagine. But we are not deploying just a huge trading position into the market. We are trying to see how we can reduce risk.
Jason Daniel Gabelman
Okay. And to be clear, it's not necessarily the derivative impacts in 1 quarter will tend to reverse in the subsequent quarter because that's what seemed to happen in 2Q to 3Q?
Joseph Israel
Right. So when we talk derivatives, we talk about hedging what is outside of the natural inventory range, right, above under. When we haven't been reliable, like in the third quarter in Big Spring, we spoke about the outages and the fact that we are fixing it and the future will be much better there. What happens is when you build inventories and oil price is going up, -- we are having very good dynamics on the cost of goods side, right? We are making money on the physical side. The hedging are there to keep you on the crack of the day. This is what we are asked to do by our investors. And these are the type of derivatives. And so it makes sense to you, right?
Jason Daniel Gabelman
Yes. All right. Yes. That's really helpful color. And my follow-up is -- sorry, I'm going to go back to the strategic unlock of value. If I look on your slide, you say you have a clear strategy and on plan to meet our objectives. When I think about what your objectives were when you put the strategic unlock forward. It was primarily around deconsolidating DKLs debt. Is that still the objective as we sit 1 year later. And when you say you're on plan, it's been a year since you laid out kind of the plan. And just wondering, it implies perhaps there is some time line that you have in mind. So I just -- I'm going to push again to see if you can elaborate on what you're thinking in terms of time line?
Avigal Soreq
Yes. So you're absolutely correct. That's the goal. -- and we're going to achieve it. I'm not going to commit to a time committing to a time I impact the deal and you don't want me to do that. You want me to make the right deal on the right timing and to bring value to shareholders. There is no -- we are not just going to rush for a deal, but we are decisive. So our state of mind is not wavered, and we're going to make it and we're going to make it right.
Jason Daniel Gabelman
Yes. Okay. Understood. I wasn't asking quite to commit to a time as much as it says your own plan, which implies there is some internal time line that you have in mind. And I just was wondering if that was a fair read. But I'll leave it there.
Avigal Soreq
Thank you. I appreciate it.
Operator
This concludes our question-and-answer session.
I would like to turn the conference back over to Avigal Soreq for any closing remarks.
Avigal Soreq
Yes, Sara, thank you for leading us today. I want to thank my colleagues around the table here for a great quarter to our Board of Directors and for most our employees, an investor for being with us, and we'll go back next quarter and report again. Thank you so much. Have a good day.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
