Delek US Holdings Inc

NYSE:DK

Earnings Call Transcript 2024-Q1

[Operator]

Hello and thank you for standing by. My name is Regina and I will be your conference operator today. At this time I would like to welcome everyone to the Delek U.S. First Quarter 2024 Earnings Conference Call. [Operator Instructions].I would now like to turn the conference over to Rosy Zuklic, Vice President, Investor Relations. Please go ahead.

[Rosy Zuklic, executive]

Good morning and welcome to the Delek U.S. 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 U.S. website.Slide 2 contains our Safe Harbor statement regarding forward-looking statements. We'll be making forward-looking statements during today's call. These 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, executive]

Thank you, Rosy. Good morning and thank you for joining us today. During the first quarter, our adjusted EBITDA was at $159 million, an improvement over Q4. In Refining, our operation went well. I would like to congratulate Krotz Springs and El Dorado refineries for receiving the Elite Silver Safety Award from AFPM. Congratulations.Our Logistic segment delivered another strong quarter. DKL continue to have a strong contribution for Midland Gathering system. Operation in the Delaware Basin have started to consistently exceed expectations. DKL's continued solid performance in the Midland and Delaware Basin validate its strong position in the Permian Basin.The Retail segment operated as expected in line with the typical first quarter seasonality.Turning to our strategic priorities. As I've outlined in our previous calls, focus areas are, first, safe and reliable operation; second, being a shareholder friendly while having a strong balance sheet; and third unlocking some of the power value inherent in our system. I will now discuss each of these key priorities in detail.Safe and reliable operation is the core of everything we are trying to achieve. We continue to make good progress this quarter in our safety performance. Big Spring is on track to achieve the throughput rates and operating cost levels we have shared with you in the past. Joseph will provide more details on our progress. We remain committed to shareholder return and maintaining a strong balance sheet.During the quarter, we paid $60 million in dividends. In May, the Board approved another $0.05 per share increase to the regular dividend. Our quarterly dividend now is $0.25 per share. In addition, we made progress this quarter on the DKL balance sheet. We'll continue to look for ways to make our balance sheet stronger.Next I would like to talk about our [indiscernible] efforts. It has 3 components. First, highlighting the value of our midstream assets. Second, highlighting the value of our Retail segment. And third, creating value to internal improvements. Now let me give you some color.Regarding midstream, during the quarter DKL made a significant progress improving its financial position. Liquidity was increased from approximately $300 million to $800 million. The leverage ratio was reduced from 434 to 401, and additional units were added into the marketplace in increasing public float.I would like to give a bit more context around the valued DKL's operation. DKL now is around $400 million plus annual run rate EBITDA. DKL started back in 2012 as a classic drop-down story and has evolved into something bigger. Today, DKL's EBITDA is around 50% third-party business, largely focused in the Midland and the Delaware Basins.The Midland Gathering system is a premier asset in the heart of the Midland Basin. DKL build this system organically. It now gathered up to 230,000 barrels per day and has around 350,000 of dedicated acreage contracted until 2030. It has an attractive asset that remains the growth engine of the Midland midstream operations.Moving to the Delaware Gathering business. We are proud of the development that DKL team has done since acquiring the system. The system provides complete crude, gas and water gathering to customers. We have significant growth opportunities in the system.Lastly, we have interest in 3 joint venture and fully-owned pipelines. The pipelines mainly focus on long-haul crude and long-term contracts. All these assets, the Midland and the Delaware Gathering systems as well as the pipeline could be a key part of a bigger system. Our Sum of the Parts effort for the midstream business are tied to ensuring the right ownership structure to maximize value for DK and DKL holders, evaluating tax implication of those options, and maintaining the right level of growth, liquidity and leverage at DKL. Our intention to continue to highlight the value of our midstream operation is unwavering, and we intend to take more constructive steps in the near future.Moving on to highlighting the value of our Retail assets. We initiated a process during the quarter to unlock the value inherent in the Retail business. We engage investment bankers to review strategic opportunities and making good progress. We will provide more details in the near future.Lastly, I would like to conclude the discussion on the sum of the part by highlighting cost efficiency and process improvement efforts. There are 2 parts to it. First, optimization. We have shared in the past that we reduced our inventory carrying levels to free up working capital. We continue to look for ways for further reduce working capital.Today, I want to highlight that our commercial and refining groups are working together on several initiatives. We see opportunities in optimizing crude and product slates and being more efficient with our product placement. These efforts will require little to no capital, and we expect to see enhanced in the overall company EBITDA.Second, managing cost to our system. We have talked about our cost efficiency efforts before. As we exit 2024, we expect to be between $90 million to $100 million run rate in cost savings. And we see potential for additional savings in 2025. Overall, the steps we are taking position as well for strong 2024. We have plans in place to deliver a long-term value. We'll be focused and disciplined towards achieving these goals.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 would 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, executive]

Thank you, Avigal. Moving to Slide 6. In the first quarter, our teams operated well and within operations guidance despite freeze-related interruptions. We successfully navigated through that and proactively positioned our system for the driving season.In Tyler, total throughput in the first quarter was approximately 72,000 barrels per day. Production margin in the quarter was $15.72 per barrel and operating expenses were $5.28 per barrel. In the second quarter, the estimated total throughput in Tyler is in the 72,000 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 $9.29 per barrel, and operating expenses were $4.72 per barrel. Estimated throughput for the second quarter is in the 80,000 to 83,000 barrels per day range. During the month of March and April the rate percent of our crude slate in El Dorado was [indiscernible], and we are expecting this optionality to serve us well in the future.In Big Spring, total throughput for the quarter was approximately 65,000 barrels per day. Our production margin was $12.87 per barrel, including an estimated unfavorable $3.50 per barrel impact from freeze-related events back in January. Operating expenses in Big Spring were $8.08 per barrel including approximately $1.50 per barrel related to winterization and freeze-related maintenance. We continue to see good progress with our self-help initiatives in Big Spring around people, process and equipment.We remain focused on achieving our old throughput, capture and cost targets as communicated in the past. Estimated throughput for the second quarter is in the 68,000 to 71,000 barrels per day range.In Krotz Springs, total throughput was approximately 76,000 barrels per day, driven by planned trades, cleaning and work in the crude unit. Our production margin was $12.85 per barrel, including an estimated unfavorable $1.50 per barrel impact from the planned maintenance.Operating expenses in the quarter were $5.94 per barrel, including $0.35 per barrel related to the trade work. Planned throughput for the second quarter is in the 79,000 to 82,000 barrels per day range.With regards to our entire refining system, implied throughput target is in the 299,000 to 312,000 barrels per day range. And to remind everyone, less operations noise does not only mean higher throughput barrels. It means the higher focus on business optimization as Avigal mentioned before. Crude oil selection in El Dorado and Tyler higher placements of premium products in premium markets like leveraging our long octane position in Big Spring in the Arizona market or maximizing high-octane aviation fuel supply from our Tyler refinery.Moving on to the commercial front. In the first quarter, we reported a $65 million loss for supply and marketing. Of that, approximately $60 million loss was generated by wholesale marketing and a $1 million loss was contributed by asphalt, leaving approximately a negative $4 million contribution for inventory and risk mitigation.Wholesale marketing faced a perfect storm in the first quarter. First, it was challenged by extreme weather conditions, mainly in the Midland market as well as East and West Texas. The weather kept demand and margins low, especially through the freeze in January.Second, flat price increased approximately $14 per barrel in the quarter and in a rising price environment, margins at the rack level are negatively impacted due to the lagging price nature of the business. And third, while lowering price environment supports refining economics, it has been a profitability headwind for blenders, including our wholesale marketing.Asphalt contribution was also negatively impacted by weather conditions and the rising flat price environment. In the month of April, demand and rack differentials have improved for live products and asphalt, consistent with seasonal trends.In summary, we continue to make good progress with the fundamentals of our business. Our safety and environmental performance continued to trend in the right direction, reflecting good progress with operations excellence and mechanical integrity for the entire system. The business is well positioned for the driving season as reflected in our throughput guidance, and we are expecting capture and cost performance to follow.I will now turn the call over to Rosy for the financial variance.

[Rosy Zuklic, executive]

Thanks, Joseph. Starting on Slide 7. For the first quarter, Delek U.S. had a net loss of $33 million or $0.51 per share. Adjusted net loss was $26 million or $0.41 per share, and adjusted EBITDA was $159 million. Cash flow from operations was $167 million.On Slide 8, the waterfall of adjusted EBITDA from the fourth quarter of 2023 to the first quarter of 2024 shows that the primary driver for higher results was from Refining. The $117 million improvement in Refining is primarily attributable to higher cracks and higher capture rates in the first quarter relative to the fourth quarter, partially offset by lower earnings from our wholesale marketing business.Logistics delivered $100 million this quarter and the higher expenses in corporate are primarily due to timing of employee-related costs.Moving to Slide 9 to discuss cash flow. We grew $69 million in cash during the quarter, ending the quarter with a balance of $753 million. Cash flow from operations was $167 million. Included in this is a positive $28 million of working capital, largely due to improvements in payables more than offsetting bills in receivables and inventories.Investing activities of $42 million is largely for capital expenditures. Financing activities of $194 million reflects timing of accruals. This also includes $16 million in dividend payments and $10 million in distribution payments.On Slide 10, we have the breakout of the first quarter of 2024 capital program and full year 2024 forecast. First quarter capital expenditures were $46 million. Half of the spend was in Refining, primarily addressing sustaining and regulatory projects. For 2024, we are still estimating capital expenditures to be approximately $330 million. With the cross refinery major turnaround taking place in the fourth quarter, we expect higher capital spend in the second half of the year.Net debt is broken out between Delek and Delek Logistics on Slide 11. During the quarter, we grew $69 million of cash and paid down $103 million of debt, ending the year with a net debt position of $152 million.Slide 12 covers outlook items. In addition to the guidance Joseph provided for the second quarter of 2024, we expect operating expenses to be between $215 million and $225 million, G&A to be between $60 million and $65 million, D&A to be between $90 million and $95 million, and net interest expense to be between $80 million and $90 million.We will now open the line for questions.

[Operator]

[Operator Instructions] Our first question will come from the line of Neil Mehta with Goldman Sachs.

[Neil Mehta, analyst]

A couple of questions for you on the guide. The first is just capital program. To Rosy's point, Q1 of $46 million versus the full year of $330 million. Are you tracking inside of that $330 million? Is capital efficiency positively surprising, recognizing you've got the crops turnaround? And the related question to that is you've got a big turnaround of crops this year, later this year. How do you define success? Because I think that will be an important test for that asset.

[Avigal Soreq, executive]

Yes. Neil, first of all, thank you for the question. So it's still early in the year. We are not changing our guidance at this point. We are still with the $330 million we mentioned. And in terms of the success of the [indiscernible] turnaround, I will give that 3 elements, right. First of all is safety. We need to make sure that it's a safe turnaround that everyone come back home the same way they come back to -- they went back to work. That's number one.Second is the scope of the work. We need to make sure that we are doing the scope right and getting the uplift of the $30 million we said before. And the third, obviously, is the cost. So those are the 3 components. We demonstrate to ourselves during the entire turnaround, we can achieve all of those trades, and we aim to achieve those one in this turnaround as well.

[Neil Mehta, analyst]

And then you indicated you initiated a process to unlock the value of the Retail business. Can you talk about how it came to the decision that this makes sense to potentially monetize and where we are with the process? Are there any dis-synergies in your early look at this process?

[Avigal Soreq, executive]

Yes. Thanks, Neil. I will answer the question more wider about the some of the process that we are obviously trying to do. So as you probably mentioned in the call, we are -- we created the third-party value over time. And that's obviously something -- that's something that is very important for us to achieve. So we are committed to make sure that that value is achieved at all times.And we demonstrated during that quarter that the financial strengths of the DKL balance sheet is there in order to support it. That's the point number two. The point number three is that we want to make sure that the value is being created, both for the DK shareholder and the DKL unit holder, and both units show the full value. We obviously -- as we mentioned, we shared that we started the formal process. The process goes as planned.And I don't know, Mark, maybe you want to --

[Mark Hobbs, executive]

Yes. Yes. Sure, Avigal. And I'll touch on the sum of the parts initiatives as well. I'll just stress a few things here. As Avigal mentioned earlier on the call, our belief is that in order for us to highlight the hidden value that we have in the attractive midstream position that we built in particular in the Permian Basin, we need to find the right ownership structure for those assets.And I think as we've discussed clearly on prior calls, we've evaluated all the options that are in front of us, the governance and tax implications of each of those. And we still want to stress that in any action that we take ultimately on the midstream side, we are focused and laser-focused on ensuring that we make both Delek and Delek Logistics stronger entities from a cash flow and leverage standpoint. So we don't want to move away from that position, and that's what we're focused on.On the Retail front, as Avigal mentioned, we have mandated an investment bank to work with us on evaluating those strategic options that are in front of us for that business. And things are progressing well on that front. We don't have anything specific that we want to say today. But we will come back to you hopefully in the near future with some more color on that. But now to your point, the way that we're envisioning this is that we don't see any significant or particular dis-synergies associated with anything that we do on that front.

[Operator]

Your next question will come from the line of Roger Read with Wells Fargo.

[Roger Read, analyst]

Yes. I guess maybe a little bit, I'm going to kind of follow up on Neil's. I mean what is the right way to think about use of funds from Retail disposition or anything else? I mean I'm thinking even wider. You've got your ownership in Wink to Webster that's held inside of DK relative to -- probably belongs more in the midstream sort of operation. So maybe a little more of your thoughts as you rearranged some of the pieces here to achieve that upside value for both DK and DKL, where should we think about that working out?

[Avigal Soreq, executive]

Yes. Roger, first of all, thank you for joining us today. And I'll start the answer. So let's talk about capital allocation broader than just that. As we demonstrated in the last few quarters, we have a priority to have a consistent and growing dividend over time. We have demonstrated a few quarters now. The second priority is we have outlined this quarter very specifically is having a strong balance sheet, right? You probably can appreciate the major improvement that we have seen -- that we have demonstrated on the DKL balance sheet.And obviously the third point is the buyback. I want to be clear, we see a lot of value in our share price today. But we elected not to do buybacks due to development in the strategic initiative progress. So this is where we are on capital allocation. Obviously you asked specifically about WTW. WTW always pay in our toolbox that asset developed very nicely in the last 2 years. And they're probably going to -- we see the value of that asset going up. And it's a very premier [ mutual ] asset.

[Roger Read, analyst]

Yes. No question about that. I guess, let me pivot a little bit just to the operational front. Big Spring, been doing a lot of work there. Where are we in this process? Halfway through, 3/4 away through? It will take a long time to do the last 10% of improvements there. But from a reliability and an OpEx standpoint, just how that's setting up?

[Avigal Soreq, executive]

Yes, Roger. So we definitely see improvement. But Joseph is very close to that. So I will let him answer it.

[Joseph Israel, executive]

Yes. We are executing our plans in Big Spring. And as a result, we see the improvement reliability that we expected, which allows us to meet our targets like we communicated in the past, one run around 70,000 barrels per day on a more consistent basis. It's not the first quarter, but it's starting to be real here with the guidance for the second quarter.Second is improve our capture towards 70% really on mid-cycle basis. And last is to improve our cost structure. We promised the $1 per barrel per quarter reduction until we get to the mid-$5 per barrel target range by the end of the year. So very happy and proud with the team and the progress that we are making.

[Operator]

Your next question will come from the line of Manav Gupta with UBS.

[Manav Gupta, analyst]

My question is more on the DKL side as it relates to DK. DKL continues to be bigger and bigger part of the earnings in the last 5 years. And as DK looks at DKL, do you see with the Permian growth you moving in a direction where the third-party EBITDA would just continue to grow and increase versus drop-downs or organic DK contribution to DKL? I mean I'm just trying to understand from this point on, should we expect the DKL to continue to grow with more and more third-party EBITDA in there?

[Avigal Soreq, executive]

Yes. First of all, Manav, thank you for joining us today. It's a great question. We are very proud on the progress we did. Our first priority that both unit holders and shareholders and the value that we are creating going to find itself into those -- to papers, and that's a priority for us. Obviously, we have demonstrated first to ourselves and then to the market that we can manage those assets and can show abnormal return on them. And if the opportunity presents itself as long as it's accretive for both DK and DKL, we'll take a good hard look into that and keep developing organically and inorganically.So the answer is to the bottom line, if the opportunity presents itself and it's a good opportunity and can be benefit for both units and share, so we'll take a good hard into that.

[Manav Gupta, analyst]

Again quick question here is, look, quarter-over-quarter, all 3 refineries showed pretty good improvement: Krotz, Big Spring and even in Dorado. And I'm just trying to understand, is the kit getting to a point where you would like it to be? Obviously, there's a scope of improvement. But if we -- when we look between fourth and quarter performance and the first quarter performance, what were some of the criterias which allowed these 3 assets to deliver much better earnings in 1Q versus just the last quarter?

[Avigal Soreq, executive]

Yes, absolutely. So some of that is our doing, some of that is obviously the market that was better, and that's reflecting the capture rate. We obviously gave a clear guidance to the OpEx that shows better even in Q2 versus Q1. But Joseph, why don't you chime in and give some more color into that?

[Joseph Israel, executive]

Yes. So far, it has been mainly playing defense, right? In the first quarter, if you count the $3.5 per barrel LPO in Big Spring and the $1.5 per barrel headwind on the OpEx, this is $30 million that was left on the table related to the freeze events, right? But to answer your question, as we have lost less and less surprises and headwind to deal with, we are more and more focused on transitioning to offense and optimize our business, thinking more about process optimization, selecting the right tool, making the right products, taking it to the right markets. At the end of the day, it will translate to a much better capture and the market will get a chance to see the true profitability option of this system.

[Operator]

Your next question comes from the line of Paul Cheng with Scotiabank.

[Paul Cheng, analyst]

Joseph, just curious that, I mean, you get hit, as you mentioned earlier that on the winter storm, Big Spring, you estimate that it's close to $5 impact, both in the profit margin as well as on the cost. And then Krotz Spring is another say call it $1.50 or maybe I got you wrong, but also that have maybe at least $1.50 on the impact. So what's the lesson that we learned from that? Is there something that you can do to prevent it? Because the winter storm is actually well telegraphed way before head. Is there anything operationally that we can do in order to minimize that kind of impact? That's the first question.

[Avigal Soreq, executive]

Yes. Thank you for the question. So first, I will correct one thing. The $1.5 per barrel in Krotz Springs was related to planned trade cleaning in the crude unit. So we knew about it coming to the quarter. It has been a long cycle and to make it all the way to the turnaround and get you the maximum throughput through the driving season, we executed the scope in a low-margin environment, and I'm very glad we did it.In Big Spring it was really the typical challenges of freeze, right? I mean, frozen lines, instrumentation like our peers deal with. And what are we doing? What are the lessons? It's all about risk mitigation. You think about people process equipment. And our main job here is to mitigate the risk each and every day and to better position the asset to deal with every possible challenge and whatever the market gives to us. So very proud of the team. Looking at the second quarter, we are ready to run, and I think good things are coming our way.

[Paul Cheng, analyst]

Second question then on the supply and marketing. You said that wholesale lost $60 million in the quarter and asphalt was $1 million. I think in the past, you sort of is giving a kind of guidance saying that the wholesale will be doing roughly about $30 million a quarter, and asphalt will be lower in the first and the fourth quarter, maybe at $5 million. And then in the second and third quarter will be somewhere in the $15 million, so for a full year, about $40 million. So based on what we've seen in the last several quarters, if those guidance are still a good one or that internally that you guys have viewed them somewhat differently?

[Avigal Soreq, executive]

Yes. So I will start, Paul, with your permission and then we'll allow Joseph to give some more color around that question. Great question. So first of all, we need to start that wholesale is a strategic key part of the downstream integrated business unit. So we see the value in that. We see our ability to place products in different market conditions. So we need to remember that when we are looking in wholesale, right? That's the first part.The second part, it's a bit more tricky to model wholesale because of the nature dynamic of that business. That business is changing every day and the market are very dynamic. So it's not as simple to model it. And that's the reason we are not giving always a clear guidance about that. But I know that Joseph put a lot of thinking into that topic, so please.

[Joseph Israel, executive]

Yes, Paul, to -- first, to answer your question, I think the real answer is, no. I mean, that range is probably not a good place to be. When you look at the full year 2023, supply and marketing still made a positive $50 million, right? So statistically, we averaged slightly over $10 million positive contribution per quarter. However, it's a very hard number really to model. Like Avigal said, it's very important to realize we are an integrated downstream company, and the wholesale marketing is playing a strategic role to connect between our refineries right to the customers.We move around 210,000 barrels per day of right products through that wholesale marketing, which is approximately 800 million gallons per quarter. So high level, it takes a negative $0.075 per gallon margin between the pricing differential in RINs to get to a $60 million loss type of number. And I'm sure you and others will follow the screen, remember the negative $0.30, $0.35 per gallon back in January through the Mid-Con freeze. So I think our team is doing a great job in mitigating this risk going forward, diversifying our pricing exposure and footprint. And hopefully, we can do better in this type of situation in the future.

[Operator]

Your next question will come from the line of John Royall with JPMorgan.

[John Royall, analyst]

So I just had a follow-up on capital allocation. I guess it's a 2-parter. One is you've hiked your dividend now, I think, 7 quarters in a row, up 25% over that time period. Should we expect that to continue with the more frequent but smaller hikes? Or will you get to the point where you move to more of a once-a-year type cadence? And then the second part is just on the buyback, which you talked about the reasoning for turning it off in 1Q. What's a reasonable expectation for when you might be back in the market for buybacks?

[Avigal Soreq, executive]

Yes. So I will answer both of those questions more broadly, and I would not be as specific. As I said all along, being a shareholder-friendly company is a key priority for us as long as maintaining a strong balance sheet. So we definitely will maintain that. And as I said a few times, having a consistent and going dividend over time is something that we value and we believe our investors value as well. So both of them are very key priorities for us.Around the buyback, I want to make a point very clear. We see a lot of value in our share price, but we elected not to do it because of development in the strategic initiatives and the progress we did made around that.

[John Royall, analyst]

And then can you talk about the timing of separating retail? And I realize these processes don't just kick off overnight, but it's a little bit of a tougher time fundamentally now at least over the short term on fuel margin and also on merchandise sales. Do you think the enthusiasm for this business in the asset sale market is maybe what it was 6 or 12 months ago? Or do you think buyer expectations have adjusted at all?

[Avigal Soreq, executive]

Yes. We obviously are not going to be specific around the process. We have a great assets, a unique market position, unique markets. So -- and we are making good progress.

[Operator]

Your next question will come from the line of Ryan Todd with Piper Sandler.

[Ryan Todd, analyst]

Maybe if we think about your refining EBITDA over the last 4 quarters, I think you've generated around $580 million of EBITDA in an environment that was generally above historical mid-cycle margins. As you think about your refining business going forward, what do you believe is the mid-cycle EBITDA or earnings power of the businesses currently constituted? How do you -- maybe think about the bridge of where it is versus where you want it to be, whether in terms of cost reductions, reliability improvements, ability to repatriate EBITDA out of DKL back into DK? Like how do you want the market to think about -- how should we be thinking about the mid-cycle earnings power of your refining business?

[Avigal Soreq, executive]

Thank you for the great question. As we said in the past, we believe that our earning power in the refining is improving as we speak. We have seen better capture rates. You've seen that in all refineries. And we have seen that that we demonstrate lower and lower LPO. That's a key part of that. Joseph put a lot of time into that. So maybe Joseph, if you want to take this one?

[Joseph Israel, executive]

Yes. We think on a mid-cycle basis, our mid-cycle EBITDA is between $750 million to $800 million.

[Ryan Todd, analyst]

At the refining level?

[Joseph Israel, executive]

No, this is for the entire company. And this is considering a stable refining statement with minimum surprises as we position it.

[Ryan Todd, analyst]

And maybe, I guess, it probably feeds into that some, but I can't -- I don't know if I missed it earlier or not, but can you update us as to like progress to date on the cost reduction target? I know you talked about the $90 million to $100 million kind of run rate for 2024. Are you there? Where are you seeing the greatest improvement so far? What's worked well? What still remains to be done? Maybe just an update in terms of the process there?

[Avigal Soreq, executive]

Absolutely. So we are focusing to be at around $90 billion to $100 billion exiting 2024. We have found additional opportunities in towards 2025, and that goes very well. Reuven and his team is doing the amazing job around it. Reuven, do you want to add anything?

[Reuven Spiegel, executive]

Well, we have executed most of the steps that were planned thus far. We have 2 more steps in the second quarter and third quarter that will put us on track for the $90 million to $100 million. We have identified opportunities between $15 million to $20 million that will be executed in '25.

[Operator]

Your next question will come from the line of Matthew Blair with TPH.

[Matthew Blair, analyst]

There is some reports that Wink to Webster will be offline in January for up to 2 weeks. Is that correct? And what kind of market impact would you anticipate? And if that did widen out Midland spreads, do you think Delek would be in a position to benefit there?

[Avigal Soreq, executive]

Yes. So Matthew, thank you for the question. Obviously, I'm not going to comment about WTW operation. We are not the operator of the line and we are not commenting on those kind of rumors or news.Regarding the spread, I think that everyone can see that the long horn spread, i.e. Midland and MEH, is widening pretty nicely. We see it in June widening all the way to back 20 in the second half of the year, Q4. I think it's like $0.75 now that's a demonstration of increase in production. We see the production in Midland, 65, 66 million barrels per day and probably going to go up this year on the additional 250,000 to 300,000 barrels a day. So that's put the Midland differentials going into the next valve, which is the basin and [indiscernible]. So that's going to widen the differential just a little bit. So that's obviously a very good development for us.

[Matthew Blair, analyst]

And then circling back to the commentary on supply and marketing. You mentioned you're seeing some seasonal demand improvement. You're rolling off the very negative values in January, but we also see RINs 10% to 15% lower. And so putting that all together, do you think supply and marketing can be positive EBITDA contribution in Q2 after the $65 million loss in Q1?

[Avigal Soreq, executive]

Yes, Matthew. So listen, it's still early in the quarter. We believe in the business, but I'm not going to give guidance for that. We gave a lot of guidance that help you to model really well. It's really hard to predict the dynamic in the market at this time second. So I'm going to stay out of that guidance.

[Operator]

Your next question will come from the line of Jason Gabelman with TD Cowen.

[Jason Gabelman, analyst]

I wanted to go back to the marketing business and just how you're evaluating unlocking value there. I think when you started this value unlock process a little over a year ago, marketing was considered a core part of the business and wasn't something you were going to look to really try to monetize and it sounds like that's changed. So just wondering over the past year why that's changed?

[Avigal Soreq, executive]

Jason, thank you for the question. Obviously, our commitment, as I said many times, is to make sure that our investors see the value in both the unit price and the share price here. And so we are taking a good hard look at everything, and that's something we decided that we need to look at the opportunities. I think that's what a prudent management needs to do and that's what we are doing.

[Jason Gabelman, analyst]

Okay. And just, I guess, on the supply and trading line, as we think about it moving forward, and I know you want to stay away from really providing concrete guidance. But I'm just wondering if you see any headwinds when your assets aren't operating at 100% and you try to buy products in the market to fulfill contractual obligations. Was that an impact in 1Q? And is that something we could think about maybe not recurring moving forward?

[Avigal Soreq, executive]

Yes. So I don't want to get into too much into the windshield. Obviously, having a safe and reliable operation has a very broad benefits. So there is a reason, Jason, that I'm very determined about the safe and reliable operations, that's a clear priority. And without getting too much technicalities about how each one of the entity works with the other, I will just tell you that this is a commitment and that's a priority, and we are driving a lot of energy into that. And I will leave it to that.

[Operator]

There are no further questions at this time. I will now hand the call back to Avigal for any closing remarks.

[Avigal Soreq, executive]

Yes. Thank you. So I want to thank our employees for the hard commitment for the success of this company. I want to thank you shareholders for trusting in us and the interest that you are showing on our business. I want to thank to all our customers, and I want to thank to our Board of Directors for their support, good advice and commitment. And obviously, I want to thank my colleagues here around the table that are working days and nights in order to make this company what it is. Thank you, guys.

[Operator]

That will conclude today's conference. Thank you all for joining. You may now disconnect.