Delek US Holdings Inc
NYSE:DK
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Estee Lauder Companies Inc
NYSE:EL
|
Consumer products
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Church & Dwight Co Inc
NYSE:CHD
|
Consumer products
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
American Express Co
NYSE:AXP
|
Financial Services
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Target Corp
NYSE:TGT
|
Retail
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
| US |
|
Mueller Industries Inc
NYSE:MLI
|
Machinery
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
15.4
33.39
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Estee Lauder Companies Inc
NYSE:EL
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Church & Dwight Co Inc
NYSE:CHD
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
American Express Co
NYSE:AXP
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Target Corp
NYSE:TGT
|
US |
|
|
Walt Disney Co
NYSE:DIS
|
US |
|
|
Mueller Industries Inc
NYSE:MLI
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
Delek US Holdings Inc
You don't have any saved screeners yet
Good morning. My name is Tabitha, and I will be your conference operator today. At this time, I would like to welcome everyone to the Delek US Holdings Q3 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]
Thank you. I would now like to turn the call over to Mr. Keith Johnson. You may begin your conference, sir.
Thank you, Tabitha. Good morning. I'd like to thank everyone for joining us on today's call and webcast to discuss DK's third quarter 2018 financial results. Joining me on today's call will be Uzi Yemin, our Chairman, President, CEO; and Kevin Kremke, EVP and CFO; as well as other members of our management team. I do want to point out that we have placed a presentation material that we'll be using on today's call on our website. They can be found on the Investor Relations section of the Delek US website. We'll be referring to those as we go through the prepared remarks.
As a reminder, this call may contain forward-looking statements as that term is defined under federal securities laws. Please see Slide 2 for the safe harbor statement. In addition to reporting financial results in accordance with the Generally Accepted Accounting Principles or GAAP, we report certain non-GAAP financial results. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to the comparable GAAP results, which can be found in the press release which is posted on the Investor Relations section of our website.
Our prepared remarks are being made assuming that the earnings press release has been reviewed, as we are covering less segment and market information that's incorporated in the 3Q press release. On today's call, Kevin will review financial performance and operations for the quarter, before turning it over to Uzi, who will offer a few closing strategic comments.
With that, I'll turn the call over to Kevin.
Thanks, Keith. We had a great quarter, with record results and solid cash flow generation from our operations. As you can see on Slide 3, for the third quarter 2018, Delek US reported net income of $179.8 million or $2.03 per diluted share, compared to net income of $104.4 million or $1.29 per diluted share in the third quarter of 2017. On an adjusted basis for the third quarter of this year, Delek US reported net income of $174.8 million or $2.02 per diluted share compared to an adjusted net income of $60.9 million or $0.77 per diluted share in the prior-year period.
Our adjusted EBITDA increased by 66% to $310.6 million in the third quarter of this year, compared to $186.7 million in the prior-year period. Our consolidated contribution margin improved to $360.7 million in the third quarter of 2018, compared to $200.2 million in the third quarter of last year. This was led by refining, as it benefited from a wider Midland to Cushing crude oil differential that drove a contribution margin of $319.5 million, compared to a contribution margin of $180.1 million in the third quarter of last year.
Both logistics and retail also improved on a year-over-year basis. Turning now to capital spending, our capital expenditures during the period were $86 million, compared to $69 million in the third quarter of last year. Our 2018 CapEx forecast is $305 million. This amount includes $192 million in our refining segment, $12 million in our logistics segment, $12 million at retail, and $89 million at the corporate level.
Included in the corporate level spending for 2018 is approximately $78 million related to the Big Spring Gathering System in the Permian Basin. We have spent approximately $211 million year-to-date through the end of the third quarter on consolidated basis.
Slide 4 bridges our cash position from June 30 to September 30. We ended the third quarter with approximately $1.1 billion of cash on a consolidated basis and $753 million of net debt. Excluding net debt at Delek Logistics of $758 million, we had a net cash position of $5 million at September 30. We had great financial performance during the third quarter of 2018, and generated approximately $368 million of cash from continuing operations.
Taking into consideration our cash capital expenditures of $85.5 million, our free cash flow during the quarter was $282 million. This supported our ability to return $113 million of cash to our shareholders, while also reducing debt, which included paying off the $150 million convertible notes with cash.
With a large cash balance and a strong balance sheet, we get plenty of questions on how we think about capital allocation. On Slide 5, I wanted to spend a couple of minutes discussing our disciplined approach that looks to balance returning cash to shareholders and prudently investing in the business to support safe and reliable operations, while also exploring opportunities for additional growth.
Our goal is to balance the different aspects of this program based on valuations of each opportunity and how it matches our strategic goals for the company, while factoring in market conditions and expected cash generation. From a return standpoint, we generally target 25% IRR in refining, and 15% for retail and the more stable logistics investments.
As we think about different investment opportunities and the nature of the industry in which we operate, our goal is to maintain a strong balance sheet in an effort to provide flexibility through the cycles of the business as we focus on creating long-term value for our shareholders. Our investment in our gathering system, combined with our strategy to participate in a long-haul crude oil pipeline, should support our midstream growth.
I want to point out that we have the ability to use our balance sheet to support these investments. While we do have a large cash balance, we expect to fund these investments during the construction period with 60% to 70% debt, depending on our cash generation and alternate investment opportunities. This should give us the ability to support our strategic investments, while allocating capital to other uses, including returning cash to shareholders.
Next, I would like to give some operational updates, beginning on Slide 6. Our alkylation project at the Krotz Springs refinery is proceeding as scheduled, and we expect it to be operational in late first quarter of 2019. Through September 2018, we spent approximately $82 million on this project. We expect to spend approximately $21 million in the fourth quarter of this year and the remaining $10 million in the first quarter of next year. The expected total cost is approximately $113 million, and we expect annual EBITDA from this project to be $45 million to $50 million.
As a reminder, this project should provide additional production flexibility at Krotz Springs, as it improves the ability to convert low-value isobutanes into higher-value gasoline products, such as low RVP summer grade and premium gasoline. This project further reduces the portfolio's dependence on crack spreads to generate future EBITDA.
Next, I would like to provide greater detail around our Big Spring gathering system. This system, as shown on Slide 7 is expected to cost around $205 million, of which between $125 million and $130 million is expected to be spent in 2019. The system will have capacity of 300,000 barrels per day, and we currently have more than 200,000 dedicated acres and expect this to grow further. It has an expected annualized EBITDA in the range of $40 million to $50 million, including a crude quality benefit in refining, which should be achieved by 2022.
On Slide 8, I wanted to provide some guidance for modeling in the fourth quarter of 2018. During the third quarter, our total refining system crude oil throughput was approximately 283,000 barrels per day. For the fourth quarter of 2018, we expect crude oil throughput in the refining system to average between 275,000 and 285,000 barrels per day. In addition, based on the forward curve on November 5, we expect to purchase our Midland crude oil at approximately $8 to $9 discount to Cushing in the fourth quarter.
Taking into consideration the inventory timing effect, we estimate based on the forward curve that our realized Midland discount in our gross margin will be in the range of $10 to $10.15 per barrel. This should continue to drive cash flow generation from our operations. We have also included additional guidance for select income statement items in CapEx for modeling purposes.
Next, I will turn the call over to Uzi for closing comments.
Thank you, Kevin. As Kevin mentioned, we had great quarter with great cash flow generation as well as record EBITDA. As we develop Delek US over the years, we have retained a focus on creating value for our shareholders. This has included both returning cash to shareholders, while also growing our operation through acquisitions or organic projects with attractive valuations. The Alon transaction has been a very successful addition to our portfolio and provided Delek US with a larger Permian Basin platform.
Our goal is to continue to manage investment decisions based on our capital allocation program as we build from our core platform. The combination of the gathering system and our strategy to participate in a long-haul crude oil pipeline further develops our Permian Basin position. These steps, along with other projects, should help us achieve $370 million to $390 million of midstream EBITDA by 2022.
The midstream investments, as well as the alkylation unit at Krotz Springs, should provide a more stable EBITDA base to our business model that is less dependent on crack spreads. This should further support the ability of our consolidated operation to generate approximately $1 billion of EBITDA on a consistent basis.
As Kevin mentioned decisions in our capital allocation process are based on valuation between the different opportunities available to us and our strategic goals. Currently, we believe that our stock is very attractive investment relative to other opportunities. Consistent with our - this assessment, as well as our commitment to return excess cash flow to shareholders, we intend to repurchase $150 million of Delek stock or 30% of our new $700 million authorization in the fourth quarter of 2018.
In addition, our Board of Directors approved a 4% increase in our regular quarterly dividend, which marks our third increase since the third quarter of 2018. As shown on Slide 9, this would bring our 2018 total cash return to shareholders to approximately $445 million or 14% of our market capitalization on November 5. We remain focused on creating long-term value as we balance returning our excess cash flow to shareholders, investing in our business, and exploring opportunities to develop the next stage of our growth.
With that, operator, would you open the call for questions?
[Operator Instructions] And your first question comes from the line of Phil Gresh with J.P. Morgan.
Hey, good morning. This is John Royall sitting in for Phil. How are you guys?
Hey, John. Good morning.
So first question is on the buyback, looks like you'll be doing about $250 million in 2H this year. Is that the right run rate to think about going into 2019?
Well, what we have - and I'll let Kevin touch it. We are going to obviously look at the situation and make sure that every penny of our excess cash flow should go back to shareholders. So, as we look at the outlook for the fourth quarter, we see that, obviously, we generated a tremendous amount of cash in the third quarter. Fourth quarter is fixing to be another very strong quarter. So there's no reason to believe that we won't continue to be aggressive in buying our shares. Kevin, I don't know if you want to add anything to that.
Yeah. That's perfect. Good question. 2019, based on fundamentals and forward curves, certainly looks to be a strong year from a cash flow generation standpoint. We have some low multiple accretive projects that we're investing in, but the intent here is absolutely to return all excess cash flow to shareholders.
Great. Thank you. Next question is on the balance sheet, you guys touched on this a little bit during the prepared remarks. But several potential midstream investments underway and you've got the buyback out there. Where do you ultimately want your leverage to be? And thinking about a potential downside scenario where Midland did contract? How much buffer are you planning to build in there?
Yeah, so, maintaining a conservative balance sheet is still part of our philosophy. I would say, long term, under 1.5 times is kind of the right leverage for us.
Thank you.
And your next question is from the line of Paul Sankey with Mizuho.
Operator?
Yes, sir. Mr. Paul - one moment, he has - Mr. Paul, I'll find him.
Why don't we go to the next one and then come back to Paul?
Yes, sir. And Mr. Sankey has rejoined, sir, one moment.
Hello, can you hear me?
We can. Good morning, Mr. Sankey.
Thank goodness, you didn't hear what I just said before I came back on, apologies. Uzi, everything is so strong out there for you guys right now. It seems that the weakness in the stock was related to the announcement that you made about the pipeline, the Permian-Gulf Coast. Has your view changed on that or could you give us the latest update on how you're thinking about that? Thanks. Sorry about that.
Paul, can you repeat the question. I'm not sure we got it.
It relates to the announcement you made in September about the Permian-Gulf Coast pipeline, Uzi, which seemed to be a big part of why the stock got so weak, given everything is so strong out there in 3Q and seems to be in Q4 for you too. I just wondered what your latest view on that is, whether the market reaction has changed your appetite for that pipeline. Thanks.
Well, let - as we announced our gathering system and the leverage that Delek had with all these producers, we do have excess barrels that we don't need in our system. And, we will have several opportunities to deal with these barrels. One, sell them to other refineries, sell them into the Midland market or take them to the Gulf.
As we mentioned, as Kevin mentioned, our appetite for midstream assets, our threshold is around 15%. And, obviously, this project or any other project needs to meet that threshold. So, for me, even though there is weakness in the stock we believe that we should continue to stay the course of a low threshold for midstream return, and at the same time, return excess cash flow, which we have tremendous of that, to shareholders.
Now, one more thing that we need to remember, there was a confusion in the market that we are going to take $500 million and not leverage this $500 million and just take it away from shareholders. Obviously, that's certainly not the intent of us. As Kevin mentioned, we're going to look at 60% to 70% leveraging any midstream asset investment. So the excess cash flow that we generate from operation would continue to go to shareholders.
Understood. And then the follow-up and final question is that we've seen, as you know, Valero changing its structure regarding its MLP. What are your latest thoughts on that? Thank you.
Obviously, we looked at what Valero did and we will need to look at our MLP carefully. As the cost of capital for MLP today, for us, is higher than the cost of capital for DK. I'm not suggesting that we will do something next week. But over the next 18 months, that's something that we will need to look at, including simplifying the structure with the IDRs.
Thank you. Sorry about the confusion. Thanks.
No worries.
And your next question is from the line of Matthew Blair with Tudor, Pickering, Holt.
Good morning, everyone.
Hey, Matt.
Hey, Matt.
The Midland share to the Krotz Springs refinery was pretty high in the quarter, almost 72%. Yet, this was the one plant that seemed to lag a little bit on profitability. Could you help us just square those two items?
Well, let me take it. These are two pieces. First of all, we did have maintenance at Krotz Springs that lasted 10 days with the STC [ph]. Obviously, we didn't that. Also, we had maintenance at El Dorado. The total loss of opportunity, because of these two maintenances in around $15 million to $20 million. So that's one thing.
The second, once you - we ran a little less barrels, we had opportunity to move more barrels from Midland to the refinery. And we're using our Paline Pipeline; we took advantage of that situation.
Got it. Thanks. And then, Uzi, on previous calls, you've alluded to some potential Midland hedges. Could you provide any sort of an update on volume, strike price, duration, anything in regards to that?
Hey, Matt, it's Kevin. Yeah, what we said is that we would consider going up to 15%. And our hedge portfolio is kind of right in around that number. And there is not a whole lot of liquidity too far out on the curve, so we're looking at really through calendar year 2019.
And is there a strike that you can share on those hedges?
No. We haven't disclosed that.
Okay. Thank you.
And your next question is from the line of Neil Mehta with Goldman Sachs.
Good morning. This is Carly on for Neil. Thanks for taking the question.
Good morning, Carly.
The first one just on El Dorado. Volumes came in a little bit softer than we would have expected that quarter, and I know you mentioned the turnaround activity. Can you just talk us through the performance at that asset? What work was being done during the quarter? And if you can quantify specifically the lost opportunity cost at El Dorado.
Absolutely. Thank for the question. First of all, El Dorado, as I mentioned - both El Dorado and Krotz had some activity. El Dorado, I would say it is around - between $10 million to $15 million for the quarter. El Dorado is the main reason for the lower utilization, even though the utilization was still very strong, a little less than 94%. We are - we did some work around the [STC. That STC] [ph] work lasted around three weeks. And obviously, we chose not to put it in our lost opportunity, up front. But that's the number that we all need to remember with the work that was done in El Dorado.
Second, the El Dorado turnaround is coming. And we are going to do a little more activity in the fourth quarter to shorten the duration of the El Dorado turnaround that is coming in the fourth quarter. We are going to see if we can improve our shutdown. Normally, we are talking about 35 to 40 days. We will try to make it shorter in the first quarter, but we will update you that in the next call.
That's great. Thanks. And then the follow-up is just around CapEx. We've seen a couple recent announcements with the PGC pipe, and now the Big Spring gathering system. Are there any early thoughts you can provide around 2019 capital spending levels? And then specifically on the Big Spring gathering system, can you talk about how you're getting to the EBITDA associated with that project, when you think about the uplift with refining in addition to the midstream portion?
Thank you for the question. This is Assi. So when you look at our 2018 CapEx, overall we're looking at a $305 million. Of that around $80 million is the gathering business. So when you exclude the $80 million, you will see that our base CapEx for 2018 was around $225 million. When we look at 2019, instead of investing $80 million in the gathering, we expect to spend $125 million in the gathering. And the base CapEx of $225 million will slightly be higher as a result of the turnaround and some Tier 3 work that we're going to do.
So as I mentioned, the $80 million this year will be around $125 million next year. And the $220 million base CapEx that we had in 2018 will be slightly higher in 2019 as a result of the El Dorado turnaround.
Great. Thank you.
And your next question is from the line of Brad Heffern with RBC.
Hi, everyone. Just as a follow-up on the Big Spring gathering system, you talked about how you would hit the run rate EBITDA in 2022, but the project is done well before then. So is that just a matter of the production volumes ramping up? Or is it the tie-in to PGC that creates that lag? Any color there? Thanks.
Sure, Brad. First, a great question. We enjoy talking about the gathering system a lot here. And I will say that when you look at the volume of the producers that we have, we expect that to be around 100,000 barrels a day on average in 2019; and already provide, in 2019, $20 million to $30 million of EBITDA. By 2022, the production curves of the producers that we already have in place is expected to be closer to 200,000 barrels a day, which will increase the EBITDA to $40 million to $50 million.
We do not need to tie-in to PGC in order to achieve that EBITDA. As Uzi mentioned earlier, we can also sell the crude into the Midland hub. So PGC will add on additional layer of flexibility to the producers by bringing their barrels to the Gulf Coast. But we always have the option to sell it into the Midland hub. So while those two projects, on a combined base, can generate a lot of EBITDA, the gathering system is a standalone business.
Okay. Thanks for that. And I guess, Kevin, will all these midstream projects be reported just at the corporate level, like you're doing it on CapEx?
Right. Exactly. And then long-term, of course, we're looking at the possibility of putting these midstream projects down to DKL.
Right, okay. And then, I guess, Uzi, just thoughts on M&A here. You have several organic growth projects in flight. Thoughts about whether that restricts your ability to do larger scale M&A, and just how you are viewing the market.
Well, obviously we will continue to look at opportunities. However, I want to be clear here. DK is trading at 3.5 times EBITDA, and using DK's stock as currency honestly doesn't make sense, especially in light of the fact that some of our peers are trading 6 or 7 times EBITDA. That's one thing. The second thing, we - the organic project that we have are much more accretive than buying midstream assets at 17 times or 18 times. We checked the deals that were happening in the last two, three years, and the average multiple on these midstream assets is 15.
And we had the opportunity here, as we discussed, to come with 4 or 5 times EBITDA. So we will not go ahead and write a big check now for 15 times, when we can leverage our own relationship and our own business and build something for 4 or 5 times EBITDA.
Okay. Very clear. Thanks.
And your next question is from the line of Jay Tobin with Macquarie.
Hi, guys. We've seen compression in the benchmark gasoline margins. Can you just give us an idea of how gasoline markets and margins are holding up in your regions? And then a follow on, the weakness extends out the curve theoretically into an IMO 2020 environment. Then just curious how you would expect gasoline margins to be impacted by the IMO in that - that far out the curve? Thanks.
So, thanks for the question. We do see, as you mentioned, the gasoline price coming down to $6 in the Gulf, using WTI. And actually negative when you use the Brent prices, or almost 0 when you use LLS. With that being said, when you look at the diesel crack spread, I think today it crossed, for the first time in a long time, $28.
So when you look at the 5-3-2 into going to Q4 November, December heading towards $15, extremely healthy for refineries that can run WTI crude. And when you look at Delek, we are actually running - we expect, next quarter, in Q4, our crude to be discounted - the Midland crude around $10 to $10.50 a barrel. So on our Midland barrels our base crack is $25 a barrel.
So as I mentioned, most refineries look at the gas and the dealers [ph] as combined as they run in the refinery on a total incremental value. And, therefore, we are not discouraged to reduce rates. We actually tried to run as high as we can even in Q4, taking advantage of the WTI crude.
Looking at the IMO, I will say that Delek has a lot of flexibility to enjoy the higher crack spreads that may be expected with IMO. With that being said, as we all know, the administration is looking at potentially delaying it. Delek, I don't think that we see a huge uplift from IMO as an industry. But we still think there will be an increase in diesel cracks, which will enable Delek, that has 44% of diesel, the highest in the industry, to enjoy those. So I think IMO may not be as big as people think for the industry. But if it will be there, we will be able to take a great advantage of it.
Great. Thanks.
And your next question is from the line of Roger Read with Wells Fargo.
Yeah. Thanks. Good morning.
Hey, Roger. Good morning.
Uzi, can we go back to the - I think it was Slide 5, the one with kind of the capital allocation to shareholders, thoughts on acquisitions, everything like that. So you've taken dividend up a decent amount over the last year or so. So if I calculate it correctly, roughly $50 million was your dividend on an annual basis. Now we're in the 80 to 85, depending on share repurchases and so forth affecting share count.
But how did you get comfortable, I guess, with the higher dividend payout? Is that a function of the changing contributions from logistics and from retail? Or is it just a confidence or a comfort level that the refining is going to be stronger, crude differentials will be here longer, or something else that's going on? Maybe it's the alkylation project. I'm just curious, like how do you get comfortable with that higher level? And then how does that play into the other allocations of cash, down the road?
Well, I want to be clear about one thing here, Roger. When we look at Midland, we don't think that Midland is going to be $10 or $12 or $15, and shouldn't be there. Our business model is based on the last 10 years of Midland differential then we checked it over 10 years, not one day, of $2.50, actually $2.49 to be exact. And when we take the $2.50 and apply it over long-term - and obviously we have very strong balance sheet, so we are not planning to leverage the balance sheet.
And then, we add the plans we have for the midstream, as well as the alky unit and other initiatives that we have, we get to around $1 billion of EBITDA. That's the number, more or less, that probably we have in our head, and probably we want investors to remember. That's the number, more or less, in a normalized situation. I know that we got - we just got $310 million of EBITDA. Without the El Dorado thing and the elevated bonus, that number would have been closer to $330 million, $340 million.
But let's just use $310 million, times 4; we are above $1 billion. But in the normalized situation, when we use $2.50, and adding the midstream initiatives, as well as the alky, we are around $1 billion. And if we talk about our sustainable cash flow, or cash flow to - maintenance cash flow, if you will - we're talking about $130 million.
And then obviously we have plenty of room as our tax payment is around $100 million, $120 million. And interest is around $100 million as well. So any way you look at it, Delek is probably, amongst our peers, the biggest producer of free cash flow. So there's no reason for us not to look at dividend, and say, gee, this should be looked every time. And when we see the generation of $370 million of cash in the quarter, we're just comfortable where we are, giving more cash to shareholders.
It's very helpful. Thanks. And then just to follow up on that, what's the right way to think about maybe a maximum level of CapEx you'd be willing to incur in a year, off that normalized base? I mean, if we take the 150 - excuse me, $130 million as sustaining and then we assume $50 million to $60 million of turnaround, so call it, $180 million. You've got the other projects pushing you probably, I don't know - let's say, closer to $300 million a year. Is that kind of a - that's a comfort level or are you willing to stretch beyond that?
Well, it depends on the economics of the project. If we're going to have a project like the Alkie [ph], for example: we're investing $130 million. And in today's market we will get between $45 million and $50 million. Now, the money was already spent, or a big portion of it was already spent. So when we see a project like that, that is very accretive to our refining system and at the same time have very high payback unrelated to crack spreads, then there's no reason to believe that we won't look at it very carefully and move fast.
However, as Kevin said, if we have a project that are 6, or even 7, 8 times on the refining side, we probably won't do them. So it depends on the project and the opportunities that stands there in front of us.
Great, thank you.
[Operator Instructions] And your next question is from the line of Doug Leggate with Bank of America Merrill Lynch.
Hey, guys. Good morning. This is Kalei on for Doug. So I actually think that some like what you're doing in the Permian, and as far as reinvesting those windfall refining profits into midstream, the diversification looks like it can help cushion the hard-landing from narrowing Permian differentials. Mid-cycle, how do you think those differentials look relative to WTI? Do you think that it trades at a premium?
Well, as we mentioned, Kalei, we did check over the last 10 years, 8 years, 6 years, anytime you want. So if we take the - since 2008, which includes, obviously, two years that were during the recession, we are talking about $2.50. So, now, I do think that there will be times of extreme situations, like where we were with two, three years ago when there was a premium of $0.50. At the same time, there is another extreme situation like happened two months ago with $17. But history shows that eventually it gets back to $2.50.
Over 10 years, if you use 5 years, you are close to $4, so we while - we watch it very carefully, we need to stay the course of this $2.50 over the long-term. And that's what we assume.
Got it. So you guys are thinking $2.50 under WTI, and that's based on a historical average. Okay, got it. The midstream EBITDA target of $370 million to $390 million, just wondering if you can break that down into its buckets; DKL, future drop downs, and future growth projects?
Sure, so when you look at the DKL current run rate, it's basically the last 12 months we generated $165 million of EBITDA. When you add to that the annualized drop-downs and the fact that we extended the Paline, you will see that it will add additional $20 million. In addition to that, we had the drop-down from Krotz that we expect to be at $32 million, sometime in mid next year.
And then we identified between the long haul and our gathering by 2022, roughly $165 million of EBITDA. So when you basically take all those together, you will get to $370 million of expected EBITDA from logistics. The $390 million is basically subject to the economics of the long-haul plus other projects and other drop-downs that are available at DK today, such as our trucking. So if we stay the course, we think by 2022, in a $1 billion environment scenario, close to 40% of our EBITDA will be, I will say a stable logistics midstream EBITDA.
I'd like to add one thing to that. As we all remember, we have the retail segment, which is having a great year, a record year, because all our stores are in the Permian. And we see our same store growth, tremendous amount of growth. So if we look at these at the combination of retail like we did in the past, in the midstream, our goal is to reduce our beta dramatically and provide value to shareholders while, again, giving back excess cash flow to shareholders.
Great. Thanks for taking my questions, guys.
And we have no further questions at this time.
Thank you for your time today. Before we close, I would like to highlight a few things to take away from this call. First, we had a wonderful quarter, record earnings, record free cash and record EBITDA. Delek is a growth company that is generating very strong cash flow, as demonstrated during this quarter.
We plan on utilizing this cash flow and our balance sheet to support our midstream growth initiatives. These initiatives will increase the amount of stable cash flow in our business model to provide more consistency in our consolidated EBITDA. As Assi mentioned, our initiative with the midstream EBITDA of $370 million to $390 million, plus the retail initiative, will provide us a roadmap to get to $1 billion stable cash flow.
In addition, we are aggressively returning cash to shareholders through dividends and repurchases, based on our capital allocation model. With that, I'd like to thank everybody for being on this call this morning. I'd like to thank investors for their continuing support. I'd like to thank our Board of Directors and my colleagues, for helping me achieving the great result we just had. But, mostly, I'd like to thank our employees for making this company what it is. Thank you. Have a great day.
Ladies and gentlemen, this concludes today's conference call. You may now disconnect.