Delek US Holdings, Inc. (DK) Q3 2020 Earnings Report, Transcript and Summary

Good day, and welcome to the Delek 2020 Third Quarter Conference Call and Webcast. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, the event is being recorded. I would now like to turn the conference over to Mr. Blake Fernandez. Mr. Fernandez, the floor is yours, sir.

Good morning. I would like to thank everyone for joining us on today's conference call and webcast to discuss Delek US Holdings third quarter 2020 financial results. Joining me on today's call is Uzi Yemin, our Chairman, President and CEO; Reuven Spiegel, EVP and CFO; and Louis LaBella, EVP and President of Refining, as well as other members of our management team. The presentation materials used during today's call can be found on the Investor Relations section of the Delek US website. As a reminder, this conference call may contain forward-looking statements as the 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 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 and we are covering less segment and market information than is incorporated into the third quarter release. On today's call, Reuven will review financial performance. I will cover capitalization and guidance. Louis will cover operations and CapEx, and Uzi will offer a few closing strategic comments. With that, I'll turn the call over to Reuven.

Thank you, Blake. On an adjusted basis, for the third quarter of 2020, Delek US reported a net loss of $74 million or a negative $1.01 per share compared to a net income of $77 million or $1.01 per diluted share in the prior-year period. Our adjusted EBITDA was $22 million in the third quarter of 2020 compared to $184 million in the prior-year period. The second paragraph of this press release highlights $31 million of after-tax benefit or $0.42 per share of items included in adjusted results. I would like to highlight the table on page 13 of the release providing other inventory impacts by refinery in the quarter. This might be helpful in terms of modeling the Refining segment. On slide 4, we provide the cash flow waterfall. In the third quarter of 2020, we had a negative cash flow of approximately $77 million from continuing operation, which includes a working capital detriment of $40 million. Cash capital expenditure in the quarter was approximately $5 million. Finally, during the quarter, we announced the elimination of the incentive distribution rights and conversion of the 2% general partner interest in DKL into a non-economic interest in exchange for 14 million newly issued DKL units and $45 million in cash. This brings the DK ownership of DKL up to 80%. With that, I will turn it over to Blake.

Thanks, Reuven. Slide 5 highlights our capitalization. We ended the third quarter with $808 million of cash on a consolidated basis and $1.7 billion of net long-term debt. Excluding net debt at Delek Logistics of $1 billion, we had net long-term debt of approximately $666 million at September 30, 2020. I would remind you that we expect a federal tax refund of approximately $165 million in the first half of 2021. Moving to slide 6, we provide fourth quarter guidance for modeling. We remain on track to exceed our cost reduction targets of $100 million for the year additionally through a combination of workforce reductions and tactical initiative including Krotz Springs, we anticipate another $80 million reduction in 2021 versus 2020 levels. This is comprised of $70 million in operating cost and $10 million of G&A. Lastly during the quarter, the Wink to Webster Project achieved mechanical completion on the main segment connecting the Permian Basin to Houston, Texas. The main segment of the pipeline system was commissioned with Permian crude oil from Midland to Houston in October and service is expected to be available to shippers in the fourth quarter. As a reminder, we own 50% interest in a financing JV that has a 30% interest in the pipeline JV. Additional – segment, segments offering shippers further service are expected to be in place in 2021. With that, I will turn the call over to Louis to discuss our operations and CapEx.

Thanks, Blake. During the third quarter, our total refining system crude oil throughput was approximately 280,000 barrels per day. In the fourth quarter of 2020, we expect crude oil throughput to average between 225,000 to 235,000 barrels per day or approximately 76% utilization at the midpoint. This assumes Krtoz Springs throughput of 20,000 to 30,000 barrels per day. In light of difficult macro conditions, we elected to perform turnaround work at the Krotz Springs refinery that will be conducted on a straight time basis beginning in November. This will allow us to continue running the Reformer and the Alky unit and should help improve economics toward a breakeven level. The cost to perform this work is estimated at $10 million and is included in our CapEx program. After this work is completed towards the end of the first quarter of next year, the facility will be capable of moving back to full utilization should the macro environment improve. On slide 7, I want to highlight our capital spending. Capital expenditures during the third quarter were $5 million. We remained confident that we will achieve or come in below our full-year 2020 capital guidance of approximately $249 million. The 2020 capital program is broken down by segment as outlined in the slide. For 2021, we expect CapEx to be approximately $95 million lower than the 2020 levels with the guidance for the full year of $150 million to $160 million including turnarounds. Next, I will turn the call over to Uzi for closing comments.

Thank you, Louis, and good morning, everybody. We're taking aggressive steps to improve the cash flow profile of our company with visibility towards $200 million of collective improvement next year. This will be achieved through a combination of CapEx reductions, decreased operating costs and G&A expenses, optimizing of Krotz Springs refinery operation, as well as other initiatives. Our board has suspended dividend payments at this time to maintain a flexible balance sheet given the macro environment. Based on market conditions, shares repurchases would be given priority over a resumption in the dividend or growth capital as we see a significant disconnect between the value of our underlying assets versus the equity market. Lastly, I would like to encourage you to review our new sustainability report published in September. Delek (00:07:57) recognizes responsibility to the community and our stakeholders and we are pleased to share our ESG journey including disclosing year-end 2019 statistics, detailing actions the company took in 2020, and describing some of the steps we are planning to take in the future. With that, operator, will you please open the call for questions.

Yes, sir. We will now begin the question-and-answer session. At this time, we'll just pause momentarily to assemble our roster. And the first question we have will come from Neil Mehta of Goldman Sachs. Please go ahead. Neil Mehta - Goldman Sachs & Co. LLC: Good morning, Uzi. Good morning, team. Uzi, the first question is just around capital allocation. Today, you're making the decision to suspend the dividend to repurchase shares. And so, I guess the question is, implicit in that is a view that you think the stock is attractively valued here despite some of the refining headwinds that we're seeing right now. So, talk about the calculus, the math that goes into why you think it's time to be buying back stock, and then also talk about timing and sizing given the uncertainty in the market out there, recognizing you have some cash inflows coming in next year.

Appreciate the question, Neil. Let's start with something little different, than we'll answer those (00:09:49) directly. If you look at the – what we said, we said that between OpEx, CapEx, and other initiatives that with the other initiatives being fee-based, we're talking about $100 million coming in. If you look at CapEx, CapEx is coming down around $95 million, call it, $100 million. So, it's going down to around $150 million to $160 million. So, let's talk about the free cash flow of the company once things normalize a little bit. If we look at 2018-2019, the toll cap – toll (00:10:35) OpEx and G&A in 2018-2019 for DK was somewhere around $920 million, $930 million. That was the number. If you go ahead and apply what we just gave you guidance for the OpEx and G&A for 2021, we are around $730 million, $740 million. So, you see around $200 million of savings compared to what used to be 2018-2019 which you may call at that time elevated or normalized, whatever the definition is. That's first $200 million. The second is if you look at $100 million of DKL improvement because of all the investments that were done in 2017, 2018 and 2019 in the Midstream, DKL today is $270 million, used to be $170 million in 2018-2019. So, that – if you take the $200 million of savings plus another $100 million of (00:11:47) saving of OpEx and G&A, another $100 million of DKL, now you're at (00:11:52) $300 million. The normalized CapEx in 2018-2019 was around $350 million to $370 million. Today, we are telling you $150 million to $160 million, that's another $200 million. So, all in, you're talking about $500 million. I'm not talking about the crack spreads for just one second. I know the crack spreads are much lower. Midland benefiting 2018-2019 was $4 a barrel. If you take it times (00:12:26) 75 million barrels, you're talking about benefits of Midland of $300 million. So, the $500 million that we are showing is more than offset all the Midland benefit we had in 2018-2019. So, we feel that we achieved our goal to overcome this Midland overhang. Now, going back to your question, knowing all that in – what goes through our heads, we feel that we are starting to generate free cash flow not from the tax return, but actually generate a free cash flow under the assumption of $120 million of interest and $150 million of CapEx, we start generating that at around $8.50 crack to $9 crack. Let's just call it $8.75. And so – and today, we are around $7. So, once we see that, we think that we are starting to generate free cash flow. And because of the cushion, we had the $800 million that we have, the tax returns that is coming back and the fact that DKL continues to perform and W2W is coming online that would be something that you should expect us to approach very quickly. I hope I answered your question. That was a long answer, but (00:13:54) numbers. Neil Mehta - Goldman Sachs & Co. LLC: Yeah. That was great. You did the modeling for us, Uzi. So, here's a follow-up around that. When you talk about an $8.50 crack as where you get to free cash flow sort of breakeven and free cash flow positive at which point to repurchasing shares. When you talk about that, are you talking about like a benchmark crack, like a Gulf Coast 3-2-1, Brent plus a WTI-Brent spread or Midland spread on top of that? I'm just trying to understand the parameters (00:14:25).

We assume Midland zero, and we assume 5-3-2 Golf Coast WTI crack. Neil Mehta - Goldman Sachs & Co. LLC: Okay. And embedded in that calculus is Wink to Webster as well?

Well, the – part of the others that we mentioned is related to commercial agreements around Wink to Webster. The first phase was completed a few weeks ago. So, the $30 million of other is that, mainly that part. So, you get only a benefit of $30 million at this point. Obviously, Wink to Webster will be fully completed by the end of next year and then you'll start seeing their full benefit. Neil Mehta - Goldman Sachs & Co. LLC: Great. Thanks, Uzi. Thank you.

And next we have Brad Heffern of RBC Capital Markets.

Yeah. Hey. Good morning, everyone. Just to follow on, on Neil's question about the dividends. You called it a suspension. So, is the likelihood that the dividend comes back at some point once the market normalize, or is this a more of a deferral and until, maybe, the equity performance gets much better more in line with where you think it should trade, the cash flow will continue to go to repurchase rather than some reinstitution of the dividend.

Okay, Brad. Thanks for the question. I'll go by the history. If you look at 2018-2019, our market cap today is $800 million. If you look at 2018-2019, and I just walked Neil through the numbers, why if crack normalize, our situation will be better even with Midland not being – even in with Midland being zero, because we don't count on Midland anymore. That was our strategy all along, to go to Midstream to offset the benefits of Midland, because we never thought that Midland should stay at $4. So, if you go back to 2018-2019, we returned a combination of buybacks and dividends. We returned $700 million during these two years to shareholders. Today, our market cap is $800 million. If we can get cracks that is normalized, call it $12, $13, $14, then you should expect similar numbers coming. Now obviously then, you need to play between how much you are actually buying the shares because at $11, obviously, it goes completely toward the buyback, but if the shares or the stock price recovers, then you go back to dividend. But for us, the biggest or the most important thing is the free cash flow that we think once, we have some kind of normalized cracks, but then I just mentioned, $850 million is the – where we – the things that we are going to start generating free cash flow, then it depends on the share price. Lower share price, more buyback. Higher share price, more dividend. I hope I answered all your question.

Okay. Yeah, that's very clear. And then just on Krotz, so, I guess, first of all, can you talk about how we should think about modeling it during this time period where it's just Alky and Reformer running it to just sort of take the octane spread and multiply by the capacity of those units? And then beyond that, is this kind of the minimum level of activity that you would ever expect at Krotz just because there's a lot of value in those two units or is there a chance that if the market stays like this for longer than we expect that Krotz could ultimately be closed?

Krotz is a good asset. In today's market, it doesn't make money. So, we are being nimble, being a small company, we have our disadvantages, but we have a couple of advantages, being quick. So, we sat down and we said what are we going to do, and we knew that next year there was supposed to be a turnaround. So, we said, let's take this straight line turnaround – straight time turnaround over the next three months. We don't expect Krotz (00:18:43) to recover to a level that it makes sense to run the entire refinery. At the same time, both the Reformer and Alky have value in them and also other activities that we're doing in that refinery. So, as we said in the press release, which for modeling standpoint, you should expect Krotz to be towards breakeven even in today's environment. This is after you take into account the reduced OpEx. Come February or March, if things recover then obviously, we'll flip the switch because we just completed a turnaround which costs only $10 million. Obviously, normal turnaround usually costs much more than that. And we go back to normality. If it's not, then we'll continue with this operation. I honestly don't see a situation at this point that causes Krotz being shut completely.

And, Brad, just to help you from a modeling perspective if you need any help to get towards that breakeven level, of that $70 million of OpEx reduction that we articulated, about 40% to 45% of that is associated with Krotz. So, basically, you can save your operating costs there to help you move towards that breakeven level if that's helpful.

Okay. Thank you, everyone.

And next, we have Ryan Todd of Simmons Energy.

Thanks. Good morning. Maybe if I could follow up on one of the earlier questions. Uzi, I appreciate the thorough run-through on a lot of the moving pieces on the cash and the cost side. But I mean clearly with Delek's market cap below its valued holdings in DKL, the market seems to be pricing the Refining business will destroy value over some period of time. You've done a tremendous amount to lower the cost structure there going forward. But how much – maybe can you talk about how much flex is? Is there any flex left in the budget for next year? And maybe as we look forward the sustainability of cost savings both CapEx and OpEx into 2022, how much of this is sustainable as we think about the longer-term value of the Refining business?

Okay. So, first, Ryan, I think you asked two questions. I'll try to answer both of them. And if I missed something, please follow up. So, the first question is how sustainable – in my mind what you ask is how sustainable the OpEx, G&A, and CapEx. So, let's start with the easy part. CapEx, if you look at the history that was all along our CapEx on the – on normalized basis without growth and without special project. So, we are just not going to do any growth (00:21:41) project in this environment. It doesn't make sense. In that number, there are two turnarounds. One, of course, that was moved up and the other one is the El Dorado. So, you knock down two turnarounds in the same $150 million, $160 million. So, it's absolutely sustainable in this environment. And just remember, we invested hundreds of millions in each refinery. So, we feel from a reliability standpoint, we can demonstrate that we are ready to run the refineries at very high utilization because we just invested all that money in the past. I think that's the first question. The second question was OpEx and G&A. Again, if you look at what we're trying to do in this environment, there's not much that we want to do besides returning cash to shareholders. At $11, there's no growth projects or no study or no things or not many things that you should do that bring value more than the share price being at $10 or $11. It just doesn't make sense, we just said it. So, that's why – if you listen to us a year ago or two years ago and we had all these discussions, we felt at that time that we needed to invest money in physical assets, which we did, and that's why DKL is now what (00:23:10) like you mentioned, it flipped. It's $1.3 billion or $1.4 billion versus DK being $800 million, which, again, doesn't make sense. The third component of you asking the question is Refining (00:23:27). Actually, we think that Refining, if you do some of the positives (00:23:28), negative. Now, I find it hard to understand why the refining assets for DK are negative when we have other Refining assets in the market and these companies are not (00:23:39) negative value. So, there's a disconnection which we aim to correct by the move of shifting from dividend and growth CapEx to buyback. I hope I answered all these questions.

Yes. Sorry, I didn't intend to ask so many at the same time. Maybe one separate unrelated follow-up, I mean, can you remind us about your option on the potential Bakersfield renewable diesel facility and maybe how that project is progressing from what you've been told? And maybe remind us what the buy-in, would it tell whether there's any capital involvement and how you'd be able to – whether you'd be able to offset your RV (00:24:25) obligations after that?

So, Ryan, it's Blake. I'll take that. So, I would defer you to Global Clean Energy who is operating and constructing the project. We have an option to participate with a 33% interest. I think it's a 90-day window after the facility is operational that we can execute that. So, at this point, we're basically in standby mode. We can see how the macro unfolds. We have not disclosed what the capital commitment would be. But I think, by and large, I would just tell you it would be fairly de minimis. It is not – it's an absolute dollar amount. It is not a percentage of the total construction cost of the project. So, I believe the timeframe is towards year-end 2021, maybe early 2022. And that is basically our optionality for renewable diesel at this point.

Great. Thanks, Blake.

Yes.

And next we have Manav Gupta of Credit Suisse. Manav Gupta - Credit Suisse Securities (USA) LLC: Hey, Uzi, can you help us spin a little more technically what exactly are you doing at Krotz that will help you lower the breakeven, bring the refinery to profitability. And if that's something that you can take across to Tyler and El Dorado if there is a need to do similar work over those two refineries to make them a little more profitable?

As usual, Manav, you always ask smart questions because we have done exactly what you asked. We sat down and – so let's go one-by-one. Krotz, we're cutting expenses like Blake said, by several million dollars, which already happened. And a portion of it, you will see in the fourth quarter and then the full benefit next year. On the OpEx side, and then we are taking the other units that were scheduled to have turned around by the end of next year and do turnaround here. So in – that we should (00:26:26) close to breakeven at Krotz. El Dorado, because of the asphalt is actually – and you can see it in the numbers, is actually making good money even in this environment. So, there's no reason to do it in El Dorado, there will be though, turnaround in the first quarter in El Dorado that we are planning to do and this is part of the $150 million. Big Spring, as you know, there's little noise in the numbers this time. But as you know, especially with the wins (00:27:03) in the niche market at West Texas, Big Spring is – and buying below Midland and not shipping, Big Spring is one of the best refineries that exists. So, you shouldn't touch Big Spring, especially in light of the fact that now you have the – in DKL, the gathering system as well as a Wink to Webster portion is coming online and then in the future, there will be more income coming around the half (00:27:38) of Big Spring, which is not just a refinery. And Tyler, you're very familiar with Tyler. You've been there many years when we bought – you know that this facility, even in today's environment, tends to make money. So, shouldn't touch it besides, tweaking the expenses, which we did tweak expenses across the company. I think I've said it one by one. Manav Gupta - Credit Suisse Securities (USA) LLC: No. Perfect. I've got a follow-up here. When you look at Delek, there are two parts which are looking perfectly fine: Logistics, which is actually doing great and Retail, which is actually doing very well and then Refining, which is not doing so well. Now, when you are lowering your CapEx, you're also lowering your growth projections for the Retail businesses. At one time, Uzi, you were very bullish about building bigger stores, getting more sales in, getting more merchandized sales. So, I'm just trying to understand as you pull back on the CapEx, which is fine on Refining side, are you pulling back a little too hard on the Retail side because your Retail business was actually doing very well even until date. So, the question is on the Retail expansion front, sir.

That's a great question, Manav. But look, again, capital allocation is art. It's something that we need to look every day. And that's why I'm being paid. And you look at the share price, which is $11. You do some of the parts and you have a market for DKL and DKL reported another record in the quarter (00:29:16). And as we told you, all these investments over the last few years will continue to bring more and more dollars to DKL. So, DKL is doing very well because of the investments. Retail is doing very well. But the share price of DK is $11. So, in terms of capital allocation, you say to yourself, where should I put my chips? And the chips should go towards more buyback in our mind at this very moment. Obviously, if the stock price goes back to $50 then capital allocation should change towards growth projects. Manav Gupta - Credit Suisse Securities (USA) LLC: That's a very fair interpretation. Thank you for taking my question.

Thanks, Manav.

Next, we have Roger Read of Wells Fargo.

Yeah. Thank you. Good morning. How are you all doing?

Good, Roger.

Hey, Roger.

Hey, Uzi and Blake. Two questions for you. One on the kind of financial balance sheet side. It seems to me the OpEx thing has been beaten pretty good here. And the others could (00:30:20) be on kind of market fundamentals and so forth. So, I'll hit that one first and come back to the balance sheet. If we look at Cushing inventories, they obviously spiked pretty high back in the spring, came down and then they've been steadily increasing, yet we haven't seen a real (00:30:37) widening in the either MEH or LLS differential. So, I was curious how do you think about the market structure out there given that a lot of times we hear about tank tops (00:30:49), you're not hearing about that right now, but whether or not we may see some of that in the coming months or quarters. So, I'll leave it with that and then come back on the balance sheet if that's all right.

Hey, Roger. How are you today (00:31:04)? So, it's a great question about the differential. And obviously, most of the pipeline in the (00:31:11) is overbid. So, there'll be (00:31:14) some level of stability in the differentials. We see that there's stability coming all along since Q2. Both of them at LLS and (00:31:23) MEH. A Cushing (00:31:25) as you just said. But we don't see the time spread of CMA open as quickly as it was before because it's more manageable than in the past, doesn't mean that it cannot be opened till the next future but it's not going to be as extensive as (00:31:41) was in Q2 because of the panic that hit the pandemic. Does that make sense?

Okay. Yes. It does. And then the other question I had again, kind of just thinking about the balance sheet in slide 5 in the presentation. I think some of the reasons we've seen a little depression into the stock is obviously in the (00:32:03) across the space. Net debt has increased. I was just wondering, Uzi, as you've talked about what you would want to use excess cash for, how do you think about using excess cash to delever, recognizing that some of that debt, maybe even a significant portion increases in detail, so it's not necessarily debt, you either need to delever or can delever on. But just how you think about it overall as a structure of interest expense as a call on cash, total debt, debt to cap, debt to EBITDA, that kind of thing?

Roger, if you – I'm sure you remember our mid-cycle target is very simple. For DKL, for Logistics and – yeah of course, the leverage goes up because the assets of DKL and the EBITDA of DKL is going up. So – but at the same time, the market cap of DKL goes up as well. So, if you look at Logistics, we target 3.5 to 4.5 (00:33:06) even though the covenants we have are – or the max leverage – there are no covenants but max leverage according to our credit facility is 5.5 (00:33:20). So, we're in the middle of the range. We're 3.9 (00:33:24) in that area of billion dollars. The second part, which we are not there obviously today, we thought that the entire rest of the business should be between Retail and of course, Refining, should be not more than 1 time EBITDA, which right now, it's around $600 million, but this EBITDA doesn't exist in Refining as we know. So, we believe that with the steps we are taking, will – we're preserving the cash and we're protecting the balance sheet, though it needed protection to start with, with $800 million and that (00:34:09) coming sometime early next year. But the mid-cycle, we really want, we prefer it to be 1 time. So, if – this is for your modeling thing.

No, that's helpful. And we'll just, I guess, wait on market conditions as to when kind of all this come together.

Well, since you asked that question, I think the first step will be when a vaccine has been found. But full recovery is when people feel safe to go back. I think we're talking about between 12 to 18 months from now. So, we – I do not expect to see full recovery to $15 crack before 2022.

Okay. Thanks. That's helpful.

And next, we have Phil Gresh of JPMorgan.

Hey, good morning.

Hey, Phil.

Good morning.

First question is just related to unlocking the value which others have, kind of pointed out. One of your peers has a big Midstream business, Retail business and Refining company they sold Retail to unlock the value. So, you've done it in the past. I think you've indicated more recently that these Retail assets are more important to you. But is this something, as you look at your stock price, that you consider?

First, we should look at everything in this environment. Retail, as you know, is around $45 million EBITDA based on one of our peers selling their portion is – I don't know, 10, 11 times, whatever the number is. The question, what we are going to do with the money with market cap of $800 million, we don't need CapEx. We don't have CapEx. So, that's a good question. And when you say to yourself, market cap is $800 million and Retail is $500 million, you can buy the entire company for Retail, it's tempting to look at it. At the same time, Retail is not maturing just yet. We have ways to go. And we think we can get more value. Manav asked a question earlier about being in stores. Some of the stores that we've built are doing very well. So, at this point, I don't see us jumping on the wagon with Retail just to add more cash to the balance sheet for a company that the market cap is only $800 million.

Okay. Second question, if you could just remind me with the start-up of Wink to Webster. Is that something that exists at the parent company level that gets dropped to DKL or is the ramp up of Wink to Webster directly at DKL?

No, it is at DK. (00:37:18)

And there was no benefit to that until now. There was nothing in it.

Right. So, that at DK levels, are you thinking about a potential drop? Do you feel like you have the capacity to do that, or you just keep it the DK level for now.

Well, we need to be patient, Phil. You always said that it – transition story, and we feel that transition story is unfolding. And obviously the market environment, it is what it is. We are where we are with the environment. But it didn't change the strategy of continuing to grow Logistics. However, W2W, as we said all along, there's a ramp-up period. So, we will need to make a decision at what point that drop down. If it makes sense, at what point we should do it.

Got it. Okay. And just to clarify on the buybacks, I guess, at this point in time, you're assessing buyback potential, but you don't feel comfortable doing it now opportunistically. You'd rather wait. Or just to clarify that. Thank you.

I said very clearly that we believe that once we start generating free cash flow which according to our model, it's around $8.50. We shouldn't wait. When I say $8.50, the market 532 (00:38:50) is $8.50.

Yeah. Okay.

And when I said free cash flow, I mean after interest and after CapEx.

Yes. Okay. Very clear. Thank you.

And next, we have Jason Gabelman of Cowen. Jason Gabelman - Cowen & Co. LLC: Yeah. Hey. Morning.

Morning, Jay. Jason Gabelman - Cowen & Co. LLC: Two questions. First, just a clarification on $25 million on other initiatives. I'm not sure if I heard you right – if that's mostly the Wink to Webster contribution or if that's something else? And then, secondly, kind of a more strategic question, it seems like it's a unique opportunity where you could kind of take a step back and you've pulled back spending across your assets and kind of assess where you want the future of the company to be and moving forward, deploy capital as you see fit. So, I wonder as you're looking at your portfolio if you – when you think about increasing spending again, if you're thinking about deploying it in new business segments, maybe segments that generate higher multiples than refining historically has given that energy demand in the US and globally seems to be changing. Thanks.

First, the first – the answer to the first question is yes. The answer to the second question (00:40:27) to look. That's the reason we have the (00:40:30) and that's the reason we invested there or we have the option to invest in it, in that one-third asset in California, in Bakersfield. The – I've been doing it long time. I've been CEO of this company 19 years, probably too long. And I've seen it, ups and downs. And you – every CEO is expected that's why I'm being paid – I said it earlier – to allocate the capital based on the best returns at the time. And third, for sure, we needed to fix our refineries in the past (00:41:16). And we invested hundreds of millions, if not billions, in our refineries. But now, they are in good shape. And we do need to look at the future and say, what is next? And is investing in these refineries the right thing or doing something different? And that's what we are actually doing. And once we have clear path for the three to five years, we'll notify the market. Jason Gabelman - Cowen & Co. LLC: Got it. Thanks.

Thank you.

The next question we have will come from Kalei Akamine of Bank of America. Please go ahead.

Hey, guys. Good morning. It's Kalei in for Doug here. I've got two questions. They're both on Krotz. First question, so Krotz is about 45% of the $70 million savings. It sounds like some of this is related to lower utilization. So, what I'm trying to figure out is whether some of this – I'm trying to figure out whether this OpEx is mainly coming from 1Q when the plant will be offline for an extended period of time for maintenance, and whether there's any sustainable cost savings that we'll be able to see once the plant comes on normally.

So, Kalei, it's Blake. At the end of the day, we're going to start the turnaround work here in November and that will spill through into March. So, really, the utilization of the crude – there's going be no utilization of the crude unit or the FCC. We'll be running the Alkylation Unit and the Reformer. So, at the end of the day, the OpEx savings will be embedded in 1Q. And what I would suggest to you from a modeling standpoint is to just keep that OpEx removed for the year. If the margin environment improves and we feel we can offset the operating cost reductions with improved cash flow from the margins, we'll restart it. But at the end of the day, the cash generation will be there in (00:43:29) fashion. Does that help you out?

Got it. That makes sense. Second question also on Krotz. Have you guys explored operating the plant as maybe a terminal and whether that would be value-accretive? And I guess, what I'm thinking about is the aversion of maintenance capital. Maybe ask another way, what is maintenance CapEx today and what does that look like ex-Krotz?

Usually, a maintenance CapEx in a refinery by the size of Krotz is around $15 million to $20 million a year. It's not $100 million, it's not $200 million. Please remember, we built the Alky. So, maintenance CapEx is not (00:44:12) turnaround. And obviously, we're doing the turnaround now in straight time. So, we take advantage of not-so-good environment. But you can – in terms of modeling, it's $15 million to $20 million, it's not $200 million. I think that's the question, Kalei, right?

Indeed. I appreciate the answers, guys. Thanks.

Well, at this time, we're showing no further questions. We'll go ahead and conclude our question-and-answer session. I would now like to turn the conference call back over to the management team for any closing remarks. Gentlemen?

Well, thank you, Mike. Thanks for hosting us this morning. I'd like to thank my friends around the table, my colleagues. I'd like to thank you listening to us this morning. I'd like to thank the great employees of this company. We have been through a lot here together and they are great to work with. I'd like to thank the board of directors. These are not easy times but we are taking the right steps. Thank you and have a great day.

And we thank you also, sir for your time today and to the rest of the management team. Again, the conference call is now concluded. At this time, you may disconnect your lines. Thank you and everyone, take care and have a wonderful day.