Delek US (DK): Unlocking Value Through EOP and DKL Separation Amid Favorable Refining Tailwinds

The energy sector is undergoing a profound transformation, driven by shifting supply-demand dynamics, regulatory tailwinds, and a re-emerging focus on refining margins. For Delek US Holdings (DK), this environment presents a unique opportunity to capitalize on its strategic operational overhaul and disciplined capital allocation. By executing its Enterprise Optimization Plan (EOP) and accelerating the separation from Delek Logistics Partners (DKL), the company is not only insulating itself from refining volatility but also positioning for long-term value creation in a structurally improving market.

Strategic Operational Transformation: The EOP as a Catalyst

Delek's EOP, launched in 2025, is a cornerstone of its strategic reinvention. The plan aims to generate $130–170 million in annualized cash flow improvements by year-end, up from an initial target of $120 million. This is being achieved through two pillars: margin enhancements and cost efficiencies.

• Margin Enhancements: Logistics and supply chain optimizations are projected to contribute $70 million, while refinery performance and feedstock optimization add $50 million. The logistics segment, in particular, has been a standout, with Adjusted EBITDA surging to $170.2 million in Q2 2025—a 59% increase from Q1 2025.
• Cost Efficiencies: Financial expense reductions and general & administrative (G&A) savings are expected to deliver $40–50 million in savings, with $30 million already reflected in Q2 2025 results.

The EOP's impact is most visible in the refining segment, which saw a $71.5 million year-over-year EBITDA improvement in Q2 2025. This turnaround is critical, as refining margins have historically been volatile. By leveraging its logistics expertise and optimizing feedstock costs, Delek is insulating itself from sector-wide headwinds.

DKL Separation: Unlocking Liquidity and Independence

Parallel to the EOP, Delek's midstream deconsolidation of DKL is a masterstroke in capital allocation discipline. The company reduced its ownership in DKL to 63.4% via the acquisition of Gravity Water Midstream in January 2025, unlocking $250 million in liquidity. New intercompany agreements further increased DKL's third-party EBITDA contribution to 80% on a pro-forma basis, a critical step toward full economic separation.

This deconsolidation is not just about liquidity—it's about strategic clarity. DKL's logistics infrastructure, including the newly commissioned Libby 2 plant in New Mexico, is expanding capacity for third-party producers. With DKL on track to deliver $480–520 million in Adjusted EBITDA for 2025, the midstream entity is becoming a standalone cash flow engine, reducing Delek US's exposure to refining cyclicality.

Favorable Refining Tailwinds and Capital Discipline

The refining sector is experiencing a rare confluence of tailwinds: tight refining margins, reduced crude differentials, and regulatory support for domestic production. Delek's EOP is perfectly timed to leverage these conditions. By lowering 2025 capital expenditures to $150–170 million (down from $293 million in 2024), the company is prioritizing free cash flow generation over short-term growth.

This discipline is evident in Delek's balance sheet. With $615.5 million in cash as of Q2 2025 and a net debt of $2,411.5 million, the company has the flexibility to maintain its $0.255/share dividend (yielding 4.45%) while repurchasing $32 million in shares in Q1 2025. Management has even hinted at a potential dividend increase to $0.27–$0.28/share by early 2026, pushing the yield to 4.7%.

Investment Implications: A Buy-and-Hold Case

Delek's strategic moves are creating a compelling investment thesis. The EOP and DKL separation are not just cost-cutting exercises—they are structural changes that enhance resilience and scalability. For investors, the key takeaways are:

1. Margin Resilience: The EOP's focus on logistics and refining optimization is shielding Delek from sector-wide volatility.
2. Liquidity Flexibility: The $250 million liquidity boost from DKL deconsolidation provides a buffer for strategic acquisitions or shareholder returns.
3. Dividend Sustainability: With logistics EBITDA projected at $480–520 million, the dividend is well-supported, even in a downturn.

However, risks remain. Refining margins could contract if crude prices spike or demand softens. That said, Delek's capital discipline and EOP-driven efficiencies provide a margin of safety.

Conclusion: A Strategic Rebirth in a Structurally Improving Sector

Delek US is undergoing a strategic rebirth, leveraging the EOP and DKL separation to transform from a cyclical refiner into a diversified energy player. In a market where refining margins are tightening and midstream assets are gaining traction, Delek's disciplined approach to capital allocation and operational optimization positions it as a standout. For long-term investors, this is a rare opportunity to capitalize on a company that is not only surviving the energy transition but thriving within it.