Delek US Holdings' 2026 Q2 Call: SRE Timing Shifts, Proceeds Characterization Contradictions Emerge

Date of Call: Aug 5, 2026

Financials Results

• EPS: $2.71 per share (net income); $5.48 per share (adjusted basis)

Guidance:

• Third quarter 2026 standalone throughput target: 296,000 to 316,000 barrels per day.
• Operating expenses: $220M-$230M.
• G&A: $50M-$55M.
• D&A: $110M-$120M.
• Net interest expense: $75M-$85M (DKL: $47M-$52M; DK: $28M-$33M).
• DKL third-party EBITDA expected to exceed 80% in 2026 on a pro forma basis.
• Enterprise Optimization Plan (EOP) target: increase cash flow by at least $220M annually; approximately $60M contribution in Q2 2026.

Business Commentary:

Strong Financial Performance:

• Delek US reported net income of approximately $170 million, or $2.71 per share, with adjusted net income of $344 million, or $5.48 per share, for the second quarter.
• The strong financial performance was driven by higher refining margins, robust distillate yields, and improved operational reliability.

Enhanced Cash Flow and Cost Reduction:

• The company made significant progress in increasing its free cash flow profile and reducing overall costs, with an estimated $60 million contribution from the Enterprise Optimization Plan (EOP) in the second quarter.
• This improvement was achieved through operational efficiencies and strategic cost management initiatives.

Midstream Growth and Strategic Positioning:

• Delek Logistics (DKL) is close to completing its comprehensive sour gas solution, aiming for third-party EBITDA to exceed 80% on a pro forma basis in 2026.
• The strategic positioning in the Permian Basin is driven by increased sour gas production and the company's ability to handle this growth.

Refining System Reliability:

• The refining system operated well, with the Big Spring refinery running to expectations post-turnaround, showcasing improved reliability and higher crude slate flexibility.
• The successful turnaround and operational improvements allowed the company to capture market strength effectively.

Dividend and Buyback Strategy:

• Delek US paid approximately $16 million in dividends and $20 million in buybacks during the quarter, reflecting a disciplined capital allocation strategy.
• The strategy is supported by a strong balance sheet and improved reliability, aiming to reward shareholders consistently.

Sentiment Analysis:

Overall Tone: Positive

• CEO expressed being 'extremely pleased with our strong execution' and 'very pleased' with improvements post turnaround. Management highlighted 'strong performance,' 'best quarterly results in our history' for logistics, and progress on EOP driving 'significant value' and increasing confidence in free cash flow. Tone was confident in market positioning and future growth.

Q&A:

• Question from Ayush Gupta (Wolfe Research): Any update on 2025 SRE timing and value restrictions? Can 2025 credits be sold at 2026 prices? Also, process for Krotz Springs award and implications.
  Response: SRE issue is industry-wide, not just Delek; administration understands the need for timely resolution. Krotz Springs award affirms 'disproportionate economic harm' and reflects strength of 2025 petitions.

• Question from Ayush Gupta (Wolfe Research): Can DKL hedge margin strength?
  Response: Company does not hedge crack spreads meaningfully to preserve investment thesis and reward shareholders.

• Question from Alexa Petrick (Goldman Sachs): Capital allocation strategy with tailwinds.
  Response: Strategy is balanced between maintaining dividend, managing balance sheet, and buybacks; committed to being shareholder-friendly and returning capital.

• Question from Alexa Petrick (Goldman Sachs): EOP upside and next leg of improvements.
  Response: EOP is a continuous initiative; confidence in mid-cycle free cash flow of $650M-$700M is increasing, with more improvements expected.

• Question from Manav Gupta (UBS): Update on Libby Gas Complex completion and sour gas ramp.
  Response: Libby plants are running well; nearing completion of sour gas gathering/compression, which will drive a step-change in gas volumes.

• Question from Manav Gupta (UBS): Refining macro outlook and high diesel yield benefit.
  Response: Structural product shortage expected to last; high distillate/jet yield, access to crude, and midstream exposure position company well.

• Question from Jason Gabelman (TD Cowen): Monetizing recent Krotz Springs SRE award and cash priority.
  Response: No plan to hold excess cash; SRE RINs are returned investment, not new cash; capital will be returned to shareholders per strategy.

• Question from Jason Gabelman (TD Cowen): Impact of easing backwardation on refining margins.
  Response: Eased backwardation (flat curve vs. steep in Q2) flows directly to crack margins; a dollar in backwardation is a dollar not in crack.

• Question from Joseph Laetsch (Morgan Stanley): Deconsolidation and value unlock options for DKL.
  Response: All options on table (asset sales, bolt-ons, buybacks); market is good for sellers, but acquisitions must be accretive and strategic.

• Question from Joseph Laetsch (Morgan Stanley): Further work needed on refining system competitiveness.
  Response: Focus remains on EOP for continuous improvement; entire organization committed to next chapter of optimization.

• Question from Matthew Blair (TPH): Q2 breakout for marketing/supply and Q3 trends.
  Response: Supply & marketing improved in Q2; wholesale performing well, asphalt volatile; expect continued improvements in Q3 despite volatility.

• Question from Matthew Blair (TPH): Tax impact on 2025 SRE proceeds.
  Response: Will not provide specific tax guidance; tax minimization is a key strategy; use model levers to minimize expense.

Contradiction Point 1

Small Refinery Exemption (SRE) Process Timing and Expectations

Contradiction on the specificity and timing of the 2025 SRE issue.

What was Ayush Gupta's question to the management during the earnings call? - Ayush Gupta (Wolfe Research)

2026Q2: The SRE issue for 2025 is not specific to Delek but affects 'around 40 refineries' and 'half of the industry.' It is centered on disproportionate economic harm... - Avigal Soreq(CEO)

Regarding Small Refinery Exemptions (SREs), could you clarify the 2025 timing, whether 2025 credits can be sold at 2026 prices, and the process behind the recent Krotz Springs refinery award and its implications? - Manav Gupta (UBS)

2026Q1: Not granting 2026 SREs would create a significant 2027 RIN bank deficit... The administration's energy dominance agenda aligns with providing SREs. The EPA has a clear framework and Delek expects them to act accordingly. - Mohit Bhardwaj(EVP New Energy, Strategy, and Investor Relations)

Contradiction Point 2

Capital Allocation Strategy for SRE Proceeds

Contradiction on the treatment of SRE proceeds as a return of capital versus a new cash inflow.

Jason Gabelman (TD Cowen) - Jason Gabelman (TD Cowen)

2026Q2: The awarded RINs (Renewable Volume Obligation credits) are a return of previously invested capital, not a new cash inflow. - Mohit Bhardwaj(EVP New Energy, Strategy, and Investor Relations)

What is the expected cash magnitude and priority for monetizing the recent Krotz Springs SRE award? - Alexa Petrick (Goldman Sachs Group, Inc., Research Division)

2026Q1: Delek outperformed peers in 2025 by returning ~4% more capital to investors. The capital allocation program is balanced... The company will continue its disciplined approach. - Avigal Soreq(CEO)

Contradiction Point 3

Characterization of SRE Credit Monetization

Contradiction on whether SRE proceeds are a return of capital or a new cash inflow.

Ayush Gupta (Wolfe Research) - Ayush Gupta (Wolfe Research)

2026Q2: The awarded RINs are a **return of previously invested capital**, not a new cash inflow. - Mohit Bhardwaj(EVP New Energy, Strategy, and Investor Relations)

What is the current timing for 2025 Small Refinery Exemptions (SREs), can 2025 credits be sold at 2026 prices, and what was the process behind the recent Krotz Springs refinery SRE award and its implications? - Douglas George Blyth Leggate (Wolfe Research)

2025Q4: A large portion of 2023-2024 RINs (~$360M) was monetized in Q4 2025... Proceeds were used to pay down ~$380M of the Inventory Intermediation Agreement (IIA)... - Mark Hobbs(EVP)

Contradiction Point 4

Outlook on Future RIN Recognition

Contradiction on the certainty and timing of recognizing future RIN values.

What are the key takeaways from TPH's recent earnings call? - Matthew Blair (TPH)

2026Q2: The company will **not provide specific guidance** on 2025 proceeds or tax impact. - Robert Wright(EVP and CFO)

In the context of 2025 SRE proceeds, is there a tax impact from buying RINs low and selling high? - Douglas George Blyth Leggate (Wolfe Research)

2025Q4: A large portion of 2023-2024 RINs (~$360M) was monetized in Q4 2025, **earlier than planned**. ... **Remaining 2023-2024 RINs expected to be monetized in H1 2026, likely Q1.** - Mark Hobbs(EVP)

Contradiction Point 5

SRE Monetization and Tax Strategy

Contradiction on providing specific guidance for SRE monetization and its tax implications.

What were TPH's earnings results? - Matthew Blair (TPH)

2026Q2: The company will not provide specific guidance on 2025 proceeds or tax impact. Tax minimization is a key strategy across the business, and they will 'employ that on any SREs that we’re granted.' - Avigal Soreq(CEO), Mohit Bhardwaj(EVP), Robert Wright(CFO)

What is the tax impact of buying RINs low and selling high regarding potential 2025 SRE proceeds (~$600M for partial, ~$1.2B for full waivers)? - Douglas George Blyth Leggate (Wolfe Research, LLC)

2025Q3: The company is confident that the legal precedent and court decisions will support securing full value for 2019-2022 RINs. - Avigal Soreq(CEO), Mohit Bhardwaj(EVP)