Delek US Holdings Inc (DK) 2018 Q1 法說會逐字稿

Good morning. My name is Laura, and I will be your conference operator today. At this time, I would like to welcome everyone to the Delek US First Quarter Earnings Call. (Operator Instructions) Thank you. I would now like to turn the call over to Mr. Keith Johnson of Investor Relations. Sir, please go ahead.

Thank you, Laura. Good morning. I would like to thank everyone for joining us on today's conference call and webcast to discuss Delek US' First Quarter 2018 Financial Results. Joining me on today's call is Uzi Yemin, our Chairman, President and CEO; Kevin Kremke, EVP and CFO; as well as other members of our management team.

As a reminder, this conference call may contain forward-looking statements as that term is defined under Federal Securities Laws. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements. You're cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

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.

On today's call, Kevin will begin with a review of the financial performance of 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. For the first quarter of 2018, Delek US [recorded] a net loss of $34.9 million or $0.43 per basic share compared to net income of $11.2 million or $0.18 per diluted share in the first quarter of 2017. On an adjusted basis for the first quarter of 2018, Delek US reported net income of $28 million or $0.33 per basic share compared to an adjusted net income of $10.1 million or $0.16 per diluted share in the prior year period. Our adjusted EBITDA was $113.1 million in the first quarter of this year compared to $60.1 million in the prior year period. A reconciliation of reported results to adjusted results is included in the financial tables of our press release.

During the first quarter of 2018, results included a net benefit of approximately $79.8 million related to the net effect of a RINs waiver and mark-to-market adjustments due to a declining RINs price environment. This benefit was partially offset by $34.6 million related to operating performance in the first quarter of 2018. That amount includes approximately $25.6 million of estimated lost profit opportunity relative to the first quarter of 2018 crude oil throughput guidance we gave you during the fourth quarter earnings call.

In addition, there was a $9 million operating loss primarily from West Coast asphalt operations, which are expected to be sold to a third party in the second quarter, and a West Coast supply and offtake agreement that is expiring in May. The combination of these items was approximately $45.2 million before tax benefit, or approximately $0.42 per share after-tax.

On a consolidated basis, line items such as operating expenses, G&A and interests increased on a year-over-year basis, primarily due to the addition of Alon. I'd like to note that G&A expense included approximately $10.5 million of transaction costs this quarter.

Our income tax rate, excluding the noncontrolling interest income of $14.9 million, was 38.9% in the first quarter. This rate included a $7.4 million income tax-related benefit from remeasuring certain net deferred tax liabilities as a result of the 2017 Tax Cuts and Jobs Act, the effects from the biodiesel tax credit and goodwill impairment. Excluding these items, the income tax rate was approximately 18%. For full year 2018, we expect the combined annual effective tax rate to be in a range of approximately 21% to 23%.

Turning now to capital spending. Our capital expenditures during the period were approximately $70.1 million compared to $15.2 million in the first quarter of last year. During the first quarter of 2018, we spent $51.5 million in our refining segment, $2.2 million in our logistics segment, $2 million in our retail segment and $14.4 million at corporate. Our 2018 CapEx forecast is $232.3 million. This amount includes $182.6 million in our refining segment, $19.9 million in our logistics segment, $17.4 million in our retail segment and $12.4 million at the corporate level. This amount for 2018 does not include approximately $80 million of midstream projects to enhance our position in the Permian Basin.

On March 30, we completed a series of steps to reduce our interest cost and simplify our debt structure. We close on a $1 billion senior secured revolving ABL credit facility and a $700 million senior secured term loan B. We use the proceeds to pay off other high interest rate borrowings and consolidated the number of debt instruments on the balance sheet. The expected interest expense savings from this step is approximately $20 million on an annualized basis, which is in addition to the cost of capital synergies already captured through Q1 of 2018.

We ended the first quarter with approximately $1 billion of cash on a consolidated basis and $942 million of net debt. Excluding net debt at Delek logistics of $733 million (sic) [$737.7 million], we had net debt of $209 million at March 31, 2018.

Now, I would like to discuss our results by segment. In our refining segment, we reported a contribution margin of $133.6 million compared to a contribution margin of $64.4 million in the first quarter of last year. This year-over-year increase in contribution margin is primarily due to the addition of the Big Spring and Krotz Springs refineries from the Alon transaction, improved market conditions and the benefit from the RINs waiver and biodiesel tax credit. First quarter 2018 results were reduced by a series of operating factors that I mentioned earlier.

Market conditions as measured by Gulf Coast 5-3-2 crack spread increased on a year-over-year basis to $11.53 per barrel for the first quarter this year compared to $10.58 per barrel for the same period last year. In addition, the refining systems benefited from the Midland WTI crude differential to Brent crude that was an average discount of $4.70 per barrel compared to $2.81 per barrel in Q1 of last year.

In March of 2018, the El Dorado and Krotz Springs refineries received approval from the Environmental Protection Agency for a small refinery exemption from the requirements of the renewable fuel standard for calendar year 2017. This waiver, value based on market prices, resulted in approximately $59.3 million of RINs expense reduction at El Dorado and additional $31.6 million at Krotz Springs. In the first quarter of 2017, El Dorado received a waiver that resulted in approximately $47.5 million of RINs expense reduction.

During the first quarter of 2018, approximately $24.6 million of income was recognized in the renewable business as part of the refining segment from a $1 per gallon biodiesel blenders federal tax credit that was approved in February of 2018 on a retroactive basis for calendar year 2017.

Our logistics segment contribution margin was $36.3 million in the first quarter this year compared to $26.6 million in the prior year period. On a year-over-year basis, improved performance was primarily due to the West Texas wholesale business, the Paline Pipeline and 1 month of benefit from the Big Spring drop down.

Contribution margin in the retail segment was $11.9 million. Merchandise sales were approximately $80.5 million with an average margin of 30.2% and approximately 53.7 million retail fuel gallons that were sold at an average margin of $0.19 per gallon. There is no year-over-year comparison for the retail segment as it was acquired in the Alon transaction on July 1, 2017.

Contribution margin for the Corporate/Other segment was negative $29.5 million in the first quarter of 2018 compared to negative $5.7 million in the prior year period. Included in these results was a net hedging loss of $17.9 million for the first quarter of this year compared to a loss of $3.5 million in the prior year period. This hedging amount represents system-wide hedges that are not applicable to a specific refinery.

Now, I will turn the call over to Uzi.

Thank you, Kevin, and good morning. As you can imagine, we are very excited about the activity in the Permian Basin. Delek's operating model has been built around access to the Permian Basin crude oil, and we are well positioned to take advantage of the wider discount between Midland and Cushing. Based on the forward curve as of May 4, 2018, Midland crude oil is at a discount of $5.86 per barrel in the second quarter. The discount is widened to $14 per barrel in the second half of 2018 and is currently averaging $10 per barrel for 2019. As a reminder, we have access to approximately 75 million barrels annually, or a little more than 200,000 barrels per day of Midland crude oil, which accounts for approximately 70% of our crude slate.

Our team continues to make substantial progress on the integration of Alon. As of March, we have captured $104 million of synergies on an annualized basis since July 1, 2017 where we closed the Alon transaction. This reaches the low end of our previously targeted range of $105 million to $120 million range. We now believe that we can capture $115 million to $130 million of synergies on an annualized basis in 2018.

We ended March with cash balance of approximately $1 billion. During the first quarter, we purchased $95 million of our stock and have a total remaining authorization of approximately $180 million. To further support our ability to return cash to shareholders, our Board of Directors approved 25% increase in our quarterly dividend. This follows the 33% increase that was approved in February 2018. We remain focused on creating long-term value for our shareholders as we balance returning cash to our shareholders, investing in our business and exploring opportunities to develop the next stage of our growth.

With that, Laura, would you open the call for questions?

(Operator Instructions) And our first question comes from Manav Gupta of Crédit Suisse.

Uzi, congrats on back-to-back dividend hikes. They are very rare in the energy universe. So Uzi, no one does a better job of acquiring assets using the downturn and then turning them around than you do. You have mastered that art. My question is if margins are going to remain above mid cycle given IMO tailwinds, does that mean DK will primarily stay out of the M&A market? Or you can change strategy if there's a good deal out there?

Manav, thanks for your kind words. I'd like to say that as we said, we have $1 billion on our balance sheet. And with the Midland differential the way they are, first, we believe that everybody's models are too low. And that their cash will be -- continue to pile [at a rapid way]. So our goal is to make sure that if we make an acquisition, we need to be accretive day 1. And there are other areas, other aspects of our company that are -- that can enjoy this Midland situation, let's call it the midstream side, logistics side, I think Kevin mentioned $80 million more or we are now investing $80 million in gathering our midstream assets in the Permian. So all these are now trying to attract investments in other areas that are not as attractive. It doesn't mean that we will stay out of the M&A arena for refining. If there -- we see an opportunity, and we see a situation that we can improve the operation day 1, then we'll look at it. But we think that the huge opportunity now on the midstream side, that the MLP market is out-of-favor.

And my quick follow up is, you are very well positioned to benefit from the Midland discount and Cushing discount. I mean, what we are seeing is also that Cushing is building and now with Keystone pressure restrictions gone, there's more crude flowing into Cushing. So I'm trying to understand, is there a possibility that Brent-WTI itself widens to $8 or $9 on top of the $10, $12 that you're seeing in the Midland area, which will be an added tailwind if you have any color on that?

The Brent-TI is actually -- I'm a little surprised that the combination -- we're a little surprised, the combination is getting to [$15], now almost $20. I think that the pressure will [mountain] over the next few months for exports to accelerate. If it does, then the Brent-TI will close a little bit. I think that refineries outside the United States see the (inaudible) margins we have and they're looking at ways to get some of that margins. So while temporary, it may go higher, eventually I don't think that it can hold when Midland is at today, $13, fourth quarter, $15.

Our next question comes from Neil Mehta of Goldman Sachs.

Uzi, can you remind us again here, or Kevin, the sensitivity for every dollar change in the spread between Brent and Midland on an EBITDA basis for your company?

Brent and Midland or WTI and Midland?

Either, whatever is...

I'll give you both, so you'll be -- for every barrel between Cushing and Midland, we're talking about -- or every dollar, we're talking about $75 million. And for every dollar between Brent and Cushing, we're talking about $100 million.

That's annualized EBITDA?

That's correct. That's actually -- it's going directly to the bottom line, not even EBITDA because there's no depreciation and no charges to that. By the way, mainly, and you will see it obviously, it's hard to [model] that, you will see that our capture rate will improve because of Midland, just because of the fact that this dollar goes directly to the bottom line, it doesn't go through the crack spread.

So you played that out as TI Midland's $10 a barrel higher than it was in the first quarter, you could have $1 billion of annualized excess cash flow or at least pretax. So, I guess, the question is how do we think about what you do with that excess cash flow, recognizing that coming at the end of '19, or early 2020, there's a lot of pipes coming on line. Is that where you double down on the share repurchase program?

That's certainly an option to do -- we just [hike] the dividend again. That's certainly an option to do. We know we have excess cash, and we want to put it to work. And the combination between dividend, buyback and looking for assets to be accretive immediately as we buy them or build them, these are the combination or this is the combination that we're looking at.

Uzi, one of the things we're spending a lot of time thinking about but don't have a great answer is that what is ultimately setting the differential between WTI Midland or Brent versus Midland? We keep on coming back to trucking being the marginal barrel. Do you agree that's the marginal barrel? Do you have a view of how much it cost to move a barrel from West Texas down to the Gulf Coast? And is there sufficient trucking capacity to do that at this point?

Well, let me use an example that happened a few days ago. We had a blip in the -- in our Big Spring refinery and obviously, we filed that with the TCQ, the [SEC] malfunctioning. That impact was 100,000 barrels for the entire event. Not 100,000 barrels a day. Everything, all in, 100,000 barrels. That [spooked the market $2]. That's how tight the market -- how tight the market is. And if 100,000 barrels, which is a temporary thing because obviously we'll run it going forward, if this is the case, then you know the market is very tight. Then, you go to the portion of the question that you asked about trucking and also rail. So we know about couple of companies that are trying to rail -- to use railroad, however, it's not that easy as it used to be 4, 5 years ago. Some of the railroad companies are not as attuned or as receptive to this idea like they were 4, 5 years ago. So now we are talking about trucking. And that's a long shot. Not only, okay, it cost money to hold it, but you need to get the truck and more importantly, you need to get the drivers. We have a huge trucking operation in the area, and trucking as well as drivers is a challenge.

So what happens then -- is your view that there isn't sufficient trucking capacity then to ultimately clear the basin over the next 2 years?

I really don't know what we have in 2 years. But right now, there's shortage trucking and drivers in the area.

Our next question comes from Brad Heffern of RBC Capital Markets.

Just on the quarter. I was wondering if you could talk through some of the moving pieces on capture. Obviously, you gave the big LPO figure, and you had some downtime in the quarter, but the capture was particularly low. So anything else that I should be thinking about in terms of why that was?

Absolutely. Assi will take you through some of the [technicality] and if needed, if we need some more color we'll obviously give some more color.

Sure, Brad. As we mentioned, most of the LPO wasn't related to volume we didn't run, but the majority was actually because of the freeze that we had in January in Texas and in some parts of Arkansas. We had some yield loss across the system. So when you look at the capture rate, when you add to that the fact that the RIN prices went sharply down between the day we got the waiver until we reported the earnings, all those together impact materially the refinery. And we think that the capture rates in El Dorado was actually closer to $5 to $5.50 a barrel compared to the reported margin that we've seen. The Big Spring was closer to $11 a barrel. When you look at Tyler, close to $7 a barrel. And when you look at Krotz Springs, $3 to $3.50 a barrel. So across the system almost every refinery negatively impact between $1 to $2.50 a barrel combination of the reduction in RINs prices, plus the fact that the yield loss or the LPO that impact the refineries. We do not expect this to be as impactful in the next few quarters, as we don't have anything to, right now, point out beside a small decline [in ethanol --] in RIN prices that we've seen since the end of the quarter.

Okay, that's great color. And then I guess on the RINs front, can give any thoughts around the potential to get waivers at Tyler or Big Spring? And also some of your peers have gotten rulings from 2015 overturned and have gotten retroactive waivers for that year. Is there any chance for that at any of the refineries?

We'll obviously look at that very carefully, Brad. Just as a reminder, and that's something that we all need to remember, we've been doing the RINs waivers from El Dorado and Alon at the time [and now us] did it for Krotz since that mechanism existed 8, 9 years ago. And every year, when we submitted that, we got it, with one exception, I think there was 1 year that El Dorado didn't get it, there were special circumstances and I won't get into that on this call. So we think the waiver is pretty much the mechanism of this administration to control the RINs cost. However, we never submitted Big Spring or Tyler. And that's something that we will need to look at carefully. It looks like the new administration's willingness to look at that. And obviously, we'll update you when we -- if something happens in that area.

Our next question comes from Prashant Rao of Citigroup.

I guess my first question, I wanted to touch back on the M&A topic that was discussed earlier, but ask it in a different way. Not necessarily specific to you, Uzi and Delek, but just the environment and the landscape in general. It seems like, obviously, we've had one big merger announced last week. There's rumors of other things going on. I just wanted to get a sense of where are the opportunities set? What seems to be more active? Where is the (inaudible) level in terms of either by region or ownership? Any thoughts around how this might play out, because it seems like even the cash that's building up not just at Delek but at some of other refineries that could start off another consolidation cycle. So I just wanted to get your thoughts more broadly speaking about the market.

And then I think there are 2 or 3 questions here. So let me try to answer all of them, and then if there's a follow-up question, I'll be more than happy to take that one. The first one is cash is piling within all the refineries, that is correct. And it's not going to -- well, it may change, but the outlook that is '20 or even '21 with the IMO and the Midland situation, we will be pretty much situated with great cash. So that cash situation brings different dimension of pressure. What are you going to do with all that cash? And I think some of our peers did great job trying to diversify and try to buy other assets that are adjacent, if you will, to the refining assets.

Our core market for us is Midland and the Permian. That's where we -- many years ago, when nobody believed in that, that's what we did. And we want to continue doing that. But at the same time, we want to look at other opportunities, basically to create some hedge to the exposure we have at the Permian. And so that's one component of your question, I think.

The second one, the overall market. I think that -- and we saw an example of Marathon with Andeavor last week, I think more and more people will look at other companies and try to see if it makes sense to them.

Now, remember, there's no pressure and some people were surprised that the premium that Marathon paid is a little high, but there was no pressure on Andeavor to do anything. So it's basically a buyers' market in the M&A within the -- I'm sorry, a seller market within the refining space. That will bring, in my mind, refining trying to get into other spaces in order to diversify the earnings. And I hope that was comprehensive enough.

That was very comprehensive. And I had one very quick follow up not on refining but on retail. The margin performance is, I think, impressive this quarter and just sort of want to get a sense if some of peers out there in retail have had margins that maybe missed expectations. There was weather impact and other things. I just wanted to get a sense of sort of margin cadence from here out, how we should be thinking about that, in case -- that might be some place that there may be some mismodeling or underestimation?

Well, lucky enough, or we are exactly the -- with our retail in Midland or in that area in the Permian. So our retail exceeds our budget almost every month, both on sales and margins just because of the traffic that is happening in the market. I'll just give you an example. I was in Midland last Thursday, obviously as you can imagine, we have big operation over there. Some of our stores are 50%, 60%, 70% same-store sales compared to last year. And it's really amazing what's going on in the area.

Our next question comes from Paul Cheng of Barclays.

Several questions. Uzi, is there any reason, or Kevin, not to submit the Big Spring and Tyler for waiver at all?

No.

And that when you do apply it, is there statutory limitation that -- can you apply for more than just 2017? Or that is now too late that you apply for 2016, '15?

I need to check it. To my knowledge -- I need to check it -- to my knowledge, it's a 3-year thing.

Okay. Can you tell us that how much is the Big Spring and Tyler, the RIN cost was in 2017, '16 and '15?

It's not cost, Paul. It's the number of RINs that we used. And it depends on the price of RINs. But if you take, as a ballpark -- forget about the price of RINs. If you take the number of RINs to run each refinery, I'm going by memory, it's around 60 -- similar to El Dorado, so something like 60 million ethanol and 15 million of biodiesel. I'm going by memory, but it's in the ballpark.

Okay. So you said combined or in each one?

That's each one. Each one.

60 million, half a million.

6-0. 60 million and 15 million of biodiesel.

So 1-6 for biodiesel?

1-5, yes.

1-5, 15. Okay. And in terms of the Permian, we heard the challenge as you mentioned about rail oil out from the basin, that a lot of the terminal and capacity seems to be used up for other things, [like the sand and other]. Have you look at it and saying that realistically, what is your best guess over the next say, several months that how much is the well oil could -- [the one] get up to, if any?

I want to clarify the question, Paul. What volume?

Right. That you may be able to rail it out from Permian. We heard similarly as what you have mentioned from other people, that a lot of those terminal capacity and usage has been locked in for the shipment of sand and other things. So I'm just curious, while the terminal that's clearly capacity but how much is actually available even if we want to, that you're really trying to ship oil?

I would say that we have our own analysis with every terminal. We talk about that quite a lot. It's between 100,000 and 120,000 barrels a day.

And do you know how much that is currently shipping?

I don't know. Probably not too much because all this just started a few weeks ago. It takes time to clean the railcars, ship them to Midland, get the facility running, probably very little.

And hedging. I know you guys historically been quite active, and you think you can make money. But in the whole scheme of things, has that become just a noise and distraction and why we even bother to continue do hedging? (inaudible)

That's a great question. At the same time, Paul, let's be honest, there are 2 things here that we need to remember. $10 for next year is a big number. And while we're all looking at that and amazed, at the same time, we had only -- we were in a positive territory 2 months ago. Now I was expecting, and as you know, we spoke about that, to get to the $3, $4 pretty quick, but I never thought $10 for the entire 2019 is even in the cards. So [not so soon].

So we do need to think very carefully about taking some of that risk or some of that embedded profit into consideration and put it aside. Now, it's not substantial but it gives the opportunity to establish baseline for the cash flow.

And for the [IMO] 2020, is there any investment you guys going to do?

Not substantially. We do have opportunity to do both heavy, if we want to do that in -- we can run heavy both in Big Spring and at El Dorado, we have that flexibility. We will maintain that flexibility, but that doesn't require much investment. At Krotz, we can actually blend everything we have over there and be in compliance. So very little within -- exist in our system.

I'm curious, and maybe this is for Fred. Fred, have you heard about a private company that make the train? They have a proprietary technology that would be able to directly treat the high sulfur (inaudible) into the low sulfur bunker fuel [standard] without going through the cracking and that the capital cost may be only about, say 25% of a hydro cracker. Have you looked at that technology and what do you think?

Paul, I have not. Just looking at the size of the bottom streams produced off of our units, for us, it's probably -- the economy of scale wouldn't work. But I'll take another look at the technology if you think it's got some promise.

Thanks, Paul. It's nice to have you back.

Our next question comes from Roger Read of Wells Fargo.

Uzi, a lot of it has been hit, but I guess, maybe coming back to the dividend increase versus share repos versus acquisitions. What's the method for making the decision, which direction to go? Are you looking at return on capital employed? Is there -- is it an equal return hurdle for each of those options? I'm just trying to understand kind of -- I think everybody agrees you're going to have a big pile of cash, well, heck, you already do have a big pile of cash. Question is what happens with it next, maybe if you can kind of help us understand your thought process as you look at the opportunities and maybe what some of those hurdle rates are?

Well, that's a great question. As we look at the numbers of first quarter, the first quarter wasn't good. There was a lot of noise in the first quarter and still, cash continue to pile. And sometimes, we have some noise in the numbers that it's hard to explain, but cash is cash and as you said, we are going to have more cash coming in. And for me, the #1 thing is how to create more value to the shareholders. And if we think that cash -- we can't make investments that will be accretive day 1 to our company, then there's no reason to hold that cash. And we need to give it back to the shareholders. And that's the dividend that we just did.

Obviously, if second quarter, third quarter, fourth quarter, will continue the way we see them, there's no reason to believe that we will not deploy more cash through means of dividend hiking as well as buyback. So for me, by the end of the day, the cash is the most important thing.

Looking at the second quarter, we mentioned this earlier, the average for the second quarter is a little less than $6. It's actually more than $6 now whereas we calculate for the entire quarter, so you can see the EBITDA coming in the second quarter and also the third quarter, we're talking about now $13, $14 and I saw this morning that the fourth quarter is $15. So there's no way we cannot continue to deploy cash to our shareholders.

By the way, that reminds me of something that I neglected to -- not to say earlier. There will be, because of the way the accounting works with us and Kevin can explain that if needed, I don't think -- there will be some noncash adjustment to our inventory in the second quarter because of Midland differential coming down, we will adjust to that differential. But that, again, will be noncash. So going back to your question earlier, I think that more [than too low] even for us, that's changing by the day. We just need to adjust to a new world that we can deploy all that cash to you guys.

Okay. And so just as a follow-up on that. I guess, I mean, I could imagine you don't want to get too committed to a regular dividend because as we all know, differentials come and differentials go. So special dividends as well as share repos, the regular dividend is the right way to think about potential cash returns to shareholders?

Well, we're still paying $1. I don't want to commit to anything at this point. We've been doing it long enough to know that things can change in a hurry. The way they came, they can go. But right now, it looks bright for future cash deployment.

(Operator Instructions) Our next question comes from Matthew Blair of Tudor, Pickering, Holt.

I want to come back to the share repurchase issue. So -- and correct me if this is wrong, but it looks like in January and February, you spent $94 million on share repurchases for the 2 months, but then in March, you only spent $1 million. I guess, should we read anything into this? How opportunistic are you going to be on buybacks going forward? And can you also disclose how you much you bought back in 2Q so far?

Yes, hey, Matt. It's Kevin. So $95 million total in Q1. And we ended the -- under a 10b5-1 program, and we ended the share buybacks at the end of February, so I'm not sure we got to $94 million versus $1 million. But there's $95 million total on top of the $25 million that we did in Q4. And once the window opens back up for us post earnings release, we'll be back in the market with another 10b5-1 program for the rest of the year.

And how sensitive are you to share price in terms of buybacks going forward? Is that much of a consideration or not really?

No. Zero sensitivity, we just do 10b5-1 and execute or the broker executes without our involvement. I don't even know what the price every day when he buys.

Sounds good. But I was hoping, a lot of talk here on the Southwest crude market, with good reason, but I was hoping you could also talk about the Southwest products market. That's historically been one of the best products markets in the U.S. There's some projects out there to increase diesel pipeline capacity coming into the Southwest from the Gulf Coast. Any concerns on your end that the product side might weaken in the Southwest going forward?

Well, let's be clear, that's not sustainable. We have days with $0.30 or $0.35 margin, especially now in the summer and especially with the activity. And I'm sure that somebody will come with some barrels. At the same time, we just need to remember, it's not easy to get to that part of the country. And sometimes it cost $0.12, $0.13, $0.14, to get to something that will cost us 0. So while we may suffer a little bit on the [$0.30], we never more than $0.30 . We are probably talking about $0.14, $0.15 going forward.

Our next question comes from Kalei Akamine of Bank of America.

Just kind of looking at the diesel inventories here in PADD 1, it's fallen quite a bit, Gulf Coast refineries are sending more of their products to export markets rather than colonial because of the more attractive economics. You guys are a shipper on colonial, so just wanted to know what you guys are seeing as far as netbacks compared to the Gulf Coast?

Netback -- colonial netback for a long time, Kalei, got positive. And a lot of people ship to Mexico. We're actually doing the same thing from 2 refineries because of the netbacks being healthier in Mexico. And the colonial market is getting a little healthier. It's still not to the magnitude that we see with the TEPPCO line or, of course, from the Magellan line, but positive netbacks that should impact us during the summer.

Got it. And just king of looking at the wide differentials here in the Midland in both the spot and forward markets, how long do you think this windfall will last? And when do you see this tightness fading if it does? And what does the sustainable differential for Mid-Cush and Mid-Houston look like once the next wave of pipelines are put into the ground?

Well, I think the component here that we all forget is once it gets to the Gulf, it needs to go somewhere. And while we are not export or experts for export -- export experts, we do have some knowledge around it. And we think our [goal] all along was between $2.50 and $4 between Midland and Cushing. And while we have a huge windfall now, I don't think that going forward, come 2021, 2022, we will see these numbers, and we never model them in our models.

What do you think the scope of your participation looks like in the export markets? How much crude can you currently get to the Gulf Coast?

How much crude can we get to the Gulf Coast?

Yes.

That's an area that I prefer to stay silent until we announce to the market our plans, but we do have plans around it.

And we have no further questions at this time. I would like to turn the call over to management for closing remarks.

Thank you, Laura. I'd like to thank my friends around the table here. I'd like to thank the Board of Directors for their leadership and help with the company. I obviously would like to thank the analysts and the investment community in believing in us. That is a huge support that we get from the market. And overall, or above all, I'd like to thank our employees who make this company as great as it is. We'll talk to you next time. Thank you.

This concludes today's conference call. You may now disconnect.