PBF Energy Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 2, 2023

There are 13 speakers on the call.

Operator

Good day, everyone, and welcome to the PBF Energy Third Quarter 2023 Earnings Conference Call and Webcast. At this time, all participants have been placed in a listen only mode and the floor will be open to your questions following management's prepared remarks. Please note this conference is being recorded. It is now my pleasure to turn the floor over to Colin Murray of Investor Relations. Sir, you may begin.

Speaker 1

Thank you, Dave. Good morning, and welcome to today's call. With me today are Matt Lucey, our President and CEO Karen Davis, our CFO Tom Nimbley, our Executive Chairman and several other members of our management team. Copies of today's earnings release and our 10 Q filing, including supplemental information, are available on our website. Before getting started, I'd like to direct your attention to the Safe Harbor statement contained in today's press release.

Speaker 1

Statements in our press release and those made on this call that express the company's or management's expectations or predictions of the future Are forward looking statements intended to be covered by the Safe Harbor provisions under federal securities laws. There are many factors that could cause actual results to differ from our expectations, In today's press release, we described the non cash special items included in our quarterly results. The cumulative impact of these special items Decreased 3rd quarter net income by an after tax amount of $65,000,000 or $0.50 a share, primarily related to a change in the fair value of the contingent consideration associated with the Martinez acquisition, loss on extinguishment of debt and exit costs associated with the early termination of the inventory intermediation agreement. Also included in today's press release is further guidance information related to our expectations for the remainder of 2023 operations. For any questions on these items or follow-up questions, Please contact Investor Relations after the call.

Speaker 1

For reconciliations to any non GAAP measures mentioned on today's call, Please refer to the supplemental tables provided in today's press release. I'll now turn the call over to Matt Lucey.

Speaker 2

Good morning, everyone, and thanks for joining the call. Today, PBF reported another quarter of strong results, our 3rd strongest quarter in our history, I believe, driven by robust refined product markets that dominated most of the quarter. Our refineries ran reasonably well with no major planned outages at any of our facilities during the quarter. Now that we're in the shoulder season, we've seen gasoline cracks come off, But as expected, diesel margins have remained robust as inventories are tight. Despite the recent pullback in gasoline, we expect that prices will stabilize and compound cracks on average will remain above previous mid cycle levels as they are today.

Speaker 2

The pricing environment will continue to remain volatile. However, PBF is well positioned to respond to these market conditions with our high complexity, by conversion refining footprint. With respect to capital allocation, our core principle is to create a competition for capital in which capital flows to its highest and best use. As we've stated previously, our first priority was to strengthen and simplify our balance sheet. We operate in a cyclical business

Speaker 3

And a

Speaker 2

strong balance sheet is imperative in managing the inevitable market cycles. At this point, We have an investment grade balance sheet that ranks among the strongest in our peer group. With balance sheet substantially behind us, PBF will continue to weigh investments in growth against returning capital to shareholders and our allocation of excess cash. A year ago, we reinstated our dividend. This week, our Board approved a $0.05 per share increase in the quarterly dividend to $0.25 per share.

Speaker 2

Going forward, further potential dividend increases will be evaluated on an annual basis. In the Q4 of 2022, we announced a $500,000,000 share buyback program and then increased the authorization to $1,000,000,000 in May. From inception of the buyback program in December through today, We have deployed $590,000,000 in cash, repurchasing 14,000,000 shares or 11% of the shares outstanding. Going forward, we expect to remain active in buying back shares. The ultimate level of buyback activity will be determined by the excess cash generation of our business, coupled with a rigorous evaluation of reinvestment opportunities relative to share buyback economics.

Speaker 2

Investments in growth will leverage PBS strengths. We have no plans to get bigger for the sake of getting bigger. Diversification will not be pursued for the sake of diversification. Our goal is to leverage our core strength and assets and expertise to make investments in complementary businesses with compelling risk return ratios. Perfect example of this blueprint is our investment in St.

Speaker 2

Bernard Renewables, where we leveraged an idled asset and our expertise in fuels manufacturing into a compelling renewable diesel joint venture with a World Class partner in Eni. Turning to Renewable Diesel. We are pleased to announce that in the 1st full quarter of operations, St. Bernard Renewables has reported positive earnings. We continue to line out operations post RDU startup in June and the PTU start up in late July.

Speaker 2

We did advance a catalyst change on the RDU into the 4th quarter as we work to optimize the assets. We are more than pleased to have gotten to this point working alongside our joint venture partner, ENI Sustainable Mobility as we continue exploring opportunities to expand our partnership. Furthering PBS participation in the future of energy, the U. S. Department of Energy recently selected Mach 2 project as the regional hydrogen hub that will receive funding under the IRA.

Speaker 2

Although there is still a lot of ground to cover, We are pleased to be part of the consortium that will advance this project and ultimately supply hydrogen as a clean energy transportation fuel. Looking ahead to the Q4, we're in the midst of planned maintenance at Torrance on the FCC and Appalachian units, And we're doing additional work on the Martinez FlexiCoker. The FlexiCoker work was unplanned and the downtime from both Torrance and Martinez will impact 4th quarter capture rates on the West Coast. The good news is that Martinez work should be complete in the next week or so and Torrance work should be complete before the end of the month. As we saw from activity early in the quarter, combined markets will continue to be volatile.

Speaker 2

The Global Refining System and PBF in particular will be nimble and adapting to market conditions. Before I turn the call over to Karen, I want to repeat the tailwinds that we currently see for PBF. First, our complex predominantly coastal coking refining system is well situated for the current marketplace. 2nd, maybe most importantly, the transformation of our balance sheet is now complete. We have reduced or extended our gross debt.

Speaker 2

We bought in the intermediation agreement. And as of today, we have essentially extinguished our outstanding rent obligation. We've reinstated, now increased our dividend, implemented a share repurchase program and are now producing renewable fuels and have also been selected as part of the growing hydrogen economy with the Mach 2 project. These are all tailwinds that PBF has had a direct hand in creating and will help drive long term value. With that, I'll turn it over to Karen.

Speaker 4

Thank you, Matt. For the Q3, we reported adjusted net income of $15,600,000 generated from our equity interest in SBR. Also included in our results is an approximate $100,000,000 benefit from the market decline in the price of renewable energy credits, which is captured in our gross margin. Cash flow from operations for the quarter was $1,150,000,000 excluding working capital changes. Working capital was a headwind of $618,000,000 for the quarter, mostly related to our continued efforts to strengthen and simplify our balance sheet.

Speaker 4

Those efforts in the 3rd quarter included exiting our inventory intermediation agreement in July at a total cost of $268,000,000 and second, We further reduced our outstanding environmental payables by $339,000,000 That brings the total reduction in our environmental credit liability over $900,000,000 for the year to date. The liability totaled $454,000,000 as of September 30. One comment on our outstanding environmental payables. In our previous calls, we mentioned a normalized range of payables of approximately $200,000,000 to $400,000,000 Recently, we have seen that the price of environmental credits can indeed come down. This impacts the dollar range previously provided.

Speaker 4

Going forward, we suggest thinking about our normalized payables is reflecting approximately 2 to 4 months of our net obligation. Taking into account the RINs we are buying from SBR, our normalized environmental payables will likely reflect a balance of approximately R50 million to R100 million. This range may fluctuate depending on market conditions and commercial strategy. We further strengthened the balance sheet during the quarter by reducing our gross debt by approximately $170,000,000 primarily through issuing $500,000,000 in 2,030 notes and calling the remaining balance of our 2025 notes. Of note, with the issuance of our new 2,030 notes in August and redemption of the 2025 notes, we have no near term debt maturities And we also increased the size of our undrawn ABL facilities to $3,500,000,000 and extended the maturity to 2028.

Speaker 4

Consolidated CapEx for the Q3 was approximately $190,000,000 which includes $155,000,000 for refining, corporate and logistics and approximately $35,000,000 related to SBR. For the entirety of 2023, we expect PBF Energy CapEx, excluding SBR, to be approximately $800,000,000 to $850,000,000 This is above the previously provided range, primarily due to the increased scope of work for our ongoing West Coast turnaround and advanced purchases of long lead items for planned 2024 turnarounds. Also during the Q3, we received $415,000,000 in proceeds related to the SBR joint venture, bringing total proceeds received related to our investment in SBR to $845,000,000 We continue to demonstrate our commitment shareholder returns through our quarterly dividends and share repurchase program. Dividends paid during the Q3 totaled 27,000,000 And as Matt mentioned, we just announced an increase in our quarterly dividend from $0.20 to 0 point 2 $5 With respect to our share repurchase program, of the almost $590,000,000 of total repurchases to date, dollars 115,000,000 was included in the Q3. For the life of the program, as of October 31, we have repurchased almost 14,300,000 shares and reduced our total share count to just under 122,000,000 shares.

Speaker 4

We view Our G and A expenses for the Q3 came in at $93,000,000 which includes our base G and A expense and amounts related to the company's incentive and equity based compensation plans. As mentioned last quarter, depending on financial and operational performance, There could be approximately $125,000,000 to $175,000,000 of incremental G and A expense annually related to our compensation programs above our annual base G and A of approximately $225,000,000 We ended the quarter with almost 1 point dollars 9,000,000 in cash and just over $1,200,000,000 of debt. We are retaining incremental cash above our previously guided ranges because it's earmarked for future near term uses, including higher turnaround activity in Q4, continued reductions We will continue to focus on maintaining a robust balance sheet and exercising sound financial policy. Our balance sheet and the safe operations of our assets are Key priorities, while maintaining a disciplined approach to rewarding our shareholders. We believe our sector leading balance sheet meets or exceeds many investment grade credit metrics, and we maintain our goal of eventually achieving investment grade status.

Speaker 4

Operator, we've completed our opening remarks, and we'd be pleased to take

Operator

In a moment, we will open the call to questions. The company requests that all callers limit each turn to one question and one follow-up. Our first question comes from the line of Roger Read with Wells Fargo. Please proceed with your question.

Speaker 5

Yes. Thank you. Good morning and just say congrats on the overall transformation. I mean it wasn't that long ago, I assumed you were going Issue shares to keep the company solvent and now you're in the process of returning this much cash Shareholders, so great job there. My question, Matt, and you were alluding to a lot of it, Maybe more than alluding during your comments, but growth, avoid growth for growth rate sake, avoid growth for diversification, but we also know that there is a big auction process for Citgo.

Speaker 5

What are your thoughts as you look at that or any other, let's say, U. Refining opportunity or maybe even more broadly North America since there's an East Canada unit that might be on the market as well.

Speaker 2

Thanks for the question and the comments, Roger. In regards to Sitco, it's a quagmire. I mean, It's in a court process. It's within geopolitics, football that's being thrown around. Quite frankly, I don't think it's worth talking about at this point.

Speaker 2

I don't see any reason why. I anecdotally, I've read articles where the valuations, If they're true, they're exorbitantly more than what PBF is being valued today. So, I hope it's true because it means our company is worth a lot more and the shares that we've been buying Over the last year, it's going to be worth a lot more. So I don't think there's anything to comment on in regards to Sitco, in particular, I have no idea where it's going to go, and I don't think it's going to go anywhere in the near future. My comments were specific for a reason in that.

Speaker 2

And I think our company has become much, much easier with its Simple and pristine balance sheet that we have now. And so anything that we look at has to have a compelling A return aspect that is much more attractive than the shares that we've been buying, and we bought almost 600,000,000 shares I'm $600,000,000 worth of shares over the last year. So it becomes very, very simple. I can assure you as I can assure the marketplace, We have not only are we using the words rigor and discipline, but we've formalized an internal process so that everything will be down into an Excel model, making a mathematical calculation that shows The risk return results of all of our alternatives, and we'll continue to execute that going forward.

Speaker 5

Appreciate that. A follow-up question is on the SBR, A little guidance of some work coming here in the Q4, but just stepping back, looking at the way this unit has started up, where you've been able to move Product, how do things look today versus 6 months ago before startup in terms of what you expected, What the budget look like and kind of what's been better, what's been worse. We know a lot of others have had issues with our FOBs. I'm just curious Yes, the good, the bad and the ugly here.

Speaker 2

Yes. No, it's good. It's sort of multifaceted. So you have The base operation and then you have the marketplace. I can start with the marketplace.

Speaker 2

The way we think about those that are Participating in renewable fuels within the diesel market, I don't want to confuse lingo here, but you have one end of the spectrum, You've got biodiesel. Maybe in the middle, you have renewable diesel manufacturers that don't have pretreatment units. And then you've got integrated pretreated or pretreatment units with the Capability of the manufacturer of Noble Diesel, then obviously geography plays on that. With the fall in some of the regulatory credits, I think bio based diesel manufacturing is threatened in the short term. I think those that have a Then where it was a year ago.

Speaker 2

Obviously, there's lots of dynamic factors in it, it's not just the regulatory threats. But at the end of the day, I'm very, very confident that there will be a market incentive, a resilient market incentive for those with a pretreatment unit to manufacture renewable diesel. In regards to our operations, It's no different than the start up of probably any other operation. There's fits and starts. There's pluses and minuses.

Speaker 2

All in all, we've Very pleased. We got our unit up in a time frame that was consistent with what we talked about. We did accelerate some catalyst work into the Q4, which was earlier than we had planned, but that's all an attempt to optimize The unit, that will impact Q4 operations clearly because we're taking unit down to do that. But as we're working through it, we're as I said, I think we're going to be able to improve on the throughput of the unit. So I think our capacity and we're ultimately able To work through the unit will probably be a positive surprise.

Speaker 2

I'm myopically focused on what the yields look like coming off the unit, and they've been a little bit worse than we expected. So there's pluses and minuses, Well, we're working every day to make sure it's optimized and that we're getting a huge benefit from our partners at Eni. They've got a couple of these facilities already. They have expertise. They have relationships with some of the service providers.

Speaker 2

So I'm more than pleased with it in its entirety.

Speaker 5

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Doug Leggate with Bank of America. Please proceed with your question.

Speaker 6

Thanks. Good morning, everyone. Matt, thanks for taking my questions. Phenomenal capture rate in the quarter, and I wonder if you could speak to The absence of, as you pointed out in your prepared remarks, any meaningful downtime, How unusual should we think this quarter looks versus the outlook? Or do you think a higher sustainable level of Capture rate going forward, I think this is one of the highest I've seen in your history, frankly.

Speaker 6

How sustainable that might be? Has anything changed that Reinforces your confidence that operational reliability has moved to a new level.

Speaker 2

Well, look, I think you when you're talking about work, you always have Look at the calendar, and we obviously plan our work during periods that where demand is not at its highest. It's usually at its highest in the Q3. So by definition, you're going to want the 2nd quarter and third quarter to have less work. That being said, as much as it frustrates me, I would like We'll set a memo out and cancel all future work and just run, but that's not possible. We do have Turnarounds that will happen in the Q1.

Speaker 2

We will have turnarounds. And But like I said, usually, you set your calendar up to match with what the market has traditionally been. So in the 4th quarter, We have a big turnaround at Torrance. It is I have to take a moment, Doug. And Tom Nimbley, who's sitting here To the right, my right, as stated that what I'm about to say maybe 4,000 times, which is, you can never measure the success of a turnaround until the run is complete.

Speaker 2

And I do have to take a moment for the people in Torrance. We just ran the Catcracker at Torrance For 8 years, a phenomenal one, phenomenal one. And if you're able to do that, you reduce Your CapEx on an amortized basis, you increase your uptime, And it's really a great result. So they deserve a lot of credit, and we intend to clearly communicate that to them. But that work is impactful in Q4 for sure.

Speaker 2

We did have an issue with our flexi coker butch, By the way, we had a turnaround on in early in the year in Q1, part of the equipment that was untouched, It wasn't touched because it shouldn't have been touched, but we had an issue with a blower there. And so we've had to take that equipment down. That is probably a more maybe the most complex unit we have in our entire system. So that was unfortunate. And but that's being addressed.

Speaker 2

And like I said in my comments, we expect that to be up over the next So weaker sell, but that also will have an impact on Q4.

Speaker 6

That's great color. Thanks, Matt. My follow-up is, I guess it's a regulatory question. Halfway through the quarter, going to Newson made some changes to RVP standards or timing rather in California. And I'm just wondering when you saw the strength of cracks in the first for the quarter and obviously attracted some kind of regulatory response.

Speaker 6

What was your thinking and all the noise around how that might play out with Commission and so on assuming volatility in the West Coast has also moved to a new level given the pending closure of Rodeo.

Speaker 2

Yes. So interesting on the butane, I actually think it was a smart thing to do, and It increased supply. The problem we have with much of the regulatory framework when they see problems with price, They don't address the core issue. So advancing the butane blending by a couple of weeks increased supply of gasoline and we saw Precipitous drop in margins, which was fine. It was Probably a prudent thing to do for the people of California.

Speaker 2

Again, the issue is many of the steps that most of the steps, if not all the steps besides that, have unintended consequences that usually exasperate the problem, which could be limiting supply. So it was not a surprise to us. We've seen regions do that when there are when there's tightness in the market. I don't know what will happen in the future, but that's always sort of an arrow that can be pulled. But we continue to recognize California as a very, very tight market And about to get tighter.

Speaker 6

Yes. We are watching with interest. Thanks so much, Matt. Appreciate the comments.

Operator

Thank you. Our next question comes from the line of Ryan Todd with Piper Sandler. Please proceed with your question.

Speaker 7

Great. Thanks. Congratulations on a great quarter, guys. And Even Matt, if I could follow-up and thanks for your comments on the corporate and balance sheet priorities. I mean, I think with the balance sheet reductions complete, The JARN facility retired like you said and RIN liabilities retired or reduced significantly.

Speaker 7

Can you talk about cash priorities from here? Should we expect to see A greater share of free cash flow targeted for share buybacks going forward?

Speaker 2

Or are

Speaker 7

there other things that we should be other than the hydrogen project that we should be considering?

Speaker 2

Look, we've chopped a lot of wood reducing leverage for the company over the last year. But as I sit here today, as we sit here today, It's complete. There's nothing left to address. We've got our bonds done. Karen and her team did a great job Our bond maturities, we've reduced a little bit.

Speaker 2

We've got $1,300,000,000 of bonds outstanding, and we have no interest in reducing it further. As you said, the RINs have been put to bed. Intermediation agreement has been paid off. So there is no more balance sheet work to be done. And it's a pretty amazing moment that we should all sort of take and recognize.

Speaker 2

So going forward, As we generate excess cash, we'll look to deploy it the best way we can. There are no major project on our books that we're reserving for at the moment. We're actively looking for opportunities for us to explore and bring to the market. But as of the moment, we have a very, very clean balance sheet. No more No work to be done.

Speaker 2

So as we generate cash, we'll look to reward shareholders.

Speaker 7

Thank you. That's great. And then maybe just a follow-up on the CapEx increase that you talked about. It sounds like

Speaker 3

You may have pulled forward a

Speaker 7

little bit of the long lead time items for the 2024 turnaround cost into the 2023 Budget there, with RD spend now complete and as you said, no major projects on the books going forward, Can you maybe walk through how we should think about the run rate for CapEx for the business going forward, in particular as we look into 2024?

Speaker 2

Yes. I mean, it's a simple answer. It's not going down. I mean, there's cost pressures and that's our job to manage. We haven't put out CapEx Guidance for next year, yes, I think that's usually maybe on the next call.

Speaker 2

But I don't think someone should be Saying that there's going to be a step down. It's our job to manage it, so it's not a step up. Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Manav Gupta with UBS. Please proceed with your question.

Speaker 8

Good morning, guys. I'm hoping you can give me some more macro commentary on the regional gasoline markets. You operate in all regions. Where are you seeing strength in gasoline relatively and where there's some weakness? And also are you actually seeing any kind of red flags in terms of demand Which should worry us, I mean the gasoline crack went to mid single digits, it has rebounded, but it's still lower.

Speaker 8

So is it just seasonal or do you think there is something structural to worry about, if you could talk about those points?

Speaker 2

So I'll start with the first part and then pass it over to Paul on the specific region. In regards to demand, I think what you're going to hear from us is consistent with what you've heard from others. It's been stable, And we've had no problem moving product through our system. We've had no decline in our wholesale business. And so I was struck by sort of monthly data that came out the other day that sort of corroborated that.

Speaker 2

I mean, you have weekly swings ins and outs And that's a bouncing ball that can be hard to follow. But when you pull back a little bit, I think maybe you get a little bit better picture. So the demand, I think, has been okay. Obviously, we've hit the shoulder season, as we always do, and you see seasonal differences. But Paul, do you want to run through regions?

Speaker 2

Yes. From a

Speaker 9

regional standpoint, obviously, the coastal markets have been and are still the strongest markets. West Coast primarily is our strongest Market that we see from a demand standpoint, obviously, for value too. East Coast is right there though. East Coast has been very Strong through this year, certainly through the Q3 and even as we speak today. Weakest coming out of the Q3, I'd say Pad 2 was the weakest and that's We saw in our circuit, but that's migrated down to the Gulf.

Speaker 9

And right now, I would say the Gulf Coast is the weakest market, both from value and overall demand.

Speaker 8

Perfect. I have a quick follow-up. Your press release says your outstanding environmental credit payables were reduced by 340,000,000 I'm just trying to understand, did you actually pay $340,000,000 or the RIN prices and stuff came down a little and then you paid? Also, I think in the opening comments you mentioned the RIN revaluation benefit of $100,000,000 if you could confirm that. Thank you.

Speaker 4

Yes, I'll take that question. Yes, there was a $99,000,000 mark to market benefit that's included in our gross margin. And with respect to cash outlay for reducing environmental credits, yes, the amount that we provided was the cash outlay.

Speaker 8

Thank you.

Operator

Thank you. Our next question comes from the line of Matthew Blair with Tudor, Pickering, Holt.

Speaker 7

I wanted to follow-up on this MACH II Hydrogen Hub. Is your opportunity impacted at all by the hydrogen deal that you did with Air Products in 2020?

Speaker 2

And do

Speaker 7

you have any early thoughts on CapEx or the EBITDA opportunity here?

Speaker 2

First answer is no in regards to the Air Products deal. In regards to capital, it is too early to get into that. We're going to spend the next 12 to 18 months working with the consortium in developing a detailed plan. Once we get to that point, That could include PBF looking to participate in regards to our expectations to do that. But there's no question that Mach 2 project extends benefits and positive impacts to PBF.

Speaker 2

Obviously, there's a potential for a capital project. That capital project, as I said, will need to be competitive from a return standpoint. But also and by the way, I would describe PBS participation in this as the anchor within Mach 2, and I don't say that Lightly, it's just Del City is where much of this is going to be located, intertwined at the refinery. So it will further diversify PBS Energy platform and sort of further extend us into renewable fuels even if we're Just hosting it. But it also highlights the importance of having refining capacity in Delaware, because If that were not there, the competitiveness of this hydrogen hub would decline precipitously.

Speaker 2

And also, the last piece is, We're in the early days of developing what we believe is a meaningful real estate portfolio around Delaware City. We own 5,000 acres around it. And if we're able to construct a hydrogen hub that's based there, we think the value of Real estate, which is ideally situated for warehouse and distribution and refrigerated storage and data processing, to the extent you can have A green hydrogen project that's there and situated, the value of all those projects go up. So we think it's profoundly interesting, But it is a long slog and we are in the very early days.

Speaker 7

Thanks for the details. I want to Turning to the RD side of things and congrats on the strong initial operations at SBR. Could you share anything on what you're seeing In various RD end markets, for example, we've heard the areas like British Columbia and Oregon have become more appealing than the California market. And then also if you could share anything on the feedstock side of things, I think the DOE showed a big increase in tallow consumption in August, and we were thinking that might be due to your PTU startup? Thanks.

Speaker 2

Yes. In regards look, I think there's going to be competitive markets and all the markets are dynamic. I think there's going to be the ability to export into Europe. And so as regulatory credits move around and natural gas prices move around, feedstock prices move around, We are beholden to nobody. We do have logistical advantages to the degree we import into California, And that's where we've been sending our product up until this point.

Speaker 2

But the moment that we're able to economically improve our Positioned by delivering other places, we will. In regards to specific Grades of feedstocks, I think you're going to see lots of gyrations because these markets are relatively small. But again, having the pretreatment capability is incredibly important. It's like having a complex refiner. If you're a heavy sour coking refiner, you can run any crude, whereas if you're a sweet refiner, You can't run heavy grades.

Speaker 2

While having good pretreatment unit, we're able to buy the most economic feeds we can, and we're focused on buying them every single day. Great. Thank you.

Operator

Thank you. Our next question comes from the line of Paul Cheng with Scotiabank. Please proceed with your question.

Speaker 10

Thank you. Good morning, guys. Ned, maybe that I want to ask about Toledo Refinery. It seems like the utilization rate for that Over the past several years has been lower than say earlier in last decade. Is that the facility have changed the way how you run?

Speaker 10

And as a result that runway has been lower? Or is there some

Speaker 2

No. Nothing's changed in Toledo. The facility optimizes itself on a daily basis, obviously, a pipeline fed refinery. And so you have To operate within the confines of that refinery, the pipelines have treated, but no major step change.

Speaker 10

And it looks like you've been running at somewhere between the high 80% to maybe 90%, 91%. Is that the kind of Utilization, where you could expect from this facility on a going forward basis?

Speaker 2

No. No, I mean, they have not operated as well as they could. And therefore, we've had some impacts to throughput. I appreciate you calling them out because they should be called out and we expect

Speaker 10

Okay. And when I'm looking at your 4th quarter throughput guidance, it seems to be a tad low given that you really don't have much of a turnaround other than In the West Coast, is that reflecting some economic run slowdown due to the current margin environment or that Why that one will not be a bit higher?

Speaker 2

No, I think it's based on a whole host of factors. And obviously, the current market should impact it, But there is no other limitations that we need to worry about.

Speaker 10

Okay. Just final one is more of a request, if

Speaker 2

Thanks, Paul.

Operator

Thank you. Our next question comes from the line of Joe Leach with Morgan Stanley. Please proceed with your question.

Speaker 3

Hi. Good morning, Tim. Congrats on a good quarter and thanks for taking my questions. So I have 2 kind of related questions. I'll just ask upfront if that's all right.

Speaker 3

So first just on the we saw spreads wind down in the past couple of months. Was hoping you could just talk to the impact that had in the quarter, set it for the Q4 going ahead and then next year with TMX coming online. And then related to that, it looked like to us at least, East Coast and West Coast captured again in particularly strong. So, I was just hoping you could talk to any drivers there. Thank you.

Speaker 2

Look, I think widening crude diffs are a tailwind. Tom, you want to just comment further? Yes.

Speaker 11

I mean, Joe, I think As you mentioned in terms of widening WCS differentials, I think kind of a combination of a lot of fits and starts as to when TMX is going to Starting. So obviously, we got more clarity in terms of that being delayed. We had a combination also with fairly robust turnarounds Activity with several refineries to consume a fair bit of WCS, which ultimately impacted really the value of where WCS was landing Gulf Coast and then sort of several knock on effects in that point, right, that coming out of the Q3 where we had very strong differentials And particularly very strong fuel oil values. The fuel oil market basically responded to the WCS values and came off. And there's also just sort of a well not Specifically in the market or any precipitous change at this point, but is also any potential relaxations on Venezuela sort of opening up a More competitive environment for barrels being available in the Gulf Coast.

Speaker 11

So I think that those are what we've seen. And I think that certainly our expectation This would be is that crude differentials will continue to fall around the seasonals at this point, right? Differentials will be wider in 4Q and 1Q. And then As we get into the Q2 Q3 of next year, particularly if TMX meets its targets to coming online, probably could expect differentials to be a little bit tighter in there. But there's also some impacts in terms of what the freight market has done, which is ultimately sort of kept the move on U.

Speaker 11

S. Domestics, which were quite strong Sort of in the late part of the 4th of Q3 and then a sort of decline in value.

Operator

Thank you. Our final question comes from the line of Jason Gabelman with Cowen. Please proceed with your question.

Speaker 12

Hey, morning. Thanks for taking my questions. The strong margin performance has already been called out a couple of times and Part of that you alluded to was driven by the RIN mark to market. I just wanted to give you an opportunity If there was anything else unique that drove the strong margins in the quarter that maybe won't repeat in 4Q? And then somewhat tied to that, we've seen a lot of peers have pressure in their margins driven by Weaker secondary product realizations.

Speaker 12

And I'm wondering if your secondary product yields are perhaps a bit unique in the market relative to your peers and perhaps that supported 3Q margins and that will continue into 4Q? Thanks.

Speaker 2

I don't think there's anything unique in regards to PBF. Paul, do you want to make any comments on secondary products?

Speaker 9

I mean, secondary, I mean, One of the best attributes we got is our high level of octane production and our jet fuel production is higher than probably some of the other peers that we have. And Depending on that market, it definitely has some impact on our captures. West Coast, we're definitively pretty strong on Jet and Yes.

Speaker 2

And then the other aspect is in Q3, as Tom just went through, crude differentials were tight. That's actually a headwind for our capture rates. To the extent crude differentials widened out, our capture rates should improve provided we're operating. Obviously, the work in the West Coast is going to impact the operations out there. But I don't see anything else, as you mentioned, on like the RINs That have now been cleaned up and are behind us.

Speaker 2

So, I think it's pretty clean.

Speaker 12

All right, great. Thanks.

Speaker 4

We have reached the end

Operator

of the question and answer session. I will now turn the call over to Matt Lucey for closing remarks.

Speaker 2

Well, I appreciate everyone's participation in today's call. Like I said, we're very, very pleased with where the company is in regards to our asset base and our balance And we look forward to speaking to you again after the holidays. Have a great rest of the year. Thank you.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Key Takeaways

  • Our Q3 results included non-cash special items that decreased net income by an after-tax $65 million driven by fair-value adjustments on the Martinez acquisition, debt extinguishment, and inventory intermediation exit costs.
  • PBF now has an investment-grade balance sheet with no near-term debt maturities after issuing 2030 notes, calling the 2025 notes, and extending its undrawn ABL capacity to $3.5 billion through 2028.
  • The board raised the quarterly dividend to $0.25 per share and PBF has deployed $590 million to repurchase 11% of shares since December, with ongoing buybacks prioritized alongside growth investments.
  • In its first full quarter, the St. Bernard Renewables joint venture reported positive earnings and PBF was selected for the DOE Mach 2 hydrogen hub, positioning it in the emerging clean hydrogen market.
  • Planned maintenance at Torrance’s FCC and Appalachian units and unplanned Flexicoker work in Martinez will weigh on Q4 refinery capture rates on the West Coast.
AI Generated. May Contain Errors.
Earnings Conference Call
PBF Energy Q3 2023
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