Q4 2019 Earnings Call
We do appreciate your patience.
[music].
And the four will be open for questions. Following management's prepared remarks. It is now my pleasure to turn the floor over to Mr., Colin Murray of Investor Relations. Sir you may begin.
Thank you Ashley good morning, and welcome to today's call with me today or Tom Nimbley, Our CEO, Matt Lucey, our president Erik Young our CFO and several other members of our management team.
A copy of today's earnings release, including supplemental information is 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 in summary, it outlines that statements contained in the press release and on this call, which expressed the companies 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.
There are many factors that could cause actual results to differ from our expectations, including those we describe in our filings with the FCC.
Consistent with our prior quarters will discuss our results. Excluding special items. This is a net $20.2 million adjustment, which includes an after tax non cash lower of cost or market or LCM adjustment, which decreased our reported net income at earnings per share.
As noted in our press release will be using certain non-GAAP measures, while describing P.B.S. operating performance and financial results for reconciliations of non-GAAP measures to the appropriate GAAP figure. Please refer to the supplemental tables provided in today's press release.
Also included in our press release today, our throughput guidance figures, which now include the Martinez refinery as if its February Onest acquisition date.
Now I'll turn the call over to Tom Nimbley.
Thank you, calling good morning, everyone and thank you for joining our call today.
Overall, we are pleased with all fourth quarter results.
Reflect solid operational performance in all of our regions. Following the extensive maintenance, we strategically advanced into the first half of 2019.
In the fourth quarter complexity, Matt we're changing the IMO based market dynamics.
Oil trade flows shifted.
And Krwtwenty changes were observed throughout the industry and not all refineries.
Lets complex refineries producing high sulfur fuel made significant changes to their business model and got lighter.
In the last six weeks, the auto industry and the world have been presented with some serious challenges.
The markets have been Valo to say the lease and they continue to be self.
The mild winter in the northern Hemisphere has dampened demand heating fuels and more importantly, the Corona virus has limited commerce and mobility in highly populated areas as governments and health organizations worked diligently to solve the pandemic.
With the losses good demand the oil market will do what it always does rebalance.
Global refining margins starting started this year fairly weak and runs what curtailed due to economics.
It appears as though we were starting to see some life in the cracks, but oil demand losses in the first quarter have outweighed the IMO related benefits we were seen in Q4.
The magnitude of demand losses cannot be ignored or even I agree we estimated at this point, but the oil market has continually demonstrated that it can and will rebalance.
The industry opportunity presented by and IMO have not gone away.
Rather the pause button has been hit the demand destruction, we have seen from the warm weather and the virus or temporary.
Inventories have been building, but refinery runs all happened by economics and are likely to remain constrained, but the balance of the first quarter.
The current health crisis will get sorted.
And demand will recover.
Well the mammal like me recover more rapidly than refinery runs we are entering an active planned refinery maintenance period globally.
<unk> crude unit downtime will peak in April and a forecasted range of seven to 9 million barrels per day.
There is light at the end of the time, unless we exit Q1.
The man to set the seasonally pick up as we have to the peak demand periods.
We were very glad we had complex assets in Q4, and our debt our results demonstrate the power of complexity and flexibility.
With the completed acquisition of Martinez on February 1st we are very pleased why they added another highly complex asset to our portfolio.
Well the first quarter is facing some significant challenges, we will not way why base assumption that complexity matters.
Now I'll turn the call Orbitz, Eric to go over our financial results for the quarter. Thank you Tom.
Today PBF reported adjusted earnings per share 60 cents and 90 cents for the fourth quarter and full year 2019.
Fourth quarter adjusted EBITDA comparable to consensus estimates was approximately 272 million at 872 million for the year.
PB EPS adjusted tax rate for the quarter was approximately 25%, but we continue to use 27% as an effective rate going forward.
Consolidated Capex for the quarter was approximately 119 million, which includes 110 million for refining the corporate Capex and 9 million incurred by PBF logistics.
As expected our Q4 Capex was our lowest quarter of the year with most of the spend associated with the successful restart of the Chalmette Coker and continued work on the Delaware City hydrogen plant science.
Our strategic decision to front load maintenance in 2019 allowed our refineries to run unimpeded during the fourth quarter. As a result, we were able to generate more than $500 million in cash from operations prior to capex, including returning inventory to normalized pre turnaround levels.
We ended the year with over two and a half billion of consolidated liquidity, which includes approximately 780 million in cash it PBR and 35 million at PBF logistics.
Our consolidated net debt to cap was 25%.
Last month PBF energy successfully issued 1 billion is senior notes due 2028, and a 6% coupon.
Proceeds of this offering were used to refinance and extend the tenor on a portion of our existing debt and to fund a portion of the Martinez transaction, which closed on February 1st.
The balance of the Martinez funding came from cash on hand, and drawings on our revolving credit facility.
Finally, we're pleased to announce that our board has approved the quarterly dividend of 30 cents per share.
Now I'll turn the call over to Matt.
Thank you Eric before commenting on our performance in the fourth quarter I would like to take this opportunity to publicly welcome.
Martinez to the PBM family. This transaction was a long time in the making.
We are more than please to add this premier refinery.
And first class organization to our company.
We received regulatory approval at the end of January which gave us a window to close the transaction.
At the perfect time, as the West coast market heads into what historically has been.
Seasonally strong market.
We believe now.
We believe we now have the strongest kid on the West coast.
What does that mean, our two refineries with combined next Nelson complexity of 15.5 can run the harshest crude slate and produce one of the highest clean product yield on the west coast.
Ross industry for that matter.
Martinez in particular has over 103% volume yield across the refinery and over 95% high value product.
Everything we have learned in the first two weeks of ownership has confirmed our assumptions on the strength of the Martinez machine.
We have already begun to optimize our two refinery system on the West coast.
Looking back on the fourth quarter or five refineries delivered a total throughput averaging over 840000 barrels per day and overall ran reasonably well.
Looking ahead, we have begun arts widow, FCC turnaround, which is by far our largest single turnaround for the year.
We expect to be substantially complete with wedo turnaround by the end of Q1.
As we've stated our refineries are well positioned for IMO.
Benefits may have been pushed out by global events, but PBS circuit has been able to prove out the power of our complexity over the last couple of months by demonstrating our capability of running high sulfur fuel oil or is it.
Given the right conditions, we believe we can run up to 125000 barrels per day, if you all across our system.
Our decision to run alternative feedstocks will of course depend on economics.
You always see to achieve the lowest input cost and highest yield of clean products.
We have a dedicated team have plenty in economics people are evaluating countless iterations of alternatives every day.
Finally in regards to our strategic projects.
Sure.
Coker project start up in November on time and on budget.
And we have achieved the coking rates we expected.
Our increased capabilities improve our flexibility around additional heavy high sulfur imports, while improving our overall yield of high value products.
The hydrogen plant project at Delaware City is progressing well and we expect that to come online near the end of the first quarter.
The additional hydrogen capacity at Delaware, well was to run more high sulfur inputs and produce high value products.
We're doing the work needed to put our refineries now sex.
In position to be successful.
The markets will be dynamic, but we're focused on the safe reliable and environmentally responsible operations of our assets.
With that operator, we're we're ready for questions.
[noise], we will open the call to questions.
Let's turn to one question.
<unk>.
Rejoin the queue with any additional questions.
Well take our first question.
<unk>.
He said chin.
With Barclays.
Please go ahead.
Good morning, Thank you for taking my questions.
I wanted to touch upon the earlier comments made about the evolution of I know and currently you did FX. If you wouldn't mind alive reading your expectations as like when do the <unk> goal posts and timeline for development and I was waiting for March 1st of the Karish man hours it couldn't be more of the second quarter.
Progress development.
Sure.
You know the point, we made is we do believe that I am always reality, Saudi effects in the fourth quarter a it obviously has been completely blunted and candidly overwhelmed by the combined effect of the demand destruction.
Associated with the warm weather in the first quarter and throughout the winter and now a the pandemic.
I don't think the carry the carrier Bam will help but frankly, we don't think is a significant amount of cheating going on right now.
What is happening here is that a couple of things and I think it's important to weigh the men mainly age the demand destruction. So what happens is well we're going to see some things here, we're going to <unk>. The wet winter is gonna be over five weeks.
Well have to see how long. It takes you can get the virus campaign I think once that's contained and hopefully that will be.
Relatively soon but who knows I will likely going to see more stimulus injected in some economy certainly in China, and we will see a resurgence of demand. We're also going into some structural changes that happened every year and that with the butanes are coming out of gasoline that's already underway.
And the state of California, So I would guess that we would see a recovery on IMO sometime in the early second quarter, but that that is gonna be completely dependent on.
What happens with with the virus I think what we saw more.
Yes.
Demand destruction at the same time and Matt well, maybe elaborate on this at some point.
We ran a significant amount of high sulfur fuel if you listen to what our competitors such that appears it said they ran off a lot of high sulfur fuel we effectively.
Traded out crude because it was more economic to run visit well.
Have you so I hope a fuel prices have come back in.
And right now the economics are going to swing that we're going to run back to crude and we're going to slow down the amount of high sulfur fuel were running as feedstock so would it be an ongoing.
Journey to turn an obvious to take advantage of what the most.
Profitable feedstock is so I think long answer, but lots of knobs to turn.
Rick.
And in terms of the virus clearly, it's very hard to can triangulate know exactly what kind of demand destruction on the product or feedstock fine right. How long, but do you have any anecdotal evidence of scene for example to stress cargo was accrued in the market right now it's laid it to the virus.
We are seeing.
And this maybe early because a lot of this crude that was being run was already planned for and how to play play out runs how to play out but certainly it looks like we're starting to see evidence of.
Latin American South American crudes that we're going over to the east China being pushed back because of the runs cuts in China and economic run cuts throughout the entire world in many cases and those crudes look like they're starting to show up in the Gulf Coast of the United States and on the West Coast, the United States.
Early but certainly we've seen some movement on.
The medium salaries that were being absorbed into the <unk>.
Our next question will come from Matthew Blair.
Pickering Holt. Please go ahead.
Hey, good morning, everyone. I was hoping you could talk about the outperformance on the east coast a it looks like you outperformed some of your peers.
What were the drivers behind the strong margin capture what was that mostly the ability to run h. I suppose the feed and if so could you provide any any sort of numbers around the upside you received there.
Yeah, I would describe it.
In terms of the season, we are able to run and that's again goes to our complexity.
So that that can come in the form of fuel oil, which got a exceptionally weak in the fourth quarter a week or.
Two refineries on the east coast that can run a high sulfur fuel oil.
And obviously Canadian grades wind out quite a bit as well and you know when that happens we're in the cat bird seed to achieve that regards to specific.
Impacts from specific grades.
Comes very very difficult to do I, we're not going to get into that specificity, but the fact is a matter as we run to the cheapest feedstocks and we can run the harshest slates Oh.
In the World and so you know when when opportunities present themselves. We go get those feedstocks and I'll differentiate ourselves from other pad one provider.
Sounds good and then I guess extending on that point, what was your east coast crude by rail volumes in the fourth quarter and can you share any expectations for Q1.
Total crude by rail between WCS is back in I think was 75000 barrels a day in the fourth quarter, we we'd expect that have about the same level.
Level of crude by rail and the in the first quarter.
And then probably it'll drop off as seasonally.
WCS <unk> tightens up.
As we get into the second quarter.
Great. Thank you.
Your next question.
Thanks.
Thanks, Good morning, guys. Thanks for getting your own called Tome, a wonderful to kick off of my quick question. Because you. You mentioned you expect capacity utilization to remain constrained things through a number of 79 million Boes a day of <unk> of Oh from incidents offline I just wonder if you could walk.
Through what you're seeing there and how you think dot compares to prior years no. Obviously, there's a lot of moving parts right now with the Chinese situation, but just trying to one so I'm trying to figure out anything else you know sticking to clean up this photos overhang of that would that potentially going to <unk> into the summer [noise].
Thanks, Doug Thats great question.
I just short answer argues I I personally believe it will be the seven to 9 million, which basically I think was around a love what we had in a similar period last year, but a lot of that was being driven by people taking units down pretty IMO or a lot of that seven to nine is is outside the United States, but there's a fair number.
Uh huh.
Units that are down on a coming down on the plan basis.
The other thing I'd mentioned that does not include economic run cuts.
So I think in addition to the planned unit down times.
As we see they demand destruction that we're seeing right now and you know you there's lots of numbers as to how much try and is already cut back.
I saw this morning reports that they've shut down another refinery in total, but I think the combination of the plan unit downtime plus the economic response and the whole industry is going to respond you can't make money you're going to start cutting.
So I think that will eventually come.
Covered the cover they they.
The lower lower demand that we'll see and a balanced the bounce the marketplace.
I appreciate on sort of on my follow up is probably for Eric.
First of all guys congrats on getting the Martinez fuel clause dogs, Oh, It was a big deal for your rhythms you on the West coast, but everyone should be thing now in terms of balance sheet that target. So do you think about where you want the balance sheet to be in how you get there.
I think our message is probably consistent with where we'd been since we went public in 2012 that there will be times, probably post acquisition, where we may have net debt to cap that that kicks in or around 40% and I think on a pro forma basis, that's kind of where we are today.
But our immediate goals are to start to de lever. The business. We did use our a b L to finance a portion of the working capital that we acquired from more inventory really we acquired from shell. So I think the long term goal is to stay inside of that 40%. Obviously at the end of year, we were in kind of the mid 20 range.
Yes, I think that's all obviously a long term goal as we go but where we are now is we've got our six refinery system. We think we're going to generate significant returns this year and the plan would be the immediate use of cash is to start to de lever that balance sheet and I think that message has stayed consistent since the end of 2012.
Apologies for for just asking you to Labree every couple of it but maybe just two points of clarity so.
We assume new equity is off the table and can I also assumed that there's no no imminent additional acquisitions bonds.
I think at this point our focus as we said in the last call. Our our laser like focus was on getting Martinez closed we executed that transaction a couple of weeks ago. I think we put in place a long term cap structure to ensure that we had a lower interest costs going forward and I think right now our focuses on bringing Martinez end.
The fold continuing to optimize our business, we have a lot of size and scale today that we didnt have a few weeks ago and so ultimately the plan is let's go ahead and get Martinez into the PBF family. We've got some standardization to do internally and we should start to see some of those benefits through the end of the year and ultimately we are focused on.
Operating our business.
He adds a new asking on your equity.
The answer to your questions, Doug Yes, yes.
Got it thanks, guys thinking easy thanks Bye.
Well take our next question from Neil Mehta with Goldman Sachs. Please go ahead.
Hi, This is Charlie Davenport on for Neal Thanks for taking the questions on the first one is just on high sulfur is it discounts, which have obviously narrowed relative to what we saw on for Q. So can you talk about the key drivers to that dynamic and what the path forward and 2020 looks like and also I think you mentioned capacity to run 120000 barrels per day ever is it feeds.
Stock. So curious what drove the delta versus I think the hundred thousand barrels per day that you've previously mentioned.
A couple of things in regards to pump prices I think if you take a step back in <unk>.
Reading a lot over the last couple of days in terms of speculation and what prices are are saying about the market I don't think there's a price today that has not affected by what's going on in China, and obviously as I mentioned, the warm weather compounds that.
But the ramifications of the virus and its impact on demand and then its subs Glenn.
Resulting.
So.
Cuts in China, it's been through that they're refining system ripples through that rippled through every single price.
And every single a crude and every single resent barrel that you can count and so bringing up a micro focus to what it is today I don't think is necessarily representative of what it will be once the world is through this crisis.
In regards to the amount increasing.
Simply we added another highly complex refinery and that refinery has its own ability to run high sulfur fuel oil.
Don't confuse our ability to run with are currently running because if the if the prices move our actions move with them and so the market I would say and sort of across the spectrum.
As a you know is twisted a nod zone on on everything as a result of what's going on the world and we react and shows the rest of the world.
Great. Thanks, very helpful. And then the follow up is just around cash flow was there any working capital and talk to call out in Fourq you and then just curious if you have any high level thoughts on framing out normalized free cash flow power post Martinez.
In in the fourth quarter I think our prepared comments just touched on getting inventory back to a normalized level. You know our goal is always at the end of every year to get back to a certain level, we achieved that target during the first half of the year, we built a significant amount of inventory as we were going through accelerated maintenance.
Through the end of the June timeframe, and so we felt like we work to that inventory down towards the back into the back into the year, we probably saw north of 200 $225 million worth of working capital swing back in the form of cash on the balance sheet in the fourth quarter.
That being said, that's our normalized level of working capital. So I think directionally there are going to be times as we go through maintenance periods, where we may be building inventory again.
That's normal course of business for us at the same time working capital will be affected by not only volumes, but price and so we've seen some.
Relatively volatile price moves here over the past six to eight weeks.
Those may continue into the future and you may see a period, where we have lower inventory volumes, but higher prices will that will impact working capital as well I think our target is always making sure we have ample working capital ample inventory levels to operate the business well take advantage of markets. When they are there but ultimately.
The last thing we want to do is actually.
Work ourselves in a position where the refineries cannot operate safely because they don't have enough inventory to operate so that's kind of on the working capital side of things from a free cash flow look I think we've never provided any type of guidance in terms of where the market is going to go because quite frankly, we're focused on those variables that we can control operating rigs.
Fences working capital level and Capex, the six refineries that we haven't house now five of which are extremely complex. We think out a lot of earnings capability. The key pieces, where do cracks go and probably most importantly are we going to start to see a widening a continued widening of light heavy differentials we build.
We will.
We'd like to think the six refinery system as earnings power is that our five refinery system.
It's a color.
And once again today.
Question.
<unk>.
Uh huh.
Our next question comes from Brad.
<unk>.
Hey, good morning, everyone, I guess and another one for Eric probably a you guys are updated 2020 throughput guides to include Martinez.
But I think the expense guidance that you gave at the beginning of the you're still do not include Martinez.
Are there any you know numbers that you can give us or should be expected those R&D update that at some point.
I think at this point you know we've had the refinery now for a little under two weeks and we're working through what our plan is for calendar 2020, and I think we're going to be coming out with some updated operating expense numbers probably the into this month beginning of next month. We've we've got to do a few things internally before we were ready to kind of roll.
Out I think our first step was to try to provide some insight into where we think throughput will be based on current set of economic. So we've included that in the press release.
Okay got it.
And then you guys talked about how complexity was a benefit you know in fourth quarter, but when I look at the east coast slate the light crude runs where the highest as far back as my model goes because that's just barbelling against the H. I sat power or any other explanation you can get for that.
It's a combination of the too we have to barbell, when we run a significant amount of WCS or any other very heavy crude so we need to keep the topic of tower wet and that means you got to run a light crude balance but at the same time.
Shocking was actually a very economic crude on the east coast, the United States crude by rail and was actually trading Brent plus 1% plus too.
So that became the best the best light crude that we could run.
Okay got it and then if I could just sneak one more and just on DNA during the quarter. Obviously it was a pretty large number was there anything unusual in that number and then how should we think about the run rate going forward.
I think our run rate going forward is consistent with the guidance that we laid out there are really kind of two pieces that will.
Packs that GE in a number that I would say are probably one time, we hope they are ongoing because it means our business is doing well and that's compensation related expense, so and that's incentive compensation related expense, we typically do not accrue that expense until the tail end of the year because that's when we have a lot more clarity on where the full year result.
We will be ultimately that's what flowed through at the same time, we did have stock based comp that we do not include in in our full year guidance.
Okay. Thank you.
Our next question will come from.
Thank you [noise].
Hey, guys come on it.
Matt a and Tom when looking at Matt.
We so I thing has been inconsistent and has been challenging including this quarter.
What can be done.
Following up to the capital or you know that to fix it then getting much better.
I'll start and then Mac and way and first of all I agree with you.
Frankly, we we were had worked hard on Chalmette, we haven't gotten to the promised land yet.
We did make the move with the Coker that's a that's very much a positive that came up pretty much on time on budget is running at rates.
Fourth quarter, though we actually had a pretty significant turnaround in chalmette and the fourth quarter and now we shut down its caffeine hydrotreater for and I wish to to effectively change out the catalyst and also do a minor project that will improve margin increase clean product yield.
It did impact our ability to run fuel we didn't run any of your wallet in Chalmette and the fourth quarter. We are running fuel in chalmette. Today. So we have we have a lot of work yet to do but the combination of some of the investments we've made restarting to reform and not the Hydrotreater now the coker and this investment that I just talked about on a cat.
Hydrotreater, which gives us more capability to run heavier Oh sure material.
It will help they do chalmette refinery, but the big thing, which.
Which is like everything everything else and assist them is we if we get the light heavy gifts widening out and we get fuel and IMO effect Chalmette will be fine.
Hey, I'm thinking into full quota how much is the high so few or would you won a 50000 or <unk> in how much that you expect to one given the current economic into first quarter and how that spread between different system.
What we ran fourth quarter was about 50000 across our system.
One comment necessarily on what we expect to run the first quarter, mainly because I don't have a clue, where the market's going to go and we're simply going to react to the market every single day as I said, we have we've we've over the fourth quarter and into the first quarter, we've been able to.
Demonstrate to ourselves what we're able to do and we're in a position to do it but we'll react to the market.
And that's just didn't default quota everything is one in that let's sit to buy into high school that you want.
Well not 100% of it was rondo are sitting though.
We were able to run some and paulsboro as well.
Impossible, so on and that when I'm looking at your I mean, just simplistically or when you show the crew and <unk> the high sulfur fuel oil you don't get together as a partner if they have fee or.
To get the as part of the the feedstock trends.
The actually what we showed a different refineries is different.
In some cases is shown as a feedstock.
And in with the crude and there's another piece that it's in the other feedstocks, but we obviously the total that we run you're going to be Oh that what we run it can be a total of.
Those two areas that make sense to yourself and wondering why don't you.
Just based on what you we plug in here at the able to tell what that that you have increased or decreased to one though I still feel a lot.
You'll have to rely on us telling you.
I'd say, okay with the thank you.
Next question will come from Phil Gresh.
<unk>.
Yes, hi, good morning, I know, you're going to wait to give us specific cost guidance on 2020, but perhaps you could remind us on the capital spending side, how we should should think about a normalized capex run rate across your system as Martinez.
Not specifically this year, but looking out.
Just.
Well I can give you I, let Eric <unk> go to the out years.
It's in consists or we talked about but for this year in particular, we've done a fair amount of work over the last couple of weeks.
At only has been a couple of weeks, but.
In terms of what we said in June I think we said $75 million for 2020 odd moderate that slightly it's probably a range of $75 million to $90 million.
And then there there is a project this year, which is a strategic project in many ways and we are able to work it will show where they are actually delivering.
New reactors for Kathy Hydrotreater, we're going to look to get those reactors and quicker than maybe otherwise because they actually come with a return going though will further increase a yields across our conversion units. So that's a probably another incremental $10 million or spend this year, but that.
That will come with a you know some some benefits a return in regards to our long term forecast out think anything's changed it's consistent with what we laid out in the guidance last month.
Okay.
And then just just one follow up question I don't mean to belabor the high sulfur fuel.
Totally understand that.
There's a lot going on that's pretty dynamic with.
The virus demand effects, but I guess I would've thought if demand.
Generally is weaker that that would mean prices would be weaker, but obviously prices have been stronger. So I guess is that I did the dynamic here that just the refineries evolve.
You know chase to kind of the same high sulfur fuel oil feedstock opportunity and that has been the main driver of the strengths and now that we're going to see a rotation potentially back to heavy crude that that saw some back up is that how you see this playing out thanks, not entirely and that certainly that has an impact.
He is on that but you also have other impacts which is a lot less I saw you oil is being produced.
Because refineries running wise.
So what we say you know sort of every number is or tortured by by the effects going on.
You know it becomes very very difficult, but you know you certainly have a supply of high sulfur fuel to market declining as a result of of run cuts.
Okay, but to be cleared time, you'd mentioned that you don't think folks are out there you know cheating and so running high sulfur fuel oil so it's creating excess demand right now yeah I wouldn't be <unk> I wouldn't believe that's the reason for this I I would say in addition to the comments that Matt made a lot of this is the man shipping industry is not immune.
To what's going on so there is probably less consumption of of high sulfur fuel or.
Very low sulfur fuel, which has now started to come off from the Glorious Heights that they had a and then there is certainly as we talked about not prepared comments. There has been some movement on the part of <unk> medium conversion refiners, who do not have resolved, we said destruction capability in the fourth quarter, we're getting a clock land that's a technical term.
And so what they had to what they started to do is try to lighten up that each met that they could which decreases the amount of fuel oil production I suspect that you're gonna see even then maybe.
Go back the other way if these prices would remain but I don't think they will I think it will widen back out.
Okay, Yeah moving pieces. Thanks, Tom.
Our next question will come from Paul Sankey was.
So please go ahead.
It's actually very good pronunciation, a Japanese pronunciation quite right. Thank you [laughter] the Uh huh.
Hi, everybody I'm, just wondering the way the markets is shifting here well. It was just wanted to do to remind us if you would about six cents, which you you hedge.
And whether you would be doing that and why you wouldn't I think if you could continue into reminding us.
How much difference contango versus backwardation makes given the shift in the curve would be question one thing.
Just in regards to how we hedge our portfolio.
We have a fairly simple policy, which is our investors are investing in the crack spread.
And we're trying to deliver that across you know a number of pads and regions.
So, we're not actively hedging or cracks or or anything of that nature. What we'll do is we have a baseline of inventory and to the degree we build a from that.
We'll take hedge positions to bring us down or obviously vice versa, but we don't we don't play.
The game of hedging cracks and they material way Tom I don't know if you want to comment on contango backwardation.
You know, we just watch it fall and obviously it shifting now and is now in incentive as we get data with it with the industry might look to start floating stuff on the water and we'll pay attention, but we really don't use that as a metric to change our business I would go back a business model we go back.
On the hedging party equation, Matt is absolutely right.
We don't play a speculative games on the crack because of the investors we.
People buy PBF stock as you well know they buy the correct.
They are investing in a graph, but we do on a long haul or even made some short haul crudes that we buy we effectively hedge to manage the basis. So we lock into price the crudes when we when we get when we buy it and so do we get went by the time Atlanta, that's been under we've got that's the main area that we hedge and Paul I think it.
In the fourth quarter, we saw about a million an app dollars' worth of derivative related gain. So typically what you would see is if there was a gain you would see the offset on the physical side of the market and vice versa.
Yeah, I mean for what it's worth we totally support you stressed she and I agree with your rationale for a on the through my follow up is.
Just on the Throughputs, we were bit light here. It seems for Q1 can you talk about Q1, the rest of year and any if you sort of reference this already but any views on the overall industry throughput skipping <unk>.
Situation that <unk>.
Thank you.
I'll talk about that and I think at your conference when <unk> video commissary here in a year or we I kind of put this out there I I actually think we're obviously going to have lower throughputs here during the crisis that is being managed or attempting to be managed.
But that ultimately will pass.
But to a large extent I think there's going to be pressure, especially as we come out of this and if I am old comes back and you start to see spreads on the light heavy crudes and you start to see heavy fuel the clean dirty spread.
Clean Dirty spread was up at 40, it's 25 now, but that's still quite a bit hide and was last year, but if it widens out there's going to be pressure on some of the inefficient refineries. So the refineries that are running these medium sour crudes and making fuel and so I wouldn't be surprised that you have continuing runs cuts.
Throughout this year and maybe even though some some consolidation so I view this is <unk>.
I don't know that we're going to see the same utilization worldwide that we've seen in the past until the new refineries come on then okay that will change the paradigm.
Thank you guys lymphocytes thing, even though in late March thanks.
And your final question comes from Jason gave woman Cohen. Please go ahead.
Yeah, Hey, guys good morning.
Uh huh.
I understand.
And I appreciate the fact that these IMO benefits a bit.
The delayed a bit.
I guess I'm wondering what your thoughts are on the duration of the benefits both on the light heavy crude quality spreads and I'm on the product margin upside and I ask Lewis with the thought that there's going to be a lot of refining capacity coming online.
He added this year that could potentially be using heavy sour medium sour crudes and impact the food quality spreads have been thanks.
That is a couple of pieces of that certainly the case and that there's obviously a deliberate unconscious constraint of.
Medium and heavy crudes that are underway and being exacerbated by the sanctions that had been imposed by Iran. In Venezuela, it's a et cetera.
But right now I would still say that we would expect IMO two have an impact income after we get through the virus and it already is Ah, but that will affect the light heavy spreads now on product demand.
It's interesting and somebody referenced that I haven't seen a situation, where you had such volatility in so many knobs to turn to stay current with the marketplace. So what is some of our peers of reference this right now.
We have actually had had economic incentive to almost run a refinery backwards you take biggio that was going into a cat cracker, which would produce gasoline and diesel and are somewhat competitors I have announced that they were actually selling that not running into a cat cracker by the way we are doing it as well.
And instead of running it and producing gasoline and distillate.
Keeping it as Vdsl and then selling BG only two high sulfur fuel oil a very low sulfur fuel pool. So what did I, just say well, you're probably going to put a floor under production on gasoline and distillate if they if the cracks are bad and no again, the markets will rebalance and I think we'll be fine.
Alright, Thanks, and just a follow up I know, we've touched on running high silver fuel oil a bit and I think that as an analyst and stuff to understand what the economics of that are so I guess very simply in today's environment.
Where prices are doesn't make sense to run high sulfur fuel oil.
The answer short answer your question is no.
Sorry.
On a go forward basis, if these prices we won't be running the volumes that we are was wells switch out and again. The beauty here is this kid, it's got enough optionality that can respond pretty quickly in any if any.
Changing the economic environment.
Thank you very much.
I would like to turn the call back over to Mr., Tom Nimbley for closing remarks.
Thank you very much for joining us on a call today and we look forward to I haven't they <unk> first quarter call and hopefully well have put this sub pandemic finest it's a terrible thing the people in that process. Thank you have a great day [noise].
And this does conclude today's program. Thank you for your participation you may disconnect.
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