Q1 2020 Earnings Call
Good day, everyone and welcome to the PBF Energy first quarter 2020 earnings conference call and webcast. At this time, all participants happened place that will listen only mode and the floor will be open for your questions. Following management's prepared remarks, you may registered to ask a question that anytime by pressing the star and one on your Touchtone phone.
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It is now my pleasure to turn the floor to Collin Murray of Investor Relations. Sir you may begin.
Thank you Barry.
Good morning, and welcome to todays 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 copy of today's earnings release, including supplemental information is 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 the statements contained in the press release and on this call, which express the companies are 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, including those we describe in our filings with the FCC.
Consistent with our prior quarters will discuss our results excluding special items for the first quarter. This is a net 933 million adjustment consisting of after tax non cash lower of cost or market or LCM adjustment chain.
Engine tax receivable agreement liability and debt extinguishment costs related to the redemption of the 7% notes due in 2023, which were partially offset by a change in the fair value of the Earnout provision included in connection with the Martinez acquisition.
Which in total decreased our reported net income and earnings per share.
As noted in our press release will be using certain non-GAAP measures, while describing PBS 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 the supplemental information provided with today's press release are the consolidated results of armor Tina's refinery now included in our West Coast system as of February Onest 2020.
You have any questions about this new information or presentation. Please contact investor relations. After the call I'll now turn the call over to Tom.
Thanks, Collyn good morning, everyone and thank you for joining our call from wherever you may be working.
Results for the first quarter seems somewhat inconsequential, given the challenging start to 2020.
Now all experience our own unique set of circumstances as we manage our daily lives as individuals.
And we communities and companies in the face of the measures necessary to navigate the impacts of the Cobiz 19 pandemic.
Through our refining logistics and commercial operations, we have seen the effects of covert 19 demand destruction on our business first hand.
As a result at the nationwide stayed home waters, we estimate demand for gasoline bottomed at around down 50% from last years level.
In early April with demand for other products down as well.
In response to the pressures of the pandemic.
<unk> has taken a number of aggressive steps to protect our business from the virus impacts and resulting demand destruction.
We significantly reduced our capital expenditures for the remainder of 2020.
We have increased our initial reduction up 240 million announced in March.
When aggregate decrease of 360 million in 2020 planned capital expenditures.
This represents a 50% reduction to our original guidance.
We intend to satisfy all required safety environmental and regulatory regulatory capital commitments.
While continuing to explore further opportunities to minimize our near term capex.
We have identified a number of opportunities to low 2020 operating expenses by approximately $140 million, we lowered the corporate overhead expenses by over $20 million, primarily through temporary salary reductions.
More than 50% of all corporate and non represented workforce and continue to target other areas for savings.
We suspended our quarterly dividend, which will preserve approximately 35 million in cash each quarter.
To support the balance sheet.
And through the sale of five hydrogen plants located that all Martinez Torrington, Delaware City refinery.
We generated 530 million in cash proceeds and we continue to evaluate various other liquidity and cash flow optimization options.
And finally last week, we raised $1 billion Jewish successful bond offering.
Our total projected cost reduction measures amount to more than 600 million an expected savings in 2020.
Some of these measures are temporary.
What should result in long term benefits without taking these and other steps to counter the impact of the unprecedented headwinds we are facing.
Similar since late March we have reduced revenues by approximately 30%.
To put that into contact coming into 2020, we were expected to run approximately 950000 barrels a day through our refineries and we now expect to be into 650 to 750000 barrels a day Frank.
We expect to be in that range until demand improves and we will adjust our operations regionally depending upon market conditions.
Across our refining system do you need a complexity and configuration of our facilities, we have the flexibility the idle certain units and scale back operations to balance our production would prevail in demand.
We are not the only company facing these market conditions and our competitors appeared to be responding to the market in a similar fashion.
We're also seeing some companies take the harder decision to completely shut down refinery.
Two facilities have shut down domestically and several more facilities have been shut down any Atlantic basin as a result of high cost and low margins.
Refining sector as a whole has responded to the market conditions and done a good job of allotting product supply with demand.
We are taken all the necessary actions to ensure that we emerge from these trials a stronger company and we remain fully committed to our base assumption that complexity matters.
Our complex and geographically diverse asset base provides us with a stable platform to build a strong future.
Many uncertainties remain with respect to the lasting effects of the pandemic.
And the impact it has said and will have on our economy.
From a hydrocarbon perspective, it certainly appears that we have hit a bottom and we are seeing some signs that Matt demand is returning in some small measure.
The space manage their endeavor individual recovery pass.
Even in these trying times as always the health and safety of our employees and our community partners remains our top priority.
We will continue to operate all assets in a safe reliable and environmentally responsible fashion now I'll turn the call with Eric to discuss our current liquidity and financial position.
Thank you Tom.
Today, PBF reported an adjusted loss of $1.19 cents per share for the first quarter and adjusted EBITDA negative 3.8 million.
These figures include approximately 11, and a half million of transaction related expenses.
Consolidated Capex for the quarter was approximately 139 million, which excludes amounts paid in connection with the acquisition of the Martinez refinery.
Consolidated Capex includes 133 million for refining and corporate Capex and 6 million for PBF logistics.
As a result of the reductions to our 2020 capital budget, we expect to incur roughly $15 million of Capex per month from may through the end of the year.
In addition to the what do the 600 million of cost reductions, we executed two strategic transactions to boost liquidity.
We completed the sale of five hydrogen plant the air products for 530 million and issued 1 billion of senior secured notes last week.
As of May 1st 2020, after giving effect to these transactions. Our liquidity was approximately 2 billion based on our estimated 805 billion of cash and 150 million of additional available borrowing capacity under our asset backed revolving credit facility.
When combined with PBF logistics, our consolidated liquidity is more than 2.2 billion.
Assuming current commodity prices remain relatively constant we expect our liquidity to improve as working capital continues to normalize in may and our revolving credit facility borrowing base increases.
Operator, we completed our opening remarks, and we'd be pleased to take any questions.
[noise] certainly that's time if you like asked a question. Please press star and one on your Touchtone phone you may withdraw yourself from the question Q by pressing the pound key again that star and one.
We'll go first to Roger we read with Wells Fargo.
So I had good morning, hopefully everybody here.
Hi, Yes, Roger we can here.
Okay.
And all of US with this work from home, but I never really no Uh huh.
[laughter] just a quick follow up there Eric if we could on.
What are the comments so we look at the continent or what's written in the press release 858 million after giving effect to the 1 billion unsecured bank debt that was issued lighter and married.
Sure.
You paid back revolving debt I mean, I'm, just trying to understand how you're at a billion an atlas.
Sean kind of what the beauty products work and then as we think about working capital within that since inventory numbers that were reported were lower I'm guessing. We're looking at our accounts receivable accounts payable where most of the working capital is trapped at this point.
Roger the cash balance of 805 million was the balance pre transaction.
As of May the first so then you take the call it roughly $1 billion I think the net proceeds were closer to 987 and a half million after all fees and expenses. That's how we're getting to the 2 billion. So the eight of five plus call. It.
The incremental billion dollars of cash from the bond deal plus the availability under our ABL.
Okay all right. Thanks, that's helpful.
And then on the working capital side, the moving parts there.
Yes, the biggest pieces on the on the working capital during the course of the quarter clearly as as prices declined we did see cash move out of the system through working capital. We do carry we are essentially long payables. When we think about right, we're paying north American crude payment terms theres typically.
Like of anywhere from four or six weeks there. So in a declining flat price environment, we will ultimately see right. What we're paying during for example, the month of April.
The we pay per barrels half of the barrels that we basically price during the month of March. So when you start to see 10 $20 per barrel moves month over month, you will ultimately have a lag. There then as prices start to rebound it flips and goes the other way. So that's where we believe the working capital side of things because we are at a net payables.
Position right, we probably carry 10 days worth of receivables in anywhere from 20 to 30 days' worth of hydrocarbon related payables. So went in increasing flat price environment everything flips back the other way, we will start to see cash come back into the system.
And just as a quick clarification on that isn't it should we think of it as an average price in a month or should we think of it as where prices were as of March 31st versus where they might be on June thirtyth. If one were trying to compute the effect.
The easiest way to do it there's.
There's a significant amount of science involved because crude prices, depending on whether its CMH or individual pricers. The easiest way to think about it though is on a CMH basis, there will be fluctuations, though month over month, because we will end up.
Right, we're going to run whatever is the most economic crude some of that specific crude we made by for three months and then not by again for another three months.
But I think for what you're doing ultimately using CMS is probably the easiest way to think about it.
Okay, great. Thanks.
Then a Tom I could go back to you just.
You mentioned and maybe some signs a demand starting to creep back end of the market and it looks like some other indicators would show was certainly an improvement over the water parks.
April but you've got more exposure to east coast in West Coast, which have been two of the weaker markets. So just curious if there's anything you can kind of incrementally help us with there.
Yeah.
We track there's obviously.
Diligently if you take a look at.
He said gasoline at the trough or nationwide was down 48% or close to 50%.
PADD five was down 48%.
Pad three was down 43% pad two is down 47% and PADD five is now 45% from last years level.
If you look at the last set of reported numbers that I had.
Now were down all pads, 24% from lapping last years level up from five one to 7.5 million barrels a day in the last reported he is any improvements have been actually more pronounced in PADD five we're now down only 25%.
There's a lot more traffic apparently on.
Five and in California, a pad three is moved from 43% losses and last year to 27%.
Pad to 47% to 33% so and to add one is the lag and 45 and is now down.
Rebounded to only 35.
35% I shouldn't say only.
Less than last year, and again, obviously to this area to country is a little bit slower and opening up than most of the other regions.
Okay, great. Thank you.
Yes.
Well go next to Manav Gupta with credit Suisse.
Hey, guys. My first question is on Toledo, the gross margin capture what's a little weaker than expected and I understand there was a big turnaround and I'm just trying to understand if that was the only reason because of which took lost margin capture was a little weaker or was there. Some other fact doesn't make gone and a broader question is do you understand that mid con.
Yes, I mean demand has the color the shopping in fact somebody put it into getting it should be as high as 90, 590% to 95% of normalized level. So do you plan to hold onto a little harder into Q, what's assembled thought that assets.
Okay. It is our three three parts to your question.
First of all Toledo, capturing Toledo is impacted not only by the fact that we had a turnaround but candidly we had to bring to unit down earlier than we plan to have because the unit had taught had decided it was tired and always need needing suppressed being a little decisions there, but we basically had a number of mechanical problems on some boilers.
And so we accelerated to turn around by three weeks.
And that actually impacted the efficiency of getting ready to execute to turn around.
Then when we completed the turnaround we were said now looking at double digit negative gas cracks and we said wallet. This is not the time to be bringing up a cat cracker that makes definitely so that unit has been down in fact, we are so it was really a prolonged a turn around much more than.
Couple of weeks longer than what we had expected implant board.
Second part we are seeing demand increasing the number as I had the or not quite as strong as.
Well, you're saying hopefully we'll get there.
But we're going to be very very diligent. We are just not going to do what everybody expects refiners to do seeing improvement in gasoline cracks in say the Holy Grail. There. It is lets ramp up let's run.
This thing is not over.
Looking at this split and.
What we did put across our whole system and everybody else dad is to automate gasoline and unmade yet.
We cut wrong significantly, but we also chair Jeremy the.
Do you know I've been turned gasoline and jet fuel distillate and and distillate is actually something we're looking at as we go for being very careful that we're not building distillate inventory in a matter that is not not prudent so.
We will likely start up the FCC, but but candidly we won't be running running any more crude maybe a couple of thousand barrels a day more crude in Toledo until we see that we've gotten above the water line.
Yeah. Thanks for that Don a quick follow up now you have hog locked in a thought about a quarter or is it a farming update you had expectations I'm asking this question because when we initially aflacs audience, you talk kind of Elias it needs a little more work than you initially pocket books, so it's not Dennis.
Taking a condition in which you expect it it will be delivered thank you actually actually so far.
Obviously took it over February onest and absent the impact from the from the margin side from the pandemic I will tell you. They are it is a first class asset the first class workforce.
It is not that arent situation. It is not the chalmette situation that we inherited when we bought those troubled assets. We said that we thought we were buying a first class facility and I'm very confident that in fact, that's the case.
These folks are ultimately oils.
Thank you so much for taking my questions.
We will go next to push off <unk> with Citi.
Good morning Joel.
Sean just.
Just wanted to follow up on there.
With that 1 billion private offering or.
Net debt to capital ratio like will be up quite a bit like so just want to ER.
I just want to know what like what does come up in major covenants should we be aware off site, maintaining 100, meaning on the revolver.
From a you know this was a high yield secured note issuance. So from a covenant perspective, there are simply different types of incurrence test that we need to do or need to abide by in the event that we're going to do anything in terms of.
Moving assets out from under the security so other than that there's really no incremental covenants I think the existing covenants that we have.
Dealing with our ABL had stayed in place we did receive an amendment under our ABL Yelp to increase the so total secured debt capacity to 20% of total assets, but from a covenant perspective, there are no real financial covenants with the high yield notes.
Okay.
Switching to get a little bit.
Capex or Capex guidance for 200 Twentys Stan.
Another 110 million versus your original expectation.
Could you elaborate a little bit on the drivers for that and also like have your views to change or on your turnarounds or needed for.
Martinez like since completing that deal.
Thank you.
The actual driver on the the additional Capex reduction is predominantly turnarounds, but the turnarounds for.
We are pushing out from 2020 into 2021.
Crude unit turnaround that was a schedule for Delaware and a turnaround that a pre spend in some turnaround work that we've been dawn and time, so they have been pushed out.
Everything else, we're going to now moving.
Rebalance if you will by looking at 2021, and what we can push out from 2021 into 2020 to try to smoothed out the curve. That's the way, we handle I turn around and I'm, sorry, I couldn't get the second part of your question on Martinez.
Uh huh.
On that kinda, Ron need it like for the asset.
Nothing has changed since completing the acquisition yeah, Oh no not at all.
Thank you.
Well go next to Theresa Chen with Barclays.
Morning wanted to follow up on that demand question, just in relation to California, and your outlook. There in light of recent comments made by government officials on leading to L.A.
Possibly being under perpetual lock down until their sit here and if you think.
Let's go with college student, how you think about the evolution of things on the West Coast.
Well I can tell you the facts the facts auto we are seeing.
I have seen California gasoline demand.
Increase rather nicely.
Maybe plateaued going on we're not sure we took it down as I said, if you're looking to stack.
It was down 48% at the trough and and now has recovered to 25%. So it's that 75% of last years level.
As to.
How how quickly it goes from there we actually expect to see.
It's tough to follow California, because it depends on which politician you listen to.
You know the governor's, saying some that he's willing to open up some things.
But then the local jurisdictions habit in L.A. I guess, you add was that they the county health supervisor, who has come out and said I think she was the one who said that it's it's kind of La County is going be close for three months in American onsite no that's not the case.
So we're always at the risk at the politicians are going to do some things and that will be what it will be but our view is that frankly, California is going to be continue to recover just as the rest of the country is as the state's open up.
Got it and then on the differential side and clearly it's been a pretty wild ride over the past couple of months, both domestically and globally. I mean part you know Jason bits per stores in key hubs and on the water and now with production shutting and Tom How do you see all of this playing out in the next.
Couple of quarters and in 2021 in your mind is there any sort of logical path forward I mean, what do you think has to happen for us to I guess get back to some sort of normalized environment, where differentials are again, a anchored by transportation economics and quality.
That's a great question I will say start by saying.
I think the volatility in the marketplace has been obvious to everybody. We're reacting to things that weve never had to react to before.
All of a sudden you wind up with a negative T.I. price, a minus 32 bucks or whatever it was a.
A lot of that was storage related a lot of it might've been a the the length in the derivatives on this thing Bob.
But our belief is that as we start to see to pickup in demand and as the stage thoughts opening up the market is isn't a process of rebalancing.
And if you just a couple of days doesn't to try and make but if you take a look at the spread between <unk> and dated Brent added blown out five to six Bucks Mars is still this started versus LLS.
And is actually selling.
Oh over Brent and a lot of that is storage a lot of that is where you can put your crude but we believe that the market isn't a process of rebalancing on on a crew side and ultimately we'll get back to the differential why do I say that it's really the story about the product side it is demand and as demand improves.
Usually.
Realization will go up and then ultimately.
Youre windup, bringing some of the crude that is being cut.
Back into the system and that incremental crude will be likely the salad mediums that are being backed out in the marketplace by OPEC, Okay, plus I say this on occasion I think one of the things we should really learn from what we've seen here.
He is.
And I'm not sure we will.
Crude has no value.
Unless you can find its way inside a refinery.
The only way crude has value is if you get into refinery in the refinery takes it in turns it into products that the nation in a world needs. So we.
We remain confident that with our complex kit.
That ultimately where returns or some type of a normal more normal I can't say normal, but more normal situation and be rewarded how long it'll take a.
I suspect is certainly we're not going to get there until after the second quarter as demand is going to those in the process of recovering.
And it may take a little bit long in that but the trends do seem to be moving into right direction.
Thank you.
Well go next to Douglas <unk> with Bank of America.
Oh, sorry, excuse me good morning, everybody.
Eric I Wonder if I could you bought two liquidity question just for a second.
Obviously, you've taken a lot of steps you're to.
To bolster your your cash position as you walk through as Roger I'm, just curious how you see the levers that you too. So if we ended up with some extended.
Period of weakness in terms of demand well what do you expect your cost what are you planning for by way of cash burn.
What would your priorities before use of free cash if and when we get back there.
Just wanted to get a a fuel fourq is also the closer to that is pretty onerous I'm. Just wondering if there's flexibility over the next several years decline reset thought we were at some point just won't walk us through how you're thinking about onwards.
So it I believe where you were going on the front end of your question. Doug was if we have a sustained demand issue and I would say from a cash burn perspective, then we're probably no different than other refining companies that we would need to evaluate do we need to idle any assets from our perspective, there is zero.
Point in operating to lose money. So when we think about what it cost to actually maintain our system from may through the end of the year, we'll probably have an incremental $120 million to $130 million of capex that we need to incur that's essentially feed call it roughly $15 million per month.
That does not include turnarounds right. So a portion of what we've done in terms of reducing our capex burn.
Is ultimately push out turnaround. So that's one of the biggest the levers that you have overall from a capex reduction standpoint, so reduce capex.
Then ultimately do you idle any plants.
I think on average our refineries costs roughly $25 million per month to operate.
Operating expenses in a shutdown scenario, you're probably spending $5 million to $10 million among per plant clearly some of the assets out on the west coast or a bit more expensive to operate.
Versus some of our legacy assets, but on average those are those are general numbers.
And quite frankly, then I think you also evaluate what you do with inventory.
We do carry 30 to 35 million barrels of inventory at any point in time with you have an idle assets does it make sense to do something with that inventory. We do have an intermediation agreement with J. Aron. We think there are levers associated with that inventory, if we're thinking about a true draconian scenario.
I think we're probably going the other direction at this point, though and we are starting to see demand.
Not so much rebound, but we are starting to see green shoots here, we're seeing more cars on the road, we're seeing more barrels run across all of our various racks. So ultimately I think we are we're not planning to get back to.
Where things were prior to the pandemic, but I do believe at this point, we're starting to see green shoots related to a recovery and as states start to reopen I think we'd go the other the other direction.
And also tricky one to navigate the scenarios, but bottom line you think you've done enough with the steps you've taken at this point to navigate through this.
We do absolutely you view hit.
You hit the nail on the head.
What we just did is absolutely a necessary step it was extremely prudent for us.
The incremental 90 plus million dollars of interest expense a year.
Not something that we take lightly I think we've talked about we run our business for cash as we expect everyone else in our industry to do.
Quite frankly, our goal at this point is to generate enough free cash flow. So that at the end of the two year no call period. These notes go away and we can really get back to business as usual, but I think we are our view was we have different levers that we ultimately pulled back during the month of March.
For asset sales and clearly reducing our cost structure I think Tom mentioned on the front end there are a variety of things that we believe longer term are our business will be more optimized as a result of these cost reductions some of them are going to be temporary but quite frankly, some of those will be permanent as we go Paul.
And so I think are right now is this gives us.
A clear runway to optimize the business the way that we feel we need to do and on a go forward basis, we have 2 billion dollars' worth of liquidity today, and that's something that is extremely important to us.
You should lengthy answer.
The demands question has been floated vessel ready, but Tom forgive me I'm going to flow got little bit more because you pointed to gasoline on that just obviously talked about as well, but I'm curious what you're seeing on the distillate side.
Let me finish my question like this is as we looked at all of the month data that we can go on zone.
Seems to was the seems like mass transit for example is flat lining, whereas gasoline seems to be recovering. So we're we're trying to figure out for single behavioral change you're not this year to you asked a globally, but more importantly on the freight side.
It seems that some of the third party consultants that we use obviously same things are holding up that a little bit better as well. So I wonder if you could sort of segregate down or from Didnt deliver more detail in terms of how you see the different demand trends between the different products late summer months, but tricky, but any color you could all who do appreciate it well.
Certainly.
And.
You start where the immediate and most draconian impact was obviously and that would be jet fuel and when you take a look at at jet itself.
Yes.
Demand is down.
85% to something like that or.
In that area.
Actually production is down the same.
We don't expect jet demand to come Roaring back anytime soon.
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Yes, there are obviously is going to be most likely reticence on the part of some people.
To get on a plane and pega vacation to Europe or do those things.
But the thing with jet is we have basically done a terrific job and just in PBM.
We have actually a reduced our jet production, what we were expecting to make was 90000 barrels a day.
We're down to about eight.
And we basically.
Only make jet and two refineries in small amount.
And we've gotten within the supply demand curve on jet even with that low demand environment. So we don't think we're gonna have an inventory issue now move too.
Gasoline.
And of course that was the one now everybody worked on first because.
Jet, we got under control that we went to gasoline and we've talked about the gasoline same story exist there because of the cuts in ron's ourselves and the whole industry and turning knobs from GE cheated from gasoline to distillate.
We're in within the supply demand curves demand creeped up to last week to 7.5 million barrels a day Proto stats.
Gasoline production was 7.5 million barrels a day and is continuing to come up.
And I'm going to come back to I think one of your questions. A part of your question on gasoline in a moment.
Now distillate.
It is holding up I mean, its but are we obviously increased production of this lit by taking gasoline and jet fuel and put it into discipline, we're actually starting to reverse that steps on with cracking some additional it.
Which is a step in a cat crackers to turn it into gasoline not increase in runs with just shifting product from from this that the gasoline because we're a little concerned on additional insight or refinance and that is mainly drew being driven by the fact that the pandemic is now hit in South America pretty hard and the ability to export the barrels.
How did the Gulf coast, the United States into South America.
Has been impacted that being said it does appear as though just with demand continues to hold up better.
And your question in terms of behavioral shifts.
Yeah, I think we believe that there is likely going to be some headwinds tailwinds.
Particularly on gasoline.
Cause people are going to be.
Not willing to get on subways.
They're not going to get on a cruise ship and go on vacations, they're not going to get on an airplane they may not even a little bit.
There is going to be a lot of people decide we're going to decide that.
I'm not going to take the bus the safest form of transportation I have is to drive my own automobile in fact, I probably want to drive it with only me in the car unless it's a family members. So I.
I think some of the analysts have written that perhaps we could have a little bit of an upside or some significant upside from gasoline on I think there's the potential for that.
To occur.
We'll go next to Brad Heffern with RBC capital markets.
Hey, good morning, everyone.
I wanted to go back to an earlier answer about Capex.
So you talked about deferring some of the turnaround expenditures and a 2020 120 22 I think in the past you talked about sort of and an annual average capex for this system of like 650 to 700 million.
Post recovery should we expect a number to be a significantly larger than that or would ultimately sort of the whole turnaround picture got pushed out and it's sort of stays level and then sort of within that question can you also talk about how long you think you can spend at these levels before you end up having.
In some sort of impact on reliability.
Good question just short answer the first part of the question is we have already starting to work.
Work to work the issue on how to our 2021 Capex and the expectation is that we will continue to have a capex spend rate in that 650 to 700 million dollar.
Range, well do that to a large extent, we have optionality on on bump in out to turnarounds, we don't like.
Two.
Due to many turnarounds in any given year, they're lumpy in the base case, but we certainly would like to have it be smoothed out for obvious reasons.
The amount of throughput that you lose so the expectation is that we're not going to have an increase.
On 2021 or beyond this will just manage that.
We certainly can.
Panel looked at we've already made the commitment that we're looking at.
A 50 million dollar capex spend.
And that's basically.
He said, we kind of total capex by 360, but.
The fact is that we spent a lot of that money already in Toledo, because that was the biggest thing we spent over $130 million on a toledo turnaround. So we're going to sustain the $50 million range.
So the ended the year for sure unless we see something really significant and and faster recovery and then maybe we might add some things back, but even then I'm somewhat suspicious.
At some point your question is correct and if we add it will be most likely in the turnaround area, where I mentioned earlier that until lead OTA unit was talking to US and finally said, it's time to shut down well if we continue to defer all the turnarounds or a high percentage of turnarounds, we ultimately.
I would get into a situation, where we'll have to taking unit down because it's the underwriting and we won't run in an unsafe condition, but I.
Again, I don't think were there any way there right now and the rest of the year, we're going to stay at these levels and then we expect to go right back to that.
Range that you talked about.
Okay. Thank you for that.
And then just a question on contango I know can be complicated waterborne barrels about whether it's possible to capture contango profitability. So can you walk through how it looks in the system I would assume you got some of it the Toledo, but any more color than that thanks.
Yes, probably Toledo is probably the only area, but up.
The system is so volatile if you take a look at what's happened in the last couple of days.
We don't have anywhere near the contango that we had before so I wouldn't think that that is going to have a a huge effect on.
Take care.
Steps that we're going to try to focus that as being an area.
We tend to just take the market as it comes.
Well go next to Phil Gresh with JP Morgan.
Hi, Good morning, a couple of questions for Eric.
First just on.
The new run rate interest expense.
What would that look like after all these.
No decisions, we've made and then with the hydrogen plant sale.
What would be the lost EBITDA. There finally with the carriers Act and tax situation is there any.
No benefit you'd expect to see.
So Phil will take those in reverse order at this point, we're still combing through various components of the cares act, but we do not anticipate having anything material coming at us from a tax standpoint as a result of the cares Act our tax team has been pretty efficient to date. So we don't have anything that we buy.
We will be able to carry back again.
In terms of the hydrogen plant. So we did receive $530 million of gross proceeds incremental EBITDA.
Basically will be about $65 million to $70 million that will ultimately hit EBITDA that will obviously be split between the west coast and the East coast.
Easy way to think about that as it it's probably call. It 80% is going to hit the west coast simply because that's where the bulk of the assets are.
And those will those will be costs incremental costs every year that ultimately will will be above the line. So they will reduce EBITDA on a go forward basis.
And then from an interest expense standpoint, I think our current Gen run rate for interest expense on a consolidated basis or this includes roughly $55 billion of interest expense add at PBF logistics is probably going to be in the $275 million to $300 million range that includes everything that is.
The the new billion dollar notes issuance that we did back in January we clearly redeemed a portion or I'm sorry, all of.
The 7% notes that were outstanding and then we did just do this incremental billions. So it includes the incremental interest expense from those two new issuances and then has reduced the interest expense that we no longer we'll have to cover for the redeemed nodes.
Okay, great. Thanks.
And then second question just be for Tom I know, there's already a question on differentials, but maybe more specifically just on.
Light heavy differentials Pemex did tighten the case factor.
Then last night.
So I guess, it's a little bit more that you see things playing out and kind of near term with the OPEC cuts just starting to kick in versus more intermediate term, you're talking a little bit about a timing of barrels coming back, but just a little bit further elaboration on that thanks.
Yes, certainly we've seen with.
My My has moved in a significantly it's no longer your competitive.
The Saudi barrels was their focus on the Asia and even the European markets. There there appear to be less interested in trying to be present, marketshare and us right now.
So we obviously and then of course, you've got the situation with.
WCS in Canada, which is that's a tough business for those wells right now given the lack of demand so we see any.
Differentials narrow win.
Significantly in some cases and being completely distorted and as I said earlier, I think thats a function of not fundamentals.
And ultimately will clear that and get back to fundamentals, but the until the demand picks up you're probably going to have a tighter gaps a light heavy gifts.
And we'll react to that we're going to actually have the capability of running lighter sweeter crude if we want to and if it's more economic them, we will do that and that situation what will remain until demand picks up and then when demand picks up I don't think you're going to see a rapid increase in and domestic production in fact that that's going to be some consequences on that some period of time.
On the incremental barrel I will be needed supply incremental demand is going to be the medium heavy barrel and that will directionally widen those differentials.
Interesting okay. Thank you.
Well go next to Paul Chang with Scotiabank.
Hey, guys good morning.
Good morning tool.
No no question, so hopefully that Oh.
Just one.
Paul.
Just two is that it's important to cause them I guess going to be behind us.
So after that or is this experience what they use from Neil how your one youre operation how you're looking at policy.
And how you're looking at call it checks.
In terms of the sense in Portugal, M&A, how that may have changed the way that how you go into one youre assist if that's ending.
That's a great question, Paul first of all I would say yet.
Out of necessity necessity is the mother of invention, we've had to take very interesting steps and aggressive steps and all the areas that that we've already talked about.
But one of the things that we're looking at is hey.
We make actually we've been able to decrease our runs.
And get our throughput down lower than we ever would imagine.
And I'll just point out that for example.
Finally Martinez people in Chalmette have reduced the safe operating minimums.
On the cat crackers in those facilities. So we get into a situation where the pandemic is gone and margins are good demand is good fine, but if we get into a situation, where we had some dislocations.
There's some other tools that we've now got at our disposal.
We have actually turned down turn the second stage Hydrocrackers Martinez antonsen and shut them down and basically turned goes into distillate machines is that a gasoline machine, but there's a number of other steps that we think we're going to be able to continue and.
To capitalize on two to improve our overall.
Efficiency.
As we look as to what they probably M&A side and project side.
I think we were very clear that we we felt like Martinez acquisition was an important acquisition for us to balance and have a second operation in PADD five but haven't gone that acquisition. Our focus now is and it now more than ever since we've had the layer up some debt here is to focus.
No de levering the balance sheet and I'll, let Eric I just comment further on that I.
I think that's absolutely the case near near term. It is as I mentioned before running this business for cash we are firm believers that there is no point in continuing to operate a business that ultimately is going to lose money at the gross margin level. It just and I I believe we have seen this not only.
Fault of what we just went through with the first.
The beginning phases of this pandemic out, but we also we saw similar activity from the refining sector in the first quarter of 2019.
Where ultimately win win margins reached a point that become untenable ultimately there will be responses in the market.
So I think from our standpoint.
As we go forward it will clearly be how do we ultimately where there's some things we can do mechanically.
That ultimately help us match the demand side of things if gasoline is more attractive from a profitability standpoint for us versus distillate.
So there is a combination of operational or mechanical changes, but also just a sheer volume of we are managing this business to ultimately de lever and again, we talked a little bit about optimization.
But now as the time for us to really take advantage of having six refineries getting some economies of scale here. There are a lot of things that we believe we can do with this business on a go forward basis, and Paul I'd, just add something through what Eric said, if you look at the 219.
Situation, what really happened there as well we had very good distillate margins in the fourth quarter 2018, and the industry does what it often times does start cranking up to take I tried to capture those margins and watched gasoline build enormously through the fourth quarter and I've said before if you are running your business.
Yes.
And your bank and on the fact that Youre going to get what's going to occur three months out, but you are running and you're not selling your product you're not getting cash for your product and you are building an inventory sooner or later that is going to costs you big time, So we're going to be very cognizant of and even now watching is we look at this rate right now we're watching it very good.
Happily it to reinforce what Eric said it makes no sense to me to run and just build inventory or run and not make money. So I think one of the key learnings and I hope the whole industry gets it is that you know you only way you can really make money as you saw your products at a reasonable price and if it's not dead throttle.
Okay.
I hope that anyone that's going to take that same attitude.
Paul is that.
No. It doesn't mean that we have some flexibility to push from gasoline into this let's just get back to gasoline and we also have.
We used on the both exit the team they trend jet fuel to fee. So the problem is that if anything it does it then we need any stats if anything that we can push those lay pull it up outside those like call. It again to other Paula.
Because I mean, yeah I mean this that now we have a concern so you're trying to push it back to gasoline, but if that's the cake estimate become a pop up.
So is there any other option or at the only option status, we need to maintain the one.
Overall, one chip in both.
Very good question, we're giving us a lot of thought there are some additional flexibilities that we think we've got that we've discovered and again if somebody is around hydrocrackers, because we can actually say jet fuel takes a year to recover.
Well you can only put so much jet fuel into gasoline orients. Additionally, before you run into quality limits, whether it be sulfur or flash as you know, but we actually think we could use to hydrocrackers. If we wanted to discern jet fuel into indefinitely.
So there is some flexibility there but.
I want to relate it because of the limits and I'll go back to the issue and it ultimately could be a constraint on the industry increase in Russia.
As if demand doesn't increase and it particularly if it doesn't let's take check for example.
Right imbalance on jet production in jet demand and the tanks are pretty pretty fall.
So if indeed, we've exhausted the ability to take jet fuel and turn it into distillate.
Because we went into a quality minute and then distillate remains long and distillate is building.
I think you're going to have a constraint on how quickly you can increase you run.
And it will impact utilization.
Thank you.
Hey, what can I have couple quick question on this site.
For the Teensy.
We funded yet to runs off the one that will launch I missed that means that the first three weeks what school and then was quite Hulk Hogan March so.
Yes, That's me we funded Nick Monday at all in the first quarter. So Thats. The first question second when you talk about a hydrogen that need pathology impact 65 to 70 million if that's slowing up.
When do we put into its going to show up in the gross margin nobody is going to show up in the Opex.
And then find though the 240 minute all the cost savings at new a cheap and they'll spend into first quarter and how's the one way it's going to progress.
Hello, Thank you.
The the let's take those in reverse order fault the $140 million of savings is probably going to be recognize more second third and fourth quarter.
Again these were all announced during the first quarter. So we were starting to take steps associated with those reductions, but ultimately will start to see the benefits as we go.
And it's probably a bit more geared towards you're going to start to see it in the second quarter and for now let's assume that it's going to be generally ratable. However, it's probably a bit more back end weighted for the year.
In terms of the gross margin versus operating expense, where will the hydrogen plant costs be captured at this point, we're still working through some accounting issues here, but we do know that it will ultimately be included.
EBITDA will be above the line and will will provide some more color as we have a full quarter of that for the next quarter or second quarter earnings call and from a Martinez standpoint look I think we've never given specific guidance or detail around what each refinery is doing on a daily basis, but ultimately.
Martinez when the market was better in California, absolutely has made money, but clearly what we've seen is that the market has been a bit volatile out there. So I think directionally you should assume though that the consolidated west coast numbers. Ultimately you will see the benefit of Martinez hitting that PNM.
Well go next to Matthew Blair.
Tutoring Tudor Pickering Holt.
Please go ahead.
Hey, good morning, everyone glad to hear you are all on a safe and sound here. Tom you touched briefly on on Opex, but is reports of quite a few Saudi cargos had its the U.S. and at least on paper. It looks like delivered Diffs for me. We're extremely favorable. So we're wondering that is PBF part of this or.
Looking to ramp Saudi barrels in the second quarter and if so could you give us any idea on the numbers here.
Well, let's let me say that the.
We're not going to give you specific numbers, but.
Just the way. This has played out has been somewhat.
Strange.
There was obviously a decision made by the Saudis back several months ago.
To get into a price forward, Russia, and maybe go at the shale on Leon Bascome exactly what their motors were and.
For a period of time, indicating that the.
The.
In fact, K fact is effectively.
Would be attractive and they were going to put a whole bunch accrued on a water and they did put some crude on the water.
We were running so we obviously have a contract with them, we run it and paulsboro as it moves crude so we had some benefits there.
But that went away as fast as it came by and then all of a sudden they decided they had to do something baby and OPEC plus.
Because of the pandemic and in fact as I said earlier as we look at the situation right now to Saudi barrels are not very attractively priced as you work through that one wave that had which was almost a one month phenomenon almost.
So we're going to have to wait and see how the demand side is going to have to lead additives and that's that's all I can really say on that.
Okay sounds good and then Tom you also mentioned that distillate exports to Latin America, we're starting to be impacted we can start to see that in the geo either this year I was hoping you could just contrasts just overall export demand versus domestic U.S. demand and in which at the current moment.
It's holding up a little bit better.
Well I think the U.S. demand is actually holding up certainly versus.
Say the export market into South America.
And we're seeing that but the fact is.
We actually.
Both on gasoline we were we were a net importer on gasoline in the last stats, that's because we weren't clarion barrels coming out of pad three or.
In other areas and we were less than a million barrels I think it was significantly less than a million barrels of exports on on this with and that is directly attributable to demand disruptions and distillate being impacted pretty significantly as the wave the pandemic wave apparently now moving south and.
And they're becoming more impacted by than what the U.S. has even though to U.S. has been tremendously impacted by it.
And as you see Europe, showing some green shoots if you will and opening up we're seeing some recovery. There are you seeing adding at least stabilized in the us.
Only seeing much lower demand for the export barrel and in South America.
Great. Thanks for the insights.
Well go next to Jason Gammel men with Cowen.
Hey, good morning.
I just wanted to ask.
About the margin outlook then.
Your comments on.
Not reacting the way refineries typically.
React.
To margin improvements so in terms of.
PBS what are what are you guys watching.
Give you the signal to ramp up rates and do you expect.
The rest of the industry to be watching to.
In.
Manner that they don't respond to higher margins.
In the same way that they have historically and this kind of gets at the point that out of.
Periods of economic weakness, you've seen refining margins kind of stay subdued because you had.
Slack in the global.
That's flat global capacity and so refining this uh huh.
Ramped up at the first sign of margin improvements.
And that's kind of keep margins depressed so do you see that.
Playing out differently this time around.
I sure hope so we're going to do that I will show you incremental economics is the band of existence of the refining industry you chasing incremental barrel. Because you think you you know you're doing it on variable costs that you've already covered your fixed cost and and you you wind up as I said earlier store and a barrel and a tank and and that just.
Predicates low margins because what do you look at what you look at demand you look at inventories.
So if you are building inventories.
Somebody's going to ask a really good question as to what what do we headed for and so we're going to do that that's that's just are based mantra.
That doesn't mean that when margins improve if we think this stable and.
Systemic that we're going to go ahead and improved increased throughput, but we don't want to do it by you then creating something that kills the Golden Goose. If you will running to make gasoline Gill and then killing dislike or vice versa. One of the first things that I think everybody has to look at and I think on everybody's mind right now.
It is okay, we're starting to open up space in this country.
We're not out at a pandemic yet so you we certainly hope we don't see a second way.
And if we can open up this country, even if it takes a little while but don't see repeat.
I don't know who's right, new forecasting these things and certainly we can't do it we obviously hope and want to see that we're not going to have a lingering a problem with the with the virus as to the question of.
Why do we think.
The rest of the industry will follow I can only speak.
Why which only speak for the independents and this is an important point.
If you take a look at just where the fourth largest independent refiner and if you take a look at MPC.
Valero P 66 at PBF is over 8 million barrels a day of capacity and then when you throw delek CVI Holly and that others. We are by far the majority of the crude capacity throughput capacity in the country.
And our competitors in their calls have recognizing acknowledged that they are not going to swallow debate.
They're going to be very tempered and making sure that any recovery in demand is sustainable before they increase run so.
Perhaps a little bit more confident than I, typically and that the industry will respond in a correct manner.
Thanks, I appreciate that inside and then just maybe for on on the comments around liquidity improving if prices stay here can you give us and an indication of.
The magnitude of that liquidity improvement or maybe the working capital benefit you between Twoq you if prices remain stable.
The easy math is under ABL availability just the.
Quick math is take roughly 30 million barrels times, whatever average crude and product prices.
So ultimately just for example, we had the 150 million that we pointed to in the press release and on the call today assumed roughly $25 per barrel average price for crude in products and we get 80% advance rate against that so ultimately every dollar move ultimately will will result in a.
It can swing upward in terms of availability, which obviously increases our liquidity.
Super Thanks.
Well go next to Neil Mehta with Goldman Sachs.
Hey, guys I recognize where overtime here so I'll be quick but the first question is just on a on the U.S. production profile oil production profile. Tom you made some comments that you think that what we're seeing now that structural impacts in terms of the shape of U.S. supply. So can you talk about your volume outlook.
Look and also your thoughts on.
Flat price levels on at which shut in production could richer.
Well I'm not an expert on that on the production side, but from everything we read.
It depends of course, the Saudis it easy is ones to resume.
Canadians may have the more difficult problem resuming.
Escos some of that could be if it gets shut in could be more difficult.
From what Weve Radnor, and I believe is if demand recovers and prices get up into the 40 to $45 level. Then there will be some economic incentive and if its sustained two in increased.
Production, whether it be domestic.
Or.
Foreign or Canadian that being said.
I think this is this is structural deal I think if anybody has been realized all the problem well look things I say about refining business and Jason the incremental barrel is going to apply to the production business.
And if anybody doesn't understand that.
If there is 100 million barrels.
Of crude demand, if we get back to that level of its less than that.
It's got to be caught up in a way and that's what they're trying to do with the with OPEC plus.
And I don't see way that the Saudis, they've already told everybody and sold Russia are going to let the United States try to go ahead and capture market share they're going to defend their position. So they may be content to let the you expert produces produced 10, 10 11 million barrels of shale, but not 13 and no efforts to go up because they're going to depend.
And that will be back into.
Some type of price wars as it depends as it impacts us.
The domestic production.
Most of that is going to be obviously shale that got back we don't participate in the shale.
Very much at all our there's plenty of crude that we can get all hands on and of course rebound more mediums and heavies, if their economic and there's quite a few crudes that we still can get that that a good crude for us to run. So I don't we're not going to have a problem, but I do think it is a structural change that's going to be.
There is no longer just build up pipelines.
New offshore water ports. So you can exploit and get up to 50 60 million barrels a day of us production being exported around the world or produced and be next board around the world I don't I don't see that happen.
Okay. Thanks, Tom and a related question is on the refining side Utilizations, 67% in the U.S. right now how hard is it going to beat to ramp supply back online or the U.S. system or is it relatively easy.
And and and.
A corollary to that is if we do get into situation, where refiners will have to idle assets. Do you think that will result in capacity potentially structurally being taken offline.
Or is there precedent for us to bring idled assets back.
Full capacity.
Well there is certainly precedence to bring idled assets back.
This industry is demonstrated that Oh.
No.
That idled refineries have been characterized the zombies, they always come back from the dead.
I don't think you're going to see that just right now because again. This is this is going to result in the structural change the second part of your core or other parts of your question.
Okay, if you've just throttled back a it's kind of sequential if if you throttled back or units the safe operating minimums, but they're all running then it's going to be relatively easy to bring a backup.
You can do it pretty quickly if in the case like we have done we've we've got a hybrid we've got everything to safe operating minimal.
Said, we're going to shut down to Fccs, an assistant cat crackers. So we shut the Toledo, what we started up after the turnaround and we shut the cat crackers paulsboro, they're being kept warm they can come back up but it will take a little longer but not materially longer to get them back up and occasionally the idle everywhere.
Binary even though you're.
Keeping it warm we're trying to do that is a little bit more problematic will take more time to to bring those refineries back.
So well say now the other question is.
I can make a case that they may have to be some rationalization in this business and.
The United States has the strongest kit by and large in a world with the exception of the Saudi and a middle Eastern Asia refineries reliance et cetera. So we should be competitively advantage, but there are even some refineries and in North America that.
All going to be under pressure. If indeed, we don't have demand come back to levels that we had before.
Thank you so much time.
Right.
Oh, no further questions I'll turn it back to Tom Nimbley for any closing remarks.
Well. Thank you very much a everybody I hope you stay safe healthy and and take care your families and we'll look forward to I'm more optimistic export.
This does conclude today's program. We appreciate your participation you may now disconnect.
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