Q3 2020 PBF Energy Inc Earnings Call
Assistance. It is now my pleasure to turn the Florida, Colin Murray of Investor Relations. So are you may begin.
Thank you <unk> good morning, and welcome to today's call with me today are Tom Nimbly for C. E O that Lucy our President Eric Young are CFO and several other members of our management team.
A copy of today's release, including supplemental information is available on our web site.
For getting started I would 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 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 secure.
These laws.
There are many factors that could cause actual results to differ from our expectations, including those we describe in our filings with the SEC.
Consistent with our prior quarters, we will discuss our results excluding special items <unk>.
Non cash special items, including in the third quarter 2020 results, which decreased net income by a net after tax charge of $73 million or 62 cents per share consisted of a net tax expense on remeasurement of deferred tax assets and impairment.
Expense related to the PBF logistics write down a certain long lived assets.
Offset by a lower of cost or market inventory adjustment change in fair value of the contingent consideration associated with the earn out provisions related to both the Martinez acquisition and the PBF logistics CPI acquisition and a benefit related to the change in our tax receivable agreement liability.
[laughter].
As noted in our press release will be using certain non-GAAP measures, while describing pbf's operating performance and financial results for reconciliation.
Filiation of non-GAAP measures to the appropriate GAAP figure. Please refer to the supplemental tables provided in today's release I will now turn the call over to Tom Nimbly.
Thanks for calling.
Good morning, everyone and thank you for joining a call today.
The challenge is brought on by the global pandemic and and so we can restrictions imposed on the U S and global economy continue pressuring refining margins as a result of demand destruction.
Crude oil differentials remain tight as refineries on processing less crude.
Ah returning demand.
Across all products and in turn Ohio, Colon crude will result in improved market conditions.
Through these challenging times PBS focus has been on managing the aspects of our business that we can control.
We remain focused on safety, both personal and operation.
As you will have noted in today's press release, we continue taking a close look at a refining portfolio and are determined to emerge from the current crisis as a stronger company with increased efficiency and lower cost at all of our assets.
In tandem with our ongoing system wide cost reductions.
East Coast Reconfiguration is another important step on the path to increasing our long term competitiveness.
We are putting all of our operations of course, the country under a microscope and committed to mind.
Additional efficiencies.
We saw the largest opportunity and a rapid pad to execution on the east coast, we identified a significant significant opportunities for further integration.
Preserving the greatest strengths with both paws, Berwyn, Delaware city refineries, while significantly reducing costs going forward.
Unfortunately, the positive effects of east coast configuration.
We will have an offset on a business will come with the burden.
It will directly impact the livelihoods of many of our employees here in New Jersey.
The current crisis has necessitated this difficult decisions for the company.
And those decisions have consequences, which I do not take lightly.
We are committed to assisting those impacted with their transitions and hope for better times ahead.
With our stated goal of increasing competitiveness, we continue to actively review all of our assets and all of our options.
While the urgency of this is heightened given the current market conditions.
Decisions will result in a stronger base business.
On the positive side, we have seen demand incrementally increase over the last several months.
An inventory levels had been trending down favorably.
Product inventories continue continue to moderate with gasoline well within the five year average range disciplined inventory levels have come down and while demand is still anemic jet inventory levels are below the five year average. We think this is a positive backdrop for demand ultimate will you be covering.
Maintaining operational discipline is key in preserving this tenuous path to improving fundamentals.
We are seeing very few signals, which would necessitate increase utilization rates.
The market is rebalancing and we will continue to do so until there is a widely available medical solution that allows greater freedom of movement increased business and personal travel, resulting in a return of demand.
Lastly, I would like to thank all of our employees for continuing continuing to unflinchingly rise above the current challenges and maintaining the safety and integrity of our operations as well as for following our COVID-19 protocols.
With that I will turn the call over to Matt to provide an update on our operation is Jordan quarter and the steps were taken moving forward.
Thanks, Tom.
Current market reality requires us to take aggressive action to navigate the near term.
But more importantly to strengthen our position and maximize cash flow and the long term.
In regards to the East Coast Reconfiguration, which was highlighted in our press release this morning.
I would make three important points.
One rationalizations necessary.
To the move create significant savings in the current market without a detriment and a normalised market.
And three the reconfiguration created a stronger east coast system.
As to the first point in.
In light of the current environment PBF recognizes the need for rationalization across the industry.
The net result of the East Coast Reconfiguration is effectively removing 85000 barrels per day refining capacity.
Going to the second point.
The reconfigured east coast improves cash flow by about approximately $75 million to $100 million per annum.
Based on today's market.
Through reduced operating and capital expenses.
Which are offset by a reduction in gross margin associated with the lower throughput.
Importantly.
Once the market normalizes.
We do not believe there'll be an economic debit to the historical earnings power with the new.
Figuration.
On number three we believe we have strengthened our east coast.
As we have isolated Paul's boroughs most profitable businesses.
At the same time will increase utilization on Delaware City secondary units.
For the pause Broer finery, we're maintaining our lubes, an asphalt operations, while so significantly reducing fuel production.
We will be increasing the interdependence of the two refineries and promoting higher utilization and efficiency from the remaining units.
Delaware City will produce intermittent we'll process the intermediate feedstocks that Paul's Bro will continue to produce.
Essentially the east coast will be shedding its lease economic crude.
And his lowest netback products.
Historically, we have purchased intermediates on the east coast, which will no longer be required post reconfiguration.
Specifically will be shutting down the smaller Paul's rose too crude units.
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The reformer.
The alkylation unit and the Coker.
We will be lowering our east coast operating expenses by over $100 million annually, and reducing our capital requirements by approximately $50 million per year versus historical averages.
Again, the East Coast Reconfiguration will result in a revised system that will be stronger by isolating Paul's rose strengths and increasing doses utilization.
We are beginning to reconfigure reconfiguration work as we speak and expect to be complete by the end of 2020.
With regards to a refunding operations in the third quarter.
We ran a refining system at approximately 70% of capacity or approximately 706000 barrels per day in total.
And told demand picks up an inventory levels come down we will likely continue continue to operate at reduced rates.
We are on track to exceed our previously announced expense reduction targets for 2020.
Operating expenses have come down in part as a result of lower throughput.
But also through a meaningful and targeted reductions we plan to convert to long term savings.
In July we guided towards $140 million of operating expenses for the year.
Which breaks down to $40 million related to lower throughput at $100 million of expense reductions.
Our current estimates are to achieve $280 million for the year or twice our previous guidance.
The 280 million consists of 125 million associated with the reduced throughput and deferrals.
And 155 million of expense reductions.
Going forward, assuming normal throughput.
We expect to maintain $115 million to $130 million of expense savings, excluding the changes that paulsville.
Then and then in addition to.
The East Coast Reconfiguration provides an incremental $100 million of operating expense savings, which brings the total opex savings on a run rate basis as of January 120.
21 to $215 million to $230 million.
We continue to be focused on the items within our control.
In the months ahead, we are committed to crystallizing, our current operating cost reductions into permanent savings and generate incremental margin through your level optimization.
Now I'll turn the call over to air.
Thanks, Matt.
PBF reported and adjusted loss of $2 87 per share for the third quarter and adjusted EBITDA of negative 229 $7 million.
As Tom and Matt outlines you are taking aggressive steps to reduce our cost structure and continue to focus on shoring up our balance sheet.
Our current liquidity is approximately 2 billion based on our cash balance of $1.3 billion and available borrowing capacity under our ABL.
As a result of commodity market volatility, we've seen significant working capital swing since the beginning of the year.
Assuming no material change to current commodity prices, we expect our working capital to continue to normalize and generate incremental cash in the fourth quarter.
Additionally, as we complete our east coast reconfiguration, we expect to see a one time cash benefit of approximately $35 million as a result of a reduction in inventory.
This is partially offset by roughly $15 million unexpected legal and severance costs associated with the reconfiguration.
Consolidated Capex for the quarter was approximately 56 $7 million.
The consolidated Capex includes $55 million for refining in corporate Capex and 1.7 million for PBF logistics.
Consistent with our prior outlook and guidance, we expect to incur roughly 15 million of Capex per month in the fourth quarter and our full year refining capex should be approximately 360 million.
We are still finalizing our 2021 capital program and expect to have a flexible plan that will be responsive to market conditions imports.
Importantly, we have no plans turnarounds or a significant major maintenance activities scheduled for the first half of 2021.
Our initial Capex estimate for this period is $125 million to $150 million.
We will be adjusting our plan as we go depending on market conditions similar to the flexibility we've demonstrated bus far in 2020.
Operator, we've completed our opening remarks, and we'd be pleased to take any questions.
The moment, we will open the call to question the company request that college limit each turn to one question and one follow up you may rejoin the queue with additional questions.
Can I just start to ask a question. Please press star and one you may remove yourself from the cute by pressing the pound key again that is star Antoine.
I'll go first to Roger read with Wells Fargo.
Yeah. Thank you good morning and.
Understand the tough decisions being made here I guess, along those lines as we think about the east coast reconfiguration.
How long did you have something like this plan I mean, it's not like a secret the east coast has been one of the more competitive markets out there. So I was just curious as we think about the savings and the reconfiguration here is this the step is there more that can be done you know it.
Is it the kind of think that improves as you go along typical.
Typical what this is you kind of learn the processes now you see additional opportunities for improvement.
Great question Roger kind.
Kind of the answer is all of the above to be honest, we've contemplated this in the past we actually did obviously.
Interact or put Delaware city and pulls brought together.
Earlier and.
Alright.
Formation of the company and we did that in order to be able to use the assets in a way that are allowed us to get the calls borrow to produce ultra low sulfur diesel 15 popping the diesel without a significant capital investment and that's by moving some.
Intermediate stocks from Paulsville over to Delaware and vice versa.
As we got into this situation, we realized hey, there is an opportunity for us to step that up the the physical distance of 30 miles between the two locations is is an opportunity as mad alluded to we then put everything under the portfolio by the way that it is a true statement for the entire logistics and refining system. So.
This is the first step, but we will we will look at everything but what we did in Delaware Delaware in Paulsville.
I'd Love to say, it's one plus make one plus one equals right I don't think that's the case, but I do think it's one plus one equals two and a half.
What we set up as a small footprint clearly 80000 validate equivalent refinery, but it is a refining complex that has moved production capability.
Asphalt, which has been a high margin product and probably will be in the future because of stimulus.
Delaware producers chemicals, and Delaware has the strongest fuels capability of the two refineries because of it's hydro treating hydro processing and hydrocracking. So it was the obvious first step for us to go to your last point I want to make this because I absolutely believe this.
While we have looked at this thoroughly and we know we're doing the right thing I personally believe that there will be more opportunities to improve the market as we get the operation as we get into the position where we're looking at the sides running this way so.
I think it's absolutely the right thing to do but I think there is upside potential over what we've advertised.
Okay, great. Thanks.
Just a follow on question kind of open ended to to whichever of Y'all Wanna take it as we think about.
No further cost reductions I mean, obviously get the the highlight here and stay up to 230, as we think about kind of 21 versus 19, I guess, but.
Where else is you're looking across do you think you can eat out some additional savings or are we looking at a situation where.
There's only so much they can come out and you know at this point, it's it's hang on it and wait for let's call it determine demand target the market here.
Yeah.
Actually it's not the latter it's the former obviously, we're looking forward to turn into market, we get it somehow continued progress and.
And the medical front.
We would.
We we certainly be happy to see that but.
I want to go back to your point, we have multiple initiatives that we've had underway, which Matt is smoking too that.
That we did right off the bat when we saw that we were in.
Charles is it man destruction react <unk>.
Major effort on our bets major effort on Capex, we put together a turnaround best practices team that are looking at ways to go ahead and reduce turnaround caused by extending lines taken scratch on units to repaired certain things to allow us to run longer.
And importantly, we have every refinery looking at <unk>.
Inside defense line for smaller margin initiatives, which we think I think he's going to also pay dividends that is going to be more north of $100 million outside of what we've already talked about.
Before so.
So there's a lot of things, we're doing and Ah based business the blocking and tackling of this business that are now giving us good results, but there's more that can be achieved.
That being said we go back to.
There are opportunities to consolidate our I'll look at the synergies between.
Torrance and Martinez in a different way yeah, there may well be nothing's off the table everything is going to be looked at noon put under a microscope.
Yeah, I guess, just as a quick follow up on that and I was sort of looking here and I know some of these quarters aren't totally comparable because of of work that's been done you.
You know like turnaround work and stuff, but I need to go back to Q1 of 2019, you had cash Opex expenses 453 million. This quarter 458, and that's obviously the addition of Martinez in there. So I mean, there's an ability to bring costs down I guess I'll.
Really we're just trying to get at is there anything else you would expect you'll identify in terms of cash opex savings for us as we think about the the.
The other four units across the country.
Roger It's mad.
We have not gone pencils down.
We have taken concrete steps already where we've reduced the.
The amount of people within the refinery that includes our employees as well as significantly reducing contractors those steps have been taken but in addition to that there are over 25 major initiatives within the refining operations team looking at reducing expenses I have highlighted what we can.
<unk> so far we think it's a positive step but by no means is complete and will continue to work. It regards to managing the business that was.
Within our control, it's pretty simple, it's managing expenses managing capitals, Eric laid out the turnaround team has done an exceptional job managing his business, taking squats, where otherwise turnarounds, where necessary belonged gating turnaround cycles, which has a major impact on the cash well so it's managing off.
Bright expenses, it's managing your capital expenditures, but it's also increasing the optimization of of itchy refineries, which Tom alluded to which we're we're doing actively as well.
And as a reminder of the company does request you limit each turn to one question and one follow up you may rejoin the queue for additional questions.
And we can go next to Teresa chat with Barclays.
Good morning, Uhm wanted to touch upon what the outlook for the East Coast is in a more normal life environment as we haven't had a real summer driving season since P. S close the last year and he come by chance refinery also.
Go down which seems to be more permanent given that it's not going to be sold for now at least and we configuration of your assets and how do you think this these dynamics play out in the path to normalization and what can happen as far as margin and demand <unk>.
I think.
We've given that a lot of thought obviously if come by chances permanently off the line. They are they are.
Refinery that sold their products into the harbor moved it down down here, obviously us taking capacity off.
Which really isn't to Philadelphia area.
Would perhaps give us a benefit.
At wall or in the Philadelphia area, but the other thing that will.
Actively looking at and watching and I believe it will happen is.
The rationalization is underway.
And as bad as the margins are in the.
<unk> states, they're better in the United States States than they are in many parts of Asia, Singapore and in North West Europe or the med.
Those refineries are under significant pressure I've seen indications of rationalization, starting and I think that will continue obviously Europe is.
I, just got a different mindset and how they want to transfer from.
Traditional fossil fuels at the pace that they're doing that's been well and announced by BP total show et cetera.
So we would expect that there will be less product being produced.
In Europe as you know is typically one of the major sources of imported products into the into the U S East coast or northeast. So we're watching it very closely and we do.
Do realize everybody realizes there's a huge short and as part of the country. We are aware that people eat the stuff.
And so there's a need for imported gasoline, but the fact that you're going to have this rationalization.
There's no economics really fun for them to run barrels and then have to pay the freight to move here. So we're gonna watch that pretty closely but we're somewhat optimistic that we'll see some benefit time do you have anything you would add no I mean I'd like to just be looking at all I will add just yeah. We are talking about as you mentioned the higher cost of conveyance to replace the barrels.
The most.
Got it and Eric if I can ask you about the liquidity options from here and and clearly there's no imminent I'm concerned that and you know the very near term, but if it is a lower for longer period of uncertainty.
How much more can we do and the security market how much you know <unk> 15th so as far as I know people at all and is there more room in terms of inventory with mediation.
So just going and kind of reverse order there on the inventory intermediation side, that's always an option that I think we've laid out for investors. We do have call. It the free and clear anywhere from 25 to 30 million barrels of inventory so that could potentially free up cash there are assets for both the MLP.
That I think in a normal way environment, you could say you could sell but ultimately for PBF logistics to suddenly do some type of dropdown more than likely would require equity I don't think that's something that near term seems to be a viable option. I believe we did lay out back in the summer something similar to and I think we're going to continue.
To explore this however, we don't have anything that's imminent, but similar to what we did with the hydrogen plants. We do have assets that are part of our refining system throughout the United States that ultimately you could do some type of sale leaseback.
System or structure that would free up cash, but as a result of the freeing up cash you would have incremental.
That has been put on your refining system on a go forward basis, and then from a financing standpoint, we've got $250 million carve out available for incremental first lien secured that we have another basket circa $500 million roughly in.
And secondly capacity that's there what I would tell you is right now your point is absolutely spot on there is no no near term issue for us in terms of liquidity, we feel very firmly.
Very strongly that we are on firm ground right now what we are dealing with ultimately is what's going to happen in the future and I think liquidity for US. We just go back to cash is king liquidity is the most important thing that we're trying to manage right now.
Hello, Thank you.
Okay.
[noise], we can take our next question from Brad Heffern.
[noise] crowd your line is open.
[noise], Brad if you're asking a question we cannot hear Ya.
Operator, that's moved to the next.
Next to Neil minute.
Cosmetics.
What are you guys can you hear me okay.
Yes, yes.
Alright, great. The first question is just on capital spending you've done a good job getting capex lower than 2020 2020 sure Youre doing a lot of planning here for 2021, what are your views sort of sustaining capex levels and if we are in a tougher environment is the <unk>.
Curve implies for next year, how low can you drive capital spending without compromising.
The quality of your assets or or reliability.
I think excluding any any major planned turnaround and planned downtime.
Took kind of a L. T M look from the second half of 2021 to what we've laid out for you in terms of $150 million for the first six months of next year combined with the roughly 150 ish million dollars for the second half of 2023.
$300 million is probably a reasonable sustaining number when we think through general maintenance. We do have regulatory spend that we are obligated to incur there's clearly an element of safety that needs to be incurred as well. So that's probably a pretty good number and then we layer on top of that.
Around in major maintenance and I think to match point earlier in terms of flexibility that is something that we have really been working behind the scenes and I think we've now seen all of the hard work kind of pay off as these refiners have each been able to come back to us a corporate and say we have the capability to essentially extend run life.
It'd be very flexible from a capital plan standpoint.
Alright, great Great and Eric This follow up this for you. It is you know I have no credit analysts, but we have to spend a lot of time with your credit investors about the pressure the bonds have been under here really over the last two weeks can you help us pack that for us a little bit well, what what's going on in the credit markets and then.
What do you think is is miss being misunderstood.
To be completely honest with you Neil I think our focus has been a bit more internally focus to we have been very much we pay a ton of attention to what goes on in the market.
And tried to talk to as many people as possible to get some color on what's going on we do spend time with our fixed income investors what what at least we can see based on hearing different things is that we still have very strong support from our large long only holders in the fixed income structure and ultimately the <unk>.
Fixed income market is very unique it does not have the same level of transparency that we see on the equity side of things, we have absolutely paid attention to across our structure all of the bond price reductions over the past call at four to six weeks currently the trajectory has accelerated here of late.
I don't have any real tidbits for you I think we would probably pushed back on back to the market and ask them what exactly is going on since they're the market experts, but ultimately we are paying attention I think our our messages very firmly rooted in liquidity is the number one priority for this business. We took some steps back in the spring.
We were in triage mode. We did exactly what we were supposed to do raising a billion dollars $5 of capital as we sit here today, We've got 1 billion three of cash ample liquidity under our ABL. We're focused on operating these assets, reducing and optimizing our cost structure and making sure that we do all the right things that our ultimate.
And our control and I hate to say it but the bond price is somewhat out of our control right now yeah very clear thanks, guys I appreciate that.
Okay next to fill crash with J P. Morgan.
Please go ahead.
Yes, hi, good morning.
Just a follow up on the 21 Capex Eric on the last call I. Thank you.
Five to 600 million is it good starting point for next year, but.
Nah, you've referenced the ability to kind of extend the run life and that's $300 million of sustaining it.
The incremental cost out for the east coast. So.
Are you at this point thinking.
Roughly that it might even be below that five to 600 at this point.
I believe the five to 600 that we gave was assuming that everything returns to normal whatever the new normal will be but let's just say in a in a better refining macro environment that what we see today.
So I think that goes back to regular way throughput.
Sure doesn't feel like we're going to be there effective on a run rate basis January 1st 2021. So we really have tried to approach. This from a monthly quarterly six months to nine months view on a go forward basis.
And we're trying to respond to different things that we see in the market I think our message right. Now is we don't have the final capital.
Budget approved by our board of directors, but we do feel very firmly that <unk>.
Binaries that we have in the teams or the refineries have all done a pretty good job and we feel very strongly that $150 million is ample capex to incur during the first six months of the year, we're going to have to be responsive I do believe we will have an update a more fulsome update for you on our February queue for call.
Will also have a lot more clarity on what 2021 kind of looks like and the medical advances that sort of thing and.
In response to this pandemic.
Got it Okay, that's fair understand.
My second question would be I guess for Tom.
With the actions have been taken.
By the industry on the West Coast your actions here in the East coast and some other smaller things I mean, how are you viewing.
What what amount of capacity you think needs to be rationalized in the United States Uhm moving forward recognizing it's it's a global challenge.
And U S. Gulf Coast is lower end of the cost curve do you think the United States.
Needs to contribute a lot more in terms of refining capacity out and specifically on the Gulf Coast.
First of all we've said I think before that.
We're looking a need for somewhere in the area of probably 5 million barrels a day of rationalization.
Across the globe.
And perhaps two main two and a half million dollars from North America. There has been amount a fair amount that is even shut down already.
And I include P. S a in that because obviously.
Alright.
Tragic situation well it could have been tragic situation took $340000 a day capacity added the east coast.
So I think we're going to see more rationalization I think we will see rational obviously we have.
Martina as in a west coast, we'll see what happens when.
And P 66 has announced they're going to do a renewable plant.
May be more rationalization on the west coast there are some <unk>.
Refineries out there, they're not that strong, especially if we get back when we get back to a more normalised market condition I think we'll see rationalization in the Gulf Coast.
Obviously, you're not going to see it in a guerilla refineries and you're not going to see from Beaumont or Baton Rouge, but there's a lot of.
Smaller refineries Ti basic refineries and again, you've got some majors, who have announced that they want to get out of this business. The European majors, who may in fact take some take some steps. So three to five 5 million barrels maybe north of that and that includes some of the Chinese tea pots, and two two and a half million and no.
Of America, not that's probably realistic.
Got it so so in North America accounting for what's already been announced it still sounds like you'd think we need another million to a million and a half perhaps maybe a million yeah. There's been north America with come by chance and again I used to if you just take a look at what I said and I did have <unk>, you've got 344 P. S. You've got 160 from.
Martinez, you've got 130 from.
Come by chance, you've got the Hollywood refineries, you've already up around.
Couch <unk> I can't say that so we're pretty high up there already know countless soon may not be permanent but they did issue a one notice.
So, they're obviously contemplating that and you take our 80.
And you you're already up.
North of a million I think and maybe another million dollars.
Very helpful. Thank you.
Matthew player with Peter Pickering hold.
Please go ahead.
Good morning, everyone. I was hoping you could talk about <unk> do you think the recent move up in D. Six rooms is due to lower.
Ethanol inventories, how how much rent expense or you're projecting for 2020 and do you feel that just the overall looser environment does that make it tougher to pass through and even costs to the consumer.
As far as <unk> I I would truncate the discussion analysis too there is going to be an election.
Five six days whatever it is and.
And that that's so dramatically influences the dynamics.
Dynamics around.
Around the Orange program and you have a.
A number of different outcomes.
Depending on.
Who wins is there a lame duck period.
You know.
What happens after the like you know so to get into a what's driving it I think there were some concessions that were directly related to the the vote. This guy could happen next week.
And I think there'll be some more movements after the election.
And it's really as simple as that at this point and I don't think anything is change between the whipsaw that the rent market has been lying between and so it's not in one direction going go one way.
What goes up goes down it goes down goes up but it's a continual but the biggest thing is the election next week and nothing that's gonna happen. The EPA is essentially frozen until we know which which direction the country's gonna go.
And from an expense standpoint for the year think a reasonable number is probably in the $250 million to $300 million range. We still have a couple of months to go for the fourth quarter, but ultimately we've incurred year to date about $185 million of expense hitting the P&L roughly 85 of that was expenses during the third quarter. So.
We'll just have to see how things unfold on that point and Ah rent obligation will go down in 21 with the reduction on the East coast.
Right right. Okay. Thanks, and then it seems like there could be a lot of renewable diesel entering the California market you know so much so the potential for existing petroleum diesel to get pushed out I was wondering if you'd looked at that and if that were the case you know does what are the options for torn some martinez could you.
Export diesel too like Singapore, or Mexico, you know, what what kind of options do you have.
I would I would caution some skepticism on the amount of renewable diesel coming on the market.
Alright, usually will react as.
As things come online and even if we can see it coming online, but I think there's been a number of of initiatives that are being studied and being analyzed but I think we're a long way from coming to fruition and obviously with the reductions that Tom mentioned earlier on the West Coast.
It's still a net reduction of just look to me are disallowed supply once you get to that point. So there's there's a number of initiatives have been mentioned, but there's also a number of headwinds that stand in the way. So we'll see how that develops over the next couple of years.
Sounds good thanks, guys.
Next to talk like it with bank of America.
Oh, sorry, guys I was on mute good morning.
No I think we're taking my <unk> my questions Uhm, So I hate to to Uhm beats on this issue, but when you lost everything together.
The working counter potential working count to Elise.
The lure of maintenance level, a lower capital and so on.
When you look at the current and future stroke, what do you think your.
Excuse me Rachel <unk>.
Expected cashman would be and remind me basis.
Looking at the 2021.
I think directionally, obviously, depending on what what curve, you're actually looking at and then break it down by region, you're probably including interest in Capex. We're in the for the for the next call at six to nine months, we're probably in the 50 to 75 at times again things are kind of moving around with the.
Curve, but up to $100 million a month I think we'll start to see the benefit of the east coast rig reconfiguration really hit in the first quarter.
So I think our target as in that $50 million to $75 million a month range, assuming no change and assuming that nothing else that we are doing and that we've kind of tried to to outline for you in terms of things behind the curtain.
That our team is really working on assuming none of that is actually coming to fruition.
Okay. The items really helps going from.
Doug just add an aside.
While we're obviously preparing for the worst and the activities we've laid out of all that in mind, they're awesome.
Uhm.
Green shoots if you will it and that obviously the margins have been terrible and they need they they they were terrible because there was too damn much inventory.
And particularly first name is gasoline and then it was a diesel.
And I don't expect to see significant improvements in margins until about that inventory overhang has been cleared but there is evidence that it's been clear since the end of July two yes, two yesterday's EIA numbers.
50 million barrels of gasoline and jet has been drawn down in that three month period.
And we have a gasoline right around the five year average.
This was still got another 2000 22 million barrels to go get demand is going to stay low because people aren't flying but the refiners of that done a good job.
With lower utilization and keeping jet production such.
Such that we're actually below last year's level on jet inventories I think once we get the inventories cleared.
And you're not sitting out the supply in your yard sales as of inventory and you actually have to increase production in order to meet each sales commitments, we will get some support in the marketplace. We won't get full support until we can get the demand all the way back, but we will start to see some improvement at least that's my view.
When you are from your most to go into your system.
I'll be done though.
So let me let me just ask one quick follow up so is and I noticed something about sensitive topic, but I just want to make sure we're clear on this.
<unk> what is any are the covenant issues, you have on that and I'll leave it there. Please.
We don't have any covenant issues at all we are very much covenant light across the board, both including our ABL.
As well as obviously each of the indentures has its own set of related restrictions, but I think at this point, we are well clear of all covenants, both in PBF as well as at PBF logistics.
And that's what I thought I just wanted to check thanks, again and good luck.
Thank you.
We'll go next to Paul Chang with Scotiabank.
Hey, guys good morning.
Monica.
<unk> <unk> <unk>, you think that that's no Penn turn around for the first half of the year.
In the second half yesterday, and the major turn <unk> apt to do.
I'll ask Paul Paul Davies, who goes away cause we haven't turnaround in the second half plans for the West coast.
We have some around working let's call space.
Not major and.
Previous question.
Herman Szeto of ruins, the refining system for us.
We had some sessions earlier has we're getting ready to do a business plan.
The 2021 capital plan is Eric wait it out.
It's backhanded, if it's five to 600 million requests we gotta return to normalcy, it's back entered into the second half no major turnarounds, no turnarounds really period and the first half and really no major turnarounds, but there is some incremental smaller units, but this is a flexible plant we will respond to the market and at the mall.
<unk> continues to be in this type of situation. The five to 600 main is gonna go down.
Okay.
Mmm, maybe that this is for Erik that Florida, how much a minute and off to a cost saving you expect from the reconfiguration off the east Coast can you break down for us that the war between the personnel costs and at the at the end of it.
You know I don't I don't think I don't think we're gonna get into that level of detail across the board, but you should start to see.
The benefits from the cost savings run through in Q1 of 2021, and the East Coast segment of our financials.
Okay, alright, well thank you.
Go next to anyone.
With Morgan Stanley.
Okay. Good morning, guys. Thanks for taking my question. My first one I think that's where Eric and I apologize. If this was covered already and I missed it just went to get a sense of if you can give me a little more color of your current liquidity situation and the the capacity of your a b L. Just try to Bridger cast is.
<unk> caught up a quarter as well as your a b O capacity there.
So it's essentially it's slightly increased from our queue to position. So we have as opposed to kind of $1.2 billion of cash we've got closer to $1.3 billion of cash as we sit here today and ultimately we've got more than $700 million available under our ABL, which is consistent with where we were.
<unk> at the end of the second quarter.
Okay. Thank you and so don't want so just to confirm total total liquidity of the roughly $2 billion as we are sitting here on the 20th on the 29th of October.
Okay. Thank you and just wanted to get your thoughts around.
Alberta, curtailments, which are lifted by year N D.
Do you guys have any anticipation of that having any impact on food differentials on a kidney inside and if it affects your your crude sourcing abilities or 264 to Canadian girls.
Thanks, Betty I mean, you estimate the curtailment being going away is certainly a positive development, but you know what I mean, Canada has had economic shut ins and then had a maintenance or unplanned issues going throughout the second quarter and into the third quarter. So while while it's going away. It is certainly a pause.
Live development and we're we're starting to see the market you know not trading and quite as strong as the single digits discounts W. T. R that we had seen throughout the second and third quarter and traditionally you would probably one would expect their production to increase in the fourth quarter in the first quarter and differentials to be a little bit wider so.
We're consuming a little bit of Wcf's related stuff right now and you know, we'll basically be assessing it as the market market changes.
Great. Thanks, guys.
[noise] well go next to Jason keep them in with Kelly.
Please go ahead.
Okay. Good morning, I wanted a circle back on the Opex cuts that you've discussed so I just wanted to clarify what the cuts are relative your run right right now so I'm looking time of year over year, it looks like SG&A.
Down $20 million, so annualized 80 million and you're targeting.
Underlying structural expense cuts of 155 million. So does that imply an additional $75 million a annualized cuts and then specifically on the east coast. So it looks like Opex in total is down about.
On an annualized basis $100 million.
Versus three Q last year. So is there an additional $100 million to go on an annualized go forward basis, and then just around out.
On the expense guidance are these cost reductions inclusive of the higher costs related to the hydrogen families back and then I have a follow up thanks.
So there's a lot there to unpack in regards to the $100 million, that's above where we are today. So.
The cost expenses that.
Or in the third Corps, we expect on a run rate basis for the fourth quarter to be similar to the third quarter.
And then we're getting the benefit of the incremental hundred million dollars on the east coast in regards to the overhead my suspicion is what you're referring to is obviously there was a bonus compensation in previous years.
We don't we don't budget for that that's certainly that will certainly come down in the year 2020.
Uhm.
What else did you have.
Just if the hydrogen if the higher expense from the hydrogen salaries back if that's incorporated into your expense reduction guidance.
Yes, and all set.
No. That's that's built then.
Okay.
Great. That's really helpful. And then I just want their circle back the liquidity, which was asked a couple of times cause it's not clear white, so liquidity was flat quarter over quarter. Despite negative free cashflow. So can you just clarify what happened. There did you did you take more cash.
Down on the a b L. But then the a bill capacity expanded or was there something else going on thanks Brown round numbers, Jason we ultimately had $300 million that went out of the system combined PBF and PBF logistics PBF logistics paid down some that we.
We borrowed $300 million, which is what we paid down during the second quarter under our ABL. The overall value of the inventory and receivables that we carry inside of that ABL went up and ultimately we sold $50 million worth of precious metals through a sale leaseback transaction kind of regular way that.
Done with all of our refineries, it's primarily the Martinez precious metals that we sold so net net of you think through 300 out the door 300 in the door from the ABL and $50 million from the precious metals that your net increase in cash of about $50 million quarter over quarter.
Mmm.
Got it thanks a lot.
Hmm.
Okay, Jason Amanda with IPC capital markets.
<unk>.
Hi, My question was just asked and answered thank you very much.
Hello, you've reached the end of today's call and I'd now like to turn.
The call over to Tom Nimbly for closing remarks.
Everyone for joining the call today.
A week again I'm looking at our system relentlessly and we hope to show you further improvements.
<unk> C a better market when we have our next call.
Thank you.
Hi, Nice does conclude today's program. We appreciate your participation in you may now disconnect.
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