Q4 2020 PBF Energy Inc Earnings Call
Welcome to the PBF Energy, Inc. Fourth quarter 2020 earnings conference call and webcast.
At this time, all participants have been placed on a listen only mode.
And the floor will be opened for your questions following management's prepared remarks.
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As a reminder, this conference is being recorded it is now.
My pleasure to turn the floor over to Colin Murray of Investor Relations, Sir you may begin.
Thank you Daryl and good morning, and welcome to today's call with me today are Tom, namely our CEO, Matt Lucey, our President Erik Young our CFO, Tom O'connor, our senior Vice President of commercial Paul Davis, our president of Western region and several other members of our management team a copy of <unk>.
Today's earnings release, including supplemental information is available on our website before getting started I'd like to direct your attention to the safe Harbor statement contained in today's press release in summary, it outlines the statements contained in the press release and on this call, which express the company's or management's expectations or predictions of the future are for.
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 described in our filings with the SEC.
Consistent with our prior periods, we will discuss our results today, excluding special items in today's press release, we provide a detailed list of the noncash special items included in our fourth quarter 2020 results the <unk>.
Cumulative impact of the special items decreased the key.
Q4, 2020 net loss by an after tax benefit of $246 million or $2.04 per share. Additionally, due to the significant losses in 2020.
Certain deferred tax assets were revalued and drove a significant reduction in our effective tax rate for the fourth quarter and full year 2020 going forward. We continue to recommend using an effective tax rate of approximately 26 per cent for modeling purposes.
As noted in our press release, we'll be using certain non-GAAP measures, while describing pbf's operating performance and financial results for reconciliations of non-GAAP measures to the appropriate GAAP figure. Please refer to the supplemental tables provided in today's press release I'll now turn the call over to Tom.
Thanks Collyn.
Good morning, everyone and thank you for joining our call today.
Well the are starting to see some improvement overall.
And then it continues to wreck havoc on families communities and businesses globally.
PBF was hit hard by the pandemic.
And our employees dealt with many hardships at home and at work.
Our employees contractors and business partners operated under enormous pressure during the year and their resilience allowed PBF the operating safely and reliably true what has hopefully been the worst of the pandemic.
The demand destruction of experienced by the industry is unprecedented in its severity and duration.
For our immediate response was to ensure the safety and security of our people and our facilities.
On top of the normal challenges presented by a 24 seven operations.
The demand destruction for our products require a P. B after operating our assets at lower rates than we had ever attempted over an extended period of time.
Beyond our immediate response to the pandemic PBF embarked on a strategic review focusing.
Focused on driving efficiency.
In all areas, including our refineries logistics assets systems and corporate back office.
We focused on reducing cost eliminating redundancy improving processes and determining the appropriate configuration and path forward for the company in order to create a stronger base business.
And sure the company was financially positioned to operate through the pandemic with the.
The top priority.
We raised approximately 1.8 per month.
To provide the company liquidity required to weather, the pandemic and stabilize our financial footing.
As a result of our strategic review, we reconfigured our east coast refining assets to operate as a fully integrated system.
Allowing us to maintain the most profitable aspects of each business, while idling redundant capacity, which should result in $150 million in annual operating and capital expense savings.
We expect the initial results of our ongoing cost reduction programs will generate an incremental $100 million to $125 million and operating expense savings for the rest of our refining system.
In total our cost reductions in 2020.
Resulted in over $700 million of savings for the year.
Our goal is to make our business more cost competitive ensuring that all of our assets remains safe and reliable and are positioned to ramp up rates as demand for products improves.
We do believe that marketing conditions are improving.
Lower utilization rates in 2020, while operationally challenging.
Meant that supply demand will reasonably well matched following the initial surge and the inventories last spring.
By the end of the year inventory levels were relatively in line with the normal five years of historical ranges.
We are not out of the woods, yet as the pandemic continues to dominate our lives and business, but we are seeing positive signs.
The vaccine rollout is improving and more people have now received the vaccine that had tested positive for COVID-19.
This is a good trend that needs to continue in order for demand for our products to recover as people are able to return to the normal routines.
We will continue to solidify the savings and operational improvements we've made over the course of 2020 and.
And we anticipate that the fruits of our labor will show as the recovery gains momentum.
Lastly, I would like to thank all of our employees.
For fall of them of our plan.
The army protocols, while continuing the tireless efforts and maintaining the safety and integrity of our operations and with that I'll turn the call over to Matt. Thanks, Tom.
As Tom mentioned, the demand of structured destruction required us to take aggressive action.
To navigate 2020.
And more importantly to improve our competitive position for the long term.
We aggressively targeted cost reductions and the operational excellence in 2020.
As part of that ongoing effort is now incumbent on us to cement that cost discipline as we continue to look for efficiencies across our system.
On an apples to apples basis, assuming normalized throughput.
We have permanently reduced our cost structure by 50 per barrel across our system.
Of note. The 50 <unk> takes into account a reduced denominator as the result of the east coast reconfiguration.
Which equates to an achieved expense reduction of.
Of over $200 million.
In the fourth quarter, we ran our refining system of just over 675000 barrels a day in total.
And total demand picks up we will continue to operate at reduced rates.
We believe that the global industry rationalization was necessary and will likely continue.
PBF participated in this effort effort with our east coast reconfiguration.
As of 12 31, the reconfiguration is complete.
Obviously anytime there is the loss of jobs and shutdown of units.
It becomes a very difficult working environment, but the people of Paul's borough of distinguished themselves as the consummate professionals as everything was done safely.
And in line with our expectations.
Okay.
I would like to comment on the renewable fuel standards as we've seen rens price has doubled since the third quarter.
And rise over 10 times since the last January.
The RFS remains a broken program, which bring specific harm to independent merchant refiners like PBF.
The prior administration made attempts to level the playing field.
But left the situation worse than when they started.
While the new administration is still getting its feet on the ground.
There are steps that can be taken in the immediate term to address the current crisis.
PBF is actively engaged in addressing the immediate steps as well as long term solutions for the RFS program.
We look forward to working with all the constituents on promoting of fair and balanced program debt levels, the playing field and does not disadvantaged domestic merchant refiners.
However.
Unless the administration and Congress to address the program.
The unfortunate trends of refinery closures and loss of jobs in the U S are likely to accelerate.
Which will increase U S reliance on imported fuels further impacting our energy independence.
As I mentioned, there's a lot of work to be done by the EPA and taking comments on proposals in front of it Inc.
Including proposed economic harm waivers deciding on sras, establishing the 'twenty one required volume obligations.
Additionally, there are cases in front of the courts in the next couple of months that will give us further clarity on the program going forward.
Looking ahead as we continue to focus on improving our core refining operations.
We fully recognize that certain aspects of our business are seeing increased momentum.
In terms of the drive for cleaner and more sustainable fuels.
We certainly believe that cleaner fuels are going to be of part of the future.
PBF will be of part of that evolutionary process.
We are committed to producing clean fuels.
Economically responsible manner.
Today's fuels or the most of affordable abundant and.
And economic sources of energy.
For transportation and literally make modern life possible.
They are also critical to a strong economy, which is necessary to advance investments and a more diverse energy mix.
Refining assets are well suited for supplying a variety of both conventional and renewable fuels.
At PBF, we have two distinct pathways to participate in the fledgling renewable diesel market number one.
All renewable diesel produced in this country and most of the producers in the world for that matter has the market incentive to be sold in the state of California.
As the owner and operator of two large, California refineries, along with proprietary logistics assets.
PBF will look to play a significant role to third parties and the distribution of renewable diesel as it enters the state.
Number two with our refining footprint PBF has a competitive advantage to manufacturer of renewable diesel.
While PBF has viable opportunities to enter the market on the west coast and the East coast.
Chalmette has unique attributes that distinguish it above our other prospects.
Chalmette is well positioned in the Gulf coast with excellent access to water rail and truck logistics.
Additionally share when that happens to have an idled hydrocracker with an ample supply of hydrogen hydrogen.
That would allow for of 15 to 20000 barrel a day project, which would be capable of processing any renewable feedstock.
To come on stream in half the time and at half the cost as other projects that have been announced in the marketplace.
Over the last three years, our Chalmette project team has returned to other idle price as units to service.
Those projects were delivered on time and on budget and provide insights and experiences that will be valuable in this exercise.
Technical feasibility is ongoing and we are advancing discussions with potential feedstock suppliers.
The strategic partners.
While we continue to advance this project it is still in the development stage and as such we have not yet gotten to our final investment decision, but are encouraged by the prospects.
We continue to focus on items within our control reducing costs, improving the competitiveness of our refining assets and businesses hole and running safely and reliably.
With that I'll turn it over to Eric Thank.
Thank you Matt.
PBF reported an adjusted loss of $4 53 per share for the fourth quarter and adjusted EBITDA of negative $364 million in.
Included in our results for the quarter was the previously disclosed severance expense included in G&A related to the east coast refining reconfiguration.
Additionally, as outlined on page six of our press release, there were a number of significant one time special items included in our GAAP results as a result, our effective tax rate for the fourth quarter and full year 2020 defer from comparable prior periods.
In 2020, we use the flexibility of our balance sheet to support the challenges of our business during the pandemic, which included a $250 million tack on to our secured notes in December of last year.
Our current liquidity is over $2 1 billion based on our cash balance of $1 25 billion and available borrowing capacity under our ABL.
As we outlined in our last call, we expected working capital to be of tailwind in the fourth quarter.
We were successful in reducing overall inventory to meet certain year end targets, which when combined with the one time reduction in east coast inventory associated with the reconfiguration.
And increased net payable terms for feedstocks resulted in a benefit of more than $300 million the.
The benefit was larger than we forecasted in November primarily as a result of the rising hydrocarbon price environment.
Prices have continued to climb since the fourth quarter, which will reverse the portion of the working capital benefit if the current price trajectory continues.
Consolidated Capex for the quarter was approximately $50 million, which included $47 million for refining and corporate Capex and $3 million for PBF logistics.
For the full year 2020, our consolidated Capex, excluding acquisitions was $394 million that included $11 million for corporate Capex and $12 million for PBF logistics.
Our 2021 capital program is designed with intended flexibility, which will allow us to adjust our plans depending on market conditions for the first half of 'twenty. One we expect to spend approximately $150 million in refining capital importantly.
Importantly, we have no planned turnarounds or significant major maintenance activity scheduled for the first half of this year.
As has been mentioned, we took aggressive action to provide the necessary liquidity for PBF to successfully emerge from the pandemic based.
Based on the forward curve assuming of continuing demand recovery, we see a path to positive cash flow from operations during the second quarter of.
Our top capital allocation priority upon generating cash following the safety and reliability of our operations will be to focus on delevering and continuing to strengthen our balance sheet.
Operator, we've completed our opening remarks, and we'd be pleased to take any questions.
In a moment, we will open the call for questions. The company requests that all callers limit each turn for one question and one follow up you.
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One moment, please while we poll for your questions.
Our first questions come from the line of Doug Leggate of Bank of America. Please proceed with your question.
The only that we the pronunciation.
Morning, guys.
Okay.
Yeah.
And what you guys are navigating a really really tough environment.
You may need to be congratulated for the steps you've taken so we realized but.
But we also recognize the steps you are taking so good luck with the Q2.
In Utah efforts there.
A couple of quick questions.
The first of all.
I Wonder if you can speak to the cost competitiveness.
The balance of the system, we've taken some pretty drastic steps already but if you look for example of the external.
The external benchmarking like solar moment things of that nature of where do you think the PBF.
The day.
And are you comfortable with the current configuration for.
<unk> is now.
Viable of sustainable through two of the bonds of the bottom of the cycle.
Thanks, Doug and thanks for the day opening comments, we appreciate it.
Let me take the last part of the <unk> and <unk>.
Matt and I, we can talk about I'm not a big believer in top of them by the way I must go on the record.
Although it does have great utility.
It's better on the operating cost side than it is on the margin side.
The last part of the question we are comfortable with the portfolio. We think we've strengthened significantly with the east coast configuration of that was it makes sense.
The win win for both parts of the system.
Basically what we did is we kept the strong attributes of pools borrow with the.
Luke production very high margin in asphalt much stronger than I would have envisioned by the last year and probably will be the case going forward with the infrastructure investment.
And we basically eliminate 85000 barrels of oil.
Lower performing fuels operation involves borrow and move some of that over to a stronger fuels operation in Delaware, We've obviously improved the operating cost structure there.
Operating costs have improved significantly in chalmette.
And in Toledo, we have work to do still in the West coast, but the real problem that we have today is utilization.
And when you look at that is going to get solved.
Only when the pandemic is solved and that is being done.
And we can get utilization up.
Every barrel, we bring up in throughput, we're effectively doing that on a variable cost basis. So our unit cost of the kind of going to come down rather significantly from where we are today today is an unsustainable, but we are comfortable with the the basis the asset basis, we have the maybe two other.
Certainly two of the highest performing and strong and asset assets on the West coast.
They're not being rewarded right now, but certainly we feel comfortable with those numbers.
Yeah, Doug I would just say what we tried to do is presented on the simple basis, because when you talk about expenses and you have different throughput.
Can get very confusing and especially with fixed and variable costs. So what I tried to do is say, okay. When you look pre pandemic with normalized throughput and post pandemic with normalized throughput, albeit lower throughput because we've taken out call. It 85000 barrels a day on the east coast.
Across our system were going to achieve 50 per barrel and that includes the <unk>.
Pretty substantial increase for.
For insurance expenses had nothing to do with PBF that.
The global insurance market and wildfires in California, and all of that goes into that.
And so embedded in that.
As a significant rise in insurance costs.
Those costs don't go in one direction, so on a going forward basis in the out years, maybe we'll even see.
The expenses come down in that market.
Clearly out of our control, but it's not a effort that we've of.
Put to bed.
The effort that we continue every single day I actually believe we have more while the reconfiguration is complete on the east coast, we have more optimization to be done as the reconfiguration.
Sort of commence January one every day, we'll learn better how we can optimize the new newly reconfigured East coast.
Okay.
The new the new administration.
What we can expect Max I'm, just wondering at a high level.
I'll, let some of those lost margin that you saw.
All of them, but yeah.
Uh huh.
A different outcome of uncertain outlook in terms of things like carbon the talks to particular, so I'm, just wondering what contingencies or what's debt.
It could.
Through all of the negotiations discussions just highlighting the challenges of.
Maybe if you could.
Okay.
Yeah.
Yes, Doug Youre, breaking up but in regards to.
Our efforts in Washington.
For unfortunate reality.
That just takes up a significant amount of time.
And.
I will say on Rins.
The the RFS program is not.
A partisan issue.
It sort of.
AG with AG or with.
The traditional energy sources.
And so the constituents.
It's not sort of your standard Red States Blue States and obviously, Mr. Biden likes to talk about his Clare.
Claremont.
<unk> bona fides.
And I think they gave a high hard one to the represented workforce with XL pipeline, but look we are actively actively actively engaged in Washington.
In regards to the RFS program and other programs I will tell you in regards to carbon tax or other programs are in place.
<unk> voice goes down a bit when there are programs that are administered fairly the whole issue with RFS is not administered fairly so if theres, a gas tax or carbon tax that everyone's paying equally.
That's really between the politicians and all of us as citizens to debate.
Our issues specifically with RFS is broken so you have merchant refiners you have refiners that have retail you have integrated oil companies and you have blenders that arent obligated parties at all and all have a different.
Economics because of the way the RFS program.
Was developed and laid out and so those conversations are very active and like I said there is I believe the EPA administer actually got through the Senate yesterday.
And so.
I'm sure he is going to hit the ground running I do believe he in particular.
As a blank slate on this issue coming from the state of the North Carolina, It's not something that he has been actively involved in and so my understanding of him he's a very.
Reasonable and.
The serious person and so we look forward to having the discussion with him, but not only him directly with the administration and with with Congress and also with governors.
So it's active and it.
It's sort of rinse wash repeat in regards to how the discussions.
The discussions go on because they've never addressed the program with the long term fix.
Thanks, Ross sorry about the connection I appreciate the answer.
Yeah.
Thank you. Our next question is coming from the line of Neil Mehta of Goldman Sachs. Please proceed with your questions.
Good morning team. Thanks, Thanks for taking the time. The the first question is just around liquidity can you just remind us again, where were you are real time, it sounds like working capital unwind it a little bit of the beginning of the quarter and just the daily cash flow burn if you of any back of the envelope around that or more.
The cash flow of burn just the just so we can map out how the balance sheets kind of evolves.
If current conditions.
Persist.
Sure. Thanks, Neil it's Eric So ultimately we did see a decent amount of working capital flow into the system significantly more than we expected in the fourth quarter I think the safe assumption is the vast bulk of that working capital probably end up leaving our system throughout the course of 2021, I think to help offset that.
<unk>.
Based on where the forward curves are we still are very firmly in the camp that over as we are entering 2021 here.
We will see a cash burn of $50 million to $75 million of months that ultimately is going to transition to be a positive cash generator in conjunction with kind of timing of the second quarter.
That assumes no material change to what we see in terms of the forward curve. So I think we lost a bit more money than we originally expected in the fourth quarter that was offset by working capital but.
But ultimately the forward curve is starting to behave the way we expected it to.
And we do expect incremental demand on a go forward basis. So I think we're still very much over this is over a long period of time here I think we're comfortable saying $50 million to $75 million a month.
<unk> is a reasonable cash burn as we enter the second quarter and then ultimately again kind of midway through the second quarter, we should see things start to flip price.
Alright.
Yes that should get better as demand improves the.
The follow up is around renewable diesel.
You throw out a teaser there for us Matt. So I wanted you to flesh that out and the related cost of the question is around Rins and one of the ways. Obviously, you can mitigate your rins expenses as the to build out of renewable diesel business. So first question is sort of how do you think about 2021 rent expenses, if current prices hold and the.
The the follow up is what is the strategy around renewable diesel.
Can you flush out some of what you were saying in your prepared remarks.
Well I think it's hard to think about world of friends or just static.
It's possible, but I think there's lots to be sort of discovered over the next couple of months I think.
Sort of.
All of those people that don't have.
The dog in the fight sort of recognize that the program is broken and on top of that.
Obviously, the Supreme Court deciding to look at the 10th Circuit's decision.
It speaks unto itself, we will see what comes of that over the next couple of months. So in regards to managing our RIN program will continue to manage it obviously the program has flexibility in regards to.
The compliance periods and such like the things like that which gives us the flexibility to manage it.
The best way.
To do that and Thats.
That's active in but that's no different than.
What we've done in the past the.
The renewable diesel.
Opportunity does it.
Obviously, what comes with it is rens L CFS credits blenders tax credit.
The reality is all of those things are needed.
To make it economic because you're turning of product that is more expensive because you need to buy a lot of the stuff to get to the btu content.
And so but that discussion is ongoing so yes. It does provide some protection in regards to rents, but the the renewable diesel business has to be able to stand on its own.
And in the current environment. It certainly does and so we think.
We are uniquely positioned because again not only do we have an idled hydrocracker, but we've got all of the infrastructure tankage logistics that if someone is going to brownfield their way into makes it much much more expensive to build and then also operating it.
The operating synergies as well because it's.
Yeah of marginal cost of the steam and hydrogen as opposed to.
A standalone asset.
But I think it's important just as the caveat you can't double count.
Range, but yet it certainly will provide protection.
And Neil I think just to put some numbers around the RIN expense for 2020, we had rent expense of just over $325 million that flowed through the P&L. So obviously with the rising price and Matt mentioned in Q4, we expense just shy of $145 million of Rins and ultimately for 2021 as we are.
Seen unfortunately coming out of D. C. We do not know the RVO for 2021, but based on our current estimates of safe assumption is probably PBF on a net basis should have a RIN liability in terms of number of returns of around $550 to 600 million Rins that will obviously move depending on.
What we do in terms of exports other strategies that we may employ and at this point I think it's difficult to say exactly what this RIN price is going to be through the end of the year, but that's a pretty good parameter to use.
Thanks, guys.
Yeah.
Thank you. Our next question is coming from the line of Phil Gresh with J P. Morgan. Please proceed with your questions.
Hey, good morning.
Eric just a follow up on the Rins you mentioned the expense.
For the quarter and the year, where does the balance sheet liabilities stand.
At the end of the year end.
How do you anticipate the cash.
Cash outflows associated with that I presume that we might be outside of the free cash flow or cash burn numbers you were talking about so just wanted to clarify.
I think we're including the.
Including the rent expense that we will have through the course of this year along with the working capital from hydrocarbons and other stuff that's going to roll through in that 50% to 75%. So I think we've covered most of it there ultimately what you will see when the 10-K as published is it's not just a RIN number and I don't think we're comfortable disclosing the.
Composition of this because clearly we try to manage all of our environmental credits as much as we possibly can there is some proprietary work that goes into that so I don't think again I'm going back to what Matt said in terms of RIN.
RIN price Thats increased 10 fold in the course of the year I think disclosing lots of different details about what our strategies are is probably not not something that were comfortable doing but I think high level, you should see that accrued expense number of circa $500 million, but that is not just range, that's going to be rens AB <unk>.
Two credits its going to be other environmental credits that are kind of stuffed into that particular bucket. So I think the key message is we've got more than $2 billion of liquidity today, we feel very confident that has ample liquidity and again, assuming the forward curve comes to fruition as we transitioned the positive.
Cash flow, while we did generate a significant amount of cash from working capital during the fourth quarter of last year. Most of that will ripple back through during the course of this year that will then be offset by positive cash from operations, starting midway through the second quarter, assuming there is no material change to the current forecast that we.
We have today.
That will allow us to essentially comply with all of the regulatory requirements that we need on a go forward basis.
Okay got it.
And then just in terms of the improvement that youre seeing in the market today from a fundamental perspective.
I'm frequently of getting the question of how much of the improvement in the crack is from the increase of <unk>.
I think others of suggests it might be up to half of the improvement in the <unk>.
<unk> is coming from the Rins, but I'm just curious how are you thinking about the fundamental picture.
Today.
Outside of the Euro.
Your own kind of cash burn numbers that you provided.
All of this time.
Actually we feel we feel cautiously optimistic about what we're.
The direction, we're headed here and it all gets down to the containment of the virus and there has been significant.
The.
Improvement in that area obviously.
We referenced in the.
Every state in the country now has had more people of Nokia inoculated with the first dose then they haven't had they have confirmed cases and of course, that's true for the country as a whole is almost 45 million doses that had been jammed into People's arms versus 27 million people come down confirmed with the virus.
That's an enormous statistics and inoculating of $1 million last yesterday.
Give people the for.
The five day average is about 135.
So we're on a path we've got additional we've got reasonable supply of the vaccines and with J&J coming on probably at the end of this month. The I think they go before the panel on the last Thursday of February.
We'll have another vaccine available so what's happening now you see the cases of below 100000 hospitalizations of below 80000.
The program is working the more high risk people are getting taken care of so that decrease as ICU capacity and that gives the states as we said every state has gotten lower cases.
But the Alaska believe it or not.
Over the last two weeks.
The states of starting to open up a bunch of the states open up and then you layer on top of that the fact that youre going to have this very strong stimulus package.
And frankly, I believe is going to be pent up demand that.
One of the weather turns right.
I wouldn't be surprised if we get it wouldn't be and I'll, hopefully we might even get surprised on the upside, but we certainly believe that the prospects for the demand recovery of our real.
And that will allow us to end the process increased utilization as I said in my remarks.
Every barrel that we bring in putting the near comes on the variable cost basis gets all the cost structure down.
And importantly.
The incremental groove.
That is going to be needed to be run to meet that increased demand.
B of medium heavy sour crude from OPEC OPEC, plus maybe even for by the end of the year from Iran, and Venezuela and as you. All are aware, we have very sophisticated assets and PBF complex that had not been rewarded over the last several years because of market intervention. If you will.
Sanctions against Iran sanctions against Venezuela.
Keeping the accrued in the ground.
And even Canada, curtailing WCS that is going to reverse as demand recovers and the incremental barrel is going to be a heavier barrel more sour barrel and we believe that will widen the crude differentials and the of benefit for a system like ours.
Thanks for the color.
Okay.
Thank you as a reminder, if you would like to ask the question. Please press star one on your telephone keypad.
Our next questions come from the line of Matthew Blair with Tudor Pickering Holt. Please proceed with your questions.
Hey, good morning, everyone for the EPA has proposed extending the compliance deadline for the 2020 RFS I think they're talking about moving it to January 31 of 2022.
Currently it's March 31 of 2021 does this have any impact on PBF.
If so can you can you walk us through it and also the this effect here.
Your cash or liquidity balance if it was not extended.
No.
The answer the second part first but to answer the.
Will it have the impact on liquidity, if it's not extended.
No.
Going to the first point doesn't help yes, because it provides more flexibility in the way we want to manage the program of not only of PBF, but the rest of the marketplace and so by extending the deadline by 10 months.
It just provides more time and then there is other sort of levers that you can play with in regards to compliance periods as well. So yeah, I mean, I think it was the.
One thing that the.
At the.
For the previous administration left behind that.
It was directionally helpful I think the.
Obviously failed and that they left the program where someone they found it which is the ultimate test, but yes. The the compliance period is directionally helpful and it provides more flexibility for all of the participants.
Sounds good and then I had a couple of clarification question on the renewable diesel proposal.
First would this impact the existing diesel production at Chalmette, and then second I think there was a comment that you are looking to run any renewable feedstocks. So I just wanted to confirm that that means you envision building a pretreatment unit to run the the lower Ci feedstocks.
Yes on the project contemplates a pretreatment.
The facility if we learned anything in the refining business you need to have optionality on feedstocks and so thats, how we envision the project.
The first question for.
Renewable diesel effort at Chalmette would have zero impact on the remaining refining operations at Chalmette.
You would be able to essentially ring fence, the hydrocracker and run it.
Run it as a standalone unit.
And.
Like I said, it simply won't have any impact on on refinery operations.
Great. Thank you very much.
Thank you our next questions come from the line of Karl Blunden with Goldman Sachs. Please proceed with your questions.
Hey, good morning, guys. Thanks for the time.
In terms of the cash control quite impressive when you look at the Capex that you reiterated here for the first half of 'twenty. One I was curious when you look at how the system is performing with lower investment how long do you think you can maintain that level of investment before you need to enter a period of catch up Capex right I'm just trying to compare the.
The recovery in <unk>.
And what that would mean for your cash from ops to a potential increase in capex spend as we go into 'twenty two.
Yes.
We're in good shape for 2021.
I think Eric and Matt both the referenced and that certainly in the first half we have no significant.
A big Big turnarounds, we have some minor turnarounds in the second half of the year.
The Capex will go up beginning in 2022.
But we have got enacted program in place to mitigate that from what we would have done if we hadn't taken the steps that we have specifically what we've been doing we've been taking advantage of the slack capacity, we've got and in some cases, we're taking equipment down and doing what we would call the squad.
There is of particular issued at one unit might have that would take us down we're going to go ahead and take it down for a short period of time take care of debt issue bring net debt unit back up and that will allow us to extend the turnaround, perhaps another year or even more than that in some cases. So we will see an increase in capex, we will see some turnaround start to come.
And to the play in 2022.
And over the ensuing couple of years, but we think we're very comfortable that we're going to be able to manage that.
Karl I think we've laid out some numbers previously and kind of the five to 600 million dollar of year range. Obviously those are all subject to timing of turnarounds.
I think we've tried to outline for folks a lot of the spend can be rather lumpy depending on timing.
If we go back to what we did essentially a year ago, we were able to move a lot of different pieces around I think we're still very comfortable with kind of of that LTM figure as of 632021 being $300 million on a trailing basis, but thats an unsustainable number.
Simply because operating at 70% utilization is an unsustainable business model long term I think what we've tried to outline for people today is that we are cautiously optimistic again, we're looking at a forward curve. Matt mentioned, we're focused very much on the things that we can control forward curve is out of our control, but based on that.
Forward curve and I think we're going to have more details for everyone. At the end of our first quarter results. When we report the end of April.
At that point in time again, we go back to we're starting to see.
A negative cash flow from operations, so excluding working capital switch from negative to positive in conjunction with the second quarter again, assuming nothing material changes from what we see today.
In conjunction with that we will then be making the final determination on what the second half of the year Capex looks like I will tell you today. It does feel again based on where the current forecast is it does feel that we will.
Worked our way back into a regular way Capex program, that's probably an interim step for the second half of the year, where we may see Capex spend go up to $2 50 to $2 75 of of Capex for the second half of this year, but I don't think we're comfortable drawing the line in the sand right now simply because we are trying to.
Take cues from the market for both of the demand recovery side of things and then most importantly, what the recovery profile looks like and what the economics that we will benefit from when people get back to work and go back to school for the children and everyone gets on an airplane.
That's very helpful. Just one follow up on the Capex side with regard to investments like you mentioned that shell mats.
Very early stage of course, but when you think about how these kind of projects would be funded with debt.
From your balance sheet or external capital or are those options all available to you.
Kind of TBD based on the market environment.
I would say, it's too early to talk about pay for it for the program because there's literally a spec.
The spectrum sort of that's on the board debt.
Potentially include the partners and different types of partners.
So getting into that specificity is just the.
Bit too early at this point.
Thanks very much.
There are no further questions at this time I'd like to turn the call back over to Tom <unk> for any closing remarks.
Thank you very much for your interest and attendance today, and we look forward to talking to you and hopefully delivering on the fact that we acquired the positive cash flow in the second part of next call.
Thank you.
Thank you. This does conclude today's call you may disconnect. Your lines at this time. Thank you for your participation.
Have a great day.