Q1 2021 PBF Energy Inc Earnings Call
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Yeah.
Good day, everyone and welcome to the PBF Energy first quarter 2021 earnings call and webcast. At this time all participants have been placed in a listen only mode and the floor will be opened to your questions. Following management's prepared remarks, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please.
This conference is being recorded.
Now my pleasure to turn the floor over to Colin Murray of Investor Relations. Sir you may begin.
Thank you Melissa 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 and several other members of our management team.
Copy of today's earnings release, including supplemental information is available on our website before getting started I'd like to direct your attention to the safe Harbor statement contained in today's press release in summary, it outlines that statements contained in the press release and on this call, which express the company's or management's expectations or predictions of the future are.
Forward looking statements intended to be covered by the safe Harbor provisions under Federal Securities laws. There are many factors that could cause actual results to differ from our expectations, 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 provided a detailed list of the noncash special items included in our first quarter 2021 results.
The cumulative impact of these special items increased net income by an after tax benefit of $273 9 million or $2 27 per share.
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 for the appropriate GAAP figure. Please refer to the supplemental tables contained in today's press release.
I'll now turn the call over to Tom.
Thanks, Colin good morning, everyone and thank you for joining our call today.
While we are not out of the woods, yet our business saw a strong recovery during the first quarter.
<unk> seen rollouts have picked up and people are starting to come out from their respected COVID-19 and winter Harbor nations.
Market conditions are improving.
Lower utilization rates in 2020 kept refined product inventories within a very reasonable range is coming into 2021.
Aside from the catastrophic personal impact of winter storm jewelry, the storm continued to clean up and balancing of inventory levels crack.
Crack responded as a result of the storm.
Operational discipline meant that the impacts were seen in lower inventories rather than higher utilization.
Inventory levels are now all at or near the five year average levels.
Industry data shows that gasoline demand domestic gasoline demand has recovered to approximately 95% of normal levels. This with demand has fully recovered and is even five percentage so above historic levels, while jet demand remains at about 75% of normal levels, but.
10 years, it's slower recovery day.
<unk> is the key driver Inc.
Increased demand will provide support for improved refining margins, which in turn will support incrementally higher utilization.
Our refining Ron should increase to call on crude from producers and this should have a positive impact on differentials.
We're seeing the green shoots of this effect with discounts widen modestly for sour crude oils as incremental barrels are coming from the middle East.
We expect this trend to continue as demand improves.
To be clear the industry. He is coming off a very low base and many of the incremental data points are all positive we believe that our strong domestic recovery from the pandemic well continue to drive increased demand for our products.
Internationally to cover the recovery has not been as consistent well smoothed as we are experiencing in the U S. But those regions will recover as well.
Should provide a backdrop, where we see a more gradual but sustained growth in product demand.
We are encouraged by what we are seeing in the market.
We expect utilization going for all will be posed by demand rather than run ahead of it we are expecting to run almost 25% more barrels through our system in the second quarter than we did in the fourth quarter of 2020, and this is a very big step.
Our recovery.
Lastly, I would like to thank all of our employees for following a pandemic protocols, while continuing their tireless efforts in maintaining the safety and integrity of our operations. We look forward to today. When we will have all of our team members back in the office, which we will believe will occur by the end of this.
Quarter with that I will turn the call over to Matt.
As Tom mentioned markets are being driven in the right direction as demand is increasing.
Our aggressive efforts to improve pbf's competitive position should help accelerate the company's recovery.
We targeted cost reductions and operational excellence.
We are cementing the savings achieved over the last 12 months and realizing the benefits of continued cost discipline.
We believe our ongoing efforts will result in a permanent shift of our refining cost structure down.
Will make us more competitive.
We are expecting more than a 50 cent per barrel reduction in operating costs across our system versus historical levels or.
For more than $250 million per year.
At full run rates.
Yeah.
In the first quarter, we ran our refining system at just over 745000 barrels per day in total.
10% higher than we ran in the fourth quarter.
The midpoint of our second quarter throughput guidance is approximately 855000 barrels per day or.
Or approximately 15% higher than Q1.
We believe the demand recovery for our products is taking shape.
And our rate increases reflect our response to that demand.
We are not going to run to.
To run ahead of demand, but we will continue to be disciplined and responsive to the market.
The challenges faced by our industry during the pandemic were met with discipline by operators, but also resulted in the difficult but necessary decision to rationalize capacity globally.
As recently as last week, we continue to see global capacity rationalization.
With the announced conversion of the South African engine refinery.
Into a products terminal.
This trend will likely continue outside the U S.
Which was early to rationalize capacity.
In addition to the pandemic.
Runaway compliance cost under the RFS program are creating another.
Non sustainable burden on merchant refiners.
The RFS program is a broken program.
And if the problem is not addressed it will likely result.
And our ratio of the U S refining industry.
The RIN basket now equates to eight two cents per gallon cost on transportation fuel.
Value equivalent to the federal excise tax.
This cost however is not being collected by the federal government.
Nor is it levied equitably on market participants.
This cost is being borne by the consumer.
And the merchant refiner.
And at least as it pertains to day six ethanol rins.
Accrues to the benefit.
A large integrated oil companies and large retailers.
PBF is engaged in discussing the immediate steps needed as well as possible long term solutions for the RFS program.
We continue to work with all constituents on promoting a fair and balanced program.
It levels, the playing field and does not disadvantaged domestic merchant refiners.
However.
Unless the administration and Congress 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.
Increased cost to consumers.
And further impact.
Our energy independence.
Looking ahead, focusing on the things within our control.
We are concentrating on the cost competitiveness of our core refining operations.
And improving margin capture.
While refining remains our core business.
We fully recognize the increase for momentum and desire for renewable fuels.
Today's fuels are the most affordable abundant 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.
In February.
PBF announced the potential renewable diesel project at our Chalmette refinery.
Our project is intended to maximize the benefits of Chalmette strategic location on the Gulf Coast with excellent access to water rail and truck logistics as.
As well as our synergistic, California logistics footprint.
Additionally, chalmette happens to have an idled hydrocracker with an ample supply of hydrogen.
That would allow for approximately 20000 barrels a day of renewable diesel production facility.
We continued our detailed review of the project expect debt once we reached final investment decision.
Our project would be capable capable of coming on stream within 12 months of that decision.
At a significantly lower cost than similarly announced projects.
We are in active discussions with potential strategic partners and expect to.
Reach a decision point in the coming months.
Our assets are running well today, thanks to our dedicated employees.
We have put ourselves in a position, where we should be able to benefit from the improving market conditions.
With that I'll turn it over to Eric.
Thanks, Matt as mentioned a moment ago, there were a number of significant one time special items included in our GAAP results that are outlined on page six of our press release.
Today PBF reported an adjusted loss of $2 61 per share for the first quarter and an adjusted EBITDA loss of $199 million.
Consolidated Capex for the quarter was approximately $60 million, which includes 59 million for refining and corporate Capex and $1 million for PBF logistics.
As we have discussed on previous calls our 2021 capital program was designed with intended flexibility.
For the first half of 'twenty, one we continue to expect roughly $150 million in refining capex.
As a result of improving market conditions, we elected to advance some of the maintenance on the east coast into the second quarter and this is finishing up now please.
Please note that our Q2 throughput guidance is inclusive of this activity.
Looking to the second half of the year, we expect capital expenditures to be roughly $250 million to $300 million and.
And we expect to perform turnarounds and related projects at Delaware City, Chalmette, and both West coast plants.
Our financial results, while not cash flow positive for the first quarter continue to improve as the rebound from the pandemic progresses. We believe March was an inflection point as we generated positive adjusted operating margin and we still believe that the combination of an improving market backdrop and a more streamlined cost structure at PBF.
Should result in a return to positive cash flow.
Our liquidity position remains strong with over $2 3 billion of total liquidity, including $1 5 billion of cash at the end of the first quarter.
We continue to manage our balance sheet and financial resources to provide us with flexibility in the near term.
There are many factors that can change the trajectory of working capital flows, namely commodity prices inventory levels feedstock differentials and the cost of renewable energy credits will be a factor over the remainder of 2021, we do however expect to see approximately $550 million of work.
Capital outflows through the remainder of the year.
Operator, we've completed our opening remarks, and we'd be pleased to take any questions.
Okay.
Yeah.
Yeah.
Okay.
Yeah.
And one follow up you may rejoin the queue with additional questions.
If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Theresa Chen with Barclays. Please proceed with your question.
Good morning, everyone Hum not.
In your prepared remarks, you specifically spoke about the unsustainable headwind for the elevated RIN cost for the industry and I wanted to delve into this a.
A little bit more just with the Supreme Court currently reviewing that for a taste and can you walk through the different scenarios of what you think can happen from here and you know it's a loaded question of what are your expectations at this point for the blend mandate and maybe the program going forward.
Yeah. Thanks for the question I mean, there's so many unanswered questions the Supreme Court case.
Case, what's interesting is that from everyone that I've talked to and from what I listen to people. We're encouraged by it but obviously the the government hasnt put out the RVO.
They're overdue for.
This year and so.
There is a lot of questions, but the biggest one is is what it always is.
As you have to.
Have a direct voice into the administration into the EPA and into Congress to explain to them the.
The intended in the <unk> and <unk>.
<unk> tended consequences of their actions it is a broken program.
Secretary Regan is coming in should be a relatively blank slate in terms of he's not a.
Person that seems to have a vested interest in its history and in this regard.
We are working very closely with the represented workforce that is you know how our colleagues are.
And in talking directly to the administration for the fact of the matter is the RFS program is broken we keep using that term if you look at it.
You know if you look at biodiesel.
Hum.
<unk>, who runs that market sort of works.
It's more of a pass through but when you get to gasoline ethanol day six rents. It's a completely inequitable program and if it's not addressed prices will continue to rise with soybeans.
And and it will make refining unprofitable and that will have ramifications.
Let me just add a few things.
To that I mean.
You asked a question Matt spoke of it.
Obviously, the Supreme Court case.
Sure.
Before that there was a.
Hearing at the.
Circuit level and on day 15 decision made by the EPA to allow year round E 15 are certainly.
There was.
A motion to basically go back and dismiss that so there's two places in the index.
Of course that could still unknown that will weigh in on this.
With the lobbying efforts that Matt spoke of we've got governors petitions that have gone into the AP EPA that had not been responded to for a request for economic harm waivers.
For our merchant refiners in particular, the EPA will ultimately have to respond to that and then the last piece of your question is if this thing just keeps going and going and going of course. This program sunsets at Sunset at the end December 31, 2022 at that point it would remain for the EPA EPA has already.
Reached out and requested comments from all parties, including the agricultural lobby.
And the refining industry as to what things that could be done to make the program better. If indeed, we go down that route and one of the things that is being discussed.
Is to go to more of a <unk> program, which as you all know I'm sure.
That is all pass through to the consumer 100% Theres no prioritization, given two large retailers large refiners integrated refiners versus merchant so a lot of activity, but we need actually sooner than later on this.
Thank you for that thorough answer and I guess turning to your assets in the West Coast you know it looks like you're looking for a material step up in throughput corridor for a quarter or along with your other regions and maintenance aside but specifically to this region can you talk about.
What you're seeing there and what you're seeing in terms of demand across your footprint and it's a step up just primarily a function of things opening up mobility, increasing or are there other factors at play.
Well, its primarily associated with mobility and the state opening up.
The.
Obviously, the state of California has announced that effective June 15.
<unk> is open completely.
But.
Paul Davis, our president of the West Coast region was out there last week.
And traffic on the highways is pretty much back to what it was pre pandemic. So demand is clearly up we talked about.
The demand comparisons pre pandemic for now across the region, but it's the same story and in fact, a little bit more bullish on gasoline right now.
And pad five wherever we are about 97% of pre pandemic demand.
So clearly we've seen utilization come up but I would point out and I think everybody is aware of as we've mentioned in previous calls what we watch closely we're very confident we've already seen diesel.
Lips are pre pandemic levels, and that's being driven by the fact that you saw at the port of long Beach Port.
L a.
Cargo ships container ships in April or March and April that were unloaded we're at a 40 year all time high.
So there's a ton of containership traffic out there obviously that means that as diesel demand as you unload those containers and day transported material that was in them across the entire country gasoline demand is coming back very strong jet is moving grudgingly, but yet is it.
One thing that we have to really pay attention to not only in pad five but across the whole system, but it really is a little bit for PBF is a more of an issue on in pad five because of the amount of international travel that comes out of Seattle, San Francisco and L.
L. A and of course, it's the international travel that is recovering.
More slowly.
What you're seeing domestic travel starts to come up pretty pretty nicely, but overall, we are seeing good demand and utilization in California right now at both refineries is about 85%.
Thank you.
Thank you. Our next question comes from the line of Phil Gresh with J P. Morgan. Please proceed with your question.
Yes, hi, good morning.
Maybe just starting.
With the cash flows in the quarter.
I think on the fourth quarter call for cash balances around one point to $5 billion now, they're almost $300 million higher than that so Eric if you could give a little color about some of the moving pieces. There I appreciate the commentary about the working capital for the rest of the year, maybe some of that was just a pushout.
Of that impact for the rest of year, but any additional color would be helpful.
Yeah, I think we have discrete uses of cash that we expect to roll through Q2 through Q4 of roughly $550 million. We've tried to its consistent with where we were.
Essentially in the February timeframe, when we walked everyone through the Q4 results.
We did see a stronger benefit from working capital than we expected and quite frankly, a portion of that is probably going to be quasi permanent what we don't know we built some inventory there are puts and takes across our working capital ups and downs, we don't know where crude prices are going to go we did build some inventory during the <unk>.
First quarter for example, some of that was then offset by essentially deferral of payment on a variety of different topics and quite frankly, I think our team continues to do a very good job of managing cash managing suppliers extending payment terms and so combination of all of those things on a normalized basis resulted in about.
$150 million of cash coming through the system.
One thing that I think is important to note is our financial results do include roughly $130 million of a non cash mark to market on our environmental obligations that shows up in the form of working capital as well, but this is essentially accounting treatment based on our overall net position of where we.
For our environmental obligations, I think Tom and Matt gave a pretty thorough overview on rins.
One of the key pieces here is since our last call. One very important change is that the EPA has now allowed the 2020 obligation to essentially be fulfilled by the end of January 2022.
And our 21 obligation does not change our fulfillment date is still the end of March 2022.
There is however.
The opportunity to extend that 'twenty two obligation for.
Fulfillment period until March of 2023.
And quite frankly, where we stand today with the volatility in the current state of the RIN program, we are going to maintain as much financial flexibility as possible when it comes to managing our RIN and environmental credit position. So I think the key message is while we were able to generate some incremental cash from working capital during the quarter.
We do know that there are roughly $550 million of cash discrete uses that will again rolled through our cash flow statement hit the balance sheet, obviously reduce <unk> reduce our cash balance through the remainder of the year.
But we do believe debt we have reached an inflection point here. So as we transition not only to generating positive operating margin, but most importantly, generating enough margin to cover all of our Capex and interest that ultimately a portion of that 550 will be offset by net cash from operations.
Through the second half of the year.
Okay got it that's very helpful. I guess just to clarify on your environmental liabilities commentary and the push out to January of next year does the $550 million of outflows include any prepayment I guess of what would essentially be a 'twenty 'twenty two obligations at this point.
In order of magnitude how much is the obligation today.
I don't think we're comfortable disclosing all of the Nitty gritty detail behind what we're doing from a credit standpoint, because quite frankly, while the cost of credits have increased.
Just looking at where the market has gone over the past three to five months, we've seen a significant run. So if commitments are made for example to purchase credits three months ago suddenly those credits you may not have actually paid cash for the credit yet they are left to settle they could be worth 35% more today.
For this is just round numbers as an example, so I think overall Inc.
Crude in the $550 million is ample cash for us to ultimately fulfill our obligations for our 2020 timeframe.
Okay. Okay.
Then just for my second question.
On renewable diesel.
Do you have a rough sense of perhaps for the Ci score target might be given that you have a pretreatment unit any work you've done around feedstock or just color there. Thank you.
What we're and our design and our planning we're planning to build a pretreatment unit, which will give us ultimate flexibility to run.
Whatever our feedstocks are available to run and obviously there is incentive to run as well as Ci feedstock as you, possibly can so we will have ultimate.
We would have ultimate flexibility and being able to process any of those tallow or fats that.
Or used cooking oil debt debt.
Present, the lowest Ci scores.
Okay. Thank you.
Thank you. Our next question comes from the line of Doug Leggate with Bank of America. Please proceed with your question.
Thanks <unk> good morning, Thanks for taking my question.
Guys. I know you spent a lot of time on runs weighted this morning.
I Wonder if you could help us with.
How do you see the net cost in the quarter. So obviously, the RIN obligation with a cost of range, but obviously some of that is reflected in crop. So how would you characterize your net cost of the RFS in the first quarter.
So Doug we expense to roughly $280 million of Rins during the first quarter and again, the 130 of that had absolutely nothing to do with our day to day activity during the quarter. So our net RIN expense for what our six plants manufactured and ultimately sold as roughly 150 million.
For Q1.
Okay.
And the expectation for how that could play out in the bonds will be you know what are you assuming for the bones of the union.
I think we are still very consistent with when we think through our again it would be nice to know what the actual RVO is for the year. So we're making some estimates here.
But we assume our net based on the last year's RVO.
Gross than net of all of our blended rents, we probably have over the course of the year between 550, and 600 million net RIN gallons that we will be obligated to ultimately fulfill in either March of 2022 for March of 2023, depending on what we elect to do and quite frankly were.
Not going to be in a position to make that decision until the second half of this year.
Okay. Thank you for that my follow up just real quick on the cost reductions.
I'm just curious if you could give any color on the breakdown on sustainability I'm I'm really looking for how much of the cost reductions are structural versus something you might have to give by catch up demand, obviously margins when prices recover.
Yes, we've tried to be as clear as possible and when we cite the 50 cents per barrel that is.
When we returned to normal and you compare our operations for 2019.
We're 50 barrel better across our system, obviously, you can get into a situation, where you're comparing apples and oranges when volumes are down and.
Energy costs are down or up but what we've tried to do is isolated on apples to apples basis, and only really report to you.
The sustainable shift in our cost structure.
So our cost savings were actually.
A lot more than what we're reporting because our variable costs are down and all that stuff.
But on an apples to apples basis 2019 two per.
<unk> pandemic normal run rates.
We've shifted our cost curve by 50 per barrel.
Okay, that's very clear guys. Thanks, so much.
Yeah.
Thank you. Our next question comes from the line of Manav Gupta with Credit Suisse. Please proceed with your question.
Hey, guys. My question relates to the opaque and southeast are indicating that they would actually raise their volumes and so I wanted to know what your thoughts are on the heavy light spread and if I may ask.
As part of that question is do you think the Opex dynamics change.
Elon is given the deal by President Biden.
That's a great question.
Let me take the first part and first.
We certainly believe that.
We believed all along that the path to recovery here for the refining industry and PBF in particular starts with getting the pandemic under control and that is clearly happening in the United States with the pandemic under control the economies of this state economies in the country open up.
And with the opening up the economies, we see the demand growth as we're sitting here, Matt indicated to me that the first quarter GDP numbers came out with a six 4% GDP growth in the first quarter. So we're seeing that increase in and recovery in demand demand, we get utilization utilization begets improved crack.
And importantly, the call on OPEC plus crude.
And with that.
The incremental barrel, that's coming to market is obviously a medium.
<unk> more sour barrel, which we believe will reward complexity will result in a widening of the light heavy spreads we've actually seen the early indications are that where Maya Brent moves out to where my average more than $6 under Brent.
Buck and a half more than it was as we came into the.
The first part of 2021, so we're seeing that we expect to expect to continue to see that day.
The colon on crude over the course of the next seven months through the end of the year is it going to be somewhere around six 7 million barrels a day by a lot of forecast and as I say that is going to be maybe to some of it is going to EWC yet but.
But almost all of the rest of it is going to be OPEC OPEC plus and in fact, we are indeed seeing indication that Iran is already supplying at least as reported that they're supplying somewhere around 900000 barrels per 1 million barrels a day of crude to their Chinese through different Oh.
Avenues.
But it certainly appears as though the Biden administration is very.
Very interested in getting back to a deal with Iran. On the nuclear deal and so we would we would not be surprised to see Iran. Pumping two two and a half million barrels a day of crude by the end of the year, but we'll have to watch it closely.
Thank you that's what they're going to be their non send my quick follow up here is earlier in the year, we saw the governor of California trying to ban.
Internal combustion engines now he wants to ban fracking looks like he just basically once you remove California from oil and gas completely and you indicated you were working with the federal government and administration are you also looking with the governor of California, and trying to convince them that some of these plans have not exactly making sense.
And we're not doing it alone obviously and it's interesting in both the United States with the issues, where it rains et cetera.
But and now specifically to California.
You discussed.
The government has come out and said, okay firsthand of any internal combustion engine by.
By 2035 banned fracking by 2022 cracking is not a huge component of the production, but then he also putting a cease and desist on all product crude oil production by 2045.
Well I won't be around in 2045, so I'll assume that debt may change any intervening period, but the fact is the unions are very upset with the governor of California. He's betting everything he's got on the grain movement, but the unions are very very annoyed at them. They are seeing these jobs b.
Retina and going away, we've already got one refinery day shuttered, we have another one that may in fact convert to renewable diesels. So even the California Energy Commission is getting concerned about what's going on and we are working very closely individually going to Sacramento and make any case, but the western states petroleum.
Association, which is basically the lobbying arm for the Western States is all over this pushing mightily and trying to get support from a lot of people not just the unions, but basically people who are going to see their job is threatened or gas prices go up I would not be surprised to see GAAP.
Prices in California.
Go past $5 a gallon.
Maybe even around memorial day, and sooner or later and gas prices for the U S are going to go up sooner or later the U S. Population is going to say enough is enough and frankly, I think there'll be a lot of pushback, but theres certainly a green agenda for.
Governor.
Some as he gets ready to fight his recall.
Thank you for just for them for 'twenty and my question.
Yeah.
Thank you. Our next question comes from the line of New Mehta with Goldman Sachs. Please proceed with your question.
Good morning team I just wanted to go back to the renewable diesel project.
And you talked a little bit about the pre treatment facility and how youre managing feedstock, but if you talk can you talk a little bit more about.
And the conversations you're having with potential partners.
What are you looking for them to bring to the table from a strategic or financial perspective, a day.
Advanced the project.
We've had we've had robust discussions.
Across the spectrum that we came into it with a white board with sort of one <unk>.
Critical aspect that was our guiding principle.
Money is a.
Commodity and you know that can be priced.
Clearly, we're looking to offset some amount of capital by bringing in a partner.
But we're not bringing in a partner simply to bring in a commodity in that where we've been in active discussions with a number of parties that can bring strategic value and depending on who the partner is it can be.
Potentially it could be on the feedstock side it could be off the offtake side it could be.
Any number of ways, where pay the two parties together not only can get the projects to the finish line, but actually are accretive to each other and make the partnership stronger. So that's what we've been focused on we've been very pleased with the discussions we've had.
Our hope and expectation over the next couple of months to cement the partner that we want to move forward with and see if we can get the project.
For two to the point, where we elect to go forward and I expect that by the time of our next call I expect to have more news on that.
And that's the point of S. I D.
Net.
How long would you think it would take for construction. We're just trying to think is this something that will come online in 'twenty two to capture the benefit of the BTC.
Look when I take a step back.
Answer your question more broadly.
We look at the competitive landscape and sort of the attributes that we can potentially bring.
We benefit from having refineries across the country and we've evaluated this for years at all of our facilities.
We strongly are convicted that the Gulf coast is the best place.
To construct and have the have the operation.
That is because it's sitting at.
Our refinery is obviously at the mouth of Liz Zippy.
Where you have access to a tremendous amount of.
A wide variety of feedstocks.
Not only that you are a point of distribution you have the ability to deliver it into the state of California. If that's the highest netback at a much more competitive rate than via rail for the middle of the country. But then you also have the flexibility to deliver.
So whether it's to Europe to northwest, Canada wherever the market is demanding and you can get the highest netback.
But maybe one of the single greatest attributes of what we have in and Chalmette is idled hydrocracker and to your point and I've had a number of discussions with partners, where theyre, saying theyre alternatives discussions are.
Talking about projects coming online in the second half of the decade.
We believe we will be operational.
Essentially in a year from RFID.
So.
If.
We get to a point.
Over the next couple of months.
That we're able to move forward, we think we'll have a project.
That is operating in a year's time.
Thanks, Matt and then the follow up is just around integration on the East Coast, obviously tough margins in Q1, it sounds like things are getting better, but you're bringing together two facilities. So just talk about how that's going and what's left to be done.
Nothing is left to be done.
Gone very well, we've achieved our sort of cost goals.
And the integration this was not a.
Brand new initiative ever since.
We acquired.
Both facilities, we had a we had the intention to optimize the two systems. Obviously, we took that to the next level and further tied the two facilities.
But regards to how it's proceeding or what more needs to be done.
The optimization effort is.
Something that.
As always continual.
But all the cost reductions have been put in place.
We're moving our feedstocks and finished products back and forth between the two facilities as we designed them. So.
Nothing's ever completely finished product, but we're pleased with the efforts of the employees did an amazing job.
And obviously, we need the market.
To be there to reward us, but we feel like our system is definitively stronger today.
It was six months ago, just add Neil.
At a high level 50000 feet to the logic here was moving.
Fuel's operations predominantly to Delaware city shrink for fuels operation at Pall Tomorrow, but importantly retain.
Lubricant and asphalt operation and calls for.
Booths remains very strong.
And with infrastructure infrastructure plus perhaps.
We expect that we're going to have too much for to my surprise to be honest.
Our strong asphalt market going forward. So we're pleased with how it's gone so far.
Thanks, guys.
Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad. Our next question comes from the line of Karl Blunden with Goldman Sachs. Please proceed with your question.
Hey, good morning, guys. Thanks for the time.
Digging a little bit more on the working capital side of things. You mentioned are discrete uses of cash of about $550 million.
Could you break that out a little bit more in terms of your expectations around AB 32, and inventory intermediation, if if anything over there.
I think it's consistent with where we were back in February we have roughly $250 million of discrete cash that we're going to need to ultimately use in the fourth quarter related to a <unk> 32, and the remaining 300 relates to environmental credits and again, there is nothing that will roll through in.
All three quarters coming at US here. So there is nothing.
Nothing that we see that as a onetime bullet payment it will hit in two three and <unk>.
Thanks, Eric and then in terms of free cash flow you in recent quarters provided some guidance to how that might look.
As you go through the quarter sequentially by month is there anything that you could offer for us on that front or is visibility quite limited at this point.
I think obviously, we're getting closer we started laying out kind of this nine month view and with every passing day, we're getting closer to the end of that nine month timeframe. I think we're still we feel firmly consistent that were going to be in that $50 million to $75 million per month.
Number that includes right EBITDA or operating contribution whatever metrics you'd like to start with less capex less interest and it also takes into account all corporate expense as well as working capital. We still believe we are in that range. What we have seen probably since February and it's occurred really more over the course of the past month.
Is that where our exit rate at least from an estimate standpoint, as we exited the second quarter. We still believe that we will be exiting at an EBITDA for positive operating contribution rate that will allow us to cover our monthly capex and interest. So we should be free cash flow positive as we exited the second quarter.
Margins have been pushed a bit to the right, but ultimately the margin profile has increased so the second half of the year I think it's still a little too early to really walk through what's going to happen here in the pandemic response, and the vaccination rates has been rocky in certain regions, but ultimately I think.
Our belief is that we will be again March was very much an inflection point for us and I think our first step was let's generate positive operating contribution on that activity that occurs every day at the plants. We've done that now we need to generate enough money to cover all of our costs and then from there it will be.
As much money as we possibly can and that will come off the back of incremental margin.
Higher capture rates and ultimately lower operating costs as a result of permanent cost structure reductions that should be rippling through our system through the remainder of the year.
I'd just add on that last point that Eric made.
Up until the time that we saw the increase in demand. Obviously, we were running as everybody was at very low throughput.
Which effectively Mac debt fixed cost for being.
Divided by a very low number and therefore were elevated.
As we come up in utilization, we now cover those fixed costs. They are almost free barrels on the fixed cost side and on the secondary cost side. So that's.
That's a big deal in terms of not only are we seeing the margin improvement from the cracks, but we're going to get out from under the burden of the low utilization which is.
Causing us to have high unit cost.
That's helpful. Thanks, and then just finally on the renewable fuel project and it was touched on quite a few times different ways to structure it but.
Should we assume that you'd look to prioritize the liquidity impact of that and limit. The initial cash outflow as you complete debt or is that just kind of wondering if the a range of elements as you think about the economics of the project.
Okay clearly.
The partner will be bringing in some amount of capital and obviously PBF.
As already has.
The infrastructure and facility in place.
All the things that can dramatically reduce time to market capital costs operating costs. So in terms of how that ultimately looks.
That's something that we're working on as we speak.
Thanks, a lot.
Okay.
Thank you. Our final question comes from Manav Gupta with Credit Suisse. Please proceed with your question.
Thank you for letting me back and tell them I think you made an interesting comment that at some point do you think it is possible that honest centers replaced by L. CFS.
And I'm wondering that could put a lot of emphasis on carbon intensity now there are a number of Ccs projects, which are coming up and I think feel for them are coming up right in your backyard in California.
PBF be open at some point to kind of.
Partner, who is willing to take your carbon dioxide seek listed it for you at that lower the carbon intensity of the future setting in California, and antenna and he's willing to share some of the 45 clinics.
With you.
<unk> be open to such a partnership to lower the carbon intensity of the fuel just silly.
Manav, it's Matt.
We've we've had some discussions.
Initiatives such as that there.
There are.
Yes to answer your question would we be open to it yes, obviously it's.
It's not an insignificant project and it comes with a.
It is a cost.
And risk that needs to be analyzed, but we certainly would not be opposed and have had and have had some discussions in that regard my only comment on regards to L. CFS and as it compares to RFS putting aside.
Whether it's good policy or bad policy.
Big difference between L. CFS in the RFS is no one complains about the L. CFS.
Equitable treatment of all the parties involved.
And I think that was Thomas pointed made where he said you know the consumer is paying it's transparent.
And there is not being games being played where there are winners and losers.
We are definitively winners and losers with the day six market for ethanol Rins.
Thank you for taking my question.
Thank you.
Thank you ladies and gentlemen, this concludes our question and answer session I'll turn the floor back to Mr. Nimbly for any final comments, okay well.
Well, thank you everybody for joining the call today.
As you can tell we're encouraged about the recovery in the United States and Thats. Good for the health of every citizen in the United States Standard. It's good for our company, we look forward to talking to you with the next quarter.
Thank you ladies and gentlemen. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.