Q3 2021 PBF Energy Inc Earnings Call
Good day, everyone and welcome to the PBF Energy third quarter 2021 earnings conference call and webcast.
At this time all participants are placed in a listen only mode and the floor will be opened for your questions. Following management's prepared remarks.
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Please note this conference is being recorded.
At this time when it is now my pleasure to turn the floor to Colin Murray of Investor Relations. Sir you May now begin.
Thank you Rob.
And welcome to today's call with me today are Tom, namely, our CEO, Matt Lucey, our president Erik Young our CFO.
O'connor, our senior Vice President of commercial and several other members of our management team a copy of today's earnings release, and our 10-Q filing.
Including supplemental information are 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 that 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.
System with our prior periods, we will discuss results today, excluding special items in today's press release, we described the noncash special items included in our third quarter 2021 results the cumulative impact of the special items increased net income by an after tax benefit of 45 million.
Or approximately 37 cents 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 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, namely.
Thanks, Colin good morning, everyone and thank you for joining our call today.
We are pleased to report positive quarterly net income.
First time since the onset of the pandemic.
Reaching this point took longer than anticipated.
Yes, it is indicative of the continuing global recovery from the grip of the pandemic.
<unk> has improved for our products as economic activity increased and more people resume their pre pandemic routines gasoline demand has been robust and is currently at pre pandemic levels, while distillate demand is beyond 2019 levels.
We are seeing improvements in all our regions and expect to see strong demand persisting as more people return to their offices get on planes for both leisure and business and we move beyond the impacts of the current COVID-19 varied.
Increases in demand.
Coupled with clean product inventories that are at or below the five year levels.
It should be supportive of a bulk above mid cycle margins in the near term.
Additionally, we are seeing incremental crude oil production coming from some of the world's largest producers, which modestly widened medium and heavy sour crude differentials during the third quarter.
We expect this production trend will continue because global markets are calling for increasing supply.
Given our exposure to heavier and sour barrels, we expect widening differentials should provide an incremental benefit to the strong underlying demand.
Heading into year end rising natural gas prices have been gaining a fair amount of attention.
In refining natural gas is an important input in terms of both refining processes and operating expenses.
For PBF, approximately 15% to 20% of our operating expenses are related to natural gas in terms of direct use and energy consumption.
We do expect to see elevated costs relative to natural gas, but we also expect these costs to be somewhat offset through clean product margin support for liquid fuels, primarily distillate as power providers and other end users elect to switch from gas to liquid fuels.
Our belief is that domestic refineries, especially in the Atlantic basin.
We're at a competitive advantage because higher cost associated with natural gas increases increase the advantage on a relative basis versus our international competitors.
Demand remains the key driver, we expect that demand in 2022 will it continue its strong recovery and certainly exceed 2021 with that I will turn the call over to Matt.
Thanks, Tom.
As Tom mentioned, we are pleased with the current market conditions as they are certainly trending.
In the right direction.
Our asset or assets operated reasonably well during the quarter, while navigating some challenges not the least of which.
It was hurricane either on the Gulf Coast.
We have a well tested hurricane preparedness plan and the team in Chalmette closely mindless storms development and executed the plan flawlessly.
We safely brought the refinery down.
In advance of the storm as its past change the storm's intensity increase.
As a result, the refinery experienced very little damage and we are able to quickly resume resume operations. After power was restored to the plants.
We are very proud of the way our chalmette team performed.
Even as many employees were dealing with their own storm related hardships.
In Toledo during the quarter, we had some power issues that resulted in minor mechanical issues with the FCC and a few other supporting yards that were resolved within the quarter.
On the West Coast, we executed a major turnaround at Torrance completing work on the Hydrocracker alkylation unit.
And jet hydro treater as well as a few other ancillary units.
We returned to normal operations in Torrance in late August August 22nd to be precise.
Looking ahead to the fourth quarter.
Our throughput guidance is included in today's press release, including the implant and impacts of plant planned turnaround work on the East coast.
And at Martinez.
And Martinez, we are planning to install new reactors for the cat feed hydro treater, which we mentioned on our last call.
As part of our ongoing strategic review and future path of the company.
Earlier this year, we announced the potential renewable diesel project located adjacent to the Chalmette refinery that we are continuing to pursue.
The project will seek to maximize the benefits of Chalmette strategic location on the Gulf Coast.
With its excellent access to water rail and truck logistics.
As well as our synergistic, California, Legit logistics footprint.
In early August we partnered with Honeywell U L. P anticipation of using their proprietary single stage eco finding technology for a potential project.
To date, we have committed the funds needed to fully develop engineering for the project.
Secure the necessary permits and reserve longer lead items.
We are progressing discussions with partners to develop a projected market, leading 20000 barrel a day of renewable diesel production facility at Chalmette.
Costs related to the RFS program continues to be one of the industry's largest headwinds.
Driving costs higher for every consumer at the pump.
Market rumors indicate the administration and the EPA are well aware of the problems that.
Or with the RFS and the attendant harm they are causing the independent refining sector and importantly, the American consumers.
I am hopeful we will see action by the current administration that will enable us to have a workable program in the very near future.
Which will allow us to avoid.
Major crisis.
Now I'll turn it over to Eric which will go over the financials.
Thanks, Matt.
Our positive third quarter financial results reflect the continuing market improvement driven by the pandemic recovery as we were able to generate free cash flow in excess of our fixed costs, namely capex and interest.
This was a critical step for us as we are now able to focus on the deleveraging strategy that required an improving market backdrop, coupled with a more streamlined cost structure at PBF.
In conjunction with this process today, we announced two key financial achievements with the multi year extension of our inventory intermediation facility and a 13% reduction in our outstanding unsecured debt.
In addition to inventory held at our East coast assets. The inventory Intermediation agreement now provides us the flexibility to include inventory at the Chalmette refinery, which could decrease our working capital needs and provide additional liquidity.
We reduced our unsecured debt through the repurchase of $229 million of PBF Holdings senior notes for approximately $147 million of cash representing a weighted average price of 64 cents on the dollar.
When combined with the $75 million of debt Paydown at PBF logistics.
Consolidated debt for PBF Energy, Inc has been reduced by over $300 million this year.
Moving onto the third quarter results today, we reported adjusted net income of <unk> 12 per share and adjusted EBITDA of approximately $226 million.
Consistent with previous 2021 quarterly results. These figures include approximately 77 million of net noncash mark to market expense related to our west coast environmental credits.
And $73 million of net rent expense.
We continue to fully expense and accrue our full 2020 and 2021 obligations for renewable credits.
Consolidated Capex for the quarter was approximately $87 million, which includes $84 million for refining and corporate capex and $3 million for PBF logistics.
Consistent with prior guidance, we expect full year capex to be in the $400 million to $450 million range. This includes amounts for our scheduled fourth quarter turnarounds plus our continued investment in the development of the Rd project.
As a result of our improved earnings profile, our liquidity position remains consistent with more than $2 6 billion of total liquidity, including approximately $1 4 billion of cash and in excess of $1 2 billion of borrowing availability at the end of the quarter.
And looking at the accrued expense footnote in the 10-Q filed this morning, PBF reported accrued renewable energy credits and emissions obligations of approximately $1 3 billion.
This figure includes approximately $600 million related to our current and future, California, environmental credit obligations and roughly $700 million related to our consolidated 2020, and 2021 RIN compliance years.
In the fourth quarter, we expect to use approximately $185 million of cash to settle our fixed price purchase commitments for rents.
Purchases should satisfy our 2020 obligation.
A portion of our 2021 program.
This month, we fulfilled our $250 million, a 32 repurchase obligation for calendar years 2018 through 2020.
This will satisfy more than $360 million of the California related balance sheet accrual.
As a reminder, California's cap and trade program is a multiyear scheme that provides significant flexibility in the management of obligations on an annual basis.
Going forward, our focus remains on operating safely improving the cash generation of our assets and continuing to restore the strength of our balance sheet.
Operator, we've completed our opening remarks, and we'd be pleased to take any questions.
Thank you.
In a moment, we will open the call to questions.
Company requests that all callers limit each turn to one question and one follow up you may rejoin the queue with additional questions.
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One moment, please for we poll for questions.
Yeah.
Yeah.
Thank you. Our first question is from the line of Carly Davenport with Goldman Sachs. Please proceed with your questions.
Hi, good morning, Thanks, so much for taking the questions.
The first one was just around volumes.
It's great to see the utilization rates ticking back up here with the strong guidance for <unk>. So can you just talk a bit about what's giving you confidence to run at these type of levels is it demand is it inventory levels, just any color on kind of the moving pieces there would be helpful.
The short answer is yes, but the main driver is demand.
If you look at the demand numbers as I said in our comments.
Gasoline has returned to pre <unk> pre pandemic levels.
Distillate is in excess of pre pandemic levels jet is still lagging.
Although we are we.
We are pleased that the administration has announced that they will lift the travel bans.
International flights into the United States for fully vaccinated people.
But I believe it is November eight and so we would expect to see an uptick in international travel demand, particularly.
Particularly from Europe people coming in for the holidays and more importantly, perhaps.
The opening up of the Asia to the West coast routes, but with share with increased demand.
Bradley Airport terminal in Lax, so demand is the key driver.
At the same time as I said.
Inventories are tight in the Atlantic Basin is no question about <unk>.
<unk>, 10% below the five year average on distillate, 3% to 4% below the 10 year five year average on gasoline.
You put that in context with that type of a demand recovery with that would always type of inventories and overlay. The fact that compared to 2019 is more than 1 million barrels of refining capacity that has come off the line in North America, and Thats whats going to we think and we think those trends will continue in terms of demand.
In 2022, and that's what gives us the confidence in why we believe utilization and in fact cracks will remain supportive.
Yes.
That's great. Thanks for the color there and then the follow up was just around leverage debt reduction surprises to the upside this quarter. So when you think about where the macro environment stands and where rins prices currently or how do you see capacity over the next couple of quarters kitchen to continue to drive that reduction in and is there a specific target whether that's on them.
Debt to EBITDA or debt to cap basis that you are moving towards.
I would say overall, our target is lower that's a very generic statement, but our plan is to continue to delever. This business clearly the pandemic I think I've mentioned this multiple times the pandemic wreaked havoc on this industry I believe the independent refining sector took on more than $15 billion of incremental net.
Debt and all of US are in the same position that we are all starting to Delever from this point forward as we continue to generate positive cash flow from the business, but in order to do that we needed to Tom's point, we needed to see demand increase and we have seen that I think as we look ahead through the fourth quarter and into two.
'twenty two we are seeing a very rosy picture compared to the bleakness that we saw at the low point in Q2 of 2020. So for US I don't think we want to start laying out targets because we have a lot of different things to do and we have quite frankly, a lot of different levers that we can pull along the way too.
Key milestones that we hit during the quarter and then subsequently here over the past week in terms of getting the inventory intermediation deal completed as well as buying back debt below 65 cents on the dollar that's a nice first step for us.
Great I appreciate the time.
The next question is from the line line of Doug Leggate with Bank of America. Please proceed with your questions.
Yeah.
Hey, good morning, guys.
Tom I Wonder if I could just.
Pick your brain a little bit on on your comments on jet fuel.
Obviously distillate is.
Demand has been extremely robust as you pointed out inventories on both sides of the Atlantic were quite low.
<unk> also been benefiting we understand from jet blend and.
So assuming jet demand does recover.
How do you see the knock on effects, if you like across the complex as it relates to disciplined specifically I've got a follow up specific to PBF. Please.
That's an excellent question.
The fact is obviously when when we were in the second quarter the depths of the pandemic.
We were having to take.
Jet and put it in into the distillate pool, just to find a home to try to clean a barrel and even with that we had to cut runs because we didn't have.
The room to clear the jet barrels that effectively begins to unwind, it's not completely there, but I will say this it is they are in places like Toledo, whether it's regional a stronger jet demand thats come back higher than than the coastal demand has come back. So we're actually taking pretty much all of the jet out of the <unk>.
Did your cracker in Toledo, and we're making jet fuel and actually that reduces sun distillate, which mine strength that Additionally pool going forward, but it all comes down to the overall volume of barrels so clean product barrels as demand is continuing to increase and that will support <unk>.
Increased utilization and in fact, well allow us to optimize the refineries they weren't built to be run in a manner that we were running them in the depths of the pandemic, we were effectively subs running them at a sub standard manner, because we had no choice that is being reversed.
Yeah.
I appreciate that I mean, it's obviously well I think it's one of the overload tissues in terms of your leverage to how that could play out.
My follow up is probably off.
It's really more of a balance sheet question I mean, clearly the possibility of transferring value from debt to equity is probably.
One of the biggest.
Topless, if you'd like to drive a recovery in your share price. So I'm just wondering beyond.
Just as the recovery in cash flow Youre seeing.
What are the other options that you may or may not consider to accelerate.
But don't move for example.
Are there any additional dropdown opportunities is there something on the credit lines that you highlighted again this morning, but could allow you to rotate capital of guests or debt from few PBS.
<unk> by the PBS I'm, just wondering and maybe even to the point, where if you look at the share price.
So five or $6 off it can absorb these levels pre pandemic.
Would you ever consider equity as an opportunity to accelerate your your balance sheet, let's cover yourself as well.
Yeah.
I think at this point, Doug our key focus was transitioning from losing money to breaking even to making money to generating positive free cash flow in excess of our fixed costs and we did that for the first time in an awfully long time this quarter.
Here there are potential for some noncore asset sales that could come to fruition over the next four to six quarters.
We did we I think we've demonstrated that we can access markets by extending this multiyear inventory intermediation facility. There is obviously some pending news that we would expect is coming from DC that we think is quite important for our business that will relieve some of the overhang I'm, assuming we're going to get some rain related questions here. This morning.
And quite frankly, I don't think were prepared to outline a strategy until we have more clarity on some of the more macro points that are quite frankly, the most important thing that we're dealing with at this point, we feel more than comfortable with $2 $6 billion of liquidity at this point and again, we have seen.
The business pivot, which is the most important thing our business is our assets are continuing to generate free cash flow and 2022 is shaping up to be consistently or significantly better than 2021 based on what we see with the forward crack, but we've got to get to 2022.
Sure we can capture any of that so I don't think that this morning, we're going to outline any multiyear plan and this is how things are going to step down other than the step down has already occurred and so.
So from here, it's just going to be a continued grind higher with the business and.
We felt all along that we needed to get to this point before we could start to maneuver. We did everything that we felt we needed to do in 2020 and our team has really responded across the company from here, we need continued demand worldwide to help pull all of the independent refiners as well as the integrated.
Out of this thing and from here with that incremental free cash flow that will open up a lot of different avenues for us on a go forward basis into 2022.
No I appreciate the answer guys.
At least someone else us a detailed written questions, but I would like to make a comment you guys have been extremely vocal extremely candid about the absurdity of this issue so commend.
You guys were seeing in front of this and hopefully that listening I don't know I'll, let someone else get into the details but it's.
Good luck thanks. Thank.
Thank you Doug.
Okay.
The next question is coming from the line of Connor Lynagh with Morgan Stanley. Please proceed with your questions.
Yes. Thanks.
Couple of TFS there. So why don't we just go ahead and talk about Rins.
So just curious where you are headed that on the program right now Theres, obviously been some.
Linked to reports about what the RVO might look like so just curious how you're how you're thinking about managing it and our.
Investors should think about.
The cash flow impacts as we move into 2022.
How do we think about the program, we think about the program. The same way we thought about it for the last 10 years, it's maybe the single most broken program and all of the federal government, which.
There is no small feat.
Federal government does.
<unk> does not live up to its statue that it created for itself with impunity.
And so it's disgraceful the way, it's been mismanaged, but that being said we think it's.
We think it's on the cost of the RVO coming out.
We greatly look forward to that.
And.
Hopefully it was meant to be a couple of weeks ago, hopefully it will be within the next couple of weeks, but the end of the day.
The program is as we described previously the program is so broken that if it goes unchecked.
You'll actually run out of Rins in the not too distant future and therefore, you're going to curtail gasoline and I don't know if theres a politician in the world.
That would want to face those consequences so.
We have high conviction, it's ultimately going to get fixed show than fixed already and hopefully it will be fixed very soon.
Got it and just thinking through you guys have obviously been.
Relatively tactical in terms of how you've managed whether or not you are actually purchasing rins or not so I guess the question is is.
Is your view that right now prices are still a bit elevated because of the sort of uncertainty premium. If you will are you are you avoiding.
What you're saying and should we expect sort of a deferred cash outflow in 2022 or what's what's really the big swing factors, we should consider relative to that.
Just in regards to the lack of information.
There's no question, that's impacting the price of Rins, we've seen.
As the press reports you alluded too came out raise prices dropped precipitously, then no actions taken and they rise precipitously.
<unk> left that will then probably dribble into the early part of 2020 to purchase some of these credits and just as a reminder for folks that are listening all of these are firm fixed price commitments. So these are transactions that we entered into previously at a variety of different prices and then what ultimately hits our P&L.
Is a mark to market adjustment for those credits, where we are short so the $73 million.
Net rent expense is net of our firm price commitments as well as all of the mark to market adjustments related to 2020, plus 2021, So said a different way while RIN prices dropped from June 30 through September 30th.
<unk> of our procurement program have also been rippling through our P&L during the third quarter.
That's helpful context, I'll turn it back.
Thank you. Our next question is from the line of Theresa Chen with Barclays. Please proceed with your question.
Good morning, So I wanted to kind of switch gears and talk.
Talk about.
The crude side because clearly in the mid con were seeing strong demand in the chest situations change much better than coastal solve things on that front look good but clearly we're seeing some volatility on the feedstock side and I was wondering if you can just talk about your expectation for Cushing inventories.
And what it will take to get that'd be Ti differentials in the crude spreads in general should normalize from here.
I'm going to ask Tom O'connor to talk about all things crude related.
Yes.
So I mean looking.
Looking at it right now.
Cushing inventories are drawn down significantly over the past.
Month or so.
Several factors that have been playing into that certainly aligns III expansion, playing a role disruptions.
Disruptions.
Towards the end of the summer and Canadian law production.
Ultimately that improving demand and margin environment that you alluded to.
Cap line reversal of losses in the future.
To come as well, but ultimately Cushing is destock and has now is going from a disk discount market to a premium market too.
A fair bit of grades that make a very important impact on it and we certainly would expect to see in the coming months to see some adjustments to those flows where there has been going back into the prior trade months that there was incentives to evacuate Cushing that we're now going to be going to a point, where there is going to be.
A mitigation of the draws.
We could get to the sort of seasonal modest builds.
And on your logistics strategy in light of one of your competitors announcing the roll up at their MLP can you tell us how you view that long term outlook for the logistics segment.
Simplification of your corporate structure also makes sense from here given the changes in the MLP capital markets over the past years.
I think we've clearly been monitoring what's going on in the MLP space.
As we sit here today, I guess theres, two fewer mlps or will be shortly than there were at the end of last week with Oasis NPS XP going away.
For us.
PBF logistics provided an alternative source of capital and a lower cost of capital. Historically, obviously that has moved the other direction, but I think we're very consistent in our message that the vast bulk of the assets that exist at PBF logistics are extremely critical to the day to day operations for our refining company.
So the two companies are inexplicably linked and I think for US I know there was an earlier question about what are potential options going forward.
I think we've seen a material increase in the overall equity value of the MLP.
The second quarter of 2020, and as we continue to look forward PBF logistics may play a significant role in our growth depending on how mlps are treated going forward I think for us at this point. It is still an option that we would like to keep open PBF logistics, yet again is going to.
Distribute 30 per quarter and so for US. This is cash that is being recycled back to the parent company is as well and I think this is one we mentioned levers and we will continue to mention levers. This is going to be one of those potential levers that we will need to evaluate on a go forward basis.
Thank you.
Okay.
Our next.
Is from the line of Phil Gresh with Jpmorgan. Please proceed with your question.
Hey, Good morning, Eric just a couple quick follow ups on some of the key.
Quarterly and cash flow items that you talked about within the $73 million of net rent expense did you say what the <unk>.
To market impact was I apologize if I missed that.
I did not because.
Because I think what we are trying to do is to make sure that folks understand that.
There are really two components of obviously based on the level of throughput that we had during the third quarter $73 million of rent expense has a very low number based on where market prices were.
And so when we think through there are two things occurring in the income statement. One is a true mark to market based on our short and the other is we are expensing rents that were previously procured at lower prices than market.
This is something that is it's just the way that the accounting works for US we've talked about our procurement strategies, we're not going to get into a lot of details around what we do with rents.
But ultimately we feel like we've been navigating the program as best we can given all of the challenges I.
I think to put it in context, there's probably close to $100 million worth of Mark to market adjustments based on our short.
Right Okay.
Makes sense.
And I think Phil it's also important to note.
Offsetting that $100 million benefit right.
Rippled through the income statement, there was an offset to that right. There's a $77 million mark to market expense that is dedicated to the west coast. So it's worth a little less than $2 50, a barrel.
That hit the West Coast P&L during the third quarter associated with the remark of these AB 32 credits and again. This is this is the way the accounting works.
Essentially pre bought these credits that ultimately are worth significantly more today, but our purchase price was lower and therefore, we had to take an expense. So the offset to that $100 million is about $77 million.
Okay I did have a follow up on the West coast actually I wasn't sure if that flows through the gross margin or the opex.
Because I was just curious how youre thinking about the west coast Opex right now I know you've had certain goals out there in the past of where you'd like to get that too. So I just wanted to get a refresh on your thinking it would it would go it would roll through the.
Through the gross margins. So you would see about $2 40, a barrel.
So it should be roughly if we're looking at the tear sheets roughly $10 46.
Would be the pro forma gross margins.
And one thing to note on that we did have a fairly major turnaround at Torrance.
Yes specific to if you were talking about progress on operating costs on the West coast.
Obviously, we did have the turnaround in tonnage throughput group's loan.
But we continue to make.
Reasonably steady progress, particularly at Martinez and getting our fixed costs that obviously as natural gas prices come up West coast. There is a big consumer of natural gas so that will that will impact their cost but in terms of.
Number of people number of contract as other steps in our fixed cost area I'm very pleased with the progress that we're making out there.
Okay. My last question, Eric just on the fourth quarter.
Cash outflows that you talked about.
There have been past quarters, where you've talked about outflows and then they'll end up being some offsetting inflows. So is there a way to think about.
For the fourth quarter or just how you are aiming for ending cash balances or any additional color just to help us bridge the different moving pieces.
The two discrete pieces that I would note in terms of outflows would be the $250 million that is out the door right. So that's $250 million in cash for the AB 32 credit repurchases that offsets more than $360 million of the balance sheet accrual then we have $185 million of RIN related.
Cash that will leave the system this quarter.
Both of those clearly.
We really don't know where the hydrocarbon price will go but what we can point to is we will continue to meet year end inventory targets that are lower than where we are today that should be an offset as we continue to reduce inventory and generate cash to offset that hard to pinpoint an exact number for us.
I think quite frankly, our view is where we are in terms of liquidity.
Ample liquidity, if the cash balance goes down the cash balance goes down the same as we expect our inventory balance to go down through the end of the year.
I think right now our focus is just continuing to see progress with our business.
Okay. Thank you.
Okay.
Our next question is from the line of Matthew Blair with Tudor Pickering Holt. Please proceed with your questions.
Hey, good morning, Thanks for.
Taking my question here and congrats on the free cash flow progress in the quarter.
Eric if you'd get a comment earlier that the forward curve for 2022 looks really good and we definitely agree I know, it's probably a normal practice.
But is there any thoughts of potentially locking in some of this.
He pointed to product futures curve, just given your debt load.
Okay.
We probably cannot comment in terms of what our derivative strategy is longer term.
What we have said historically is we don't carry massive derivatives positions.
But at this point I think we're continuing to capture as much of the crack as we possibly can.
Got it and then it looks like your share of medium and heavy crude throws a little bit quarter over quarter.
Is this just kind of a normal.
Utility.
Just from quarter to quarter or is there a specific push due to run more sour barrels given the widening.
Well clearly that's what we're looking for.
And our expectation is that as OPEC plus continues to add Notionally 400000 barrels a day of crude that the world needs. We need this crude to meet the demand and again it all goes back to demand, but the incremental barrel of crude is in medium sour.
<unk>.
We are seeing we have seen as Tom mentioned, it and I'll ask him to make some further comments on your question, but we have seen some incremental widening.
Light heavy or sweet salary. This mine has been running about $7 under Brent.
And as that happens then of course, but right now we actually have reasonable coking economics.
You take a look at the clean Dirty spread in New York Harbor.
Over $32 now that is.
Inflated because.
And the diesel side of it the orange prices in there. So we have more work to do on it but it's certainly moving in the right direction, Tom what would you add.
I would certainly expect that trend to remain in place, but I mean, I think the one thing that we are looking at today, which is probably been different than anything that we've discussed on our call certainly in recent history is really.
This expanse in crude differentials is really being driven more by light sweet strength than it is being driven by heavy weakness.
There's a lot of factors in terms of that play in terms of capital discipline, particularly in shale.
But we're also seeing.
Some bid against at that point, where you were taking place in terms of.
Potentially some constraints in European refining with very very expensive natural gas.
Therefore.
Expensive hydrogen which is leading towards.
The shifting of the slate in Europe, which is could ultimately end up pushing a few more barrels back into the Atlantic basin.
Thanks for all the color.
Thank you.
Our final question is coming from the line of Karl Blunden with Goldman Sachs. Please proceed with your questions.
Hi, good morning, Thanks for the time.
But if I could disclosure here on the balance sheet and what you've been doing with the bonds.
I'm wondering if you could comment on.
Your thoughts around liquidity and the idea of liquidity levels you'd like to maintain as you go into the next couple of quarters, you know visibility I think is improving into demand.
Took on more liquidity with the secured bonds last year and a time of uncertainty and now starting to use some of that liquidity right to take out notional debt.
Is that something that you can continue doing.
You think about the tradeoff there between liquidity and debt takeout.
Again, I think we will continue to focus on Delevering. The business. We've tried to outline historically and I think it's all in our public disclosure, where we were in terms of historical liquidity, but if we go pre pandemic, Greg we don't need to $6 billion of liquidity to operate the business. While there are days, where there are large.
Cash flows that ultimately run through our accounts when we're paying large cargo builds for example from a day to day liquidity standpoint, we can operate the business easily sub $900 million of liquidity and so were carrying around a lot of excess liquidity and I think we've always said since the time that we issued the $1 billion.
Secured note issuance in May of 2020 that this was an insurance policy, we want to maintain that insurance policy until we feel like we see a net positive momentum where our business are businesses are able to ultimately generate sufficient free cash flow to more than cover capex and interest and obviously over time.
We have already seen right with the debt repurchases, that's going to be a reduction of $14 million a year more than $14 million a year in interest expense, we should continue to not only see the benefits from the business improving generating free cash flow delevering the business, reducing our overall P&L hit from the interest side.
Of things and from a liquidity standpoint easily less than 900 million. That's a longer term target I don't think as we sit here today to Tom's point on the front end.
We're just coming out of Delta variant here and we're seeing some really positive momentum, but I don't think we want to start putting in front of people of one and two quarter level guidance around where we're going to be from a liquidity standpoint other than to say that the team at PBF has been we have been extremely vocal that we have more than ample liquidity.
<unk> and at the appropriate time, we will start to reduce liquidity and we will provide color as to why we are reducing liquidity because it will more than likely be used to then start or accelerate the deleveraging process.
That all makes sense I guess, just one follow up on <unk>. When you think about the exposure at this point being fixed or locked in versus floating is that something that you can comment on what the what the balances.
Yes, so of the 700 million that exists on the balance sheet today, there's a little north of $200 million Thats fixed all of the remainder is floating rate exposure right. So we've got 185 that we will spend through the remainder of 2021 and at this point. It appears there's about 15.
<unk> million dollars that will dribble into the early part of 'twenty two.
Yes.
And if I can squeeze one more in.
Is it too early now to start thinking about talking about the PBF FX bonds.
<unk> had come current.
2022, and what your strategy would be around that maybe it's a bit early but just interested in your thoughts there.
Probably a little too early there is clearly I think again, we just go back to some really big news coming out from the EPA clearly those bonds they've been callable for a while now they're trading below par.
And I think from our perspective, we would like to get some clarity on what this administration and the EPA is going to do in terms of RVO for 2021 and give us some guidance for 2022, that's an important factor for us as we evaluate the overall capital stack, we feel like we've got plenty of time here to deal with that.
Maturities.
And I think again, we took the first step with this inventory intermediation agreement and pushing that out by multiple years. So I think.
That is again.
Start of some positive momentum in terms of getting everything reloaded.
Thanks, Eric I appreciate all the time.
Thank you we've reached the end of the question and answer session I will now turn the call over to Tom and Lee for closing remarks.
Well. Thank you everyone for attending today's call, we certainly look forward to.
Hearing talking with you again after the fourth quarter at the fourth quarter call in the interim PBF, we'd like to wish you all a very safe.
Healthy and enjoyable holiday season, hopefully it will be much improved.
Live with last year have a great day.
Thank you. This concludes today's conference you may disconnect your lines at this time and thank you for your participation.