Q1 2022 PBF Energy Inc Earnings Call

Good day, everyone and welcome to the PBF Energy first quarter 2022 earnings conference call and webcast. At this time all participants have been placed in a listen only mode and the floor will be opened for 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 note that this conference is being recorded its now my pleasure to turn the floor over to Colin Murray of Investor Relations. Thank you 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 and several other members of our management team.

Copies 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.

Statements in our press release and those made 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 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 will discuss our results today, excluding special items from today's press release, we describe the noncash special items included in our quarterly results. The cumulative impact of these special items decreased net income by an after tax amount of $64 4 million or 53 per share.

Sure.

There are a number of other notable items included in our results that Eric will highlight in his remarks for reconciliations of any non-GAAP measures mentioned on today's call. Please refer to the supplemental tables provided in today's press release I'll now turn the call over to Tom Hamlin. Thanks Colin.

Good morning, everyone and thank you for joining our call.

Before commenting on P b results and the macro environment in general.

I'd like to comment on current events.

The war in Ukraine has caused shockwaves across the world.

However, any impact outside the borders of Ukraine pale in comparison to what is it being enjoyed by the Ukrainian people.

Our thoughts and prayers go out to those who are suffering.

And we hope to see the conflict and soon.

Prior to the events in the Ukraine global oil market would delicately balanced.

Crude supplies were tight but meeting demand while product supplies and refining capacity was struggling to keep up with post COVID-19 demand strength.

We are seeing volatility in global crude markets driven by supply concerns trade flows that are shifting in response to sanctions, but the crude markets remain adequately supplied.

Spike increasing demand for incrementally more crude.

Strength in global product prices is being driven by a combination of increased demand and low product inventories.

Global refining capacity is more than 4 million barrels lower today than in 2019.

Even with relatively high utilization.

Refinery refining capacity can barely keep up with demand.

And he's incapable of concurrently increasing global product inventories.

Refining utilization is operating at near capacity as we are about to enter the traditionally peak summer demand period.

For the first quarter P. B have reported earnings per share of <unk> 35 cents and adjusted net income of $43 3 million to put this in context. The first quarter is generally a seasonally low point for demand and high point for industry maintenance through this PBF generated positive earnings.

Our valued employees are working tirelessly to keep our assets running safely and reliably.

We completed completed a significant amount of maintenance in the first quarter.

As we get the bulk of our plant turnarounds behind us in the first half of 2022 .

Our assets are well positioned to benefit from the favorable market conditions, we are seeing with that I will now turn the call over to Matt.

Thanks, Tom as Tom mentioned T be ops is off to a solid start.

During the quarter, we completed more than a third of our planned turnaround activity for the year.

On the East Coast, we completed work on the del city reformer and other secondary units, which began in March and concluded in April .

At Chalmette, we completed a major turnaround of the reformer and aromatics complex.

And on the West Coast, we completed turnarounds at Martinez on the distillate Hydro treater and hydrocracker.

While towards finished planned work on one of our hydro treater trains.

Torrance had some unplanned downtime in March related to a utility power disruption.

While that disruption was costly it is behind us.

Looking ahead to the second quarter, our capital expenditure and throughput guidance as presented in today's press release.

We completed the work of Delaware This month and have planned work at Torrance in June .

In addition to our refining Capex, we continue to invest in progress.

Renewable diesel project in Chalmette.

We anticipate startup with full pre treatment capabilities in the first half of next year.

Importantly, the project is on time.

And on budget.

We believe our 20000 barrel a day facility is a top tier project with regards to capital costs.

Operating costs.

Geographic flexibility.

And product Optionality.

And time to market.

In parallel with the project development.

We continue to evaluate a number of different financing alternatives across the capital structure.

We are working with financial advisors.

And we're very encouraged by the interest expressed by potential counterparties.

Yeah.

Before I turn the call over to Eric.

I feel like I must comment on the RFS.

As it is unquestionably driving costs higher at the pump for.

For every consumer in the country.

The administration has been hearing from a lot of stakeholders on the paying consumers are feeling at the gas pumps.

As well as problems with the inflated 2022 conventional biofuel requirement the EPA proposed.

We are hopeful there'll be a pathway to a more sensible and workable program what the final rule.

Importantly, the programs unintended consequences on the price of food.

Shortly become more severe.

If not addressed.

Yeah.

We hope to hear something further in early June as the courts have mandated the decision must be made.

Like you we are waiting to see if the buy administration will take this opportunity to lower fuel cost as motorists are taking to the road.

And with that I'll turn it over there.

Thank you Matt.

Our first quarter financial results reflect strong product demand as world economies continue rebounding from the pandemic.

Today, we reported our fourth consecutive quarter of profitability with adjusted net income of 35 per share and adjusted EBITDA of approximately $271 million.

This brings our trailing 12 month adjusted EBITDA to over $930 million.

Our first quarter adjusted EBITDA includes a noncash benefit of approximately $24 million driven by changing market prices and the management of our California environmental credit obligations.

To that end, our $1 1 billion environmental credit accrued expense consists of approximately $500 million related to our California obligations and roughly 600 million related to rents.

As a reminder, California, AB 32 cap and trade program.

Settlement spanned several years.

Of the rent accrual at the end of Q1, approximately one third are fixed price purchase commitments that will settle this year and the remainder are subject to mark to market adjustments.

We remain an active participant in the RIN market and look forward to clarity on the program.

Consolidated Capex for the quarter was approximately $225 million, which includes roughly 185 million for refining and corporate Capex.

Approximately $40 million related to continued development of the Rd facility.

And roughly $1 million for PBF logistics.

Our first half refining and corporate Capex should be approximately $325 million to $350 million, including $225 million to $250 million of turnaround expenditures for.

For the second half of 2022, we expect total refining and corporate capex to be roughly $200 million. This reflects a return to our normalized pre pandemic turnaround schedule.

Primarily as a result of the rising price environment for hydrocarbons during the quarter, our liquidity position strengthened to a robust level of more than $2 6 billion in.

Including approximately $1 4 billion of cash and in excess of $1 2 billion of borrowing availability at quarter end.

Since the end of 2020, we have reduced our long term debt by approximately nine $390 million, including $55 million in 2022.

In addition to 25 million of repayments on the PBF logistics revolver, we opportunistically repurchased $30 million of unsecured bonds at PBF energy this year.

Pro forma for this debt reduction our consolidated net leverage on a trailing 12 month basis is inside three times.

The official process to amend and extend our asset backed credit facility at PBF holding commenced during the first quarter. We are pleased to report that things are proceeding as planned and we anticipate a successful closing during this quarter.

We expect this positive momentum to carry forward into the PBF logistics refinancing efforts for both the revolver and the term debt.

Refinancing of both facilities should close over the next few months.

Once these initiatives are complete we can then address the 2025 debt maturities at PBF.

Given the strong product fundamentals and current outlook for our business. Our goals are achievable only if we continue focusing on safe and reliable operations cost control and free cash flow.

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. The company requests that all callers limit each turn to one question and one follow up you may rejoin the queue with additional questions.

If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim 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 Roger read with Wells Fargo. Please proceed with your question.

Yeah.

Yes. Thank you good morning.

Yeah.

Certainly an interesting time to be in refining, but I guess, we could say that for the last two years.

I'm curious given your position on the east coast, and where we seem to see some of the greatest tightness for products.

I mean, it seems very important given that as you know kind of where we price everything on the wholesale market.

As you look at it and I want to get past any any maintenance issues of Delaware, but.

How do you see that market getting supply.

<unk> is our is what we're seeing a lack of imports coming from across the Atlantic is it a lack of stuff coming up the colonial pipeline I'm just kind of curious how you see the market [laughter].

Ultimately achieving something akin to balance.

Great question, Roger in a short answer, but I won't be short I assure you is all of the above them more all of what you said and more.

We obviously have had you know reasonably.

Reasonably reasonable recovery in demand of our products and not at pre pandemic levels, yet, but certainly.

And then they then get fuel as an increase.

Increasing demand.

Have a capacity rationalization that is taking place and in pad one when.

When you go back and you realize that P. S is no longer operating come by chance is not operating as a refiner.

And the other thing is very strong changes in the import export balances. We've had a couple of weeks here with line to colonial pipeline line two has not been allocated.

They traditionally has always allocated and that is of course the desk one that comes up from the Gulf Coast to Linden New Jersey.

And the reason for that is because the United States has become the marginal supplier of an export barrel.

In the wake of cutback.

Cutbacks in Russian production.

And the inability of Russia to supply Martins our markets in the U S and in Latin America on the margin.

United States is now supplying the distillate exports, particularly USD net exports out of the Gulf Coast.

In a country had been very high so.

The reality is when you put all that together.

We've seen an interesting situation here, where in the last several weeks on the EIA as.

We've had okay demand, but not as strong as last year.

High capacity utilization in the U S running in the low nineties and at the same time, even with that because of that we've actually had draws.

And clean products, particularly digitally and in pad one as you are well aware of.

We are very very tight very very low on distillate ratio, there's a five year average.

Yeah, it's a it's really quite something to watch.

Okay, well I guess my second question since the other super tight market seems to be the west coast, obviously detail the issues are in Q1.

I was just curious as you look at that market with the planned work at Torrance in June .

Seems to be bouncing out a little bit better on gasoline there, but is it the same situation on the tightness and distillate is what's driving the west coast or is it a improvement in demand just curious what you.

See there.

We're seeing demand hold up on the West coast are relatively strong distillate jet has recovered one big thing that we're saying is the traditional imports from Asia.

Of jet fuel into the West coast had slowed down significantly.

That in combination with there hasn't been a fair amount of downtime.

We had some in the first quarter that Matt referenced and we do have some planned in June but there are other refiners Chevron Richmond has I think is scheduled day.

Crude turnaround in June as well.

And again.

The West Coast has not been without rationalization. They wrote the rodeo refineries converted partly already to renewable diesel and of course the.

Marathon Avon refinery has been isolated so it's kind of the same story, it's reasonably good demand less refining capacity coming in with tight inventories and in fact less imports into the west coast.

Alright I appreciate it thank you.

Thank you.

Thank you. Our next question comes from the line of Theresa Chen with Barclays. Please proceed with your question.

Yeah.

Good morning.

Cause I wanted to ask you a follow up on the east coast given the tightness in the robust outlook there for product balances how hard would it be for you to bring up your previously idled a clean product capacity.

Yeah.

Very good well, we did startup two of the units that we had idled.

During the pandemic and I'll pause for a refinery.

That would be the that's.

The reformer, which obviously makes gasoline high octane gasoline and and one thing everybody should look at is are we seeing a pronounced increase in the spread between premium Bob and Bob Bob.

So we brought up the reformer and we brought up the distillate hydro treated which produces USD.

And obviously, you get that and what.

It was a good decision given where we are the remaining units, though we will likely we certainly will continue to look at it but we'll keep down in a major reason for that is.

We've shut down is a cat cracker, which is north of 50000 barrels a day in F. C C.

And a crude unit, which is 60000 barrels a day and if we started the cat cracker up and even if we started to crude unit up we would be short feedstocks for the cat Cracker and one of the things that I think you're all aware of and we're looking at is going forward. While we view this as a terrific environment in many ways.

The fact is.

Because of the problems with Russia, and their exports were likely going to get some tightness in secondary feeds as we go forward I E V. G OS fuel.

The fact is we started out what we can startup and if we started up the other units, we couldnt run them at capacity.

Got it that's great color, Thank you and Eric just on the.

Capital allocation, how should we think about the path of deleveraging and is there any appetite to further appetite your balance sheet from here.

I think at this point our focus today is really on getting these refinancings done at PBF and PBF logistics. Once those are done we believe that will remove at least some of the overhang that we see on the bond complex the unsecured bonds should trade up there probably a weighted average circa 90 today.

And then from there we can address the 'twenty five maturities I think right now we're looking at a forward curve that is extremely attractive and that's why we're continuing to focus on safe and reliable operations.

We've spent a significant amount of capex in the first quarter right, that's starting to kind of trickle down through the remainder of the year with only $200 million in the back half of the year. So we've got a pretty clean runway across the board I don't think at this point, there's really much to say in terms of equity we're really focusing on what we can capture near term.

Okay.

Thank you.

Okay.

Thank you. Our next question comes from the line of Doug Leggate with Bank of America. Please proceed with your question.

Hey, Good morning, guys. This is <unk> standing in for Doug. Thanks for taking the question.

My first question concerns your cash flow capacity in this environment. So crack today, obviously, our unprecedented so modeling capture will have its challenges, but I am hoping that you can help us calibrate. So my question is how much cash flow did you generate in the month of March.

April looked like and if you ran today's cracks how much could you delever this year.

Glad I think it's going to be very difficult for us to comment on specific monthly performance what.

What we can say is that it's relatively easy to look at how much the market improved from the end of last year through March and so the trajectory was clearly that cigna.

A significant amount of profitability was generated towards the back half of the first quarter clearly that trajectory has continued as we look forward a couple of things in terms of cash flow. We did build inventory during the quarter. So look we filed our Q. This morning looking at the balance sheet and cash flow statement you can ultimately see we've got about.

Just shy of $400 million worth of essentially a use of capital during the quarter. We expect that a significant portion of that will come back to us throughout the second quarter as we work those inventories down the bulk of those inventories were built as a result of the heavy maintenance activity that we experienced along with the.

Unplanned downtime out on the West coast. So for US I think where we're really probably more bottoms up in terms of what costs do we need to cover and as we look forward into the second quarter. We've got between call. It 150 and $165 million worth of Capex to cover we do have interest payments to make and ultimately we should see.

See we cannot control the hydrocarbon price, but we ultimately you should see some benefit from working capital as we lower our inventory levels through the second quarter.

Thanks, Eric I know, that's not easy so I appreciate you, giving it a shot.

The follow up question is just on diesel time spread so obviously, they're curbs days steeply backward dated can you talking about any challenges and capturing those margins.

Tom you want to pick up.

So I think in terms of that question I think it's a broader theme across the entire marketplace.

Between.

Getting back to one of the.

Disruptions were taking place in the market what initially it looked like a crude problem has turned into.

Through a combination of the adjustment of trade flows on the.

Release of strategic stocks, that's put the crude market back into better balance in the product markets are certainly telling you to shorten your supply line or your distribution excuse me.

Arms of moving that product out as swiftly as you can and selling it in the local markets.

Perfect and if I could sneak just one last one in there.

Just a housekeeping housekeeping question. So the 10-K or the 10-Q shows that the value. Your RIN obligation is increasing in a rather flat Brent price environment.

Did you cover your cash obligations in <unk>.

We did cover our cash obligations in <unk>, I think where we're sitting here managing what is essentially a three year program at this point that's why.

The pending news that we expect to come towards the back end of this quarter should ultimately help us understand exactly what we need to do I think we tried to provide in our commentary of the roughly $600 million of RIN accrued expense that's carried.

On the balance sheet today that ultimately are roughly a third of that should be covered with firm fixed price commitments just to give a bit more color on that we do expect about 50% to 60% of that third should be covered throughout the second quarter of this year.

Perfect. Thank you guys.

Thank you. Our next question comes from the line of Philip Ashman Jpmorgan. Please proceed with your question.

Yeah, Hey, good morning, Eric first question for you just a bit of a follow up.

On the leverage knowing that the refinancing and debt pay down.

Timing that you laid out there can you kind of contrast that to where you ultimately want the leverage ratio to get to I think in the past you had targeted under 40% net debt to cap if I'm remembering that correctly, but if you could just refresh us where you'd like that to get to to kind of feel comfortable.

That you've achieved your leverage targets.

That is a long term being under <unk> net debt to cap of 40%.

I think if we were using kind of rating agency driven metrics from a net debt to EBITDA standpoint, it's probably somewhere under two and a half times.

I think one important note on that is.

Yeah.

On a trailing 12 month basis, we've got adjusted EBITDA of 930 million, it's probably slightly north of that once we account for all of the adjustments related to mark to market rent and a b 32, slash L CFS noise.

The cap.

<unk> significantly accelerate with the type of forward curve, that's presenting itself today said a different way our business right. We've talked about getting back to a mid cycle number you assume our consolidated EBITDA should be between 1 billion and a billion and a half at a mid cycle environment, we are tracking.

Very well towards that path.

Alright understood.

And then my follow up question would just be around.

Operating costs in the first quarter, knowing it was a heavy turnaround period winter seasonality unplanned factors and other things you know would you say there are any kind of onetime factors that led to a bit more elevated opex or just in general how should we think about opex for the rest of the year.

I'll take a shot at it fell a one thing that is <unk>.

Factor for the first quarter and even now.

A tale of two stories here.

We did have elevated natural gas pricing in the U S and particularly on the West coast.

And.

Obviously that impacts our operating costs and frankly, we still are with.

Up in AR.

No longer in a $3 million to $4 million.

But may be to us I'd say, it's a tale of two stories because while we are seeing slightly elevated natural gas costs that are impacting our operating cost. Obviously, we are strategically advantaged significantly advantaged versus refiners in Europe and Asia.

Who are seeing and you know very well so a dramatically higher natural gas prices in the first quarter and the end of last year as inventories would right they have compressed but still.

If we have $6 gas in.

The parts of the rest of the world have a $25 $30.

Uh huh.

Btu gas that has a long longer term strategic advantage for us other than the natural gas cost impact, which was not insignificant in the first quarter.

The rest of it was really due to downtime and some throughput reductions, particularly with the.

Power failure at Torrance, which are.

Impacted the per barrel cost.

If I were to think on a go forward $650 to $7 is a more reasonable per.

Her barrel number with with the higher throughput youre going to have for yeah.

Yeah, I think so in that range, certainly and as I said.

That that is a competitive advantage for a U S refiner right now and as part of the reason back too.

I think Roger's question.

We are the export of record if you will to supply of parts of the world right now.

Thanks, Tom.

Thank you. Our next question comes from the line of Carly Davenport with Goldman Sachs. Please proceed with your question.

Hey, good morning, Thanks for taking the questions just wanted to start on the macro side on your views on gasoline versus diesel obviously diesel margins have been extremely robust quarter today, but wanted to get your thoughts around any potential arb between gasoline and diesel margins as we move into summer driving season, and and contemplate any potential demand destruction.

And on the gasoline side as well.

Very good question.

I think it's a fascinating time.

And we've been doing this for a long time, but.

Let me just start by saying any refiner, who knows anything about this business and most of them do.

It is doing everything in their power to turn every drop of gasoline into a gallon of jet fuel or diesel because of the current marketplace.

So the reality is that would.

Result in probably some decrease in gasoline as long as this market holds and the structure has got right now.

You have some other things going on we have enter into driving season.

Obviously.

We'll see how demand holds up but.

I think people in the United States and perhaps the rest of the world are going to try to see if they can get back to as normal life. They can and at least for a period of time, we'll probably have some pent up demand and as you're aware we are now going into the.

Boardwalk V P season, so the view changed et.

Et cetera, coming out of gasoline, which will decrease gasoline yield.

So I think we're in a situation, where we're going to have to watch everything what we're going to see as well as the gasoline does get tight and what's going to happen as gasoline is going to obviously respond.

And then in fact, we might be reversed at all especially if there's only comes off.

And we would start because right now as I said, everybody is going to do everything they can to make distillate and jet fuel.

If the arb clauses in if you will what product prices narrower than that shift will happen and you'll start unmaking distillate.

And making gasoline and over the course of time, it's all going to come back to the fact that in total we have very tight.

Clean product inventories and that should bode well at least in the short term for a continuation of the favorable market environment, we have.

Great. That's helpful. Thank you and then the follow up was just kind of around the mid continent, Syncrude or we've continued to see syncrude trading at a premium to W. T. I. It seems like there are a number of factors likely contributing to that dynamic, but just curious how you see those spreads kind of evolving as we move through the year and if that has any impact on the type of crude that you're sourcing out to them.

No.

The second part of the question do you want to take that go ahead.

I mean in terms of.

The prompt enter the market I mean, there's certainly been some maintenance up there.

Which has contributed to the strength in the marketplace I mean, I'm thinking about a longer term perspective, I mean, you know.

R R.

Our slate do we run at Toledo in terms of them coming from the northeast.

It's got some optionality between what we're doing in the synthetic side versus suite, but it doesn't.

Do you expect any material changes in that aspect.

And you know.

Going forward in terms of being to increase production et cetera. There certainly are plenty of incentives in terms of what the forward curve is telling you for increased production.

Yeah.

Thank you.

Thank you. Our next question comes from the line of Paul Sankey with Thank you research. Please proceed with your question.

Good morning, guys.

The market seems to let your utilization outlook can you frame any risks around that I mean, you mentioned that.

He might be.

It might be pushing more stuff through if you had more V. G O or is there some alternative and I assume everything is running well now things.

Yes.

Got in past.

The maintenance that we had and we've gotten past the unscheduled downtime that we had at Torrance.

<unk> certainly seen off system run better right now than it ran in the first quarter.

And hopefully that's the job that we have to do the whole key to this thing as we've talked for years Paul is safety.

Safe reliable environmentally responsible operations and it's nevertheless, it's always important but.

At the margin and why we have you will see benefits from associated with that in terms of some challenges.

Yeah, I think the real one that we're looking at is right now, particularly for P. B F because of the downtime and turnarounds that we had in the first quarter as Eric said, we built the inventory and we built inventory in secondary feedstocks. So for the short term and at least the short term we will not have the slack units.

Because where you'll be drawing that inventory down.

But because particularly Russia and this is a significant item.

The constraints on Russia, while there may be selling.

Fair amount of their crude and they havent seen the cuts as deep as perhaps people envision on accrued. The fact is they are having to cut their refining production because they're running out of room to store products because the product side is working.

And that means that when they cut crude they no longer are exporting not only clean products and they can't export V. G O as in they can't export fuel oil stocks that.

The world in the United States, and PBS were buying in order to keep our.

The cat crackers and hydro crackers quotes.

And if that continues.

Certainly sourcing different we've gone to Latin America, we have been able to get.

Fuel oil from from Latin America, and we've been able to find some other feedstocks, but it gets back to the prior question is gonna be a time, where if you don't have enough secondary feedstocks.

To fill all your cracking units Hydrocracking is cat crackers, then you're going to wind up looking at well, what's the diesel crack was he.

Gasoline crack and maybe at some point so for gasoline is higher much higher than gas diesel well, we're going to crack a heating oil and turned it into gasoline and so we've got a number of knobs to turn but it is clearly going to be a limiting factor as we go forward.

Especially as I don't see an end to this.

Situation.

For some period of time in Russia.

Got you and then the kind of continuation of that would be obviously someone who used to with biblical to describe current margin environment is there anything in.

And the capture.

You know you would highlight in terms of whether or not it's it's.

The headline margins a representative in one of the obvious things is the co products you know stuff that's not in the headline margins I think it's all set pricing very strong right. So I assume that you will essentially capture in this environment.

Well there'll be some there's clearly some discount.

I would say that right now.

Uh huh.

You still have the light ends propane, they're strong, but there's still a pretty significant discount to the price of crude.

But to your point.

It is not the same market that we would.

Traditional received because commodities are tight.

We are.

The price of Coke is is much higher.

Relative to the price of crude than it historically has been.

<unk>.

The demand for Coke remains pretty high.

So we're not seeing that the discount certainly we're not seeing the percentage discount on the co products that we historically see because there was additional strength in those markets as well.

Got it thanks Luke.

Thank you. Our next question comes from the line of Paul Cheng with Scotiabank. Please proceed with your question.

Hey, guys good morning good.

Good morning, Paul.

And maybe that's the first one is for Eric.

Just want to confirm you said the second half the Capex is such a good 200, but that's no major turnarounds.

So Ken can you I mean, how much is the 200 is we need to do all the projects and how much is we need to your normal operations are we finding.

Okay.

And on a normalized basis, if we look forward.

The and then Kathy.

Should look like.

Excluding <unk>, we do have both pieces.

That's the number.

The numbers that we laid out in our prepared comments exclude renewable diesel.

So when we talk.

For the full year 2020 to $5 25 to $5 50 that range that is for you know again, our annual maintenance Capex has averaged between 150 and $200 million a year, regardless of whether it's pre during or post pandemic. We anticipate that will continue on so when we think.

Through the turnaround cycle, and we're back to regular way turnaround.

The safe assumption for this year is we're going to be spending $3 25 to $3 50 on turnarounds about a third of it was flushed during the first quarter. Another third more or less will go through during the second quarter and the back half of the year has roughly $100 million related to our pertaining to turnaround related activity at various different.

Plants.

On a go forward basis, we anticipate we will be investing between 500 and $600 million a year in capex. The biggest swing factor will be timing of turnaround. So there may be some years, where our turnaround expense is on the low end at $300 million and there could be other years, where it's closer to four or $4 50, it's going to be a little bit lumpy.

Just depending on this three to five year cycle, depending on what we're doing with the major moneymaking units.

Tell me how much you spent you're going to spend into.

Renewable diesel projects in the second half.

The back half of this year the second half of this year, we anticipate having a partner that will cover a significant portion of that Capex. As a reminder, it's a $600 million capex requirement. We have invested through the end of last year plus during the first quarter about 15% of it so we've incubated about 15% or nine.

<unk> million dollars worth of cash invested in that project. We believe there will probably be anywhere from another 15% to 20% during the course of the second quarter. Some of that May spill into the third quarter. I think our goal is to try to have a more fulsome update on renewable diesel the middle part of this summer, which will basically be.

The one year prior to what we anticipate is the startup of that project.

Okay.

The second question wanted to go back to the ideal at the 10 year sentence I understand what you guys are what's funded focusing your athletes.

Financing and all that but.

But when you look at last time, you used to act with the secondary applique is probably a long decline.

And that's S N Sterling that's.

Does it make sense that to take the opportunity on the really strong.

Appetite strong share performance that Oh, so you get some back with me so that I mean U S.

Hey, it's Anthony.

So in his policy.

Again, I think our message Paul is that we're extremely focused on getting these successful refinancings closed.

That is a very big first step for US then we can address the 2025 maturities. There really is not much to say in terms of the equity other than we feel like we've been extremely responsible with the timing around previous equity raises to make sure that ultimately we prepared this business for the long run we've just come out of the Moe.

Significant demand destruction events. This industry has ever experienced and we made it through by making all of the right decisions. We anticipate continuing to do that on a go forward basis.

Okay, Great can I sneak in one final question.

Sure.

Is on the global light heavy oil he pencil.

It has been quite narrow over the weekend pine seasons. The last say four or five weeks are just kill is that how you guys see that is going to do well.

Tom you want to handle that.

I mean.

Obviously, a very tricky market to try to get into a whole lot of nuances around.

Basis trading when where and you know effectively one of the most volatile and unprecedented trading environment.

I think the simple answer in the short term basis.

Basically a crude barrel was a one barrel that is going to be consumed and run it and it's a particular refinery.

And then on a go forward basis, I think it's really kind of getting through what the disruption it looks like from a longer term perspective in terms of Oh.

Our Russian crude production.

And it's probably a little bit premature at this point to have a longer term discussion on crude dips just.

The uncertainty of the environment that we're in today.

We do thank you.

Thank you. Our next question comes from the line of Manav Gupta with Credit Suisse. Please proceed with your question.

Oh, Hey, Eddie Covino behind the scenes.

You have been working very hard on the potential of a deep deals and our partner fund the renewable diesel side I just wanted to understand what would be your personal accompanied preference here because there are two kinds of deals out there gathering like oak tree with the financial partner that comes in but you redeemed the entire control.

And whether you should therefore it accordingly.

And the other part is when MPC nasty deal with a financial but an operating partner comes in and brings in a lot of expertise feedstock and everything but in the end you do lose 50% of capacity.

Because they have different kinds of advantages pros and cons are and given that you had been working on this for some time what would be your preference between those two kind of deals.

Oh, no that's not.

It's too early to tell I mean, what we're trying to do and we're doing it methodically and we're doing a thoroughly is evaluating all of our alternatives.

And we feel like we have access to all different types of financing.

Alternatives and partner.

Structures and potential partners.

And so we're going to make that evaluation and determine what's the best I can tell you. The interest has been robust on the.

With interested parties and so we're we're excited about that and we've had a lot of cooperation from.

The marketplace in regards to but our view has been in terms of the advantages of our facility.

So.

We're going to continue to evaluate it and make the best decision, we possibly can but at the moment, we are committed to bringing in a partner on it and.

I expect that will happen over the next couple of quarters.

Oh, I'm still saying that then I think in the beginning you mentioned that there was some unplanned downtime at Torrance.

You could help us.

Quantify the opportunity cost of that so you can understand.

What would the vascular says I've been had that downtime not happened if you could help us sort of just all of them.

Yeah. So if you look at the West coast.

There was a little bit of an L. P O at Martinez, there a little bit slow coming up from their turnaround.

And we would we would characterize it as between 50 and $60 million on the West Coast.

A missed opportunity.

Perfect. Thank you so much.

Thank you. Our next question comes from the line of Matthew Blair with Tudor Pickering Holt. Please proceed with your question.

Hey, good morning, Thanks for taking my questions here your your distillate yield of 34% in Q1 was the highest number in several years.

Is that where things Max out or are there any other levers you can pull here and then I've got 34% can you help us understand your your jet exposure within that.

34 of the distillate yield is as I said anybody who is trying to figure out not trying to figure out how to turn gasoline and jet fuel and and distillate is not doing their job and I'm very pleased with.

The steps that our organization has taken I'll give you an example of one.

At our Martinez refinery, where we said we had scheduled downtime in one of the units that was shut down.

In the past.

Martinez would not be able to produce any diesel.

But the organization figured out a way to wire up some other things and do what refiners do and we refer the first time in Martinez history. During the first quarter, we were able to make some distillate when in the past that we really haven't been able to do so but we're pretty much pushing every button we've got obviously.

34% is a good number in this market. If we can do more we will do more but I'm very pleased with the way the organization has responded to.

The jet component of that is again, we are making more jet fuel than we've ever made I don't have the percentage off the top of my head.

As we did convert everything or convert everything that you can any a crude unit or a cat cracker hydrocracker to the premium products. So.

Im very pleased with the way how the organization responded there.

Great and then Eric I think you referenced the strength in the futures curve here on the product side have you put on a neat product crack spread hedges and if so could you share any details around that.

I don't think we have anything to share in terms of forward derivative contracts we've ultimately.

And then running the same derivative program for multiple years here, where we're basically hedging against our baseline. So we haven't taken any type of incremental risk there.

Great. Thank you.

Thank you. Our next question comes from the line of Danny cuts with Morgan Stanley . Please proceed with your question.

Hey, Thanks, good morning.

So when does it start off with just kind of a broad question here.

I guess given that we're in.

Given that kind of the global refining complex is that conditional conditions are so tight margins are extremely strong.

Wanted to get your guys take broadly on kind of what's the risk to the downside for refining margins, what's kind of the pad two.

You know to cracks.

Settling back down is it is it does the government step in to support the consumer does demand destruction kick in but maybe it takes longer but maybe it's not a near term thing the supply come back just wondering in your.

Your broad thoughts on.

On that topic.

I'm just going to interject one thing at the front end because you said is the government going to kick in to lower the price from consumer. Please do not lose sight of the easiest way for the government to step in and lower the price for the consumers. She was the right thing with the RVO, We said and we said again and.

I think closing and Schumer, we're meeting yesterday on ways that they can increase.

Increase a microscope with the FTC to see if there's price gouging, there's virtually no price that we are a price setter on.

But absolutely the easiest thing the government can do.

Is to adjust the RVO, which is now adding.

Adding somewhere between 20 and 30.

The gallon to the price of gasoline, so I say that front and then I can turn the rest over to Tom got it.

Two sides on the on your question is a very good question first of all I would say that the things that are in.

In our market today.

That are.

Creating the tightness and the favorable market conditions.

Going forward I think there's two of those pillars. If you will that are likely going to continue and that is the natural gas pricing advantage that we have in the United States.

And then the second maybe it's the first is the longer term impacts of what Russia has done.

And that capacity is probably refining capacity and export capability, maybe loss for a significant period of time as there's consequences interaction.

On the other side of your question, but you know what is the big threat, while the biggest threat to me is that there's an escalation.

The Ukraine, Russia situation.

I don't want to say it gets out of control, but certainly the longer dose escalates to more problematic if there's going to be for the people in Ukraine and also potentially for other.

Parts of the World.

After that inflation.

Inflation.

There's clearly no.

White House and the administration has pounded on the price of gasoline at the pump.

Inflation.

Food inflation other things.

All commodities.

<unk> metals et cetera, obviously, you all are well aware that in fact, we're seeing that so if in play if it's gonna be to a certain extent if the fed can navigate this in a reasonable way then we won't have an impact a significant impact from that but if it it can't.

You got to get back to where we were in the late seventies that would probably lead to demand destruction because of.

People don't have as much.

It would be spending and it would be cutting back all over the place so I would say.

I E. It's the Russian conflict.

<unk>.

Inflation in general.

And those both of those things could lead to a recession and that would be the thing that I do worry about I don't think it's going to happen myself, but.

That's beyond our control and that's that could result in a pretty significant it back to the economies of the world.

That's great color. Thanks, a lot guys and just a quick unrelated follow up Eric.

Eric I think in the past that you shared what the credit facility availability was as of.

The earnings call I was kind of as of today I was wondering if you could share that number and if not no worries I know you kind of gave a bunch of color on an earlier question that could kind of help us triangulate, but just wanted to ask if you had that number that you can share.

Yeah. So at the end of the quarter, we had about $2 6 billion north of $2 $6 billion of liquidity. The just a quick math is more than 1.2 available under the credit facility and roughly 1.4 of cash.

Got it.

He was asking if you had that number as of today.

The borrowing the borrowing base has continued to increase in terms of where prices have gone. So its flat to where we were we were at the end of the quarter.

Got it understood alright, thanks, a lot guys I'll turn it back.

Yeah.

Thank you. Our next question comes from the line of Karl Blunden with Goldman Sachs. Please proceed with your question.

Hi, good morning.

You've been carrying a lot of liquidity and I think at times, you've described it as excess liquidity or an insurance policy, we're starting to get a bit more visibility into into the market, but it's still volatile.

At what point do you think that it would be appropriate to start reducing that excess liquidity and what's the right level for the business to get to.

Pre pre pandemic, we saw liquidity bounce anywhere from 752 1 billion and a half dollars and so that's probably a reasonable number for us long term.

The excess cash that we are carrying around our belief is once we get through our refinancing efforts that ultimately we'll have cash that's available to continue to delever. Its already de levered on a net basis, we believe that the market will need to see action around what that cash is used for I think we've been vocal that we have some <unk>.

Expensive secured bonds that are on our balance sheet. That's one potential Avenue that we have in terms of delevering on a go forward. We also do have a balance on our ABL debt, we're carrying them.

So I think across the board. It is using a portion of that cash to then delever the business going forward.

That makes sense thanks, Eric.

And then just with regard we spoke a bit earlier on the call about the Chalmette renewable fuels project in different options you have available to yourselves, but you are at a point, yet where you'd be comfortable taking on most of the financing yourself or are all the options that you're considering are going to provide a.

Material financial.

Support from from the partners you are looking at.

At this point, we're committed to finding a partner that we think.

As most attractive so.

We're going down that path, obviously everything is fluid in todays market, but at the moment, we're going down the path and like I said earlier, there's been robust interest from the marketplace. So.

We will continue to evaluate it but we're committed to the path we're on.

Thanks very much.

Thank you. Our final question. This morning comes from the line of Jason <unk> with Cowen. Please proceed with your question.

Hey, good morning, Thanks for taking my questions.

I had two the first I wanted to follow up on your answer on our risks.

The refining margin staying strong I mean, you kind of mentioned a recession being the biggest risk, which is which is more of a tail risk.

I guess my question is then within kind of a more normalized global in buyer meant do do you see a path forward to refining cracks eventually normalizing or did.

Do you just expect them to remain at very excessive levels.

Further beyond just the immediate future and if not what's what's kind of the path forward to getting to normal absent a recession and then I have a follow up thanks.

Okay I have first of all I do not have crashed can like ability to be able to project what the prices are going to be in the future but.

I will make a couple of comments on your question I do think there are structural changes right. Now that are underway that are more I don't want to say permanent in nature, but they're going to have a longer playing field and I referenced those.

The advantage for U S refiners.

Refinery, we've got access to relatively cheap natural gas is going to be a structural advantage and it will be a disadvantage for refineries in Europe , and Asia, who have don't have that in fact have to spend a lot more.

So by natural gas, whether it be to power up their plants, we want to supply hydrogen and hydrogen plants.

And in fact that May result in reduced capacity utilization.

And in those areas and the other one is the longer term impact, but I don't know what longer term is but is it two or three or four years of what the outcome.

Ultimate outcome of the Russian Ukrainian invasion is in terms of particularly Russia ability.

To continue to be the power that they have been in the energy market.

And so there is a case that says that there could be this could be tailwind that will exist for some period of time that a structural nature that will make a difference that being said, obviously, we have a very.

Favorable market environment right now.

And.

Trees don't grow to Sun. So there's some chance I would expect there'll be some normalization, but what at what level.

You mentioned moving.

Great. Thanks, I appreciate that additional color and then second just on the renewable diesel project since we're a year out I was one wondering if you have a sense of what the feedstock slate for that project will be especially given the.

The feedstock market getting seemingly tighter by by the day do you have good visibility in terms of the feedstock that you'll be able to access for the renewable diesel project.

Our visibility is really focused on maintaining full optionality and that's why the plant will come on with full pretreatment capability predicting.

What what feedstocks will be in a year's time is probably a fool's errand, but we're going to make sure we have maximum flexibility to too.

The process whatever is most economic at any given time and I'd also comment that Toms.

Commentary around natural gas in Europe .

That will also be a big boost for renewable diesel production in the U S. So I think we'll be structurally advantage for some time in regards to some specific feedstocks I can't tell you, but what I will tell you is we'll be able to process anything.

That is available and so we will be committed to running the cheapest feedstocks, we can possibly run or the most economic for us.

Got it thanks for the answers.

Thank you ladies and gentlemen, this concludes our question and answer session I'll turn the floor back to Mr. Nimbly for any closing comments.

Well. Thank you very much for your participation in the call. We are certainly interesting times.

Our best too.

Due to make the right decisions during this period of time and beyond and we look forward to our next call.

<unk> ended the second quarter after the second quarter. Thank you very much.

Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.