Q2 2022 PBF Energy Inc Earnings Call
Okay.
Good day, everyone and welcome to the PBF Energy second 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, there 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 Investor Relations.
You may begin.
Thank you Melissa good morning, and welcome to today's call with me today are Tom Nimbly, 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.
<unk> 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 the safe Harbor provisions under federal Securities laws.
There are many factors that could cause actual results to differ from our expectations, including those we described in our filings with the SEC.
Consistent with prior periods, we will discuss our results today, excluding special items in today's press release, we described the noncash special items included in our quarterly results. The cumulative impact of special items decreased net income by an after tax amount of $116 million or approximately 93.
<unk> per share.
For reconciliations of any non-GAAP measures. Please refer to the supplemental tables provided in today's press release.
I'll now turn the call over to Tom Nimbly.
Thanks Colin.
Good morning, everyone and thank you for joining our call.
For the second quarter PBF reported earnings per share of $10.58.
And adjusted net income of $1 3 billion.
Our strong financial results have provided us with the resources to accelerate the repayment of debt we incurred during the pandemic and to continue actions to strengthen our balance sheet.
To be clear the work is not complete as we remain highly focused on doing more to recover from the ravages of the pandemic.
The second quarter picked up where the first quarter ended with volatile market conditions and rising energy prices.
Refinery margins expanded as available refiners other than Russia, and China, we're called on to run at high utilization levels.
The Russian invasion of Ukraine continues to off the trade flows.
Rushing waterborne crude exports are generally flow into Asia as Western Nations continue rejecting Russian crude and feedstocks.
S trade flows reorganize a couple of themes are appearing.
European refiners are lightening their crude slate as the replacement crude for rejecting rushing barrels east generally light Street Sweet crude produced within Europe , West Africa, or the United States.
Also for some time Europe has been facing a natural gas and power crisis that has only been exacerbated by the Russian invasion Hi.
High priced natural gas in Europe has made upgrading units and hydrogen plants very expensive to operate giving U S refiners a significant competitive advantage.
Differentials for light sweet crude versus heavy sour had been waiting for a variety of factors light sweet crude.
I think for the reasons I, just mentioned plus available upgrading units coking capacity et cetera are generally full.
We are seeing the heavy part of the barrel trade at wider discounts to the global benchmarks for light sweet crude than we have seen in many years.
Heavy fuel oil is quite weak and there is some market commentary about support coming from the re emergence of I M O Twenty-twenty market dynamics.
The beginning of the third quarter has seen a 15% to 20% correction in oil prices and refining margins.
However, underlying fundamentals remain strong low inventories tight supply improving demand and reduced refining capacity.
Despite that there are macroeconomic concerns that are weighing on the market high inflation rising interest rates and a rising U S dollar.
The macro concerns 0.2, contrasting oil demand to help bring the energy markets back into balance as the status quo is simply not sustainable.
Inevitably inventories well need to be replenished from these extraordinary low levels. This will require refineries to continue running at high levels of utilization.
Our valued employees continue working tirelessly to keep our assets running safely and reliably and we appreciate their contributions to our performance.
With our balance sheet, improving and the bulk of our 2022 turnarounds complete we anticipate that our assets will continue generating cash, which we will use to further strengthen our balance sheet and reward our investors with that I will turn the call over to Matt. Thanks, Tom as Tom mentioned.
Insurance Pbf's second quarter is one for the books.
And demonstrates the earnings earnings power of our refining system.
Dedication of our employees.
While the extraordinary market conditions seen during the second quarter.
We'll eventually normalize the fundamentals and outlook remains strong.
On the East Coast, we completed work on the Delaware City reformer and other secondary goods, which began in March and concluded in April .
Additionally, we are in the midst of restarting our idle 50000 barrel a day crude yet at pulse borough.
Which we expect to have online in mid August .
We are confident that we'll have enough access to feed for the year that will help us help ensure that all of our other secondary gets on the east coast remain full.
On the West Coast, we recently completed a significant turnaround in Torrance of the alkylation and the other ancillary units.
The work was conducted primarily in June and wrapped up in the first 10 days of July .
Looking ahead to the third quarter and the remainder of the year our.
Our capital expenditure and throughput guidance as presented in today's press release.
We have no significant planned maintenance for the remainder of the third quarter.
We do have a planned turnaround in chalmette.
In the fourth quarter.
In addition to our refining Capex, we continue to invest in and progress our renewable diesel project in Chalmette.
We anticipate startup with full pre treatment capabilities in the first half of next year.
Importantly, the project remains on time and.
And on budget.
In terms of the forward refining market as Tom said the market needs to reset as the current high price low inventory conditions are unsustainable in the long term.
Over time, we expect our product inventories will eventually return to their historical average levels.
However.
With a global reduction refining capacity as well as natural gas advantages in the U S. We expect to see above mid cycle refining margins, which is what we are seeing today.
Our assets are running well and positioned to keep our position to keep the market supply and capture that margin.
Lastly, this morning, we announced that PBF energy has agreed to acquire all the common units of PBF logistics that does not already own.
This transaction will ultimately allow us to simplify our corporate structure and eliminate administrative compliance and cost burdens of running a separate public company.
Following consummation of the merger, we believe will have a significantly enhanced financial strength with.
That I will turn it over to Eric Thank.
Thank you Matt.
For the second quarter, we reported adjusted net income of $10.58 per share and adjusted EBITDA of approximately $1 9 billion.
This brings our trailing 12 month adjusted EBITDA to over $2 $8 billion.
This financial performance provided the foundation for us to accelerate our deleveraging plan.
Over the last 18 months, we have reduced consolidated debt by more than $2 6 billion.
In addition to the $900 million pay down of our bank facility during the second quarter. We redeemed the full 1.25 billion of secured notes due 2025 on July 11th.
When we include the more than $250 million of open market purchases at a discount to face value. Our unsecured debt is now below the pre pandemic balance.
Importantly, we were able to execute our plan, while maintaining significant liquidity and have a current cash balance of more than $900 million.
On a go forward basis, we expect to recognize over $165 million of annualized interest expense savings.
Simply put pbf's balance sheet has vastly improved with quarter end net debt to cap of 24% and net debt of less than $1 $1 billion. These statistics represent levels that we have not achieved since 2018.
Consolidated Capex for the second quarter was roughly $211 million, which includes $157 million for refining and corporate capex roughly $52 million related to continuing development of the Rd facility and $2 million for PBF logistics.
For the second half of 2022.
We anticipate total refining and corporate capex to be approximately $200 million to $225 million, excluding the Rd project.
This reflects a return to our normalized pre pandemic turnaround schedule.
Operator, we've completed our opening remarks, we'd be pleased to take any questions.
Thank him 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 for additional questions.
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Our first question comes from the line of Roger read with Wells Fargo. Please proceed with your question.
Yeah. Thank you good morning, and congratulations on the quarter guys nice execution.
Yes.
His question, we keep getting from investors is.
You know where do we sit today in terms of demand we've had some well just say questionable numbers from the D O E but overall.
Things still look pretty solid so I was just curious what you see on demand and maybe how that fits into some of the discrepancies were seeing right now in terms of the cash markets thinking how much stronger the ear.
Coasters than say the Gulf coast.
Great question, Roger and thanks.
Okay no problem at.
Yeah, we shared the same kind of thoughts there there was some aberrant Sidney you coming out of the July 4th weekend, that's always.
Questionable what you do there and then there was some true up I think between a monthly I E.
From from June that got flowed into July .
And perhaps that.
Has run its course now in yesterday's numbers were a little bit stronger Oh I'll make another comment so were seen frankly, while theres some headwinds and we have seen some decrease in demand.
<unk> reported that in our own business and I'm going to turn it over to Paul Davis in a moment to talk regionally.
Our demand in our wholesale level is holding up were at basically the same levels. We've been for the last 90 days, but you made a very good point on the east coast.
The east coast demand at the East Coast is structurally impacted more than any other region in the country by what has happened over the last several years. When you look at the amount of our refining capacity that's been shut in or cut back in the Atlantic basin, including P S, including come by chance.
A disproportionate amount of capacity in the north east at the same time the pipes are all coming up from the Gulf Coast. So we have the only coking capacity on the East coast. So we think the Atlantic Basin has actually had a bigger step forward. If you will than the other regions, even though the other regions that benefited from.
What's been going on and then somebody others, Paul why don't you go Roger an idea by region.
We can start with the East Coast, you said it pretty well you.
Cash markets and in New York Harbor are very strong and have been very strong and the backwardation is just arguably historic.
Noncash valuation gasoline, obviously lead to distillates early in second quarter, we're leading at jet has been incredibly strong jets actually pricing inside of diesel with wasn't that a friend. So the east coast is has really moved up to your end markets for us Gulf Coast as as you said.
It's pricing for tiers, it's running very strong we see strong strong export demands, we see arbitragers into the Midwest into the east coast pricing, Accordingly, and and that's a normal we would call. It a normalized market wholesale wise, it's probably a week.
Our weakest market, we have but it's very normalized or our July numbers look just like our Q2 numbers did.
On a on a month to month basis West coast very strong it stayed constant all the way through second quarter and into the beginning of the third quarter, even with the price challenges that the street, we're seeing our wholesale markets. There are very strong and and remain very strong.
And supported by the the return returned to work.
On the West coast and in the Midwest, We have a big wholesale business in the Midwest, but that's that's remained strong throughout.
Great Thanks for that.
And then pivoting a little bit here to you, Eric obviously, a tremendous improvement in terms of balance sheet liquidity everything but at this point what do you feel is the most important thing to do right youre going to consolidated PBF back. So that's got some debt with it you've got a obvious.
Some of the environmental obligations that are still out there and then just the general balance sheet ultimately maybe a reinstatement of the dividend just curious as you think about priorities how that flows through.
I think you you laid out kind of our plan at this point number one we've we've taken out most of the pre payable debt at this point in time and we believe you know the unsecured debt that we have on the books, we have ample time to deal with the 25 notes that will come due then.
Once P be FX.
Ultimately rolls and you know, we will handle that particular debt, but ultimately we provided ourselves enough financial flexibility here and quite candidly that that's already consolidated on the balance sheet. So when we talk about our $1 1 billion.
Just shy of $1 1 billion of net debt.
That includes that level, so from our standpoint, it is simply a matter of continuing to reduce the overall net debt balance operate well take advantage of the market when when it is afforded to us.
And ultimately be reliable because otherwise profitability will not not translated into free cash flow. So from our standpoint, we've gotten things significantly in order and for US now, it's just a matter of execution.
On the day to day business.
And on the the.
Various environmental obligations that have been out there is there any.
Does it make sense to go ahead and fund those are is there any incentive at all to fund them you know preemptively.
I'm not so sure that preemptive, we now have a significant.
Out of clarity in terms of when these you know this is an unprecedented time, where we have three outstanding periods under the renewable fuel standard until we at least have line of sight in terms of dates when we need to actually turning credits. Fortunately I think we've tried highlight for folks are 2020 obligation.
Is is done that will be turned in at the end of this year and then we have through Q1 and then into the end of Q3 next year to fulfill the 2021 and 2022 obligations. So included in our accrued liability line is about $850 million of balance sheet related to <unk>.
Crew for rents.
Investors should expect that those numbers will start to tick down over time and then the remainder is ultimately the combination of AB 32 cap and trade and LCI best credits those will also trade down or ticked down over time, because again the a b 32 program is a multiyear program that will involve multiple.
Step downs through the remainder of of the existing period. So I think over time, they will absolutely go down but currently there is zero planned to preemptively take care of any type of of RIN related obligations simply because we need to see more of this renewable diesel come online that will ultimately create more rent.
<unk>.
Great. Thank you.
Thank you. Our next question comes from the line of Doug Leggate with Bank of America. Please proceed with your question.
Oh, Thanks, good morning, everyone. Thanks for taking my questions. So guys you opened up your comments talking about we will see inventories normalize.
I guess my question is what about costs.
And I'm thinking specifically about.
You know the dynamics on the east coast to them as you pointed out of change dramatically, which presumably makes the U S incrementally more dependent on European imports and they're paying $60 per thousand cubic feet for natural gas today. So when you talk about normalized.
And two is how do you think about normalized margins.
Well I think Doug we we.
Would not expect to see a continuation of the.
Margins that we saw in the second quarter.
Excuse me.
We.
Excuse me, we do expect to be above mid cycle and that's because of the structural things that you pointed out others have pointed out and we see.
We have this extraordinary change in the differential between European and Asian, natural gas prices and what we're saying.
That of course raises the cost of production significantly in Europe , especially if you're trying to run a euro type crude and.
And you've got to pay up for the hydrogen that you need to take sulfur out of the barrel. So it's just not just operating cost. It's also significant cost to get the get the sulfur out of the products.
And.
Structurally with the cutbacks in Russia, both on feedstocks, and obviously our crude shifts.
We believe that they were going to see a structural change.
Above mid leading to above mid cycle margins going forward.
And in fact that that that will probably as we said in the opening comments. We certainly think the east coast is going to be strong as strong as any other region, probably west coast might be behind it depending upon what happens in 2000 Twenty's rate Oh.
Every day it goes down.
Converse to a renewable plant that will be significant moment in time, but what.
What we're saying that the obviously the inventories have too.
Be replenished, where we're sitting at very low inventories, particularly on distillate and particularly in pad one.
So there's going to have to be steps to replenish those inventories.
Finding utilization is going to have to be very high and the margins will be above the mid cycle.
Yeah, I guess the reason of my question. Tom is there's a lot of folks in this business still thinking about the seasonal trade in refining and not structural longer term reset is nothing getting a little bit lost which is why I asked the question. So thanks for your answer.
I guess my follow up is for Eric Eric.
You you, obviously issuing some equity for P. B FX and that's I think we discussed that we when we were on the road a couple of months ago that P. B FX could be next on the agenda after the balance sheet.
So routine sizable amount of debt and not obviously amplifies your equity volatility as we've seen recently with your share price. So I guess my question is where does you know there I see a potential buyback of your stope feature as I use a windfall cash given that you've pretty much done as much debt as you can without it sounds.
Premiums presumably.
Look I think from our perspective carrying you know what we have pro forma for buying in the secured notes and having a debt balance of $2 billion. You really have to look that excludes any cash netted against it you have to go back to Tom's most recent comment in terms of what what is.
The new mid cycle, well, what the structural changes in refining combined with the fact that quite frankly, the refining sector is significantly more flexible post COVID-19 than it was pre COVID-19, we all demonstrated our ability to ultimately adjust utilization rates to match demand.
You know that's going to be extremely important on a go forward basis. Our plan is to continue to right now we will be building cash.
Simply because of the market that we have today that will in turn reduce our net debt, but going out and prepaying a bunch of expensive longer dated debt is not something that makes a ton of sense for us as we sit here today.
We will be allocating some cash as I mentioned to do the environmental credit side of things, but that's going to be over the course of the next 12 months to 14 months.
So to be clear that you're issuing equity for P. B S. H could you presumably by the backend overtime.
Look I think from the.
Transaction that is on the table for PBF logistics as is ultimately more or less a 50 50 equity cash deal. There's a cash component. There. So we'll be allocating at $9 25 per unit around $300 million of cash and the rest will be funded with equity the amount of that equity will clearly be dependent.
Upon where PBF energy shares trade at the time of close.
From our perspective now again I think it is we're going to continue to operate safely and reliably and you know that is the number one focus for US Yeah. Let me just add to that I think in your question Doug.
We sat down as a management team executive team.
First quarter and laid out a bunch of a couple of milestones and objectives that we wanted to achieve by the end of 2023 and about half of them, we achieved in the second quarter.
One of the two of those objectives is recognize that we work for the shareholders and the shareholders paid a price.
Yes.
Being in the industry and in PBF over the last few years. So certainly on the table for us to look as if indeed, we continue to have the.
Above mid cycle margins that we got and we continue to build.
Bell cash.
So what do you get things that we have for further consideration.
Resuming the dividend down the road.
And perhaps buying in some equity, but right now we want to get.
We've done good things on the debt side, we wanted to take the P. B F vaccine, but we certainly are in a position where we can continue to perform we have other options at our disposal.
Well yourself appreciate you answering the questions guys. Thank you.
Yeah.
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 today I just wanted to start on the crude markets, obviously, a lot of volatility in spot prices, while its crude differentials across the board could you talk a bit about what the crude market is signaling the ask from a runs perspective across the portfolio whether that is now perhaps maximizing heavy sour runs are.
Otherwise.
So I'm going to ask Tom O'connor two.
I'll handle that question he's he's been all over this.
Yeah, I mean, I think in terms of when we look at the market right now.
Looking at it today do you want to go back a few days or forward a couple or a few weeks, where basically a peak runs right now as we get into the fourth quarter have you seen some forms of seasonal turnarounds.
You mentioned at that point, you know the incentives are certainly for a.
Our utilization.
The south part of the barrel is.
Taking over some of them are in terms of our capacity.
Yes.
Yes.
Got it great. Thank you and then default that's around the Rins piece you can provide around that.
My ability to.
Cross, California.
And then just how much of that outstanding piece.
Price contracts versus those that would be subject to mark to market.
There's about $850 million of RIN related accrual and roughly $4 50.
Of <unk> 30 to maybe 32, both cap and trade as well as a small amount of L. CFS and on the rent piece I think the rough order of magnitude as you should assume it's about 50 50 between what what we have contracted that is just not yet been settled in.
And ultimately what is the short related to our overall position, which quite candidly is now a 22.
Related short.
Great answers.
Okay.
Thank you. Our next question comes from the line of Manav to start with Credit Suisse. Please proceed with your question.
Hey, this might be for Eric or Matt whoever wants to take it but look it appears you have a lot of conviction in your renewable diesel project do you like your project you, you'll see a very good fit for it and not be scared. Some of it was that you will get a partner, but again, knowing you guys you will not take a bad deal. So what are you trying to get to is.
Let's say you get in a situation, where you don't really like the B you are getting would you be okay with taking this project to completion are on your own if you could help us answer that.
Hey, Manav.
I think we are very pleased with where we sit today I'd make a couple of comments in regards to renewable diesel project.
If you were starting that project today, and obviously, we start incubating that project over a year and a half ago. My guess is you know our capital costs are.
Advantage to a material degree because we haven't idled hydrocracker there.
But even our project if we started today my guess is on on.
On capital side, you'd probably be 25% higher on the.
Time to market I don't know 30% longer.
So our project dynamics are strengthening.
Yes.
Execute the project and our project team has been doing.
Elements work and we went ahead and secured as long lead items early and so we feel pretty good about being insulated from the current inflation market. What we said on the partner side is we're interested in and we have been in active discussions.
With a number of parties, but.
We're interested in finding a potential partner that will improve the overall operation and the overall value.
Uh huh.
Of the entity and so you know as it simply who can go out and find the cheapest money, that's obviously less interesting.
Have a number of options in front of US we're working at full time and we're very pleased with the discussions that we've had but to your point. It is very much focused on how how can we if we bring someone in and how we can grow the pie as opposed to just split it up.
Perfect. It makes sense I have one quick thing if you could help us understand where you're seeing something like you you are buyers of both Syncrude and you are also buyers of WCS.
Tend to move in the same direction generally, but what we are seeing instead of moving a little against each other syncrude is growing at a premium to <unk> and WCS premium discount is widening so it can only be agonist help us understand what's driving this almost $30 differential in the two Canadian crudes that you bye. Thank you.
I'll make one comment and turn it over to Paul Davis.
Obviously, it's in.
Big spread but directionally.
Also like to encourage a commanding a premium because of what we talked about in terms of the <unk> to deal with the high natural gas prices et cetera, et cetera, and the cut backs from Russia.
So you've got pressure on the light sweet side going up and some pressure on the downside because of the sulfur content of the heavier crude Paul why don't you speak specifically to Minaj question Yeah.
There is.
There is a market there is a market pressure on that spread but primarily it's all maintenance up in Canada. The upgrader has have had plant and not an insignificant amount of unplanned maintenance.
Maintenance and that's that's put a premium on the send side of the business.
Thank you so much guys.
Thank you. Our next question comes from the line of Theresa Chen with Barclays. Please proceed with your question.
Yeah.
Good morning, Thank you for taking my questions and I actually just wanted to come back to your comment and tell them about mid cycle margins being higher and the industry needing to replenish inventories over time and how the consumer.
Soaring to argue about the incremental capacity coming online either and ramping up today and in the Middle East and Asia or you know recently with and cut it in Mexico or pencil than to come online in Africa, and hope to get your thoughts there.
I think well actually we need capacity could come online to help replenish those inventory I don't think it's going to impact the utilization.
To your point for our business.
We're gonna see <unk>.
Continued grow today, there's no doubt about that they've been delayed some of them.
They'd rather significantly because of COVID-19, but ultimately.
They need to bring that capacity on and as the developed world continues to.
To improve.
And grow.
As you need that capacity. So we expect that there will be capacity coming online Mexico wants to be energy independent.
That I think will take more time than what is advertise we see.
The creep in in and cost associated with some of this refining capacity, but they are certainly moving down and that objective at the same time.
As I said earlier, there's continued examples.
Particularly in <unk> and <unk>.
The U S and the West coast.
Our refineries that are saying they are going to because of the pressures on fossil fuels are banning of the internal combustion engine in 2035.
Hey to California, and Avon has a task our refining form of Tosca refinery at Avon is now owned by M. P. C is going to convert to a renewable always rebel.
And the interesting thing there is when you convert going to make a renewable project, yeah, you're gonna make renewable diesel, but you're not going to make any gasoline or any jet fuel.
So I think while we do expect the capacity to increase worldwide I don't know that we're going to see much creep in the United States. In fact, they may go the other way and I suspect the Utilizations will remain high absent a really pronounced recession or something like that in the U S.
Thank you.
Thank you. Our next question comes from the line of Connor Lynagh with Morgan Stanley . Please proceed with your question.
Yeah. Thanks.
I wanted to talk about the buying of PBF logistics excuse me just just in terms of the strategic thinking obviously, you highlighted the cost savings and some of the.
Mechanical savings not having to run two separate companies, but just strategically thinking what's your what's your sort of thought on the on the value creation there.
Okay.
This is probably less P. B S centric, but many of the attributes that exists with having a dropdown MLP has subsided over the last number of years.
So it was an entity that was performing well in terms of its operations.
And the financial performance, but many of the benefits that drove us to create the.
The structure of the entity subsided in and so the ability to clean it up now as a number of other companies have done seems to make a lot of science in it.
Ed.
You know I think it's pretty straightforward.
Presented as a more simple structure and.
So yes, there are benefits of <unk>.
You know getting some cost out of the way, but that I don't think it was a big driver the PBF acts as a growth platform and something that was in high demand of yield.
Simply declined over the last couple of years and so we're happy to bring the assets and all our employees will many of which worry now.
Serving wearing two hats.
So it simplifies that quite a bit and so.
We tried to create a.
You know.
Transaction that was fair for all parties are working with the conflicts committee of <unk>.
We went through a full process, but a very fair one and so we're pleased.
Yes that makes sense and I just wanted to talk and return to the conversation about about the balance sheet. So understand that you don't want to.
Buyback debt at a high premium.
I was trying to parse your comments it sounded to me like maybe youre thinking there isn't sort of a need to run at a lower structurally lower debt level than before.
Basically could you just help us think through the framework of your.
Bye bye and logistics, which can probably support a little bit more leverage I think youre pointing to flexibility that you've demonstrated in our refining system, but just curious is there an argument to be running at a lower debt level based on what we've just gone through or.
No change to that.
I think it just inherently based on that.
At least where we are today and what we see in terms of forward curve.
There will absolutely be a significantly lower net debt level for PBF consolidated on a go forward basis.
Where we are here at the end of July as ultimately, we just write consumed a massive amount of delevering.
And there is zero pressure to do anything at this point. So we do have some PBF logistics notes that will be coming due next year, we feel like we have ample capacity between the revolver at P. B FX as well as the P. B F. A b L. We also have a significant cash balance and so.
Really what we're prepared to do now is to determine what is the long term structure in terms of debt.
Making a decision now and quite frankly, the high yield market I believe the first six months of this year might be the third worst performance in high yield ever.
So waiting into a market that is not yet fully recovered.
Push out some of these maturities seems a bit premature and quite frankly, there is zero pressure and we have the financial flexibility. We are really focused on we should continue to see liquidity improve now that our numbers are out and we filed the Q. This morning, ultimately we will be sitting down with suppliers in August .
In September we should see letters of credit come down the collateral posting right there there's really a E.
A significant amount of things that compound on themselves as a result of our balance sheet getting back to again.
Better than it was as we entered Covid and we are a significantly stronger and quite frankly bigger business than we were let's not forget that we have a real workhorse out on the west coast and Martinez that now has been added to the portfolio.
And we've not been able only with Q2, and we really been able to demonstrate.
Now what that particular asset can do.
And we've.
We've got a high bar internally in terms of what we need to execute on so I think the key message right. Now is that we are flexible and most important we are patient we do not have our backs to the wall on anything we've just what we've just lived through the biggest demand destruction event that this industry has ever seen and we've come out the other.
And were stronger than we were when we entered.
Yeah makes sense. Thank you.
Yeah.
Okay.
Thank you. Our next question comes from the line of John Royall with Jpmorgan. Please proceed with your question.
Hey, good morning, guys. Thanks for taking my question.
I think he made a comment in the opener about I M O twenty-twenty, you're kind of coming back into view can you talk through some of those dynamics and the impact you're seeing from ammo now and I guess, how that could evolve going forward.
Yeah.
I'll make a comment that.
Just look at the clean dirty spread the spread between.
High sulfur fuel oil and diesel ultra low sulfur diesel and that spread is very wide, but there's a number of factors that are impacting that.
Not the least of which in fact, perhaps the most important factors right now at this 10 seconds is.
The distress to shift crude students recruited from sour crudes heavy crudes because of a high natural gas prices and the cost associated with although it was not as natural gas prices on on getting the sulfur out of a crude so as we talked earlier, you've got pressure on the heavier crude.
Feedstocks being.
Being driven down because of that dynamic and you've got Paul on the sweet side at the same time, what we are saying is for the last we've been saying one of the advantages.
<unk> P. B F for the last I don't know 10 years.
Has been our complexity.
And we are a very complex kit and we candidly have not been rewarded for that.
Past couple of years because of the low spreads between the light sweet and heavy and that was to certain extent due to the fact that there was ample.
<unk> destruction capacity available coking capacity.
Well that's changed some coking capacity, he's getting fall and that's becoming tighter which means that will be another contributor to the the differential between the light sweets and the heavy sours. So it's really a combination of factors, but we have certainly seen at higher utilization of the visit destruction equipment than we've seen over the past.
Several years and that's that's been driving the incrementally because you've got to get the sulfur out at a high sulfur fuel oil to get it into the bunker fleet.
Okay. That's really helpful. Thank you and then can you talk about a recession case and what that could mean for the industry and for for product inventory balances and cracks if it happened in let's say the next 12 months would that change your view on the structural cracked being above mid cycle. If we had a bit of a reset due to recession.
Not really I I think well it would all depend upon the gravity of the recession. So if we're if we have we do have basically a full employment in the U S right now.
And I'm, not saying that there isn't going to be a correction here a recession, there's no doubt that inflation he's gotta be dealt with and there's no doubt that the fed indeed is just going to do that but.
But there are other factors that on the other side equation as I said.
Disposable income people had a lot of disposable income coming out of Covid.
And we do have effectively full employment and there's more job openings than there are people out of work so.
So hopefully if there is a recession it won't be a drastic recession, it will hopefully be a little bit more shallow who knows.
But the fact is.
What we're seeing already is the price of gasoline has dropped over 50 cents a gallon.
And what has to happen really to the next steps in this correction is to work with.
Food side and the other things in the supply chain to get those things turned around and bring.
The rate of inflation down but.
There'll be an impact there's no doubt, but I don't think it's going to be an impact that is going to knock us off the need to run our refineries at a very high utilization because of the supply demand balances and the fact that we don't have as much capacity on the ground as we used to.
Thanks, very much guys.
Yeah.
Thank you. Our next question comes from the line of Karl Blunden with Goldman Sachs. Please proceed with your question.
Hi, good morning, Thanks for the time I just had a question on Rins I think was helpful. When you broke out the fixed versus floating exposure. There I was curious is there a thought to to changing your approach to how much you run fixed versus floating it's just been such a focus for people maybe a distraction away from the core business from time to time.
Yeah, absolutely and on a go forward again. This is we're in a very unique position now where we have these three outstanding annual periods and so you know the RIN market is.
Not like the regular way securities markets for equity and debt I think we've tried to highlight that for for folks along the way and so as these periods suddenly get put in the rearview mirror, we do believe that ultimately we will not be talking about but we're happy to disclose what we expense in terms of <unk>.
Men's but ultimately we want to put a lot of this noise behind us it's been a very messy program along the way, but candidly. We're also still trying to anticipate what the 2023 program is going to look like for US our focus right now is really on making sure that that we handle our 2022 obligation and ultimately.
We comply with the program for 2020, one and 'twenty two.
Thanks, Eric.
The follow up just on the bond maturities that you have coming up I think you've been clear that you can be patient.
As you look forward do you think the business or the appropriate capital structure to be one where you just take out to 'twenty 'twenty, three and 'twenty twenty-five testing done to replace any of it. So you know run run leaner in terms of how much debt you have on the balance sheet.
Or is that something still kind of thinking through what the appropriate quantum of debt is I think we will still have to figure out what the long what the long term debt quantum is.
Right now there is zero plan to take out that you know the stub there's about 675 million outstanding on the 20 Fives and then we clearly have the 525 for PBF logistics there.
There is a there is a longer term appropriate level going debt free in this business doesn't seem to be.
Extremely responsible at the same time, we've seen.
The type of consternation that it provides when you have an over levered business and refining and so we're trying to find what we deem to be the sweet spot there.
As we sit here today.
We do have on a trailing 12 months basis.
We.
We have less than four times.
Debt to EBITDA.
Understood that we've just gone through a period, where we generated close to $2 billion of EBITDA. During the quarter. However, the forward curve is spitting out numbers right well north of $1 $71 $8 billion for our business over the next handful of years and so what we are trying to ultimately determined.
Is what is the right level, but again, we can be patient now we.
We are.
We're in the driver's seat now as opposed to reacting to everything coming at us during COVID-19.
Stay tuned thanks, Eric I appreciate it.
Yeah.
Thank you our last question today 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 first one could you talk about the product yield and feedstock slate for the upcoming argued plant on the product side do you anticipate having any flexibility and then on the feedstock side I believe you're looking at a full pretreatment.
But do you think you'll be able to access these discounted waste oils and animal fats or would it be more like a like a crude spo feed.
So go in reverse order, maybe a b R <unk>.
<unk> building out our commercial operation now and so while the project will not come on.
For.
Not until the second quarter.
We're actively staffing up and building the capabilities to source whatever is the most economic feed available I do think in regards to our title of the strengths of our project is where we're coming on there's a number of projects behind us that will have the advantage of actually being.
Our buying teams, but yes, we believe a lot of our access to the market.
We're hiring a professional staff to execute on that and we will have full capability to run whatever is the most economic.
At any given time, so we will have full flexibility.
And.
That's why we think the project is so attractive in regards to the yields and obviously there was some news last night, we haven't.
Fully digested what is.
It's a compromise with the center imagine, but we anticipate.
That S. A F will be demanded project are demanding fuel in the future and we will have the capability.
Two manufacturers sustainable aviation fuel from the.
From the project.
Yeah.
Any initial thoughts on what the Saf yield might be.
I think we could we could get it up to.
20% without much capital in and for a modest amount of capital we can get out of them.
Wow, Okay. That's great and then to comment on you expect above mid cycle refining margins for now.
When we think about the math behind it looking at Europe , Nat gas at 50 Bucks.
For M P to U U S. You know call it around seven.
And then we think about generally are you know every one dollar per M. N btu in that gas is about 25 cents per barrel and refining margins and sort of just doing the math there that'd be about $11.
Margin benefit from just a steeper global cost curve does that does that makes sense to you is that how you think about it as well or any any different numbers there.
Directionally, that's the way we look at it and there's been number of publications that have put out in the scale of what the spread is between.
European gas and Henry hub.
If indeed, we wind up holding a 50 dollar spread that is going to be.
Very big driver for improving margins, because obviously European refiners Ive got to cover those costs and we will be a cost advantaged in many way so.
But you are Directionally correct.
Okay.
Great. Thank you.
Yeah.
Thank you, ladies and gentlemen, when we come to the end of our time for questions I'll turn the floor back to Mr. Namely for any final comments.
Thank you folks for joining the call today, we look forward to continuing to recognize.
Floyd and reward our shareholders and talking to you.
At the third quarter call. Thank you very much.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.