Q3 2022 PBF Energy Inc Earnings Call
Good day, everyone and welcome to PBF Energy's third quarter 2022 earnings call and webcast.
At this time, all participants have been placed in a listen only mode.
And the floor will be open for your questions. Following management's prepared remarks, if any once you need afraid or assistance during the conference. Please press star zero on your telephone keypad. Please.
Please note. This call is being recorded it is now my pleasure to turn the call over to Colin Murray of Investor Relations. Thank you Sir you may begin.
Copies of today's earnings release, and our 10-Q filing including supplemental information are available on our web site for it.
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 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 describe.
And in our filings with the SEC.
Consistent with our prior periods, we will discuss our results today, excluding special items in today's press release, we described the noncash special items included in our quarterly results.
Cumulative impact of the special items increased net income by an after tax amount of 55 million or approximately 44 cents per share 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 gently.
Thanks, Colin good morning, everyone and thank you for joining our call.
For the third quarter P. B up reported earnings per share of $7.96 and.
And adjusted net income of just over $1 billion.
The underlying supply and demand fundamentals fundamentals the global hydrocarbon market Cree.
Creating an environment that has allowed P. B F. The finished the third quarter with effectively zero net debt.
And reward our shareholders with the reinstatement of the 20th century regular dividend, we announced this morning.
We remain highly focused on continuing to strengthen our financial position.
Well currently reinvested in our base refining business and diversifying our product lines.
Continual reinvestment in our refining assets has allowed us to maintain relatively high operating rates that supply the market with our vital products. We are progressing on new investment in low carbon fuels in an effort to meet growing demand in that area, while exploring other opportunities within our footprint.
To expand our business beyond traditional refining.
We are making these investments because they will make our company more resilient in global energy markets that have become more chaotic and unpredictable due to geopolitical events and evolving policy positions that are causing uncertainty.
As markets adjust to these gyrations, we are seeing several repeating trends that affirming.
Global crude oil and product inventories remain low, especially distillate.
Refineries are being called to run at high levels of utilization global natural gas prices remain elevated although well off their highs seen over the summer.
You asked me partners continue to benefit from low cost natural gas versus our European competitors, we are seeing a benefit from wider light heavy spreads and some refineries in Europe are running a lighter slate due to energy I bet challenges of secondary units the widest spread on light heavy is also implying.
That available coking capacity is at or near limits.
The supply side of the story has been focused on several bullish factors.
U S. S. P. R. C. I was coming to an end no Iran deal OPEC plus agreeing to oil production cuts upcoming EU sanctions on Russia, and crude oil and products and confusion discussions about a G seven price cap on Russian exports.
The simple Synopsys is there is limited visibility on oil production rising material way in the near term.
While there are some areas of growth in non OPEC, plus including the U S and Canada in particular this growth may not be enough to keep pace with losses in the other regions.
Global demand has rebounded from the lows of the pandemic and regional dislocations are occurring.
Refinery refining capacity is down which is requiring higher levels of utilization from the remaining facilities.
The U S refining complex kit is benefiting from lower natural gas prices are highly skilled workforce operating the most complex and well maintained assets.
We expect that U S regional trading partners.
The international market in general will continue to require U S products to help balance and stabilize the markets.
The market instability, we see today is the cumulative manifestation of politics and policy.
And as you transition to a D common areas and.
Stack is one large physics problem.
Tempts to remove on demand energy fossil fuels from the energy stack and replace them with less energy dense and intermittent sources of energy is a very challenging proposition.
The industry is being asked to pump and we find more oil today and that would be at the same time being told that we do not want your fuels in the future.
With some timelines putting a book end up 2035 on the use of in terms of the internal combustion engine.
Unfortunately, our business does not operate on such short timelines are investors and lenders require a return on their capital that does not necessarily fit within that timeline.
There are solutions and society needs to recognize that fossil fuels play a vital role in any transition and PBF is well and very willing to play a part.
We have restarted units at all refineries that were idle during the depths of the pandemic, we recognize the essential role that the products are refineries make are vital to todays quality of life and we welcome a balanced discussion on how to fuel the future.
We remain focused on running our assets safely.
Environmentally responsible manner and reliably our valued employees work 24, seven to ensure safe reliable operations that provide a continuous supply of products to the market.
We will continue to invest in our assets improve the financial resilience of our company and ultimately reward our investors for their support.
We've done today by reinstating our dividend.
With that I will now turn the call over to Matt Thanks, Tom our operating and financial results for the third quarter.
Are a direct reflection of the tireless work of our employees.
Since inception P. B S has been focused on assembling a highly complex and geographically diverse refining system.
Our system is demonstrating the value of that diversity and complexity.
Our dedicated employees are running the refinery safely and reliably in an effort to keep our customers and consumers well supplied.
In the third quarter, our total throughput was over 90 million barrels or 984000 barrels a day.
Which is the highest level of throughput in our history.
This follows an extensive maintenance completed in the second quarter.
And relatively unrwa uninterrupted operations in the third quarter.
We are in the final stages of the stages of completing our last major turnaround of the euro at Chalmette now and the impact of this is included in the guidance provided in today's press release.
Our assets requires continuous investment to remain competitive and stay in business.
Over the last few years, we have seen over 5% of the refining capacity in the U S either shut down completely.
Or converted to much smaller renewable operations.
A reduction of capacity can be attributed to a capital intensive business that has continuously under assault from certain state and federal initiatives geared towards accelerating a transition away from refined products.
The energy supply cannot be rapidly changed through policies attempting to force a premature transition without significant costs.
The conversation needs to happen amongst all stakeholders that focuses on the goal of providing cleaner fuels well.
While not ignoring the necessity of maintaining reliable and I'm, a 40 affordable energy sources.
The cornerstone of our high quality of life.
To that end P.
<unk> is focused on maintaining our refining operations.
While expanding the types of energy and fuel we provide.
We are progressing our renewable diesel project in Chalmette.
We are approximately halfway through the capital spend and expect to be in production with full pre treatment capabilities.
In the first half of 2023.
Our project will deliver new capacity.
Above our existing refining operations to the market.
Importantly for PBF, our project will generate environmental credits with the potential offset a significant portion of our annual purchase RIN obligation.
We are more committed than ever to bring this new capacity the market.
While we continue to have discussions with potential partners.
In terms of the forward refining environment, we expect current volatile market conditions will persist.
Inventories are low and demand will continue to support high refinery utilization.
The fact that the U S as the world's largest oil and gas producer and a net exporter of oil liquids is a wonderful benefit for our country and something we should never apologize for.
Our domestic energy industry brings us advantages that are the envy of many countries, especially in Europe .
They rely on the U S to provide them energy at a time when they need it most.
With that I'll turn it over there.
Thank you Matt.
For the third quarter, we reported adjusted net income of $7.96 per share and adjusted EBITDA of over $1 $5 billion.
This brings our trailing 12 month, adjusted EBITDA to more than $4 billion.
Consolidated Capex for the third quarter was approximately $247 million, which includes 142 million for refining and corporate.
103 million related to continuing development of the Rd facility.
And 2 million for PBF logistics for.
For the full year 2022.
We expect total refining and corporate capex to be roughly $550 million to $575 million, excluding the renewable diesel project.
As we have mentioned previously we have transitioned to our normalized pre pandemic turnaround schedule.
We have been steadfast in our long term commitment to maintaining a strong balance sheet while.
While challenging events like the recent pandemic caused us to use all available levers to maintain excess liquidity and demonstrate our commitment to prudent balance sheet management.
<unk> never wavered.
As we sit here today Pbf's balance sheet is its strongest ever our reported net debt to cap is 1%.
Liquidity is more than ample to operate our refining system at elevated utilization rates and at current hydrocarbon prices. Additionally, we have the financial flexibility to continue to fund our diversification efforts into renewable diesel while we explore a potential partnership for this business unit.
With our balance sheet now four to five.
Dividend reinstated and the macro backdrop for refining translating into higher mid cycle earnings are.
Our complex and geographically diverse system is well positioned to generate significant value.
Our financial performance over the past five quarters has set the stage for a rebalancing of our future prospects on paper.
We meet or exceed many investment grade metrics in fact, we crossed into this territory over the summer as a result of our deleveraging efforts in connection with the full repayment of our secured notes.
As we look forward.
Our system should continue to demonstrate through cycle earnings power with diversified earnings streams as we enter the low carbon fuel space.
And continued balance sheet discipline.
In turn our long term cost of capital should go down as our credit ratings increase these.
These steps will make PBF more competitive in all market backdrops.
Lastly on the previously announced transaction whereby PBF energy has agreed to acquire all of the common units of P. B M. P. B S logistics that it does not already own we expect that transaction will close this year subject to receiving all of the necessary regulatory and unitholder approvals.
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 he would like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the Kim and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, while we poll for questions.
Yeah.
Our first question is from Roger read with Wells Fargo. Please proceed.
Yeah. Good morning, everybody and let me deliver my congratulations for you all fighting all the way back given given where the company has done over the last couple of years in the depths of the Covid issues.
In terms of my questions I.
I guess I'd like to understand Eric you've.
You've done a lot here and balance sheet, you know a lot of repair.
But you've got commitments on renewable diesel you probably got some catch up on refining maintenance at all so how should we think about the necessary investments going forward for PBF.
Keep you on the on the right track and obviously, you've got a close P. B S acts as well.
Yeah, I think as we sit here you know at the end of the third quarter with consolidated cash of over $1 9 billion. Obviously, it's a lot of money to your point, we do have some commitments that we've made to not only you know I think that the total environmental accruals was about one point little north of $1 2 billion at the end of the third.
Quarter, we've tried to outline for folks and have included in the Q about two thirds of that is committed it's going to erode or decay away over the course of the next 12 months on the RIN side of things, we're still in an environment, where there are three outstanding compliance periods. So we are actively managing that program. We've all.
Also believe we will see the AB 32 cap and trade and L. C. F. S credits also start to decline in terms of overall balance over the course of the next 12 months, there's about $300 million allocated to a potential PBF logistics buying.
That's included in those figures as well.
And from a Capex standpoint, we've oftentimes talked about you know $5 million to $600 million a year of Capex those numbers will will swing a little bit depending on timing of turnarounds to Matt's point, we had the highest throughput.
In our history during this past quarter well to go alongside high throughput you need to make sure that this equipment is actively maintained and we are back on a regular way turnaround cycle.
One thing again, we've mentioned this before important to note.
We never stopped investing in our assets.
So we continued to spend circa $200 million a year just in general maintenance environmental and safety related spend that's going to continue whether or whether in the depths of the pandemic or we are in the current market environment that we see today.
Yeah.
Yes fair enough I guess the other question that I don't know if this is for you Tom or Matt or kind of split it up obviously a lot of discussion about how policies an issue. There's a lot of worries about you know policy, if affecting either crude or refined product exports, maybe both as you look at the current sits.
<unk> inventories, where they are on the east coast, you would get a front row seat. There what are you seeing in the way of flows I mean does it look to you like there's more than enough product available or is there something else going on in the market there.
There's no doubt that distillate inventories are tight frankly globally.
And to your point in our backyard by here in principally New Jersey pad one.
Had one definitely the inventories right now I think about 45% below the five year average.
So that is a focus point and has to be a focus point.
What we're trying to get those inventory rebid.
Rebuilt.
The basic problem is really quite clear here.
We've had rationalization of capacity associated with Covid, and it's been coupled and ganged up on to a certain extent by policy that does not drive you to want to continue to operate facilities or invest in as necessary.
Do you think that may not be a long enough runway, if we get a return on that investment but to your point I think.
In fact, the world is going to if the the all caps go into place if the bans go into place on February 5th on products or the the world will become more.
Reliant on the U S. It's just.
Supply not only our own base the five pads.
Also other parts of the World I'm confident we're going to be able to do that.
But it's going to take you know a heavy lift because we are running at already at high capacity utilization, Matt would you add anything.
No I think he covered I think actually the president made a comment the other day, where he he reiterated the fact that.
It's all in the U S and and our capabilities on producing energy to help fuel our friendly countries and and our allies and there's a corn today as it's ever been because the last thing we want to do is shove our allies to our adversaries.
Hey, Roger one other thing I should mention.
We did in fact startup of a number I'm sure you're aware a number of pieces of equipment number of units in Poland.
That we had regrettably had to shut down is a very difficult decision, but during the peak of the pandemic.
But those who.
The reform in a couple of hydro treaters that are supplying jet and and USD two pad one that werent running.
At this time last year.
Oh, great. Thank you.
Our next question is from Doug Leggate with Bank of America. Please proceed.
Thanks, Good morning, everyone. So I'm a lot my congrats getting but net debt zero is quite an achievement. So I'm sure. All your shareholders are thrilled about the progress.
My question is actually like gasoline I know, there's a lot of focus on distillate, but you know with three or four months away from the traditional switch to lower vapor pressure product in the summer you know I had a summer starting on the West coast.
I guess I'm curious that with gasoline stocks, where they are.
On the spread still between heating gas cracks.
Do you get back to how do you solve the supply problem for gasoline going into 2023, I'm just curious of your thoughts on that.
My follow up is for Eric I guess, Eric simply put now that the balance sheet has been addressed.
How do you think about managing cash balances going forward on your thoughts on cash returns and I hope everyone listening to your message to policymakers. This morning. So.
I'll leave it there. Thank you. Thank you Doug and let me take the first one.
Well I did read your piece I didn't get it all the way through it this morning, but I did read the headlines are well well written.
<unk>.
We're kind of in a do loop right now.
And what happens is because we are so tight on inventories so tight on available capacity.
What happens if we look at the market every refiner looks at the market and says okay. They definitely crackers 20 Bucks about 30 Bucks or 40 bucks over the gas crack we turned every drop of gasoline that we can interdigital, Inc.
And then all of a sudden you get what you were alluding to is wait a minute. Yeah. This was the inventories are very low, but yesterday, we drew two and a half million barrels counter seasonally on gasoline for the second week in a row and so it's a little bit of we're making less gasoline yield because they're trying to make more distillate yield.
And that will that warm will turn but then what will happen is of course gasoline prices will likely come up in the spring and in fact with the season all of them, perhaps fishwick prices will come down there will be some build I'm confident of that over time, but you're spot on and that's what we're really doing right now is reacting to where the crisis in the market with them.
And in the market is is the heaviest and right now.
It it was distillate in the beginning in the first and second quarter went to gasoline for a while it's going to happen again until really.
My opinion and Tom Oconnor, you can weigh in what is going to solve this problem hopefully not a global war or something like that and or a huge recession is there will be additional refining capacity coming on next year of.
Of course it is in fact, the problem is that all.
Global refinery capacity is very very tight is gonna be refineries coming up in Asia. How much would you say is going to come on board I mean, I think to those questions. Tom I think it's really kind of adding a couple of things in terms of capacity additions in the <unk>.
And in Asia.
Being a source of resupply, particularly in calendar 'twenty, three but I think when youre looking at the market today don't diminish the fact that Monroe an earnings turnaround exactly when those are coming back to the market should provide a little bit more buffer in terms of where we've been over the life.
Got it hooked up.
And Doug on the on the returns concept.
I think from our standpoint, and the board's standpoint, reinstating the dividend you know nominally this is $100 million a year, that's going to go out the door based on current share count that's a great first step in if we just go back 16 17 months ago, that's when we transitioned right from from being in the red to being in the black.
And we've now found ourselves in a position where clearly the balance sheet is fixed again, it's as strong as it's ever been.
And as we go forward, we do have a few remaining items that we need to cover we will again see those environmental credits come down we think that is important for shareholder value overall.
And lastly, we do have about $525 million of debt that is essentially pre payable at the PBF logistics level.
We will need to do something with that over the course of the next year and so there's a couple of different levers that are already on the balance sheet and as we go forward. We do have the renewable diesel project to Matt's point.
This thing is essentially halfway there so we've got another call it three to $3 50.
Of Capex that I think we're we're comfortable overall investing to get that project up and running because I had kind of current market environment or current market prices with 300 million gallons a year of production on an annualized basis that should generate you know $400 million a year in EBITDA and so I think we're comfortable continuing to incubate that.
Project because there are returns on the flip side once the pre treater is up and running.
I'm sure someone else will pick up that question, but thanks, a lot fellows for the answers.
Okay.
Our next question is from Ryan Todd with Piper Sandler. Please proceed.
Yeah.
Yeah.
Great. Thanks, maybe.
I will.
A follow up on that you know you start following up on the on the renewable diesel side.
You've clearly had the flexibility and the capacity as you said to fund the project on your own if you want to.
How should we think about the urgency to find a partner or how important is it to you how would you describe the ongoing conversations.
<unk>.
Or you know or do you have a is there a preference given the attractive returns that you see there.
To do it on your own.
I would I would say you know it's funny.
Virtually nothing has changed with our renewable diesel projects since we announced it.
And Ah virtually everything has changed outside of the renewable diesel.
The project is certainly with PBF and certainly with our financial position. So we have the increased capability. We have to increase luxury we have increase optionality to do what's best for the company and its shareholders.
I'm more than pleased with some of the discussions that are progressing with our partners or potential partners.
And we have the ability to be a bit more selective because if if terms are not to our liking. We can obviously do it ourselves.
Shelves at this point is as you said, so that's simply going to be a function of is there a partner that.
Can increase the value of the partnership where there's an additive aspect where someone's, bringing some attributes that we don't currently have.
And then the valuation aspect to it where.
The cost of the project today should be incrementally much more attractive than it was a year ago, because we've progressed the project projects on time, it's on budget. If someone were to start a project today with inflation, where it is and the scarcity of of of materials that will be a much much longer.
Build time and much more expensive endeavor. So we are thrilled with our positioning for the project. We're pleased that's on time and on budget and we're very pleased with the discussions are ongoing with our partners potential partners and and we'll see where it brings us.
Hopefully that addresses your question.
Yes.
Yeah.
One quick follow up on that on the on the attributes to it.
So a partner who could bring to the project is that.
Would that predominantly be something on the feedstock side or are there other attributes to it.
Well then maybe.
So somebody can bring.
Obviously, the base business is procuring feed and and you know the.
<unk> products are they at quite frankly, it could be on one or both sides and then secondarily would be you know simply the cost of capital and valuation.
Great maybe switching gears for a second one underlying refining performance, both operationally and in terms of margin capture.
As clearly exceeded expectations over the last couple of quarters I know, it's early but.
But as you think about margin capture in the fourth quarter. What are you seeing in terms of crude differentials market structure of secondary products pricing et cetera.
Any early thoughts on how you think margin capture made trend versus the third quarter.
It has been as you said.
Stated, we've seen good capture rates and it's because of the market environment.
That market environment continues in this factory is probably moving a further in a positive direction.
We've got better crude differentials we've got.
Got clean dirty spreads and everybody understands the clean dirty spread is the difference between high sulfur fuel oil and ultra low sulfur diesel I E. Coking economic incentives are at very very elevated numbers.
We've got a situation, where because I've always supply an overcapacity in the petrochemical market that there is surplus naphtha, that's being put onto the market that we are taking on other refiners are taking to blend into gasoline that's economically attractive and it is also driving up.
The cost of the value of octane and we're benefiting from that so.
That on top of the fact that the base business as is <unk> got strong fundamentals because of the tight capacity utilization high capacity utilization and recovering demand. We would expect this trend to continue.
Okay.
Perfect. Thank you.
Our next question is from John Royall with Jpmorgan. Please proceed.
Hey, good morning, guys. Thanks for taking my question can you talk a little bit a bit about how we got to the point, we did in California cracks in late September early October and and what does that tell you about the market out there and does this kind of a one off anomaly or is this something that you think will be seeing more frequently.
I'm going to start and then turn it over to Paul Davis, our head of commercial but also what I said previously the.
The president of the West Coast Operation.
It's kind of the same story of only a little bit on steroids is.
Uhm in California during the pandemic, California, you guys have said this many times, California typically was one to one and a half refineries long with everything running well and then when something happened. If there was an operating upset for refinery went down then you'd get a rather sharp.
And.
Dramatic moves in the marketplace now during the course of the pandemic.
Plus you had the Avon refinery I referred to it as they learned plenty because when you go onto taxco, that's what it was but does marathons refinery in the San Francisco Bay area made the decision to go ahead and shut that down in the early part of the pandemic because of capital requirements and the fact that there was going to lose a lot of money and converted to a.
Renewable diesel plant.
160000 barrel, a day refinery coming off the market.
That's a significant move so we look at one 4 million barrels a day of capacity coming off in North America, the last 4% to 5% of capacity, but when you start talking about 160, and then the corollary impacts on some other refineries like rodeo in Santa Maria the percentage of capacity is actually that's come off is actually slightly higher than that so the market.
Simply tightened up but what would you have on that.
Well I think he said it well I mean, the only thing you can add is going into the summer. There was there was a significant amount of planned and unplanned maintenance all long pad five.
And some of the unplanned maintenance really snowballed with the effects on on the inventory drains coming into and out of September and I think I think the price reacted to that and you know the arbitrage into the west coast for gasoline components, which it needs to.
The balance we just have not seen the flow of products, both on gasoline and really jet coming across from our from our Asian counterparts. So.
September was it was a month, where a lot of that came that came to fruition.
Okay, Great. That's really helpful. Thanks, and then.
Maybe to switch to capital allocation are great to see the base dividend coming back in and certainly a little earlier than we expected.
I assume over the long term do you envision this company is having both a base dividend and the buyback. So I guess first I just wanted to confirm that a buyback is and the thought process down the road and then how should we think about should we think about maybe you have to get over some of these cash flow hurdles like PBF Exxon and.
In Chalmette first before we can define what that looks like.
I think that's right ultimately share buyback is yet another tool that can be employed a we've seen it amongst our peer group and amongst other folks that are out there and so it absolutely can be something that we could put in place at some point in the future I think we've tried to approach this in a prudent manner again we.
We know and we've gotten a considerable amount of questions over the past year around other things that we're trying to address here and we've tried to lay out a plan to the true everything up over the again in the course of the next year.
But at the same time, we've also seen our business generate enough cash that we feel very confident that getting back to the first step is paying this dividend and that that's really the most important message for today.
Thank you.
Our next question is from Carly Davenport with Goldman Sachs. Please proceed.
Hey, good morning, Thanks for taking the questions why does it just started that on the crude side, particularly on heavy Canadian differentials can you talk about what you think has been driving the wider WCS spreads and if you've been able to take advantage of those discounts and source more if those barrels across the system.
Well do this I'll comment.
Comment and then Paul will come over the top but.
Some somewhat impacted by the the releases of.
From this.
Reserve.
Which basically push it back a little bit on Canadian crudes, they come out of turnarounds on the upgraded so the supply has come back so that there is.
Rather significant widening of the not only the WCS ti spread with the.
Brent Ti spread which is we're moving barrels in which we are to the east coast of the United States to the Delaware City.
That has been advantageous and we have been able to take it and I'll continue to take advantage of that market dynamic.
A lot of the WCS valuations have been impacted by the by the problems in the pad too I mean, some of that some of those problems are planned some of those are unplanned and they're not insignificant and thats put pressure on the on the differentials there than fuel oil pricing is really really driven where WCS valuations are for refiners.
The golf.
And that's impacting the pricing we've taken advantage of it on the on the East Coast, we're still running our slate there were buying it in chalmette.
And so both of those sites have had some advantages with that.
Great. That's helpful. Thank you and then just wanted to follow up on the renewable diesel side I think you mentioned potential for 400 million of EBITA. There once the P. T was up and running can you just talk a bit about what the key assumptions around the economics are that you're making to kind of drive those estimates.
Uh huh.
Ren.
Qualifies for you know credits in California, you have the blenders tax credit that's relatively stable.
EBITDA today model for our plant is above $400 million, our base case and.
Approving the project, we assume something below that just to be conservative.
And so we're pleased with where the market is.
As we have as much conviction today as we did when we designed and approved the project.
But like I said it when its starting out there's there's multiple levers to it and so you can try to bring you know a fine tooth comb to each one but.
But if you sit back and from a 10000 foot view look at a macro and say look the.
The environment is such where.
Governments are going to want to incentivize the manufacturing of renewable diesel and whether that masses mass Els manifests itself and the D for RIN, which is clearly needed to incentivize the production or California credits or credits in Europe , or you know the blenders tax credit is concert.
We believe the market is going to be there in a resilient fashion for us to make good money with a renewable diesel plant.
Very clear thanks for the time.
As a reminder, the star one on your telephone keypad, if he would like to ask a question. Our next question is from Paul Cheng with Scotiabank. Please proceed.
Hey, Thanks, good morning.
Morning.
Two questions Tom.
Historically, you guys have a growth through acquisition strategy and of course Oscar.
The tolerance, saying, they're kind of fund the acquisition and then with the containment do you pause which are bouncing back.
And in a very good shape.
Even though you still have some spending took those so how how should.
We looked at.
Weapons that that strategy is still intact, and how you balance between debt and capital return to shareholder.
That's the first question.
Okay, Paul a good question let.
And particularly in California. So after we bought Torrance, we were looking for an opportunity to balance that capacity.
Did that with Martinez and as you all are well aware the timing was not particularly good because we closed on February 1st and Covid hit around the same time that being said, it's a very good asset and it's going to be very powerful asset as part of that system.
But we are very comfortable with where we have our assets right now that being said and we are also trying to diversify the business. We can't ignore the fact that the policymakers or I've got a different agenda, perhaps and so we have to do things like the renewable diesel project and we actually have some other things I alluded to in the comp.
So that we might do with our footprint because of the amount of land that we have that being said, we will always be on the look out for a deal if it makes a hell of a lot of sense.
But right now that's where our focus is.
And I think in the past I think the acquisition strategy to get there.
Looking for some maybe oh up shape when you find me in your body and you're trying to improve it and I think subsequently that you have.
But do you think you may not want to do it anymore.
You may be willing to pay a little bit more but that by a well maintained good quality, it's that it's that skewed the thinking at this point.
I think that has shipped it Paul I mean at the time that we started PBF.
There are number as you're well aware of refineries that the current owners, we're motivated to sell those refineries. So at Delaware City Valero had made the decision that you wanted to get out of pad one Delaware City goes on the market paused all goes on the market and you know we had an opportunity to buy in at a reasonable.
Knowing full well that we'd have to spend a fair amount of money, particularly in Delaware because it had been shut down and mothball then we bring it up.
Toledo was kind of the same way in that.
Sonoco wanted to get out of the refining business and that became an opportunity for us Exxon.
Wanted to get out it's out to California. After the precipitate a explosion or even before that probably so they will all opportunities that were there because of an exit strategy by the owner.
And we recognized that we were going to have to do perhaps as you suggested that we might be buying a fixer upper to a certain extent Martinez was completely different.
Top drawer asset.
And I think theres not too many of the refineries that people are going to say they want to get rid of now there'll be some obviously that will go on but.
With the refining environment right now in the market environment Youre going to have to pay up I don't know if it's a great deal we will otherwise we'll focus our efforts on other things, including returning more capital to the shareholders.
Yeah. The reason I asked that.
No doubt, we're going to shut down the Gulf coast, and we're finding it because they couldn't sell yet so it appears that that.
Question number two.
That is up for sale and May not have a lot of pickup. So that's why I'm wondering that when you go back to your strategy.
I had in Utah.
Paul I would just say, it's just all a function of price and so we can't declare here today that we are gonna be acquiring refineries or not.
Primaries, obviously.
The Gulf Coast is set for closure because the market couldn't come to terms on price and a the company is moving on.
You know for opportunities for us going forward it will simply depend on the op adopting exist at the time.
But as Tom said, we're very pleased with the portfolio we have.
And we think having highly complex coastal refineries with coking capacity is going to reward our shareholders handsomely.
A final question from me Tom You mentioned that you know one thing summed up ECS.
C P a kent.
Can you tell us how much you one thing in the third quarter and how much do you expect in the fourth quarter and was the colon Whopper estimated transportation pulse the world, yet Oh play with that too.
East Coast and also that you have you can you mentioned that I mean, how much is the cost to bury it down to the Gulf coast tissue, Amanda and how much of your lending. Thank you.
Okay, I'll I'll take a shot at basically the beginning and then turn it over to Paul Who's got all the answers to all the other positive question, but.
What do we want a 25 30000 barrels a day of.
Canadian heavy we're running about 30000 barrels a day of Canadian on the East Coast. The East Coast now we're running we're running some down in Chalmette I would also say that.
Our commercial organization has been able to source some of the heavier materials.
Iraqi straight run heavy straight run material. So again, it's a function of the fact that the heavy barrel or is it starting to get some pressure.
In terms of transportation cost and how much of that age from Canada.
Canada to a Delaware, Canada East coast, it's still running around $15 on rail Oh.
And then Chalmette Chalmette, we buy that barrel in place off the water from others that are shifting down there they rail freight down to the Gulf Coast is pretty comparable to the east Coast Economics, I don't know exactly what they are because we're not doing it but I do know, it's comparable vintages, barging, barging and and market valuations delivered into.
Perfect. Thank you.
Thank you Paul.
We have reached the end of our question and answer session.
Like to turn the conference back over to Tom Nimbly for closing comments.
Thank you very much all for participating in our call today I'm very very proud of the organization.
And I'm very very pleased with the results. We've had we look forward to hopefully being able to repeat that as we go forward and look forward to our next call. Thank you and have a great day.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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