Q4 2022 PBF Logistics LP Earnings Call
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B F energy fourth 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. This conference is being recorded.
Now my pleasure to turn the floor over to Colin Murray of Investor Relations. Sir you may begin.
Thank you Kevin Good morning, and welcome to today's call with me today are Tom, namely our CEO , Matt Lucey, our President Karen Davis, our CFO and several other members of our management team.
Copies of today's earnings release, and our 10-K 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 the safe Harbor provisions under federal Securities laws there.
There are many factors that could cause actual results to differ from our expectations, including those we described in our filings with the SEC.
Consistent with our prior periods, we will discuss our results today, excluding special items in today's press release, we described the noncash special items included in our quarterly results the cumulative.
The impact of the special items increased fourth quarter net income by an after tax amount of approximately $60 million or 45 cents per share.
Related primarily to net changes in fair value of contingent consideration.
Additionally, please note that our fourth quarter tax rate was elevated relative to prior quarters as a result of the activities in the quarter and fiscal year adjustments.
For modeling purposes, please use 26% as an effective tax rate for 2023.
Also included in today's press release as guidance information related to our operations for the year.
For any questions on these items or follow up questions. After today's call. Please contact investor relations.
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.
Thanks, Colin good morning, everyone and thank you for joining our call.
The fourth quarter capped off a transformative year for PBF.
In 2022, our assets generated almost 3 billion of income.
And earned over $22 per share.
PBF ended the year with cash in excess of that.
The market with its tight supply and demand balance.
Abiding tailwind and the operations of our refineries enabled us to capitalize on the opportunity.
Our operations and the focus on strengthening our balance sheet over the course of 2022.
US to begin to generate incremental returns for our investors.
In addition, jewelry, knowing our dividend at <unk> 20 per share for the third quarter of 'twenty 'twenty 2022 we announced the $500 million share repurchase program.
Under that program, we have purchased just over 5 million shares for approximately $189 million.
With favorable market conditions, and a solid operating performance, we expect to be positioned to further reward shareholders with increasing returns.
To deliver on these commitments P. D F remains focused on our operations and strengthening our financial position.
Our assets require continual reinvestment to sustain high levels of safe reliable operations to meet demand for our essential projects well.
While remaining committed to our core refining business. We are also investing in and exploring new opportunities to produce low carbon fuels.
Refiners follow the markets in response to the demands of the consumer because we are price takers, rather than price makers and 2022 the market was telling us to provide as much refined products as possible.
He did 2023 has picked up where 2022 left off.
We are going through normal seasonal gyrations when it comes to specific product demand across all regions, but overall the market is continuing to call for refined products and as a result requires high utilization rates from refiners.
Many of the key themes that emerged throughout 2022 are continuing to set the stage for 2023 global inventories of oil remain low but are gradually building off a very low base the market needs. This to happen, but it has been proving difficult for inventories to rise to normal levels in the face of.
Demand keeping pace with supply. This is true on the refining refining product side as well refineries are being called to run at high utilization to meet demand and in 2023. This will be more of a challenge with higher than average industry wide maintenance activity.
Global trade patterns are continuing to adjust to the sanctions and embargoes are rushing crude oil and products, where you're seeing the impacts of this on the crude side.
But have yet to witness how the market will accommodate disruptions on the product side.
The prospect of China reopening.
Glad to projections of increasing demand in the Asia Pacific region.
That will have a knock on impact globally.
We remain constructive on product balances in the Atlantic Basin, especially as we look ahead.
Peak driving season.
Gogo global pet capacity additions are expected to commence operations throughout 2023 which should help me meet rising demand.
The cumulative effect of all this is that we are constructed constructive on the refining environment in 2023.
Notwithstanding the amount of work to be completed in our refining system.
With safe and reliable operations, we expect to continue the improvement not final financial position.
And be in a position to potentially increase shareholder returns.
PBF is also pleased to announce a partnership.
N I sustainable my mobility and the St. Bernard Renewables project, we have been committed to the project from the outset and are proud to have a world class partner joining us in this venture.
Lastly, I want to thank all of our employees the market demanded a lot from PBF in 2020 two.
In turn P. B S asked a lot for our employees and they delivered.
The efforts of our employees to keep our assets running safely and thanks for all the products constantly on the move to our customers' innate.
Enabled us to achieve this remarkable transformation.
Thank you and with that I will turn the call over to Matt Thanks, Tom and Tom's correct, our operating and financial results for 2022 in the fourth quarter are a direct reflection of the tireless work of our employees.
In 2022, we produce more than 340 million barrels of total products the highest level of production our system has achieved.
With the utilization of over 92%.
Again, a testament to the investments, we made and continue to make in our refineries and the dedicated workers who make it happen every day.
In 2023, consistent with industry peers, we have an above average maintenance cycle to execute that.
That work has already started in Toledo, Chalmette and Martinez.
The deep freeze in December directly impacted Toledo in Chalmette.
But for two Additionally, we were able to advance maintenance that had been planned for the first quarter.
Which will help mitigate the impact of the downtime.
We will have these turnaround activities completed at Toledo in Chalmette in the coming weeks.
We are currently conducting planned work at Martinez, which will be finished by the end of this month and have a turnaround starting soon on the east coast, we have additional work at Torrance and Toledo in the fall.
One of the benefits of our geographically diverse highly complex refining system is that we're able to strategically plan our maintenance to ensure we remain active in all markets and continue to provide needed products to our customers.
Supplying the markets with our central products, because what we do and it was demanded of us by our consumers.
Over 80% of the world's energy currently comes from fossil fuels.
The energy supply cannot be rapidly change through policies attempting to force premature transition without significant cost.
And supply disruptions.
It is the impact of changing laws policies and politics.
Our mandating or incentivizing scarcity in parts of the energy stack.
Innovation and transition are good for society with when approach deliberately.
We should be looking at energy addition, rather than a forced transition.
All stakeholders need to engage constructively to focus on the goal of providing cleaner fuels, while maintaining reliable and affordable energy sources that are the cornerstone of our high quality of life.
Elevating people into the middle class in developing regions.
With that we are more than pleased to have entered a partnership with any in our St. Bernard renewable project.
This strategic partnership Leverages, the complementary experience and expertise of PBF at any.
PBF brings ex experience in large capital projects execution and fuels manufacturing as well as access to the California renewables market through our existing logistics footprint.
And he brings experience in sustainable feedstock sourcing and renewable fuels manufacturing.
Coupled with access to international markets beyond PBS domestic footprint.
The joint venture reflects both partners commitment to deliver sustainable transportation fuels using low carbon intensity feedstocks.
As we have stated previously.
We were intent on finding a partner that would add strategic value to the enterprise and we believe we have done just that.
We absolutely believe S. P. R will be even more successful with PBF and any working in concert.
We have gone to great lengths.
Lengths and structuring the partnership.
To ensure a proper alignment of interests between the partner partners.
As I stated, we could not be more pleased and forming this partnership with hunting.
And further pursuit of increasing the potential energy options provided by PBF we.
We are also and separately part of a large consortium referred to as Mark too that's M. A C. H number two you're referring to the two inches.
We stand for which stands for mid Atlantic clean hydrogen hub.
That is pursuing the development of a clean hydrogen hub in Delaware, South Eastern Pennsylvania, and South Jersey.
Our footprint in Delaware with established manufacturing and transportation infrastructure.
<unk> is an opportunity to generate incremental value for diversifying our product line with another fuel of the future in this case hydrogen.
While this project is in very early stage development Mark two has received the encourage designation from the department of energy and we'll continue to move the project forward.
Mark two consortium has passed one hurdle we are now in the process of submitting the application for funding with the Doj.
The acceptance of that application will determine any funding allocation from the government and subsequently the extent of future capital expenses in relation to any potential hydrogen business.
While we continue to expand our alternatives for refining market looks very favorable.
We expect current volatility to persist, but increasing consumer demand will continue to support high refinery utilization.
Now for the financial overview I'd like to introduce and welcome our new full time CFO Karen Davis note I said full time as opposed to interim.
The transition with Karen has been seamless and we are thrilled she is greed to take on the role.
Karen brings on a wealth of industry experience as well as deep familiarity with PBF Karen.
Thanks, Matt.
As Tom mentioned 2022, with a transformative year PBF entered the year and looking forward to in about mid cycle environment and with plans to implement a multi year process that post pandemic strengthening of the balance sheet.
We repaid $2 $3 billion of debt in 2022 and have now reduced our debt by more than $3 billion since the pandemic after including our recent redemption of the $525 million in Pinata logistics.
During the fourth quarter. We also completed the buyout of PBF logistics, which will capture approximately $40 million of cash that was leading our system annually as distributions, while saving approximately 10 million in annual expenses.
Additionally, PBF will now recognize 100% of the earnings due to the elimination of the noncontrolling interests related to PBF logistics.
For the fourth quarter, we reported net income of $4 41 per share and adjusted EBITDA of over $1 billion. Our full year 2022, adjusted EBITDA was $4 7 billion.
You should note that our fourth quarter EPS was impacted by a higher tax rate driven by several items, the largest of which related to unwinding the tax valuation allowance and adjustments related to the buy in of PBF logistics.
We fully released our deferred tax valuation allowance during the first three quarters of the year, which had ready to start our effective tax rate for those quarters below our normalized rate of 26% going forward, we expect our tax rate to return to a more normalized level as provided in our guidance.
Consolidated Capex for the fourth quarter was approximately $327 million, which includes $184 million for refining and corporate and just over $140 million related to the continuing development of the St. Bernard renewable facility and 3 billion for PBF logistics.
Over the last three years, we used all available levers to maintain liquidity and demonstrate our commitment to prudent balance sheet management.
As we sit here today PBF balance sheet is as strong as ever and we are committed to maintaining that position.
Excess cash in excess of debt with sufficient liquidity to serve the needs of the business.
During the pandemic to the present PBF maintained a level of cash above what is needed to operate the business and ensure sufficient liquidity.
As we progressed through our punch list of the remaining items, we plan to address we anticipate that over time, our cash should return to more normalized levels in the $750 million to $1 billion range.
Our gross debt is now below pre pandemic level and at a level that we believe is currently appropriate and sustainable for our business.
Our financial performance over the past year and a half sets the stage for a re rating of our future prospects quantitatively, we meet or exceed many investment grade metrics.
Refinery should continue to demonstrate through cycle earnings power and we are adding diversified earnings streams as we enter the low carbon fuel space.
We will continue to exercise balance sheet discipline targeting rating agency driven metrics.
With our balance sheet four to five during the fourth quarter, we reinstated our quarterly dividend and implemented an active share repurchase program.
Over $180 million to our shareholders.
With the macro backdrop for Ryan refining translating into higher mid cycle financial performance are highly complex and geographically diverse refining and logistics systems are well positioned to generate significant value and provide increase shareholders' return.
Operator, we've completed our opening remarks, and we'd be pleased to take questions.
Uh huh.
Thank you if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
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It may be necessary to pick up your handset before pressing the star one the company request that all callers limit each turn to one question and one follow up you may rejoin the queue with additional questions. One moment. Please while we poll for questions. Our first question today is coming from Roger read from Wells Fargo. Your line is now live.
Hey, Thank you good morning, everybody and Karen welcome back I think we get to say to PDF not just welcome to.
Hum.
A question I'd love to dive into here is the most obvious one which is this a joint venture agreement with Eni recognizing that it's a definitive agreement it hasnt closed.
Just curious when you expect it to close do you is it an all cash transaction.
<unk>.
And where do you think the product is does this mean, it's more likely to go to Europe and to California, which I think most of us assume from that.
Thank you Roger up I'm going to turn that over to Matt.
He and his team have done.
We believe it will work.
And bringing this to fruition, but I do want to reaffirm.
How pleased we are because all along we had with the Goodyear we had financially we knew we could finish project ourselves. If we had to but we had a strategic objective of finding a partner that would bring value to the JV.
And as Matt mentioned, that's exactly what we did so we have the right.
Hard to ship going forward.
So Roger I think just maybe three different questions and feel free to follow up with that.
If theres anything else, but when I look where we have to go through customary approval processes, we signed the agreement.
Just over the last 24 hours and so there's you know customary approval processes within our country, whether it's HSR is if he is there maybe one or two other jurisdictions outside the U S debt and he needs to work through so I expect you know it'll be a couple of months before closing it could be a little bit faster.
Could be a little bit slower, but we do have to go through those sort of approval regulatory processes.
Is all cash.
The cash will be paid to PBF.
So our split half and half between signing and I'm, sorry between closing and when the pretreatment unit becomes operable.
And so at closing.
And he will will contribute to PBF about path of the purchase price and then once the Ah.
Renewable diesel unit, which we expect to come online.
Over the next months.
And then once the pretreatment facility comes online and both are operating in concert.
The second payment will be made in regards to where the products go and this is very important.
It was very important and in finding a partner where there is a you know an alignment of interest as I mentioned the products will go to wherever the highest net backs are.
Wherever the markets are calling for the products. The most and so you know over the course of the last year, that's been California, but it is very possible over the course of next year.
It could be in Europe , regardless of where it is of the two partners are committed to delivering the products to what will be the highest economic benefit for the entity and clearly.
To the extent that Europe is calling for the product. There's no question that anyone will be able to add significant value on our execution of that.
I appreciate that and yeah, I mean, we're all kind of skilled and man interesting put three parts in any one question.
My only.
My only follow up is.
Tom I think you mentioned you know Atlantic basin looks still pretty tight on the product side. Just what are your thoughts as we head towards spring and gasoline season spring and early summer in terms of what what may be competing product wise imports from Europe things like that.
Alright, good glad you're and once again, you've demonstrated your ability to get a number of questions and congratulations.
Hey, where are we.
We are constructive obviously all built on the fact that the inventories while I've been building and I can't make sense of it.
Stat numbers that came out yesterday I don't know, how we built $60 million of crude but I'll leave that aside.
The fact is.
Inventories pretty much across the board across the in the U S and across the globe.
They remain well below the five year averages.
Most cases.
And in pad, one even though there was a big build in pad one in both gasoline and distillate yesterday.
So the five year averages on gasoline and distillate.
So we see we are constructive.
We are also constructive on believes that we're going to see.
Some tailwind behind gasoline as we move into the driving season.
Which obviously be going too low RVP gasoline, we're gonna be taken the butane to gasoline, we're going to be taking arcane away. When we do that because butane has a high octane. So we're going to wind up having some strength likely a widening of the Oh, Bob P. Bob spread.
So overall, we think that things are looking reasonably positive.
Products and perhaps gasoline.
We'll be lead in leading the way there Tom would you have anything you would add to that.
I mean, I think just to reiterate your point there I mean as you know gasoline, it's got a constructive set up as we're heading into the driving season. You know let me just what has clearly been the market leader, it's gone through a little bit of a wobble with a mild winter and we're really trying to.
Worked through where the Russian balances of gas oil is going but you know certainly leadership at this point as you know could be moving towards gasoline, but the discipline balances still remain constructive as well.
Okay.
Yeah.
Thank you.
Yeah go ahead. Thank you. Our next question is coming from Neil Mehta from Goldman Sachs. Your line is now live.
Yeah.
Team and congrats congrats Karen and congrats on the.
The joint venture maybe I'll start on on the joint venture.
I think on the last call the team indicated.
The project is a $400 million of normalized EBITDA just wanted to get a now cast of that number and and remind us how much capital is left to be spent on the project at this point.
So.
If you look over the last year.
EBITDA raise range between one dollar in dollars 50, a gallon EBITDA margin.
And we're gonna be generating or producing just over 300 million gallons a.
A year, so you know that being said.
Markets will tighten and loosen at different times, but that's what's happened over the last year and that's sort of what it looks like currently.
So we'll stick with that in regards to how much of the project has been spent on.
We have approximately $200 million left to spend thereabouts, and then obviously and he will come in sort of when we close and when we become operable.
Offset the spending for PBF clearly.
Yeah, that's that's really clear, okay, and then on on cash balances you're at $2 $2 billion. Karen you indicated you want to get to 750 to a $1 billion of cash over time.
Do you have how should we think about that the cadence of how long it takes to get get to your normalized cash balance, especially because you get incremental cash coming in associated with the joint venture and then and then what is your preferred way of getting that cash down is it through buybacks.
Multiple multiple questions, but first a reminder, that although we did finish the year with a pretty high cash balance at $2 2 billion. There are a number of of calls on that cash.
First of all a reminder, that we did redeem $525 million in additional debt just a few weeks ago.
Matt mentioned completion of the Rd, you project about $200 million and we have a very heavy turnaround schedule. In addition to repurchasing shares so.
There will be a very disproportionate use of cash in the first half of the year.
With respect to our return of capital financial resilience in the balance sheet are always going to come first and we're going to ensure that the base business is sufficiently funded and prepared to weather adverse marketing market conditions and you should also be thinking that included in that we'll be funding our annual capital.
Well it should average in the 600 to 650 range over the long term like 2023, where we have a heavy turnaround schedule. It will be more other years will be less and as the cash generating cash or as the business generates cash beyond that then we'll expect to be in a position to.
Can you potentially increase shareholder returns, but given that we just restarted our dividend and approved our first buyback program. We're not in a position to comfortably provide additional guidance on the pace of a return.
Having said that we believe it's important to maintain a competitive dividend with room to grow and and to fund buyback programs when it's appropriate.
Yeah.
Thanks, Dave.
Yeah.
Thank you. Your next question is coming from Doug Leggate from Bank of America. Your line is now live.
Good evening, everyone color and congrats on the on the permanent seat and then you have to deal with all of us but.
Thanks for taking my questions.
Forgive me for four beating on Neal's question, but let me maybe just ask it differently why should we not think about the proceeds from the joint venture.
<unk> directly to share buybacks, because your operating cash flow takes care of all the other things you talked about.
So are we looking at 15% buyback with the cash inflow from the JV.
Well first of all I'd say, we're just delighted to be partnering with any and at the moment just focused on closing the deal.
Yes.
But you're not discouraging me from thinking that way.
We would never discourage you think anyway you want.
Alex a few adult any any attempt would be futile, but.
We've been very very focused on getting the transaction to the point, where we are today the transaction hasnt closed yet.
And I learned a long long time ago, not to not to figure out ways to spend money that you don't have in your pocket yet.
Clearly the company will.
Or put it forward policies that are appropriate at the appropriate time, but we have nothing to nothing outside at the moment.
O terrific outcome regardless.
Guys. My My second question is kind of a micro question, but a little nuance.
At the end of last year.
Folks who are getting pretty educated about the heating oil position in the north east.
And it seemed to stop is like the first normal winter without you know since Covid without Philadelphia energy solutions refinery.
Place, which is clearly change the dynamics of east coast market.
So I guess my question is what are your expectations for Dare I say, the first normal driving season in the North East, which is obviously your backyard do you think the dynamics about market.
Permanently shifted but perhaps not become affiliate partners yet Kevin.
Three years of Covid since up if I knew shot I'm just curious in your opinion.
That's a great question Roger I'll tell you My view is it's Doug It's Doug Rogers the arbitrage.
<unk> already had his turn I'm sorry, Doug.
<unk>.
Actually I I believe what you said is correct.
We should go back to the fact that there's a couple of things that work in our benefit but.
Tes going down it was a big deal.
That was obviously the largest refinery in pad one.
The pipelines are pretty much volt coming up from the Gulf Coast. So when you get.
That was certainly the case with the additional situation or was people were concerned.
That we.
We would not be able to fill a market. In addition to <unk>, we had come by chance.
Go offline as a result of the pandemic. So pad one has gone into a situation where chronically you has always been you. All know this oh, it's a dumping ground for Europe to move gasoline in.
Now, we got a different situation in Europe , and we have a significantly different situation in pad one and in fact in the U S and across the globe because of the amount of capacity that's been rationalized. So I think it's got the potential to be a structurally short market and when you see let's say, we're gonna demonstrated right now.
Anyways FCC is going through a turnaround that's a big gasoline produce obviously.
Very large cat cracker.
But we saw that manifest itself, we've seen it manifest itself in spiking.
Jet prices in addition, with prices where they always are concerned about.
Supply in a market.
We're not going to see what we had last year I don't believe but in fact I do think that is a a.
A strategic shift in capacity utilization and we're going to have to run awful hard to meet product demand in the country in the world and in pad one.
I appreciate the answer Tom Thank you.
Yeah.
Thank you as a reminder, that star one to be placed in the question queue. Our next question is coming from John Royall from Jpmorgan. Your line is now live.
Hey, guys. Good morning, Thanks for taking my question.
Question on the East dollar too.
The per barrel opex guidance in 2023.
Fair enough.
0.2 is already elevated Oh, well, where natural gas is this increase ball on maintenance or are there other drivers we should be thinking about.
Certainly there are other drivers in that region.
Now obviously you Henry hub.
On gas prices, but that's not necessarily true for the other regions in the country. So we've got some.
Increases in energy cost.
But we also are seeing inflationary pressures and a lot of the business that have resulted from the fact that inflation is high so.
And the other thing we've got is the increase in turnarounds.
Obviously, there is that's that's capital costs, but there were some other additional maintenance costs that go along with that.
Okay. Thank you that's helpful and then.
I think Tom you mentioned in the opener.
You had spoken about the Europe sanctions.
The February data.
And upon the gone as far as like a non event.
Still very early days, but how do you think so.
And in fact, the market as you get deeper into the year.
Well, it's going to be.
I'll ask Tom O'connor to add value on it but it's a work in progress right now obviously, our Russian came out last quarter was a Friday and said why a Thursday.
They were gonna decreased crude production by 500000 barrels a day.
You said there just because you know the payback.
Payback on this and the sanctions that have been put on them.
Some people have said that they think that's because the fact that the export ban on products went into place over the caps.
That in fact, they have to start to shed runs because they are starting to build inventory recognize that Russia.
Pumped a bunch of diesel into Europe in January in advance of the February 5th date and in fact that has had an impact on the marketplace. It's just simply too early in my mind for us to see whether or not which way. This is going to go I think there's some chance that it could be light crude theyre going to fall.
And ways to get trade closed on they are going to sell more barrels to Africa, that's clear, but whether or not they can sell all of the barrels that are being displaced because they can't supply. The European market is something that remains to be seen Tom you did.
Yes.
I would add to that is the frontloading as you just could you. Tom described is really important to talk about at this point, maybe Europe really did frontload an awful lot of demand in December and January and now we got to find a home for the marketplace needs to find a home for you noticed call. It 600000 barrels a day of diesel but had been going into Europe .
We've seen so far as you know about half of that seems to have found some homes, whether it's been in South America or in West Africa. The.
The other half is less observant at this point so does it mean to call. It a non event. So I think we don't really know the outcome of the events I think what we can say as prices have come off but I think that's kind of the combination of the buildup in front of it and then also once again getting back to the mild winter but.
But I think as Tom said really kind of over the next several months, we'll have a little bit more transparency in terms of the data that we can see where those trade flow patterns have adjusted which would include Europe at that point, taking more product from the U S or from east of Suez to satisfy the the supply that they've lost one thing we can definitively say.
As a result, both on the crude side and on the product side as a result of the trade patterns being.
Dislocated.
The cost of transportation to get to the marketplace is going up right.
And that will ultimately put a foundation about Ah is an advantage. If you are in a trade area, where you are producing your products and not having to put them on a boat and sell them into a marketplace.
Thank you.
Okay.
Thank you next question is coming from Matthew Blair from T. P. H. Your line is now live.
Hey, good morning, Thanks for taking my questions here first one could you talk about the dynamics in the east coast jet market, what's been pushing cracks up and are you capitalizing at del city and cultural.
Well <unk>.
Supply and demand is the answer to your question, we had recovery in jet and we are continuing to see recoveries in jet worldwide by the way China is.
<unk> showing some significant increase in their flight.
But that is appears to be on the move up in 2023 and in fact likely it could be back to pre pandemic levels.
As I said.
I'm going to ask Paul Davis to comment on this but we've.
We've got relatively tight inventories, obviously, you've had a situation where.
Diesels definitely was very strong. So you were making a lot of distillate mainly out of gasoline, but then all of a sudden we get to the point that Jack starts to spike because.
The amount of imports coming in on jet and to the country.
Relatively low extremely low in fact of course, there's demand out of the other parts of the world. So.
It gets back to the point that Doug and others have asked.
The pad one region.
Got less capacity refining capacity that it has under the normal demand environment that was masked by the fact that we didn't have a normal demand environment as we recover all of a sudden the capacity that's been taken offline.
And the fact that when you look at the conveyance pipeline is being filled from the golf Paul would you add anything to that.
I mean, one of the contributing factors to the jet runoff is the winter storms that we had in the Gulf Coast.
We ended the year.
As we started the maintenance in the Gulf.
Lack of jet production Dr. From Asia has been closed on jets as early fall.
It's just the supply and demand balancing act and eventually at that time.
It's coming off as you said.
Okay.
Great and then where are you at on the outstanding environmental obligations for Rins and <unk> 32.
Previous number was around like $1 2 billion and then what's the cadence for paying that down in 2023 and 'twenty 'twenty four.
Hi, Matt.
The environmental credit was approximately $1 $4 billion at year end and brands with one one of that we.
We have extended our rents payable as part of our overall working capital management, while managing our program to be compliant with all of its deadline. So we turned in the 2020 vintage in December we had the 2021 vintage secured and ready to be turned in in March and we're managing the 2022 vintage towards it.
To date in September .
Remember that the renewable diesel facility is expected to produce about 500 million rins annually, and we're gonna be able to incorporate that production into our risk management strategy, when that's up and going so you'll see the liability reducing especially in renewable diesel unit comes online and as we approach compliance deadline.
Later in the year.
Okay.
Great. Thank you very much.
Thank you. Your next question is coming from Paul Sankey from Turnkey Research. Your line is now live.
Hi, everyone good morning, and welcome Karen.
Guys could you just talk a bit more about the people I guess I should say could you talk a bit more about them.
Turnarounds are as you see it I mean is he made some very interesting comments about the structural reduction in global refining capacity.
On a cyclical basis can you talk about your own outlook for turnarounds and also how you see the industry are now to fill them. There was some comments about.
The industry, having been running very hard and having to turn around more and I. Just wanted if you could help us think about 2023 thank you sure. Thank you Paul.
By the way the industry has got a very heavy turnaround cycle going on right now.
And it is because with the demand pull.
In 2022, and obviously the attractive margin environment. It was incentive obviously too.
Figure out how to safely and reliably.
Continue to run your equipment and that meant that we were pushing out some turnarounds or doing squats instead of doing a full turnaround to get capacity back.
But the units require maintenance and what we're seeing that right now in the country is a very very high turnaround.
I read here in the first quarter and going into the second quarter in the U S.
And we are not immune to that but we obviously as Matt mentioned, we had scheduled turnarounds at Toledo and Chalmette.
For later in the first quarter, but with the Christmas bomb that hit.
<unk> taken off some equipment.
We wound up.
And it's not the right not perfect, but we wanted to.
Advancing always turnarounds and in fact, we're about to wrap them up both at Chalmette and.
Toledo here by the end of this month or early early into the next month.
We had a scheduled turnaround rather significant turnaround at Martinez is underway.
The plucky Coker block as we call it.
That's a big turnaround, but that one also always call him along reasonably well right now and we would expect to have that turnaround behind us.
By the end of the month early next month and that leaves us with for the.
The balance of the first half one significant turnaround and that is in Delaware, where we're going to take that.
The fluid coker down into Coca blocked out.
After that the second half is going to be relatively benign for us, but it is a very very heavy turnaround period for the industry as we effectively re paddy equipment and keeping in good working order as we go forward and I think that will be constructive.
Obviously, because there's going to be.
Lower utilization in the first half of the year.
Yeah.
Thank you Tom I missed I missed the chance to make my Roger luggage joke, but.
Uh huh.
Yeah.
I don't know.
I.
I would be remiss, if you didn't do that.
Yes.
The whole coolest that'd be thinking about follow up questions a number of questions and everything else. The follow up so it would be just we are struggling obviously with this D. O N number yesterday, you mentioned that yourself and I just wonder if that turnaround I mean, I think we all know that the inventory dates in theory is the good a good part of the data rights.
Just wondering if you could put other think about quite what's going on and whether it is related to turnarounds that we would see such an enormous build as he mentioned things like jewelry.
Actually.
I looked at it when the when the stats came out and did my own little resource not to these notes are you folks know but.
I don't think it suits our.
I don't because the actual utilization.
Utilization was down couple of hundred thousand barrels a day. So a couple of hundred thousand barrels a day times seven is two 3 million and is 60 million barrel builder crude I just can't make the crude number work.
I was actually not concerned about the product side of the equation.
We are obviously out of drawing distillate was.
Dressing and we had you know the belden gasoline, but it's the crude side that is Mr. Flying me. So I regret to tell you I have no great insight on it I could not find a reason why it would be anywhere near the level of build that we had.
Thanks, guys.
The next question is coming from Paul Cheng from Scotia. Your line is now live.
Hey, guys good morning.
Couple of questions first I think.
Go back to the out these John J D.
Can you maybe thought it says about the division of labor between the two partners and you see a.
Definitive way each partner and its going to being charged off something or that this is going to win differently.
And also that.
What did the P. P F funding wise, it's going to consolidate the results and have them my royalty interest that you guys going to use equity accounting here.
The second question, yes, when I'm looking at the fourth quarter, we so I'm not sure why Tom O'neill.
The margin capture so bad I mean Gulf coast, and Eastern Mountain catch up and maybe it's because it's off to a high sulfide ore loan sulfide diesel with defense, so, but I'm not sure why come upon their margin capture so bad and also again.
The mid.
Mid con until veto, even taking into consideration of the valentines. It seems lighter utilization we need though is the January that you're running at say.
20, 30000 Boe per day at that low.
Thank you.
Alright, well you just broke the record.
Let me handle the question on I try to maintain my reputation.
It's followed by the way.
Let me just deal with the West coast on capture rate.
The fact is that two things happened in and on the West Coast.
You know rather important and impacted the west coast. One is the fact that <unk> actually came off rather substantially in the month of December but more importantly, particularly.
Particularly in northern California, but even.
Throughout California natural gas pricing roofs.
And in the month of December and in fact continued to be elevated in the month of January . So let me now correcting so we had very high operating cost and.
And Martinez.
Much more than we would expect to have going forward well as it had in the past.
Totally associated with an elevated natural gas pricing.
So there's a real explanation for why the capture rate was what it was in the West coast.
By the way capture rate in Chalmette was slower than perhaps we would normally see but that's because we took.
Downtime in October was the strongest month of the quarter and Toledo was impacted by some some oh.
Downtime, even in advance of the Bom on.
At Christmas time, I had met and.
In regards to the JV in the division of Labor as you referred to it that the joint venture will be its own platform PBF at Chalmette refinery will be the operator of the equipment.
But the St Bernard renewable effort.
Have its own team dedicated team in executing the business of the renewable diesel business here.
And we currently have a general manager in place as we've been developing and working on a sort of set standing up the business for some time.
Right.
Both parties will contribute members to the team.
And both parties will rely on each other's expertise to to provide our.
Services and so we've got a semblance of the early part of the management team, but that will be augmented with expertise from honey.
Which we're looking forward to so it is.
As.
Partnerships can be structured in different ways.
This partnership is setup as its own company.
I'll have a board with two different partners that have board seats on at PBF and any I don't have a management team responsible for executing the business and that will include people.
From PBF will include people from any it'll include people that have been hired specifically for the role outside of both organizations. We've already identified specific roles that specific partners can can add and so it's been very constructive up until this point in.
In regards to the forensic accounting I'll give that to cure sure Hi, Paul.
The determination of whether or not we consolidate.
The JV or whether or not we account for it under the equity method is yet to be determined we're still evaluating that but we are committed regardless of how that comes out to provide a fulsome financial and operating details so you'll be able to model and fully understand how it contributes to P. D F.
Alright, thank you.
Thank you. Your next question is coming from Jason <unk> from Cowen <unk> Company. Your line is now live.
Hey, good morning, I wanted to ask a follow up on the renewable diesel project in joint venture you announced today can you discuss one when the P 2 million unit starting up because you mentioned the second payment is contingent on that.
And then if there's any structure to paying out.
The cash that the joint.
Venture generates does.
Well the preferred return upfront or is it kind of split evenly as the cash is generated from the joint venture and then my second question is just on the macro outlook specifically related to heavy light gifts on the crude side. They remain a very wide I think some had expected.
It was to narrow when the SPR releases ended.
What are you seeing in the market that's.
Resulting in those differentials staying wide.
And do you expect them to stay wide looking out through the year or do you expect them to narrow as new global refining capacity comes online.
I'm going to take the last part of your question. The last question you had.
Give you my views on it.
There's an old expression and horse racing that there are certain horses that are right for the cost of certain courses that are right for the horses that you're having in your stable.
Where am I going with this well you know we are.
Obviously, you have a very complex refining kit.
And as we were coming into 2020 with I M O on the horizon, we felt like we'd be rewarded for that.
Prior to that I M. O of obviously, we were not being rewarded for our complexity because frankly of the shale oil boom and then we went into Covid and demand got crush so there was again hedge.
Headwinds against those headwinds are gone I am always real.
It is in fact in place clean dirty spreads differential between high sulfur fuel oil and.
Unless they are even now is the USD market has contracted quite a bit are running at $50 to $55 a barrel in the Gulf coast than on the East coast.
In fact, we are seeing benefits from a widening of not only the light heavy spreads.
But also the clean dirty spreads.
We are seeing it's going to come back I mean, theres no doubt about it as more and more production comes online, but the fact that.
Venezuela is actually starting to supply some barrels in the marketplace is a positive for us. So we I personally and I'll ask either Tom or Paul if they want to add anything on that but I think that this is a new environment that is going to be beneficial for the case that we've got.
Yeah, I mean, just.
Adding onto what Tom was saying I mean, we're <unk>.
Certainly in 2022, we can certainly say that upgrading capacity was stretched to its limits I don't think we've seen anything in the near term that has changed that so that certainly is a positive nature for wide light heavy differentials you know.
I think the whiteness that we're currently seeing or saw in the fourth quarter. Certainly is contributed by the winter storm and the heavy turnaround activity. So on.
On a medium to longer term certainly in the wider.
No mid cycle differentials and then as we get further down the curve and we've got new capacity additions, that's probably just a little bit beyond our runway right now to be speculating as to where they're going to be in 'twenty four 'twenty five but in the near term certainly wider than mid cycle.
In regards to renewable diesel and the timing.
The project comes on in two stages, you have a what was the.
Hydro crackers now the renewable diesel unit that will come on first.
And we'll actually line out.
That.
That unit with vegetable oils.
Because we don't have the pretreatment facility up and running.
And then the pretreatment unit will come on are scheduled to come on.
Mid second quarter.
And.
With that you have.
The expectation that or at least some chance that the joint venture will probably close in the middle if he say it takes you know 45 or 75 days.
To close the transaction.
There's a reasonable chance that the closing of the partnership will be after we startup the renewables easily but prior to the pretreatment facility being lined out.
And as I said earlier, the dollars will flow its I'm not going get into the specifics of what you guys can I think were making all the appropriate filings, but it's about half will be paid.
At closing and then the other half will be paid once the pretreatment facilities up and running and then you do have an incremental $50 million with which is not based on stretch goals, but its based on us meeting.
Our timing expectations as well as the unit performing through the through the volume standpoint, we expected to operate that will flow in sort of as those thresholds are met.
So.
It's pretty.
Pretty straightforward I would just make one caveat. This has nothing to do with your question, but I'll mentioned is just a reality.
Entering the renewable diesel business because so much of the business is on the back of regulatory credits.
Your first six nine months of operations are impacted.
Financially.
By arbitrary.
Our carbon.
Scores, meaning it takes a while for the regulatory agencies to confirm all of the.
Low carbon intensity fuels that you may be running so for a period of time.
Yeah.
You're you're right as I said your carbon intensity score as a fix number and then as you work with the agencies and everything gets embedded.
It becomes a <unk>.
Straight away, but that's that's just aligning out issue that will occur from startup going out six to nine months.
Great.
On the right that stops or if there's anything out of the ordinary about equally split in the past.
I'm, sorry, I didn't catch that.
Just on the payout structure of the joint venture if there's anything out of the ordinary in terms of growth, they're paying US 50 50 cash.
It couldn't be more simple they pay cash.
Yes.
Great. Thanks.
Thank you we've reached end of our question and answer session I would like to turn the floor back over to Tom <unk> for closing remarks.
Thank you very much everyone for joining the call. We look forward to updating you further at the end of the when we do the first one.
Have a great day.
Thank you. This concludes today's conference you may disconnect. Your lines at this time, we thank you for your participation today.