PBF Energy Inc. Q1 2023 Earnings Call
[music].
Good day, everyone and welcome to the P. P. S energy first quarter 2023 earnings conference call and webcast.
At this time, all participants have been placed in listen only mode and the floor will be opened for your questions. Following management's prepared remarks.
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Please note this conference is being recorded.
It is now my pleasure to turn the floor over to Colin Murray of Investor Relations. Sir you may begin.
Thank you Rob 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-Q filing including supplemental information are available on our website.
We're 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 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 impact of special items increased first quarter net income by an after tax amount of $13 million are <unk>.
<unk> 10 per share.
<unk>, primarily to net changes in the fair value of contingent consideration.
Also included in today's press release as guidance information related to our second quarter operations for any questions on these items or follow up questions. Please contact investor relations after todays call.
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.
Before commenting on the quarter.
It's a market for us.
I wanted to take a moment to discuss yesterday's announcement on a netback next phase a PBX lifecycle.
As of July 1st I will be assuming the role of executive Chairman of the board and that Louis will become PBX next Chief Executive Officer.
Leading PBF over the last decade has been an honor and privilege and rewarding challenge.
The company has never been in better shape and it is time to turn to future over to Matt and the rest of the executive team.
I will continue to serve PBF as executive chairman.
And work with Matt to develop the strategy for the company's future growth.
<unk> other value enhancing initiatives.
I would also like to thank the employees of PBS without whom none of our successes would be possible.
<unk>.
Regarding results the first quarter was another strong quarter for PBF, we continued strengthening our balance sheet rewarding shareholders and finished the quarter with more cash than debt.
Safety and reliability of our operations remain our first and top priority, but it is closely followed by maintaining our strong financial footing.
Refineries follow the markets and respond to consumer demand, we continue to hear calls for higher refining utilization and see a market supported by low inventory and sustained customer demand.
The winter of 'twenty, two 'twenty three was a mild one in the northern hemisphere.
Henry hub natural gas <unk> started the year at $4 50 per million Btu used and it ended the quarter at $2 per million.
European natural gas prices fell as well, but still command a premium to U S natural gas prices of 6% to seven times, providing domestic refineries with a competitive advantage.
Crude differentials narrowed over the quarter.
<unk> plus production cuts are expected to be somewhat supportive for medium and heavy grades which may further compressed differentials, although havent narrowed differentials remain wider than historical patterns.
Similarly, despite recent declines refinery margins also remain well above mid cycle, but have moderated from the desk led to 22 levels.
A key theme for 2023.
He is recovering demand for jet fuel and gasoline supported by a stronger summer driving season and <unk>.
Brief we are experiencing a tremendous amount of volatility in the broader market at intervals of increasing frequency.
This makes it challenging to predict the timing of and future moves in the commodity markets at.
At the same time, we are seeing stable to growing demand for our products at our refinery gates, which continues to call for higher utilization from our assets. We expect volatility driven market dislocations will continue to generate strong returns for our business with that I will turn the call.
Over to Matt Thank.
Thank you Tom.
Thank you for your leadership and mentoring over the last decade.
While we will be transitioning roles over the next two months.
Feel very fortunate and grateful.
As the company as well as our shareholders will continue to benefit from Tom's leadership in his new role as executive Chairman.
And our business there are a number of moving pieces in the market that are beyond Pbf's control.
CBF remains focused on the aspects of our business we can control.
The safety and reliability of our operations and our financial position.
In recognition of PBS commitment to safety.
Five of our six refineries were honored with safety Achievement Awards from RPM with our Martinez refinery receiving the elite Silver Award.
Given to the top 10 percentile and safety performance of refining and petrochemical facilities in the U S.
The first quarter was the strongest Q1 in Pbf's history.
Operations and results in the first quarter were impacted by lingering effects from the unplanned downtime due due to winter storm Elliot coupled.
Coupled with the extensive planned maintenance activity.
We completed turnarounds at Toledo, Chalmette and Martinez.
Q2 performance will be impacted by the currently ongoing coker and hydro cracker work at del City, which we'll be wrapping up very soon.
To a much lesser extent minor work on the hydrocracker and towards.
There will be a larger FCC and alkylation unit turnaround in the Q4 towards with.
But outside of these activities, we should have a very clean operational runway.
We are also progressing the St. Bernard Renewables project and are happy to report that we are mechanically mechanically complete on the renewable diesel unit.
And that aspect of the project has been turned over to operations.
The Rd comprises the repurposed hydrocracker and ancillary supporting infrastructure.
In the commissioning stages now.
We should be introducing feed to the Rd unit. This month, primarily vegetable oils tech tallow and distillers corn oil.
We are still completing construction of the pretreatment unit.
That work to be complete in June .
We expect to introduce additional lower Ci feedstocks once a pre treater is up and running.
The JV transaction with Eni is expected to close later in the second.
Our third quarter, we are awaiting certain regulatory approvals or the only gating items for closing.
On the regulatory front in the first several months of 2023 we've.
We've seen new policies and positions attempting to prematurely alter the marketplace.
None of these policies address the most critical component of increasing the supply of energy and all ignore the necessity to ensure reliable ratable and affordable energy.
Much like the commodity markets. The policy environment is turbulent and we expect the current volatility to persist.
This has and will continue to create market dislocations.
Robust market conditions has provided PBF with the opportunity to generate exceptional results.
Enabling execution of a financial strategy that has altered PBS trajectory.
Over the past three years, PBS PBF has navigated financial stress.
To achieve a sector, leading balance sheet with unassailable financial metrics.
We are committed to maintaining our safe and reliable operations, while demonstrating the durability and transformation of our through cycle financial strength.
By doing so we expect our creating ratings will improve our cash our cost of capital will be reduced and operating results will continue to support balance sheet strength and the potential for increased shareholder returns.
And with that I'll turn it over to Carol.
Thanks, Matt.
During the first quarter, we continued our work to improve the financial position of the company strengthen our balance sheet and reward shareholders.
We further reduced our gross debt by another $525 million with the redemption of the PBF logistics notes in February and reduced our outstanding payables related to environmental credits by approximately $300 million.
To date, we have repurchased almost $350 million worth on PBF shares, bringing our total outstanding share count to just under 126 million shares.
We have now effectively eliminated the dilution of the shares issued in 2022 and the transaction to fully acquire PBF logistics that was the first priority of the share buyback program.
Additionally, we increased our existing share repurchase authorization by an incremental $500 million to a total of $1 billion.
For the first quarter, we reported adjusted net income of $2 76 per share and adjusted EBITDA of more than $665 million.
Consolidated Capex for the first quarter with approximately $383 million, which includes $220 million for refining and corporate.
$3 million for PBF logistics, and just over $158 million related to the continuing development of the St. Bernard renewables facility in Louisiana.
Heading into 2023, we continued to demonstrate our commitment to prudent balance sheet management.
Taking into account our most recent quarter, we reduced our gross debt and environmental liabilities by approximately $3 5 billion and rewarded investors with almost $400 million and returns through our dividend and share repurchases.
Cash in excess of debt with sufficient liquidity to serve the needs of the business.
In the near to medium term given heightened market volatility.
Plan to maintain a level of cash are.
Previous guidance.
We expect our gross debt and cash to be in the one to $1 $5 billion range respectively.
Said differently, we expect to maintain close to zero net debt in the near term.
Quantitatively, we believe we meet or exceed many investment grade credit metrics our.
Our refineries should continue to demonstrate durable earnings power and we are adding diversified earnings streams S. SBR comes online.
We will continue to exercise balance sheet discipline targeting robust rating agency, driven metrics and sound financial policies.
Operator, we completed our opening remarks, and we'd be pleased to take 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.
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One moment, please while we poll for questions. Thank you.
Okay.
Thank you. Your first question is from the line of Doug Leggate with Bank of America. Please proceed with your question.
Hey, Good morning, guys. This is actually clay on for Doug Firstly, I'd like to offer my congratulations to both of them.
The bulk of you, Tom and Matt Tom I, particularly enjoyed listening to your market views over the areas. It's really taught me a lot and I'm sure other people will benefit us as well and I guess that brings me to my first question here. My first question is on California. It seems like between the Rd conversions at MPC and Philips and the startup of <unk> next year.
Set up in California is looking increasingly attractive wondering if you can address the evolution, that's going on in that market and touch on several points the market balance.
Destock outlook.
The potential went back from what they are calling the new oversight committee.
Okay.
And thanks for your kind remarks, Doug.
And good morning to you I'll just make some brief comments on California, and now I'll turn it over to Paul Davis.
You had three or four points, there and Paul has been the point person for the company on many of them, but we do expect gasoline and jet demand to pick up in California.
As we move into the driving season.
Certainly we are we've seen a stronger cracks into country regionally right now out in California led by gasoline, we do expect that distillate.
It will be under some stress because of renewables, but then as you mentioned with rodeo already being down and I am sorry, with marathon already being down.
And rodeo coming down sometime probably by the end of the year certainly diminished.
The tie ins today, a project, we believe that California is going to be.
Yes.
Stronger market as we go further into the future and that is going to be exacerbated by some of the policy decisions that are being made in California.
Some of these policies while intention.
Have the result of adding cost to the business result of impacting the supply chain negatively and that's what tends to drive the prices fall. Once you comment on what we see there an actual throughput and the CEC stuff alright.
Alright, well.
Yes.
Throughput, we're seeing today in that marketplace is very very normalized versus 18, and 19 demand. So you haven't given pretty much a normalized.
Market place as we speak.
With the impending shutdown at Rodale Thats going to exasperate the supply that's the bigger issue in California, They have a supply problem.
And Theres really no way for them to deal with us as a platform.
It needs it needs to attract imports the import volumes that need to come in at or above 100000 barrels a day on <unk> gasoline and jet fuel is right behind it at around 40% to 50000.
So that's the impending challenge for California is how do you attract enough ratable supply to stay balanced for the population.
In regards to the CEC and the impending.
Rulemaking or not rulemaking.
Legislative Bill.
We're going to meet with the CDC next week, we're going to we're going to provide some input for them. They have a cleanup bill that theyre going to be.
Dressing through the legislator legislature legislation.
I want to make sure that they've got a bill that could accident work right now.
Formulated it's not going to work for them.
So we will meet with them next week, it's going to it's going to be quite a challenge for the state to be able to manage the amount of information that they're seeking from others.
Just transfer them.
And Trans mountain pipeline it looks like.
We expect that to go on to Phil Phil mode, That's what the market.
Sometime in the second half of 'twenty three slated to start up first quarter of 'twenty four.
And.
Most if not all of that material has the sale rate by San Francisco and Los Angeles on its way to the lighter end point for Trans Pacific moves I think we.
Going to be positioned as others will in California.
Good outlet for some of that production.
I guess just to put a finer point on that question do you see the addition of the WCS barrels into the Pacific Basin.
As damaging your your feedstock.
Procurement costs relative to what Youre seeing today does it make heavy crude cheaper.
We believe that is going to be the case, you've got two things that are rather significant.
As WCS and moving to the West Coast, and then being exported.
We've got a lot of activity in our system in California.
Particularly.
Martinez in refining where we're looking at what we can do to increase the volumes that we would.
Plan to run and the other thing that is.
Apparently still going to happen is that.
Sometime by the end of the year aligned oversold continues to indicate that they're going to shut down the refinery in Houston and that of course is a heavy crude refinery. So there are some potential tailwind on the heavy crude side.
Got it.
Thank you for that my follow up is on the cadence of turnarounds in the first quarter here with obviously very heavy and some of that work is spilling over here into the second quarter, but as you wrap these up can you offer some thoughts on what the turnaround outlook looks like maybe over the next year or two.
Sure so.
First quarter was heavy.
The hydrocracker and fluid Coker work at del City is going to be wrapping up very shortly.
We really have minor work.
In June in Torrance should not be too disruptive to earnings there is a bigger turnarounds starting at the very end of Q3.
<unk> in Q4 at Torrance.
But absent.
What I just described the.
The rest of the runway is very clear.
Certainly so for all over the other five refineries outside of Torrance from this point forward should have a very clear runway through the end of the year.
And going forward, we're going to get to a normalized turnaround schedule. We obviously like everybody else in the industry. When we had these high margin periods.
Took steps to safely but.
Changing to run and the units were pretty high and to a certain extent, we're paying for that.
2023, with most of that work already.
Already underway are done.
What we expect.
Maybe a little bit higher than <unk>.
Normal next year, but from that point on.
Back to what we would expect.
Okay.
Great. Thank you very much guys. Good luck.
Thank you.
Our next question is from the line of Manav Gupta with UBS. Please proceed with your question.
Congrats on a good quarter guys.
I guess, you buy a lot of heavy solid crude and medium sour crudes globally, and even from Canada and you have a very informative view that market is heading so he'll help us understand a little bit what youre seeing out there.
Incremented Canadian battling some crude coming from Venezuela, BP ramping up some projects, but then OPEC cutting so help us understand where the spreads are moving with medium and heavy in the near term.
I'm going to take the first part of it and I'm going to ask Tom O'connor.
<unk>.
On your question, but as I said.
Opening comments.
Certainly we've seen that.
Light heavy spreads narrow and some of Thats due to the fact that OPEC came out with their.
Cut and tightened and thats going to be a medium or heavy barrel.
And and the other thing as you would expect the desk to narrow and some with a decrease in flat price.
Basically you get penalized more when we run X medium or heavy crude if you don't have focused particularly we do but if you don't.
There's a there's a penalty if youre going to try and try and learn to me.
That flat price comes down and then that penalty decreases propane is not as much of a discount coke is not as much of a discount. So you would expect them to narrow in but that being said because of the production. That's fair. We are continuing to see light heavy dips that are quite a bit wider than historical.
Ed.
I don't have a lot that I Didnt mean, Tom's comments I think summarized it well I mean, I think the only thing I really kind of add as the market certainly has to deal with sort of the disruption or the fact that particularly I think in the eastern basin or the Pacific Basin, Theres really a disk.
There is an imbalance basically in crude costs between people that are consuming discounted Russian crude versus people that are paying market indicators. So thats certainly is I think exacerbated some of the moves that we saw coming out of the OPEC plus cuts.
They were announced it feels like things normalize just a little bit of a touch and then as you mentioned there.
Certainly as some.
Marginal growth at this point coming out of the U S Gulf Coast and certainly it seems like Venezuela is producing more barrels which are finding their way to the U S.
Perfect.
One quick follow up here is over the years, you've done a very good job of fixing up these assets and improving the reliability. So two small items Scott Alright, one was <unk>.
Generally you are much better than your op cost on the West coast. It seemed a little high on the quarter. So we are hoping it tapers down again and then mid Con do you have a good asset. So just help us understand what exactly happened during the quarter because generally it's a very good asset.
Yes.
I'll start and then Matt weigh in.
Op cost in the West coast natural gas really blow out on the west coast some of that was weather related.
Natural gas in the first quarter was high across the entire country.
But particularly in northern California, It was extremely high.
So that certainly hit us on operating cost those gas prices come back come back into the back to norm.
Toledo, which is a very good machine, but.
Toledo refinery, we hit that hurt badly.
So that will be called Christmas Eve freeze, Yes go ahead.
<unk>.
The freeze that happened on Christmas Eve, we suffered unplanned downtime both at Chalmette and Toledo.
Just from a management of that we were able to accelerate work, which mitigated what otherwise would've been.
More blades.
Yeah.
The result from the unplanned downtime. So we are able to assort, coupled with with work, but we had to go into the cat cracker at Toledo, and so we're able to take a.
Essentially it surgical strike, there, which definitively impacted the quarter between the two.
So nothing has changed at Toledo, it's still an exceptional refinery, but it has to run and it has to run reliably for that to be the case. So that's certainly the expectation going forward. One other thing I Should've mentioned on the West coast.
Natural gas prices was a big player, but we also did execute a turnaround and Martinez and it was a good size turnaround we shut down the crude unit.
And we were able to keep costs, where we can.
Commercially setup to be able to continue to try to fill it.
He has run the downstream units per throughput was down because of that turnaround being down so on a unit basis.
Just on costs.
Thank you for the detailed responses and all the best to Mac for the newly leadership. Thank you. Thanks.
Thanks Bill.
Sure.
The next question is from the line of Ryan Todd with Piper Sandler. Please proceed with your question.
Okay.
Thanks, Yes, let me start out congratulations Tom and Matt.
You and the team has done an amazing job of transforming the company over the last 10 years and position it for success going forward. So.
Congratulations to both of you.
I wanted to ask on <unk>.
On some of the cash or the uses of cash going forward you reduced your balance of environmental liabilities by $300 million in the quarter.
Can you can you run through that.
The non capex related kind of uses or call. It potential calls on cash over the remainder of the course of this year, how much more environmental liability to anticipate reducing to get back to a normalized level. I believe there is theres a J Aron inventory management agreement that you could look to address so what are the.
Non capital related potential uses of cash.
That we should expect to see between now and year end.
Sure.
Thanks. Thanks for the question, we ended the quarter with $1 6 billion in cash and.
I'm glad you focus there are certainly some cash calls coming Florida forward, we're going to continue to execute on the annual capital program, which is.
Normal levels.
Got it.
In the near term in the second quarter, we will be finishing up the SCR project and funding.
Sure.
And as you mentioned, we are going to continue to reduce our environmental credits liability.
We've described that we have a plan that we'll be doing that over the next five.
Five to six quarters, and I think you would likely you should expect to see a more normalized environmental credit liability balance.
Two to four months range liability range.
Yes.
Yeah Ryan.
The RIN program is obviously matches up with.
Our new operation, which is going to start generating returns and so we worked hard and so our thinking the normalization of the RIN balance to our new production of RIN credits.
And a question.
Oh I'm sorry go ahead as I mentioned, we obviously got board approval too.
As we mentioned in the script, Kevin mentioned too.
The repurchase program, so we will be using some cash opportunities.
Glad to do that go ahead I'm sorry.
I was just going to say on the.
And normally I think you talked about two to four months I mean, I guess it depends on RIN prices, but is that.
$400 million environmental liability of $300 million that kind of remains on a go forward basis.
The debt rolls.
Well I think that's going to be based on.
Let's assume about $100 million rents a year is our is our.
<unk> is our RVO.
So depending on price, it's a couple of hundred million dollars.
Ahead of time.
Okay Alright.
Hi.
And then maybe maybe switching gears gasoline inventories remain extremely tight particularly in pad. One can you talk about what youre seeing on kind.
It kind of market dynamics in your areas of operation, particularly in the northeast and what that might mean for gasoline and distillate markets as we head into summer driving season.
I'll ask Paul to handle that.
Great.
Short answer result, rack demand wholesale demand remains very very strong guide for <unk>.
Stated inventory position in pad, one or around five year lows.
Coming into driving season.
Changes are starting to show up pretty good bid our wholesale business in the east coast is year to year to date is up 10% from last year and current run rate right now is 15% above the first quarter. So.
It's shaping up to be a strong a strong season going into the into the summer and we're anticipating that really across the country.
Great. Thank you.
Our next question is from the line of John <unk> with J P. Morgan. Please proceed with your question.
Hey, good morning, Thanks for taking my question and congrats to Tom and Matt.
So.
We did notice a bump of about $50 million.
Full spend on the SPR project.
Realizing the broader context of the $800 million plus youre, bringing again, it's somewhat less material, but just.
Just any color on that incremental spend would be helpful. If we have that right.
You do it.
While we're not pleased with <unk>.
To drive to.
Perfection with delivering projects on time.
There was a small increase although we're getting down to the short strokes. So as I said the renewable diesel unit.
Has been turned over to operations or the commissioning it now.
In fact, we we expect feed in this.
This month.
The pretreatment unit much of the work is done but there is another.
Month, or so of work to get done there so.
While it is bit disappointed.
With the rise in the budget.
The project is well in hand.
Getting towards the end and I fully expect that.
The treatment facility like I said to be turned over to operations in June .
Great. Thank you and then maybe just one follow up on capital allocation.
You talked about some of the moving pieces.
Of environmental liabilities and.
Things like that but.
This.
$835 million coming in related to STR.
Negative.
After paying down a good chunk of the environmental liabilities.
And you talked about staying near zero net debt and also increase your authorization. So.
It seems like generally we can expect most of that $835 million to go back to shareholders via the buyback but.
Just want to make sure we're thinking about that correctly.
Yeah.
Well as we've been saying for some time, our balance sheet, our first priority and we do have some additional initiatives that we could do address further strengthening of the balance sheet. You had you had mentioned potential retiring of inventory financing agreement. We could also reduce long term debt.
And then of course, reducing the environmental payables over the next five or six quarters and it's going to require some some cash and then we expect to continue and potentially increase shareholder returns through the dividend and share repurchase program, but also.
We think its prudent to retain some cash for future potential opportunities that might come our way.
Thank you.
Okay.
Okay.
Operator.
Yes.
Question is from the line of Neil Mehta with Goldman Sachs.
Yes, good morning cubic and crest, Scotland, and congrats to you as well that wish you well in your new roles.
The first question is just around.
The renewable diesel at Chalmette.
Do you think about the mid cycle EBITDA associated with the 320 million gallons.
Production.
I don't know how would you frame that out there a lot of moving pieces that you first talked about that last year. So any update on the framework would be helpful.
Obviously, it's a fledgling business and theres going to be new.
Market participants.
And so youre going to have a bigger call on feeds.
And so what we saw in 2022.
<unk> was an EBITDA margin for model to what our plan and the capabilities of our plant will be will be an EBITDA was an EBITDA margin of $1 25 to $1 50.
I think in regards to the feedstock side R&D and what we will extend to SaaS has a distinct advantage over historical biodiesel plants, and so I think as the market evolves youll see.
Feedstock shift probably from biodiesel plants to renewable diesel plants as the economics are much stronger.
So theres going to be lots of puts and takes.
We modeled a base case that was below last year's.
Levels.
But.
Still very attractive for the investment and for the returns for the shareholders.
Where it's going to end up.
My guess is there'll be below 22 levels, but certainly.
I would expect going forward your EBITDA margins are going to be greater than a dollar and hopefully much higher.
That's helpful and then Matt actually just big picture.
A lot of what you guys have orchestrated over the last couple of years.
Preparing the balance sheet and setting some growth.
Growth in capacity initiatives in place can you talk about how you think about the five year strategic vision is as you step into this new role.
Thanks I appreciate the question I think the overriding principle.
As Tom and I have worked together for 13 years.
And it's been incredibly rewarding partnership not for the company just from a personal standpoint, working with Tom but it's a strategy that we are working hand in hand in regards to building PBF up.
And so continuity will be a big theme, obviously with Tom and I have been lockstep and everything that PBF has done.
Over the last 13 years, but.
Hopefully, it's my hope and is not to indicate that there's a lack of energy, but any change provides a new breadth of energy and so obviously, we're refining company that that is not going to change operations as incentive our universe, that's not going to change.
But we do have some initiatives SBR is one that's been in the works for a long time, we are just getting out of the gates analogy is very very exciting I think theres going be a lot of growth opportunities with our partnership with Eni there not only potentially into new products, whether it's stable sustainable aviation fuel.
Or it could be on the feedstock side that will develop over time and in connection with our partnership I will say with the partnership with Eni. It Hasnt closed yet, but it's already started bearing fruit.
Our renewable diesel team was down or I shouldn't say down was over in Italy visiting both of their plants, we got to visit the plant Sicily in Venice.
And so.
We're very excited about that partnership obviously beyond.
St Bernard renewables.
We're in the sort of mid stages now sort of beyond the early stages and exploring hydrogen hub opportunity on the east coast, we submitted an application with the consortium there and so I think theres going to be.
Real opportunities there and we have this unique asset in Delaware city, where beyond being a hydrogen hub.
Have we're blessed with.
<unk> five times the amount of real estate that are refinery sits on sort of in surrounding areas. So as that project. If it's able to move forward I think.
The opportunities will be manifest.
And then as Karen said.
We're in.
Volatile.
<unk> markets and maintaining a rock solid balance sheet with.
Terrific liquidity opportunities will pop up and to the degree we feel like we can grow the company and reward shareholders. We will certainly try to do that.
Alright, great. Thanks, Thanks for that.
Thank you.
Our next question is from the line of Matthew Blair with Tudor Pickering Holt. Please proceed with your questions.
Hey, good morning, Matt and Tom Congrats on the new roles I wanted to follow up I think it was karen's comment.
Where do you talked about.
It was prudent to retain cash for future ops.
Could you expand on that a little bit more in and I guess should we take that to mean that PBF would be potentially interested in looking at future refining acquisition.
Yes.
It's Matt.
I think it's always prudent.
Two.
To maintain some flexibility, especially when youre entering volatile markets. There's nothing planned we look at everything that comes up and obviously.
Theres been activities over the last year, where refineries have come for sale and haven't been able to find a buyer and are going away. So we will evaluate every opportunity that is in front of us.
Generally speaking of.
There is.
There is a volatility opportunities usually come up we've said it before we'll say it again, what we sort of say toward the interface, but.
We are absolutely committed to maintaining a strong balance sheet by the way that's not just for the benefit of our bondholders that goes directly to the benefit of our equity holders. Obviously it lowers your cost of debt as you improve it lowers your cost of insurance it improves.
Trade credit it introduces new shareholders, all of which is profound and running our business.
We want to be opportunistic.
But we're going to stay disciplined and we're.
We think we have a realistic view of what the future holds so but we're very excited about.
Sounds good and then have you started to procure low ci speeds for the Rd unit.
And if so could you just talk about the availability.
Are you looking at like U S P.
Feeds or international feeds in and do you expect the Eni partnership to help in this regard.
Absolutely we do.
And theyre already in the business.
Just I.
I don't want to get too deep into the weeds, but.
For the first couple months of operations.
We're going to be running low <unk>. So we've been focused on lining up those seeds for the renewable diesel unit as we get closer to pre treatment startup will start laying are in those lower.
And look this is where it's similar to our refining business or traditional petrochemicals petroleum refining business and that we're a merchant.
Renewable diesel manufacturer and we're going to go out and procure the most economic feeds that are available at any given time.
And there will be there will be.
Volatility in those markets and we'll we'll be as quick and entrepreneurial as we can and shifting between the feeds but theres no question.
Feed side with Eni, where theyre already in the marketplace they've been investing.
In the upstream in regards to feeds and they have access to some very interesting opportunities, but also extends to the product side.
And I would say there is a reasonably high probability.
<unk>.
<unk>.
Not too distant future once we're up and running that we could see products going into Europe and there is no question there'll be adding value to our operation.
We execute that business.
Great. Thank you very much.
Thank you. Our next question is from the line of Paul Cheng Scotiabank. Please proceed with your question.
Thank you good morning.
Tom and Matt first.
Let me add my congratulation, Tom and ensure that you're ready to spend all this money in the Gulf Coast.
Yes, hi.
Spent all this time of the golf course.
I'll tell you Paul.
I haven't played golf around the golf in three years.
So I'm not going to spend all the time on a golf course, but I'm going back to the golf course and.
But I'll remain as executive chair involved in the business I've got too much committed my General counsel is sitting across me reminds me on occasion, I am the largest private shareholder NPV at.
So CBS forever.
[laughter] alright.
Matt just curious that some of your peers that after they started up their out the project.
Is that they don't have sufficient hydrogen.
Could you talk about what's the situation you're in Chalmette and also debt.
A lot of the state.
And that has been lost due to the cat M. S N.
As Shayne yourself.
How are you guys going to.
Safeguard along that.
The second question with that.
So the <unk> that I think kind of the funding is so interestingly I mean on one hand, the shutdown of those facility is probably going to make at least the near term or for the next couple of years margins to be good but.
At the same time that the regulatory and the government that the team is making it very challenging.
No.
Yes, My question is that yes.
Offset in California that two piece on sale.
If the price hits, one stages of Coty do you guys still want to add to your positioning in California, given the regulatory environment that got them in that.
Short answer is no.
When we look at everything but I don't think we really have to get approval to buy another asset in California, given we've got.
And.
Martina is already Paul.
We said, we look at everything, but I would doubt that that would be something that we could effectively do even if something came on the market.
Yes.
There's no question about that so in regards to <unk>.
IGN look one of the benefits of being located in the Gulf coast hydrogen simply won't be.
A problem for us it's something that we recognized early on.
It's something that we signed on for a well in advance.
And there is abundant supply of hydrogen and it really does go into one of the competitive strengths of being located down in the Gulf.
In regards to.
Feeds and we've talked a lot about internally, obviously and I know it's been a focus for all of you guys are looking at the company.
We've worked very very hard and recognizing where others have I have stumbled out of the gates.
And so we've tried to bake in all of those lessons that.
Learned over time.
And so Jim would you add anything in regards to the specific low Ci feeds and the preparation we did in getting our equipment ready for that.
Well.
The low Ci feeds that we're that we're going to bring in but will.
We will benefit us once we get the pathways approved in through California, specifically, so we will have provisional Ci scores for the for the facility initially, but as we go through the pathway process in California, which we're well underway.
Be able to fully realize those in the future when they get approved.
Hey, Matt or Kevin can you remind us that once the remaining capex spending in the second quarter for the LTE project to finish and including the Pizza and unit.
I'm sorry, so there's two different questions in regards to the pretreatment unit.
<unk>.
The.
The project will end up being 675 million.
$1 million.
<unk> hundred $75 to 700, if you want to ban it.
The total R&D facility.
Project is going to be in regards to the.
Torrance work.
Now that we've given out specific turnaround.
Budgets for any one project the Torrance work in the second quarter, though he is not not.
As significant as what we're going to do in the third and fourth quarter in Torrance.
When we took twice over of course, you're all aware that with the precipitated explosion Exxon.
Exxon was down for a while and they did.
Extensive overhaul on the turnaround on that cat Cracker and I will tell you.
I have never seen a cat cracker run for as long as the <unk> ramp.
Finishing up in the fall.
A seven year plus run.
But the one in the second quarter is not going to be material and I don't remember how much of that we have left bonding.
Peter you have the <unk> project.
About 140 to $1 50 in the quarter and the quarter a whole quarter, but.
Some of that has already been spent yet.
Alright, thank you.
Thank you. Our last question is from the line of Jason <unk> with Cowen and company. Please proceed with your questions.
Hey, Thanks for taking my questions.
Farmer, Mac and congrats on the new roles and best of luck.
First I wanted to go back to the balance sheet, because it's certainly a focus for us and I believe investors.
You discussed keeping debt to cash equal and so the overarching question is at what point.
Does that.
Framework change.
Is it when we reach investment grade rating is it when you reduce the environmental liabilities and I guess tied to the environmental liabilities.
R&D.
Ren obligation that youre going to pay down debt is there going to be a transfer cost mechanism between kind of the biofuels plants and.
I guess paying down.
Mental.
Obligations is that going to be a market price or are you going to recognize that something different.
I can take the last piece for sure which is.
PBF.
We are a pure partnership with Eni so.
The.
Financials from FBR will be pure market based.
Everything at market prices that being said PBF will acquire the rins from SBR.
<unk> as they are produced which will be.
We will essentially bring ancillary benefits of to PBF and that we're not going to be in the marketplace acquiring those so.
But its a <unk> joint.
Joint venture and it's at a at market joint venture. So there is not a subsidy there to speak of.
Got it.
And with respect to cash balances and all of the balance sheet initiatives.
As I said in my prepared remarks were given heightened market volatility and as we pursue investment grade.
We intend to maintain.
Amir.
Zero harm and then after after that it's going to be pretty much a market condition.
Patients dependent it's hard to say I mean, nothing is static obviously, we have a couple of things that we want to address.
Frankly, we want to sit down with the rating agencies and have a frank Frank conversation with them and understand their perspectives.
But as Karen said.
That we live in volatile times, it's hard to imagine.
For the last three years sort of the volatility.
We've gone through.
And so we will continually assess whats best for the company in <unk>.
By extension, obviously the shareholders.
Alright based on your conversations with the ratings agencies do you feel like Youre close to getting that investment grade rating.
Oh I can assess what their timing is but I can assess what our balance sheet as I can.
Certainly look at it look at the metrics.
There's no question that when you annualize.
The financial metrics, we are investment grade.
Okay.
My follow up is I'm going to ask two centers at the end of the call.
The first just a clarification that the Opex guidance, you gave last quarter $8 50 per barrel still holds for the full year and then the other just you've mentioned you'd be interested it sounds like.
And pursuing potential acquisitions.
If they arise.
Would it be a focus on single refining assets as you've done in the past or would you be comfortable.
Acquiring say a system of refining assets.
When they become available.
Right.
First with respect to Opex. The guidance. We gave is based on our annual budget and our annual budgeted throughput.
Some seasonality Q1 is typically.
The highest because of energy cost second quarter.
The next highest.
Yes.
But when we put that guidance out natural gas was materially higher than it is now so that will move in regards to your acquisitions questions I appreciate it.
The desire to sort of get more or.
Sort of clarity, we don't know whats coming down what will come down the pike.
And so we look at everything we've always said that there's not a impair.
Imperative that we must grow.
By any stretch and so we're very pleased with the system, we have if opportunities come up who knows what they will be but we'll certainly look at them and try to do the best for our shareholders.
Great. Thanks for the answers I appreciate it.
Thank you we've reached the end of the question and answer session I will now turn the call over to Tom Lindsay for closing remarks.
Thank you for joining us today on today's call as we have discussed the markets will continue to be volatile as consumer demand will continue to be resilient.
<unk> remains in good hands, our operating principles are unchanged. We are focused on operating safely reliably and in an environmentally responsible manner and doing so we will continue to provide our essential products to meet consumer demand.
As we mentioned our balance sheet is in its strongest condition ever and we expect our operations and financial discipline will allow us to continue rewarding our investors.
Look forward to speaking with you all again next quarter.
<unk>.
This concludes today's conference you may disconnect your lines at this time and thank you for your participation.