Q4 2023 PBF Energy Inc Earnings Call

Okay.

Operator: Good morning, everyone, and welcome to the PBF Energy fourth quarter and full year 2023 earnings conference call and webcast. At this time, all participants are placed in a listen-only mode, and the floor will be open 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.

Speaker Change: Good day, everyone and welcome to the P. B S energy fourth quarter and full year 2023 earnings conference call and webcast.

Speaker Change: At this time all participants are 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 it is now my pleasure to turn the floor.

Operator: 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.

Speaker Change: Our over to Colin Murray of Investor Relations, Sir you may begin.

Colin Murray: Thank you, Kat. Good morning and welcome to today's call. With me today are Matt Lucey, our President and CEO, 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.

Speaker Change: Okay.

Colin Murray: Thank you Chad good morning, and welcome to today's call with me today are Matt Lucey, our president and CEO, Karen Davis, our CFO and several other members of our management team.

Colin Murray: Copies of today's earnings release, and our 10-K filing including supplemental information are available on our website. We're.

Colin Murray: 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 law. There are many factors that could cause actual results to differ from our estimates, including those we describe in our filings.

Colin Murray: 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 forward looking statements intended to be covered by the safe Harbor provisions under federal Securities laws.

Colin Murray: There are many factors that could cause actual results to differ from our expectations, including those described in our filings with SEC.

Colin Murray: In assistance with our prior period, we will discuss our results today, excluding special items. In today's press release, we describe the special items included in our quarterly report. The cumulative impact of the special items increased fourth quarter results by an after-tax amount of approximately $700,000, for one cent per share. This primarily relates to a change in the fair value of contingent consideration associated with the Martinez Act and a benefit related to a change in the tax receivable agreement, offset by a decrease in our gain on the formation of SBR and our share of the SBR lower cost of market inventory. Also included in today's press release is further guidance information related to our expectations for the first quarter of 2020. For any questions on these items or follow-up questions, please contact Investor Relations after the meeting. For reconciliations of any non-GAAP measures mentioned on today's call, please refer to the supplementary tables provided in the agenda. I'll now turn the call over to Matt.

Colin Murray: Consistent with our prior periods, we will discuss our results today, excluding special items.

In today's press release, we described the special items included in our quarterly results the.

Colin Murray: The cumulative impact of special items increased fourth quarter results by an after tax amount of approximately $700000 or one seven per share.

Colin Murray: Primarily relates to a change in the fair value of contingent consideration associated with the Martinez acquisition.

Colin Murray: They benefit related to a change in the tax receivable agreement liability offset by a decrease to our gain on the formation of FBR.

Colin Murray: And our share of the U S b or lower cost of market inventory adjustment.

Colin Murray: Also included in today's press release as further guidance information related to our expectations for the first quarter of 2024.

Colin Murray: Any questions on these items or follow up questions. Please contact investor relations after the call.

Colin Murray: For reconciliations of any non-GAAP measures mentioned on today's call. Please refer to the supplemental tables provided in the press release now I'll turn the call over to Matt Lucey.

Matthew C. Lucey: Good morning, everyone, and thank you for joining our call. As we closed the box on last year, PBF achieved its second best financial year in 2023. Over the course of the year, we further enhanced equity value by reducing our debt by over $700 million, and we've returned $640 million directly to shareholders through dividends and share buybacks. The company was able to purchase 150 million of our shares in the fourth quarter.

Matthew C. Lucey: Good morning, everyone and thank you for joining our call.

Matthew C. Lucey: As we close the books on last year PBF achieved its second best financial year in 2023.

Matthew C. Lucey: Over the course of the year, we further enhanced equity value by reducing our debt by over $700 million.

Matthew C. Lucey: And we returned $640 million directly to shareholders.

Matthew C. Lucey: Through dividends and share buybacks.

Matthew C. Lucey: The company was able to purchase a $150 million of our shares in the fourth quarter I am pleased to announce that our board of directors has approved an incremental $750 million share repurchase authorization.

Matthew C. Lucey: I'm pleased to announce our board of directors has approved an incremental 750 million share repurchase authorization. This resets our program to just over a billion dollars of remaining capacity. We end the year with our balance sheet transformation complete, in our strongest financial position ever. As we look at the quarter... The West Coast operations had clear challenges.

Matthew C. Lucey: This research our program to just over $1 billion of remaining capacity.

Matthew C. Lucey: We ended the year with our balance sheet transformation complete.

Matthew C. Lucey: In our strongest financial position ever.

Matthew C. Lucey: As we look at the quarter.

Matthew C. Lucey: The West Coast operations had clear challenges.

Matthew C. Lucey: Operations outside the West Coast were reasonable. Our East Coast and Gulf Coast systems performed well in their respective markets, with capture rates broadly in line with prior quarters. While Toledo operated well, the mid-con market was certainly challenging. At times, gasoline cracks were at or near negative numbers.

Matthew C. Lucey: Operations outside of the West Coast were reasonable our east coast and Gulf Coast systems performed well in their respective markets with capture rates broadly in line with prior quarters.

Matthew C. Lucey: While Toledo operated well the midcon market was certainly challenging.

Matthew C. Lucey: At times gasoline cracks were at or near negative numbers.

Matthew C. Lucey: This phenomenon in the mid-con during the fourth quarter is not new and somewhat of a return to normal seasonality. Importantly, we've seen a recovery in the MidCon product cracks as February begins. Our West Coast system underperformed largely due to our overlapping planned and unplanned maintenance activities. This was an unfortunate convergence of circumstances where we had both assets undergoing maintenance. Well, not the plan. It was the reality.

Matthew C. Lucey: This phenomenon in the mid con during the fourth quarter is not new and somewhat of a return to normal seasonality.

Matthew C. Lucey: Importantly.

Matthew C. Lucey: We've seen a recovery in the mid con product cracks.

Matthew C. Lucey: As February began.

Matthew C. Lucey: Our west Coast system, underperform, largely to our overlapping planned and unplanned maintenance activities.

Matthew C. Lucey: This was an unfortunate convergence of circumstances, where we had both at assets undergoing maintenance.

Matthew C. Lucey: While not to plan it was the reality.

Matthew C. Lucey: In Q4, we completed the major FCC turnaround in torrents, and as mentioned last quarter, we experienced unplanned PlexiCoker downtime at Martina. The FCC was delayed getting restarted, and the COCA work rippled through Martina's operation. The delayed restart of Torrance and the unplanned Martinez work cost us approximately $100 million in lost profit and an additional $32 million in operating expenses. And looking at our tariff sheets, you'll see that on the West Coast, we consume less heavy crude as a percentage of input, which increases costs. Our production yielded fewer high-value products, notably gasoline.

Matthew C. Lucey: In Q4, we completed the major FCC turnaround in Torrance, and then as mentioned last quarter, we experienced unplanned watching coker downtime at Martinez.

Matthew C. Lucey: The FCC was delayed getting restarted and the coker work rippled through Martinez operations.

Matthew C. Lucey: The delayed restart of Torrance and the unplanned Martinez work causes is approximately $100 million in loss profit.

Matthew C. Lucey: And then additional $32 million and operating expenses.

Matthew C. Lucey: And looking at our tear sheets youll see the west coast, we consume less heavy crude as a percentage of inputs, which increased cost or production yielded less high value products, notably gasoline.

Matthew C. Lucey: As a result of the delays and downtime, we did build high-priced crude inventory, which will be consumed in the first quarter. Again, while Q4 was clearly disappointing in California, I believe our West Coast system will be a significant contributor to our results in 2024, as it has demonstrated over the last few years. Looking ahead to Q1 across the system, we have a hydrocracker turnaround in Toledo beginning this month, and FCC turnaround on the East Coast beginning in March.

Matthew C. Lucey: As a result of the delays in downtime, we did build high priced crude inventory, which will be consumed in the first quarter.

Matthew C. Lucey: Again, while Q4 was clearly disappointing in California, I believe our west coast system will be significant contributors to our results in 24 as it is.

Matthew C. Lucey: Demonstrated over the last few years.

Matthew C. Lucey: Looking ahead to Q1 across the system, we have a hydrocracker turnaround in Toledo, beginning this month.

Matthew C. Lucey: FCC turnaround on the East coast beginning in March.

Matthew C. Lucey: With industry maintenance across the refining space increasing, we have seen significant improvements in our market cracks in February. Indeed, the outlook for 2024 is constructive, and we are focused on positioning our assets to perform to their potential. Global refining capacity, including new additions and refined product demand, remains tightly balanced.

Matthew C. Lucey: With industry maintenance across the refining space increasing.

Matthew C. Lucey: We've seen significant improvements in our market cracks in February.

Matthew C. Lucey: Indeed, the outlook for 'twenty four is constructive.

Matthew C. Lucey: And we are focused on positioning our assets to perform to their potential.

Matthew C. Lucey: Global refining capacity, including new additions and refined product demand remained tightly balanced.

Matthew C. Lucey: The refining industry has not been able to sustain product inventory builds, and balances remain tight to historical levels with growing demand. Disruptions in historic trade flows and patterns are creating tension in the market that is accruing to U.S. refiners, specifically coastal U.S. refiners, such as PBF. With this favorable market backdrop, PBF should continue delivering strong earnings and free cash flow and generating long-term value for our shareholders. On the regulatory front, we are pleased to report that we have reached an agreement with the Bay Area Air Quality Management District on a path forward with regard to Regulation 6-5, which will achieve the mutual goal of lowering particulate emissions. Consistent with expectations, we were able to reach a settlement where we will comply with Rule 6.5 without any mandated incremental investment when the rule goes into effect in July of 2026.

Matthew C. Lucey: The refining industry has not been able to sustain product inventory builds and balances remained tight to historical levels with growing demand.

Matthew C. Lucey: Disruptions and historic trade flows and patterns are creating tension in the market that is accruing accruing to U S refiners, specifically coastal U S providers such as PBS.

Matthew C. Lucey: With this favorable market.

Matthew C. Lucey: Market backdrop, PBF showed continued delivering strong earnings and free cash flow and generating long term value for our shareholders.

Matthew C. Lucey: On the regulatory front, we are pleased to report that we have reached an agreement with the Barrett Bay area Air quality management district on a path forward with regards to regulation six five.

Matthew C. Lucey: Which we'll achieve the mutual goal of lowering particularly to emissions.

Matthew C. Lucey: Consistent with expectations, we were able to reach a settlement, where we will comply with rose six five with.

Matthew C. Lucey: Any mandated incremental investment when the rule goes into effect in July of 2026.

Matthew C. Lucey: Additionally, we do not expect any material changes to our operations or product yield as a result of the regulation. As we saw from activity earlier in the quarter, combined markets will continue to be volatile. The global refining system, and PBF in particular, will be nimble in adapting to market conditions. The focus will be, as always, on maintaining consistent operations coupled with disciplined, rigorous capital allocation. Before turning the call over to Karen,

Matthew C. Lucey: Additionally, we do not expect any material changes to our operations or product yields as a result of the regulation.

Matthew C. Lucey: As we saw from a activity earlier in the quarter commodity markets will continue to be volatile.

Matthew C. Lucey: The global refining system and PBF in particular, we'll be nimble adapting to market conditions.

Matthew C. Lucey: Focus will be as always on maintaining consistent operations, coupled with disciplined rigorous capital allocation.

Matthew C. Lucey: Before turning the call over to Karen.

Karen Davis: I want to take a moment to publicly thank all of PBS employees for operating safely. Last year PBF recorded its best year in our history from a personal safety perspective. This is across all segments of our business, including our employees and the contractors who work in our facilities on a daily basis. The achievement of the lowest lost time incident rate in our history is a testament to the focus of each and every person in the company on executing their daily routines with the utmost professionalism and care. With that, I'll turn it over to Karen. Thank you, Matt.

Karen Davis: Want to take a moment to publicly thank all PBS employees for operating safely.

Karen Davis: Last year PBF recorded its best year in our history from a personal safety perspective.

Karen Davis: This is across all segments of our business, including our employees and contractors, who work in our facilities on a daily basis.

Karen Davis: The achievement of the lowest lost time incident rate in our history is a testament to the focus of each and every person in the company and executing their daily routine with the utmost professionalism and care.

Speaker Change: With that I'll turn it over with care.

Speaker Change: Thank you Matt.

Karen Davis: For the fourth quarter, we reported an adjusted net loss of $0.41 per share and adjusted EBITDA of $117.2 million. For the full year 2023, PBF reported adjusted net income of $11.33 per share and adjusted EBITDA of more than $2.6 billion. Cash flow from operations for the Porter was just under $306 million, including a working capital benefit of $59 million. Consolidated CapEx for the fourth quarter was approximately $233 million, which includes $221 million for refining corporate and logistics and approximately $12 million in final payments related to SBR construction. For full year 2023, consolidated CapEx was approximately $1.2 billion, which included approximately $312 million for the SBR Facility. On a go-forward basis, capital expenditures for SPR will not be reflected in PBS Consolidated.

Matthew C. Lucey: For the fourth quarter, we reported an adjusted net loss of 41 cents per share and adjusted EBITDA of $117 2 million for.

Speaker Change: For the full year 2023, PBF reported adjusted net income of $11.32 per share and adjusted EBITDA of more than $2 6 billion.

Speaker Change: Cash flow from operations for the quarter was just under 306 million, including a working capital benefit of $59 million.

Speaker Change: Consolidated Capex for the fourth quarter was approximately $233 million, which includes $221 million for refining and corporate in logistics and approximately 12 million in final payments related to SVR construction costs.

Speaker Change: For full year 2023, consolidated Capex was approximately $1 2 billion, which includes approximately $312 million to complete the SBR facility.

Speaker Change: On a go forward basis capital expenditures for FBR will not be reflected in PBS consolidated numbers.

Speaker Change: We continue to demonstrate our commitment to shareholder returns through our quarterly dividend share repurchase program in 2023, we paid over $105 million in dividends and repurchased approximately $533 million of PBF shares.

Karen Davis: We will continue to demonstrate our commitment to shareholder returns through our quarterly dividends and share repurchase program. In 2023, we paid over $105 million in dividends and repurchased approximately $533 million of PBF shares. Dividends paid in the fourth quarter totaled more than $30 million, reflecting the 25 percent increase in the quarterly dividend rate announced last quarter.

Speaker Change: Dividends paid in the fourth quarter totaled more than 30 million, reflecting the 25% increase in the quarterly dividend rate announced last quarter in.

Speaker Change: In the fourth quarter, we repurchased $150 million of PBF stock more than three 3 million shares.

The program was introduced in December of 2022 through yesterday are in just over a little years time, we have completed approximately 740 million in total share repurchases more than $17 6 million shares we have reduced our total share count to just under 100.

Karen Davis: In the fourth quarter, we repurchased 150 million shares of PBF stock, more than 3.3 million shares. The program was introduced in December of 2022 through yesterday, or in just over a little over a year's time, we have completed approximately $740 million in total share repurchases, more than 17.6 million shares. We have reduced our total share count to just under $120 million.

Speaker Change: Third 20 million shares.

Speaker Change: During our third quarter call, we commented that our work to fortify our balance sheet was largely complete.

Speaker Change: Over the past three years, we have reduced debt by over $3 4 billion, which in turn reduced our annual interest expense by over $200 million.

Speaker Change: In addition, we eliminated the overhang of our environmental credit payables by reducing the liability by $900 million and we retired our inventory intermediation agreement at a cost of $268 million.

Karen Davis: During our third-quarter call, we commented that our work to fortify our balance sheet was largely complete. Over the past three years, we have reduced debt by over $3.4 billion, which in turn has reduced our annual interest expense by over $200 billion. In addition, we eliminated the overhang of our environmental credit payables by reducing the liability by $900 million, and we retired our Inventory Intermediation Agreement at a cost of $268 million.

Speaker Change: These efforts, which totaled nearly $4 8 billion have enhanced our equity value and produced a balance sheet with investment grade level credit metrics.

Speaker Change: One comment on our outstanding environmental payables at year end Rins liability was fully committed.

Speaker Change: With the reduction achieved in 2023, we have brought down the balance to near what we would consider the upper range of normal.

Speaker Change: As a reminder, the current balance represents pbf's commitments across a number of environmental credit program not just rent.

Karen Davis: These efforts, which totaled nearly $4.8 billion, have enhanced our equity value and produced a balance sheet with investment-grade level credit. One comment on our outstanding environmental payable. At year end, our RINs liability was fully committed.

Speaker Change: Now that we are in the business of generating credits through SBR, we are going to actively manage our consolidated positions in order to take advantage of market pricing and structure and to reduce our overall cost.

Speaker Change: Individual components may shift based on our commercial strategy.

Karen Davis: With the reduction achieved in 2023, we have brought down the balance to near what we would consider the upper range of normal. As a reminder, the current balance represents PBF's commitment across a number of environmental credit programs, not just Now that we are in the business of generating credits through SBR, we are going to actively manage our consolidated positions in order to take advantage of market pricing and structure and to reduce our overall cost. Individual components may shift based on our commercial strategy. We expect that maintaining this balance in the $200 to $400 million range will be appropriate over the long term.

Speaker Change: Expect that maintaining this balance in the $200 million to $400 million range is appropriate over the long term.

Speaker Change: Over the course of 2024, you can expect a $430 million that was outstanding at year end to be reduced to this range over the coming quarters, the balance may fluctuate, depending on market conditions and commercial strategy.

Speaker Change: We ended the quarter with almost $1 8 billion in cash and approximately $1 3 billion of debt.

Speaker Change: Also of note the final payment of the Martinez earn out which we expect to play in April now stands at approximately $21 million down from last quarter's estimate of nearly $95 million.

Speaker Change: Sustainable dividends and share repurchases are important components of our overall long term capital allocation and shareholder return objectives.

Karen Davis: Over the course of 2024, you can expect the $430 million that was outstanding at year end to be reduced to this range over the coming quarter. The balance may fluctuate depending on market conditions and commercial strategies. We ended the quarter with almost $1.8 billion in cash and approximately $1.3 billion of debt.

Speaker Change: Maintaining our firm financial footing and strong balance sheet remain priorities.

Speaker Change: To the extent our operations continue to generate cash beyond the needs of the business and the requirement to continuously invest in our assets a greater percentage of that cash should be available for shareholder returns.

Speaker Change: As always though we will look at all opportunities to allocate capital through the lens that dregs cash to the option that generates the greatest long term value for our shareholders.

Operator: Also of note, the final payment of the Martinez earn-out, which we expect to pay in April, now stands at approximately $21 million, down from last quarter's estimate of nearly $95. Sustainable dividends and share repurchases are important components of our overall long-term capital allocation and shareholder return objectives. However, maintaining our firm financial footing and strong balance sheet remain a priority. To the extent our operations continue to generate cash beyond the needs of the business and the requirement to continuously invest in our assets, a greater percentage of that cash should be available for shareholder return. As always, though, we will look at all opportunities to allocate capital through the lens that directs cash to the option that generates the greatest long-term value for our shareholders. Operator, we've completed our opening remarks, and we will open the call to questions in a moment. The company requests that all callers limit their turn to one question and one follow-up.

Speaker Change: Operator, we've completed our opening remarks, and we'd be pleased to take any questions.

Speaker Change: Yeah.

Speaker Change: In a moment, we will open the call to questions. The company requests that all callers limit their turn to one question and one follow up you may rejoin the queue with additional questions.

Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad.

Speaker Change: Confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Roger Read: Your first question comes from Roger read with Wells Fargo. Please proceed.

Roger Reed: Alright, Thank you and good morning.

Roger Reed: I guess, Matt you kind of hit on it in some of your opening comments.

Roger Reed: <unk> out today with a bucket of cold water over the oil and gas industry, but I was just curious how you see demand as you look across.

Roger: Your your nationwide approach, obviously, you've had some pretty rainy weather in California, and we've had the snow storms in the east coast, but looking through those items out of things like on the demand side.

Operator: You may rejoin the queue with additional questions. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Roger: I think they look reasonable obviously you touched on it.

Roger: In regards to the seasonality and weather.

Speaker Change: Oh, It was really wet in California people generally don't go out.

Roger Reed: You may press star 2 if you would like to remove your question from the list. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we poll for questions. Your first question comes from Roger Reed with Wells Fargo. Please proceed. Hey, thank you, and good morning.

Speaker Change: And it's really cold in the Gulf Coast people don't know how to drive and indeed, we just had some weather here in the northeast that certainly impacts it but that seasonal I think going in.

Speaker Change: To the remainder of the year.

Speaker Change: I'm fairly pleased where I was much more cautious.

Speaker Change: On the soft landing going back over the last couple of years overall GDP in the economy looks pretty constructive.

Matthew C. Lucey: I guess Matt, you kind of hit on it in some of your opening comments, the IEA came out today with a bucket of cold water on the oil and gas industry, but I was just curious how you see demand as you look across, you know, your, your nationwide approach. Obviously, we've had some pretty rainy weather in California, and we've had snow storms on the East Coast, but looking through those items, how do things look on the demand side? I think they look reasonable.

Speaker Change: Okay and then.

Speaker Change: As a follow up on the this year.

Speaker Change: Let's call it cash cash return to shareholders whichever method it takes.

Speaker Change: The comment made about having an IAG quality balance sheet.

Speaker Change: Is there anything you're doing different to you.

Speaker Change: Receive an <unk> rating or you know you have what you have and we should look at it as that'll be.

Speaker Change: Oh, I don't know, let's call it a nice feather in your cap or something like that but doesn't really alter the way you think about things or will.

Speaker Change: We'll help you down the road and the way we should think about total returns for the company.

Matthew C. Lucey: Obviously, you touched on it in regards to seasonality and weather. I'm fairly pleased where I was much more cautious on the soft landing going back over the last couple of years. Overall, GDP and the economy look pretty constructive. Okay, and then as a follow-up on the share, let's call it cash, cash returns to shareholders, whichever method it takes, a comment made about having an IG quality balance sheet. Is there anything you're doing different until you receive an IG rating or, you know, you have what you have, and we should look at it as that'll be, Oh, I don't know, let's call it a nice I'll make a couple of comments and then ask Karen to comment in terms of doing anything differently. I don't think so.

Speaker Change: I'll make a couple of comments and then ask here.

Speaker Change: Or any color in terms of doing anything differently.

Speaker Change: I think so.

Speaker Change: Okay.

Speaker Change: We would maintain the balance sheet that we're having today because it's the right thing to do.

Speaker Change: And there are a number of benefits some of which we've already gotten in terms of trade credits, we have market participants that can see through the rating agencies.

Speaker Change: I was born of the credit World and that's where I began my career in banking.

Speaker Change: And the credit agencies are going to be slower and that's just a reality.

Speaker Change: That's not news to us we have a good relationship with each of them I think we're going to continue to demonstrate that indeed, we have a market leading balance sheet on any credit metric someone wants to pull up so we're operating our business as we would if the credit rating agencies didn't exist.

Speaker Change: We do want recognition for the reality is but that will take some time, Karen I don't know if you have any other comments.

Karen Davis: I just would add that you know our goal of achieving.

Karen Davis: Achieving investment grade rating as you know is based not only on the.

Matthew C. Lucey: We would maintain the balance sheet that we have today because it's the right thing to do, and there are a number of benefits, some of which we've already gotten in terms of trade credit. We have market participants that can see through the rating agencies. I was born in the credit world, meaning that's where I began my career in banking, and the credit agencies are going to be slower, and that's just a reality. That's not news to us. We have a good relationship with each of them.

Karen Davis: <unk> been at the obvious benefits of reducing our weighted.

Karen Davis: Weighted average cost of capital and certain other expenses, but we also think it might give us access to a greater or broader base of shareholders. You know those that are you know an investment grade rating is it sort of it.

Karen Davis:

Karen Davis: Confirms that the underlying fundamentals are strong and that will be an appealing we think to our longer term investors.

Speaker Change: I would agree with that alright, great I'll turn it back thanks.

Speaker Change: Your next question comes from John Royall from Jpmorgan. Please proceed.

John Royall: Good morning, Thanks for taking my question.

John Royall: So my first question is just a clarification I think on the RIN liability and appreciate it that it's a very much dwindling at this point, but I think Karen mentioned, the $200 million to $400 million target range is that apples to apples with the 50 to 100 million you gave on the last call and if so could you just bridge us from one room.

Matthew C. Lucey: I think we're going to continue to demonstrate that we have a market-leading balance sheet on any credit metric someone wants to pull up. So we're operating our business as we would if, and the CREA rating agencies didn't exist. We do want recognition for what the reality is, but that will take some time. You know, I just would add that, you know, our goal of... The Obvious Benefits of Reducing Our Emission

John Royall: So I feel like I may be missing something there but.

If you could just help us with that change in the number of thanks.

John Royall: Last year or last quarter and the guidance. We gave we talked in terms of number of returns that we thought would be represented in that liability. You think now we're viewing the environmental credits liability more holistically and including you know things.

Matthew C. Lucey: We also think it might give us access to a greater or broader base of shareholders, you know, those that, on investment rating, have backed the Peeling recently. I would agree with that. All right, great. I'll turn it back.

John Royall: Things like cap and trade in and whatnot. So that is a.

John Royal: Thanks. Your next question comes from John Royal from J.P. Morgan. Please proceed. Morning, thanks for taking my question. So my first question is just a clarification, I think, on the RIN liability, and I appreciate it that it's very much dwindling at this point. But I think Karen mentioned the 200 to $400 million target range. Is that apples to apples with the 50 to 100 million you gave on the last call? And if so, could you just bridge us from one range to the next?

John Royall: So our range now we're expressing in terms of dollars and it's inclusive of all of our credit program.

Speaker Change: Okay. That's helpful. Thank you and then just.

Speaker Change: On SBR on an adjusted basis I think you asked about.

Speaker Change: $20 million, if we did those adjustments correctly, that's coming off a nicely positive results in <unk>.

Speaker Change: You had a catalyst change, but anything else to call out there.

Speaker Change: How should we think about the first quarter for R&D.

Speaker Change: Nothing's changed a couple of positive developments as they've come down the path in regards to as we've gotten into Q1.

We expect for all of Q1 that will get our actual.

Speaker Change: Uh huh low carbon score in regards to our feedstocks, we expect that will come in in Q1 and actually apply.

Karen Davis: I feel like I may be missing something there, but you could just help us with that change in the number. Thanks. Last year, or last quarter, in the guidance we gave, we talked in terms of the number of RINs that we thought would, Transcripts provided by Transcription Outsourcing, LLC. You know, things like cap-and-trade and whatnot, so that is a. So our range now is expressed in terms of dollars, on all of our credit. Okay, that's helpful.

Apply to the whole quarter. So that that's a positive development. We are also expecting to in quarter one.

Speaker Change: Be able to be specced into Europe.

Speaker Change: That requires a approved feedstocks, so that's not only a regulatory.

Speaker Change: A check the box, but also requires that you have approved feedstocks go into that that will take a little bit longer to get into our system, where we will be able to fully or into Europe, but both of those are very positive developments.

Speaker Change: And looking forward looking.

Karen Davis: And then just on SBR, on an adjusted basis, I think you lost about $20 million if we did those adjustments correctly. And that's coming off a nicely positive result in 3Q.

Speaker Change: Looking back obviously the catalyst change was impactful in Q4, as we talked about our last call and there was noise around some LCM charges and other things in the in the financials.

Speaker Change: Thank you.

Speaker Change: Your next question comes from Doug Leggate from Bank of America. Please proceed.

Matthew C. Lucey: I know you had a catalyst change, but anything else to call out there? And what should we think about the first quarter for RD? Uh, nothing's changed. A couple of positive developments have come down the path in regards, As we've gotten into Q1, we expect for all of Q1 that we'll get our actual low carbon score in regards to our feedstock. We expect that we'll come in in Q1 and actually... apply to the whole quarter, so that's a positive development. We are also expecting to, in quarter one, be able to be, and Matthew Lucey. Thank you. That requires approved feedstocks, so that's not only a regulatory... check the box.

Doug Leggate: Hey, good morning, everybody.

Doug Leggate: Thanks for taking my questions.

Doug Leggate: These are both probably or maybe for you. Let me, let me start with working capital even if we see a ton of the G. Iran buyout earlier this year.

Doug Leggate: You still had a net a fairly sizeable net working capital impact for the whole year.

Doug Leggate: That was negative but is there a was that related to mikes comment about crude inventory building or was there something going on there that we should expect to reverse.

Speaker Change: Yeah, Doug I think the main impact there is the $900 million that we spent to reduce the environmental credit liabilities. That's all that's all within there and quite outsized in one time.

Speaker Change: So I think you will see that you know less of an impact in working capital going forward.

Speaker Change: Great stuff. So it shouldn't have asked that shouldnt repeat either sure correct. Yeah, that's the right way to think about it.

Doug Leggett: But it also requires that you have approved feedstocks go into that. That will take a little bit longer to get into our system, where we'll be able to fully arm ourselves for Europe. But both of those are very positive developments. Looking back, obviously, the catalyst change was impactful in Q4 as we talked about on our last call, and then there was noise around some LCM charges and other things in the finale. Thank you. Your next question comes from Doug Leggett from Bank of America. Please proceed. Hey, good morning, everybody. Thanks for taking the time to answer my questions. Karen, these are both probably or maybe for you.

Speaker Change: Alright, thank you.

Speaker Change: The East coast.

Speaker Change: It's a bit in the weeds I guess, but the east coast is where we saw your earnings Miss this quarter relative to <unk>.

Speaker Change: Your normal kind of captured if you like or at least how we think about your LTE on that side of the business.

Speaker Change: We're trying to figure out if this is something to do with fleet costs crude or maybe the pool.

Speaker Change: As time goes he gets started is there anything going on that you can point to that says why the east coast.

Speaker Change: With better with better throughput and why it did a little bit worse, perhaps in the last call.

Speaker Change: No.

Speaker Change: In regards to refinery startups, Paul would you make any comments on that.

Paul: East Coast.

Paul: No I mean, I don't I don't I didn't see anything.

Karen Davis: Let me start with working capital. Even if we took account of the Jay Aaron buyout earlier this year, you still had a net, a fairly sizable net working capital impact for the whole year, and that was negative.

Paul: Out of the out of the ordinary on the east coast to be honest with you guys. You have a what we had over the quarter as crude differentials began to widen that takes a while to get into the plant.

Paul: So you see the market indicators on the cost of crude there's a lag to that.

Paul: And I expect you'll see the benefit.

Matthew C. Lucey: Was that related to Matt's comment about crude inventory building? Or is there something going on there that we should expect to reverse? No, Doug, I think the main impact here is the $900 million that we spent to reduce the environmental credit liabilities. That's all within the budget and quite outsized. So I think you will see that, you know, less of an impact on working capital going forward. Page PAGE of NUMPAGES www.verbalink.com Page PAGE of NUMPAGES. All right, thank you.

Paul: In the first quarter on that side of it but another you know quite honestly, Doug that the freight.

Paul: Realities of you know having to navigate around the Cape of good hope means a more more materials are on the water.

Paul: Which obviously increases demands on shipping and freight rates have gone up as a result.

Paul: The net result of that resides in a higher crack.

Paul: On the East coast.

Paul: It is resilient to our markets, but theres nothing extraordinary on.

Paul: On the east coast that was negatively impacting us.

Speaker Change: That's great color. Thanks, so thanks very much.

Paul: Yeah.

Paul: Your next question comes from Ryan Todd with Piper Sandler. Please proceed.

Matthew C. Lucey: Matt, the East Coast, it's a bit in the weeds, I guess, but the East Coast is where we saw your earnings miss this quarter relative to, you know, your normal kind of capture rate, if you like, or at least how we think about your LP on that side of the business. We're trying to figure out if this is something to do with freight costs, crude oil, or maybe the pool as Dangote gets started. Is there anything going on that you can point to that says why these costs? Um, with better throughput, I did a little bit worse, perhaps, than you might.

Ryan M. Todd: Hey, Thanks, maybe.

Ryan M. Todd: You mentioned, a few things on SBR, but I guess as you you're a little over six months are 678 months into operation there.

Ryan M. Todd: Can you maybe talk about high level about what you've learned so far what's gone well what's been challenging.

Ryan M. Todd: How often do you expect to perform a catalyst changes there and maybe you know how.

Ryan M. Todd: How your feedstock mixes has evolved over the last.

Ryan M. Todd: You know over the last six to eight months of operations.

Speaker Change: I'll make some high level comments.

Jim Sedona who's in charge of that operation that makes some kind of.

Speaker Change: Directionally I think it's been.

Matthew C. Lucey: No, not in regards to refinery startup. Paul, would you make any comments on that? I mean, I don't, I didn't see anything out of the ordinary. You have what we had over the quarter is crude differentials beginning to widen. That takes a while to get into the plant.

Speaker Change: An extraordinary experience so far in getting the plant up on time.

Speaker Change: There's you're always going to work out some grandmothers coming out of it I think we did that better than most.

Speaker Change: Our relationship with the with Eni.

Matthew C. Lucey: So you see the market indicators on the cost accrued. There's a lag to that, And I expect you'll see the benefit in the first quarter on that side of it, but another, you know quite honestly Doug, the freight realities of you know having to navigate around the Cape of Good Hope means more materials are on the water, which obviously increases demands on shipping, and freight rates have gone up as a result. And I think the net result of that resides in a higher crack on the East Coast. So Thanks. Thanks very much.

Speaker Change: Is it off to a terrific start.

Speaker Change: I was over Oh some.

Speaker Change: Some other executives.

Speaker Change: Back in December indeed.

Speaker Change: State side, some other executives or state side.

Speaker Change: Working with our team this week.

Speaker Change: So the partnership.

Speaker Change: I think he is going as well as we could expect and I think our interests are very very well aligned.

Speaker Change: Focused on on maximizing all of <unk> capabilities, we still view it as absolutely have to.

Speaker Change: Tier one asset in the right geographic location, which gives great options on feedstocks.

Ryan M. Todd: Your next question comes from Ryan Todd with Piper Sandler. Please proceed. Thanks, maybe you mentioned a few things on SPR, but I guess as you're a little over six months, six, seven, eight months in operations there. Can you maybe talk at a high level about what you've learned so far? What's gone well? What's been challenging?

Speaker Change: And disposing of products as opposed to being tied into California will have the wherewithal.

Speaker Change: To go wherever the market is best.

Speaker Change: And obviously, we get some benefits connected to show them that on the operating expense side, Jim do would you give any other particulars in terms of operations I. The only thing I'll add from a catalyst change out perspective is on an annual basis, you change out the guard bed catalyst in about.

Matthew C. Lucey: How often do you expect to perform catalyst changes there? And maybe, you know, how your feedstock mix has evolved over the last, you know, the last six to eight months of operation? I'll make some high-level comments, and I'll ask Jim Fadena, who's in charge of that operation, to make some comments. You know, directionally, I think it's been. I think you'll have an extraordinary experience so far in getting the plan up on time. You're always going to have some gremlins coming out of it, but I think we did that better than most.

Speaker Change: Every 24 months or so you change out the ISR catalysts in the back end of the unit.

Speaker Change: And the other just more macro thing is much less and in regards to the PBF is obviously.

Speaker Change: The market for R&D.

Speaker Change: <unk> is down as credits have come down the supply of our D is is reduce rens and California credit prices as well come down.

Speaker Change: That's not a surprise to us we were expecting and indeed, I think that will continue for a bit at where it's going to put pressure is on more marginal players.

Matthew C. Lucey: Our relationship with E&I, I think, has been off to a terrific start. I was over with some of their executives back in December, and indeed, they are stateside. Some of their executives are stateside, and they're working with our team this week. So the partnership, I think, is going as well as we could expect, and I think our interests are very, very well aligned and focused on maximizing all of SPR's capabilities. We still view it as absolutely a Tier 1 asset in the right geographic location, which gives great options for feedstocks and disposing of products, as opposed to being tied to California, where we'll have the wherewithal to go wherever the market is best. And obviously, we get some benefits connected to Shell Met on the operating expense side. Jim, would you give any other particulars in terms of operation?

Speaker Change: Where are.

Speaker Change: You know what they ultimately do.

Speaker Change: That will certainly impact the market, but we're clearly advantaged.

Speaker Change: So those are those marginal players and I think.

Speaker Change: On the supply side will shuffle out here over 24.

Speaker Change: Great. Thank you that's helpful and then maybe.

Speaker Change: Just shifting to the west coast not on the non renewal, but on the other the rest of the refining business you've seen a big bounce in margins there over the last couple of weeks.

Speaker Change: Can you just talk about what youre seeing in terms of kind of overall.

Speaker Change: Supply demand dynamics and product market dynamics, there on the West coast are within your operations and then just to clarify I think did you did you say in your opening comments that there is.

Speaker Change: You're still going to be working your way through higher priced crude inventories there in California and that is that going to be a headwind to.

Matthew C. Lucey: The only thing I'll add from a catalyst change-out perspective is on an annual basis you change out the guard bed catalyst, and about every 24 months or so you change out the ISOM catalyst in the back. The other, just more macro thing is, much less in regards to PBF, is obviously the market for RD is down. As credits have come down, the supply of RD has reduced RINs, and California credit prices, as well, have come down. And that's not a surprise to us. We were expecting it,

Speaker Change: Yeah, Okay that kind of margin capture in the first quarter there.

Speaker Change: It will Ah, but there's no question.

Speaker Change: That.

Speaker Change: Extensive comments around it.

Speaker Change: Q4 operations.

Speaker Change: The poor and that that will that inventory that we carry over well.

Speaker Change: Will carryover into the first quarter, but that will then be behind US Paul why don't you give direct comments in regards to what you see every day on the ground in California.

Paul: And the big move in California markets really is the seasonal change out.

Paul: For winter gas December gas in Los Angeles. So that's the big pop you are seeing on the cracks that you guys look at it every day. In addition to that jet fuel is just well bid.

Matthew C. Lucey: Indeed, I think that will continue for a bit. And where it's going to put pressure on the more marginal players. You know, what they ultimately do, that will certainly impact the market, but we're clearly advantaged over those marginal players, and I think the supply side will shuffle out here over 24. Great. Thank you. That's helpful.

Paul: In the L a market and San Francisco markets with the arbitrage from Asia pretty much shut down so you're seeing the impacts of a of a short market moving into the seasonal highest seasonal demand periods.

Paul: Okay.

Speaker Change: Thank you.

Speaker Change: Your next question comes from Manav Gupta from UBS. Please proceed.

Manav Gupta: Oh, Hi, good morning, I wanted to ask about the renewable diesel market Lulu and I fully appreciate that these are the developments, which happened a couple of days ago, So, but I'm, hoping you have more information than we do.

Ryan M. Todd: And then maybe just shifting to the West Coast, not on renewal but on the rest of the refining business, you've seen a big bounce in margins there over the last couple of weeks. Can you talk about what you're seeing in terms of, you know, kind of overall supply-demand dynamics and product-market dynamics on the West Coast within your operations? And then just to clarify, I think you said in your opening comments that there is, you're still going to be working your way through higher-priced food inventories there in California, and is that going to be a headwind to kind of margin capture in the first quarter there? It will. Look, there's no question about that.

Manav Gupta: A few days ago, it looks like new Mexico passed the Senate passed the low carbon fuel standards bills and this could go into effect in 2026, and it's a very aggressive program. It goes from zero to 20% in like four to five years, you haven't seen that before and so I'm just trying to understand if this all.

Manav Gupta: All works out given your location could this be a new market for you. Besides California again, you move the product to new Mexico, if things work out in this direction.

Matthew C. Lucey: I have extensive comments around it, Q4 operations will carry over into the first quarter, but that will then be behind us. Paul, why don't you give direct comments in regards to what you see every day on the ground in California?

Speaker Change: Yeah, Juan I think.

Speaker Change: The point of what happened in new Mexico speaks to the investment thesis in R&D and that is over the course of time.

Speaker Change: Governments organic price carbon to incentivize.

Speaker Change: The manufacturer a renewable diesel specifically to our ability to competitively.

Speaker Change: Deliver product as new Mexico, It's it's it's too premature to say that but I would also say you know the market is a bathtub and to the degree in new Mexico, New Mexico draws other barrels it opens up other market itself.

Matthew C. Lucey: The big move in California markets really is the seasonal change out of winter gas to summer gas and, So that's the big pop you're seeing on the cracks. In addition to that, jet fuel is well bid in the L.A. You're seeing the impacts of a short market moving into the I.T. Thank you. Your next question comes from Manav Gupta from UBS. Please proceed. Hi, good morning.

Speaker Change: So focused on our direct ability to impact our new Mexico market in particular, but all of these things cascade with each other and ill.

Manav Gupta: I wanted to ask about the renewable diesel market a little bit, and I fully appreciate that these are developments that happened a couple of days ago, so I'm hoping you have more information than we do. A few days ago, it looks like New Mexico passed, and the Senate passed, the Low Carbon Fuels Standards Bill, and this could go into effect in 2026, and it's a very aggressive program.

Speaker Change: Free up.

Speaker Change: Demand in other markets, but it's it's certainly constructive and consistent with <unk>.

Speaker Change: Our investments team as I said.

Speaker Change: Perfect My quick follow up is.

Speaker Change: And you kind of mentioned this also in the earlier parts of the call you saw this big Midcon weakness it looks like it's abating. The cracks are rebounding and just like you gave an outlook on <unk>. What are you seeing in the midcon market as this evolves. This weakness is seasonal and should we expect a strong 2024 as it.

Matthew C. Lucey: It goes from zero to 20% in like four or five years. You haven't seen that before, and so I'm just trying to understand if this all works out, given your location, could this be a new market for you besides California? Can you move the product to New Mexico if things work out in this direction?

Speaker Change: Goes to the mid Con region in terms of cracks. Thank you.

Speaker Change: I mean, the the mid con the midcon economics in the fourth quarter were seasonal and it's something we normally see on a on an annualized basis as we move into the first quarter you know whiting following falling over was definitively.

Matthew C. Lucey: Yeah, one, I think the point of what happened in New Mexico speaks to the investment, NRD, and that is, over the course of time, government is again a price carbon to incentivize manufacturers of renewable energy, specifically to our ability to competitively deliver product into New Mexico.

Speaker Change: Beneficial to the cracks and Youre seeing that.

Speaker Change: So that's been the catalyst to move move the cracks for it.

Speaker Change: Some crude advantages out of Canada for for pad two those are going to come to an end as we as we get into Q2 and Q3.

Speaker Change: I think we're expecting you know normalized cracks in pad two going forward.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: Your next question comes from Neil Mehta from Goldman Sachs. Please proceed.

Manav Gupta: It's too premature to say that. But I would also say, you know, the market is about, to the degree New Mexico draws in other barrels, it opens up other markets. So I'm not so focused on our direct ability to impact the New Mexico market in particular, but all these things cascade with each other, and it will impact supply, demand, and others. But it's certainly constructive and consistent with our investment theme, as I said. Perfect.

Speaker Change: Yes.

Neil Mehta: Morning team.

Neil Mehta: First question is just how you're thinking about capital allocation in the context of M&A.

Neil Mehta: And what do you think the market is is I mean, it's been a big part of the P. B S story, and how you've gotten to where you are today do you still think there are opportunities out there and what's the overall framework for thinking about it.

Speaker Change: Well I think so.

Speaker Change: M&A as I mentioned in the comments.

Speaker Change: A disciplined and rigorous capital allocation.

Speaker Change: Effort.

Matthew C. Lucey: My quick follow-up is, and you kind of mentioned this also in the earlier part of the call, you saw this big mid-con weakness. It looks like it's abating, the cracks are rebounding, and just, you know, like you gave an outlook on the West Coast, what are you seeing in the mid-con market? Was this weakness seasonal, and should we expect a strong 2024 as it goes to the overall mid-con region in terms of cracks? Thank you. I mean, the mid-con, the mid-con economics in the fourth quarter were seasoned. This is something we normally see on an annual basis. As we move into the first quarter, you know, Whiting falling over was definitive.

Speaker Change: And M&A.

Speaker Change: As.

Speaker Change: No different than internal projects.

Speaker Change: Or or share buybacks, we will evaluate everything in the market as we always have the judge them against each other and allocate the capital as best we can.

Speaker Change: I don't think it's worth speculating on M&A activity at the moment.

Speaker Change: There's nothing.

Speaker Change:

Speaker Change: Immediate sort of action.

Speaker Change: We don't comment on it in the base case anyway, but you know it's consistent what we've what we've been talking about.

Speaker Change: Over 2023, the full year 2023.

Speaker Change: We are so focused on transforming our balance sheet and we've done that.

Speaker Change: It's completely we mentioned over the last quarter, we mentioned it again today, there's nothing left to address there.

Speaker Change: So now our work.

Speaker Change: We're a company as.

Matthew C. Lucey: Beneficial. So that's been the catalyst to move the cracks forward. There have been some crude advantages out of Canada for PAD2, but those are gonna come to an end when we get into Q2. I think we're expecting, you know, normalized cracks in Pad 2.

Speaker Change: Any company should be focused on generating cash as we generate cash how we get allocated.

Speaker Change: And whether it's external opportunities internal opportunities, where simply returning cash to shareholders. We've got a dedicated team analyzing all alternatives as we go forward.

Neil Mehta: Thank you. Your next question comes from Neil Mehta from Goldman Sachs; please proceed. Yeah, good. Good morning, team.

Speaker Change: Yeah, No that's helpful.

And just a follow up is just just love your perspective on Oh on how Youre seeing.

Matthew C. Lucey: The first question is just how you're thinking about capital allocation in the context of M&A. And what do you think the market is? I mean, it's been a big part of the PBS story and how you've gotten to where you are today. Do you still think there are opportunities out there? And what's the overall framework?

Speaker Change: Finding balances, particularly in the context of global refining which was alluded to earlier just that you know we've had to.

Speaker Change: Two to three extraordinary years and margin you see see margins mean reverting or do you believe that this is a new structural normal.

Speaker Change: Well, it's interesting and Oh, Tom O'connor to make some comments.

Matthew C. Lucey: Well, I think the M&A, as I mentioned, the comments, Discipline and Rigorous Capital Allocation effort, and M&A is no different than internal projects or, or share a buyback. We'll evaluate everything in the market as we always have, judge them against each other, and allocate the capital as best we can. I don't think it's worth speculating on M&A activity at the moment. Transcripts provided by Transcription Outsourcing, LLC, for 2023, the full year 2023. We are so focused on transforming our balance sheet, and we've done that. It's complete.

Speaker Change: Sit here.

Tom O'connor: Today, It was looking at it as of yesterday.

Tom O'connor: If you look at 'twenty four board racks, you know the market for calendar 'twenty four.

Tom O'connor: It actually works.

Speaker Change: Very comparable.

'twenty three I think there's been a.

Speaker Change:

Speaker Change: Theres been discussions of reverting to the mean and I'm not so sure.

Speaker Change: That we're going to revert to the mean as quickly as some maybe we're predicting and obviously theres a very very big difference from where we were in 'twenty, two and even 'twenty three to what the historical mean is.

But the market is setup.

Matthew C. Lucey: We mentioned it in the last quarter. We're mentioning it again today. There's nothing left to address there. And so now, we're a company, as any company should be, focused on generating cash. But as we generate cash, how do we allocate it?

Speaker Change: Very constructive way as I said and over the last couple of years.

Speaker Change: Our big thing.

Speaker Change: It's been in the industry has been incentive.

Speaker Change: To build inventory has really struggled in that regard.

Speaker Change: And so here, we sit in 2023 and inventories are very very tight yes.

Matthew C. Lucey: And whether it's external opportunities, internal opportunities, or simply return cash to shareholders, we've got a dedicated team analyzing all alternatives as we go forward. And just a follow-up question: I would love your perspective on how you're seeing refining balances, particularly in the context of global refining, which was alluded to earlier. 2 to 3 extraordinary years of margin. Do you see margins as reverting, or do you believe that this is a new structural norm? Well, it's interesting, and I'll ask Tom O'Connor to make some comments. You know, as I sit here... Today, I was looking at it as of yesterday. If you look at 24 board cracks, you know, the market for calendar 24, it actually works. ®MD-BO 23.

Speaker Change: Yes, there's going to be capacity, that's going to be coming on of it quite frankly is needed as demand growth.

Speaker Change: For products worldwide will continue to grow.

Speaker Change: I would personally take the over on on.

Speaker Change: It's about equipment coming on time or you know as as.

Speaker Change: As expected these.

Speaker Change: They're incredibly complex very large.

Speaker Change: Additions in their own right.

Speaker Change: Both in Mexico, and Nigeria, and you've got.

Speaker Change: My experience perspective is I think that probably takes longer Tom O'connor would you make any other comment yeah. Neal I mean, I think in terms of what Matt was saying, but the.

Tom O'connor: One thing I would add certainly is a big change in rent adjusted cracks year over year, right or cracks lower but we've got a RIN basket that as you know four to $5 lower if we start looking at year over year. So you know in terms of product realizations.

Matthew C. Lucey: I think there's been discussions of, you know, reverting to the mean, and I'm not so sure that we're going to revert to the mean as quickly as some maybe were predicting, and obviously there's a very, very big difference from where we were in 22 and even 23 to where we are now. But the market is set up very constructively, as I said, and over the last couple years, a big thing. The industry has been incented to build inventory and has really struggled in that regard.

Tom O'connor: That's meaningful.

Tom O'connor: You know as Matt was talking about with the refinery additions that are coming on stream. This year, probably part of it lends itself to being next year.

Tom O'connor: A lot of that is coming in the form of <unk>.

Tom O'connor: CD users starting over in the secondary units are really you know much further out right I mean in terms of when the Vlccs in the Coker is on all of those other.

Tom O'connor: This secondary units come out that actually can be quite helpful. For the market right. I mean, the market is tight in terms of secondary.

Tom O'connor: Secondary feeds on feedstocks for the FCC then for the Coker. So I think you'll see that it'll be sort of similar to things that we've seen in the past when there's been refinery expansions in the secondary units come afterwards, right I mean, you know the.

Matthew C. Lucey: So here we sit, 2023, and inventories are very, very tight. Yes, there's going to be capacity that's going to be coming on, but quite frankly, it's needed as demand growth for products worldwide will continue to grow. I would personally take the over on, on, you know. Managing Director for remembering, My experience, and perspective, is I think that probably takes longer. Tom O'Connor, would you make any other comments?

V G O market in particular for 2023 was certainly a bit lower than what expectations were and a lot of that was coming from some increases the CDU. It took place in the Gulf coast without increases to a secondary units.

Speaker Change: Thanks, Tom Thanks Pam.

Speaker Change: Your next question comes from Paul Cheng from Scotiabank. Please proceed.

Matthew C. Lucey: Yeah. Neil, I mean, in terms of what Matt was saying, one thing I would definitely add is, you know, a big change in, you know, RIN-adjusted cracks year over year, right? You know, bore cracks, you know, lower, but we've got a RIN basket that is, you know, $4 to $5 lower if we start, you know, looking at year over year. So, you know, in terms of, you know, product realizations, that's a... That's me.

Paul Y. Cheng: Alright, Thank you good morning.

Paul Y. Cheng: Hey.

Paul Y. Cheng: Matt if I look back on I mean, since the pandemic I mean that the market condition is the oven dong and so a lot of them are Tony for you. So it's difficult for us that Thunder I was trying to look at once if they stop spending capex.

Paul Y. Cheng: And and also including timing of wrongful and the company now.

Paul Y. Cheng: And also that since 2019, along with a.

Matthew C. Lucey: As Matt was talking about, the refinery additions that are coming on stream, and this year, probably part of it lends itself to being next year. A lot of that is coming in the form of, you know, the CDUs are starting up, and the secondary units are really, you know, much further out, right? I mean, in terms of when the, you know, the FCCs and the COCRs and all those other nice secondary units come out, that actually can be quite helpful for the market, right? I mean, the market is, you know, tight in terms of secondary feedstuffs for the FCCs and for the COCRs. So I think we'll see that. It'll be sort of similar to things that we've seen in the past. Ben Affleck and Myles Baubley.

Paul Y. Cheng: Unit costs have gone up in your niche of the region, maybe above the 20% or so yes.

Paul Y. Cheng: The new base that we should use or what that you'd thing.

Paul Y. Cheng: That initiative that the company would be able to bring it down over the next couple of years, that's the first.

Paul Y. Cheng: Question.

Paul Y. Cheng: Secondly that.

Paul Y. Cheng: We look at operation <unk> has been struggling for a number of yes.

Paul Y. Cheng: What's the plan in terms of NIM proofing.

Paul Y. Cheng: Operating performance over there and also I wish I too little.

Is there any of that.

Paul Y. Cheng: We finally in your system that you're saying Oh.

Matthew C. Lucey: 2023 was certainly a bit lower than what expectations were, and a lot of that was coming from some increases to CDU that took place in the Gulf Coast without, Thank you all. Thanks, Tom. Thanks, Brad. Your next question comes from Paul Cheng from Scotiabank. Please proceed. Thank you. Good morning.

Paul Y. Cheng: We could do better and may have a.

Speaker Change: To be done thank you.

Speaker Change: Look its our job to continually improve its our job to offset inflation with efficiencies.

Speaker Change: In regards to Toledo in particular.

Speaker Change: If you go back to the first part of 2023, they had some operational upsets much of that's due to the weather.

Paul Y. Cheng: Matt, if I look at the, I mean, since the pandemic, I mean, that the market conditions are up and down, and there is a lot of volatility. So it's difficult for us from the outside to look at what is the sustaining CAPEX and also include a turnaround for the company now. And also, since 2019, it looks like the unit cost has gone up in each of the regions, maybe about 20% or so. Is this the new baseline that we should use or do you think that the initiative that the company will be able to bring it down over the next couple of years? That's the first question. Secondly, that if we look at it operationally, Toledo has been struggling for a number of years.

Speaker Change: Some of the storms from last year.

Speaker Change: Operationally.

Speaker Change: We do has run pretty reasonable and pretty consistently.

Speaker Change: For the quarters two through four.

Speaker Change: And in regards to Opex.

Speaker Change: The single biggest thing that will drive opex.

Speaker Change: It'll be running reliably.

Speaker Change: And increasing throughput.

Speaker Change: And obviously, California.

Speaker Change: Do that last quarter, and so you'll see it.

Speaker Change: Putting aside incremental expenses because of some of the downtime. Your opex is going to go off on a per barrel basis, when you don't operate well.

Speaker Change: I'm encouraged.

Speaker Change: Obviously out of our control, but where we're heading into 2024.

Paul Y. Cheng: What's the plan in terms of improving the operating performance over there? And also, outside Toledo, is there any other refinery in your system that you think we could do better and may have work to do? Thank you. Look, it's our job to continually improve. It's our job to offset inflation with. In regards to Toledo, in particular, go back to the first part of 2023. They had some operational upsets, much of it due to the weather, some of the storms from last year. However, Toledo has run pretty reasonably and pretty consistently for the quarters 2 through 4.

Speaker Change: With natural gas prices that are certainly better than they had been over the last couple of years, so that should be a bit of a tailwind in.

Speaker Change: Regards to capital.

Speaker Change: Put out a guidance over the you know I think.

Speaker Change: Earlier in the year.

Speaker Change: And that guidance included about $50 million of of discretionary projects return projects at each of the refineries. That's the full extent of our that we don't have any other big projects at the moment.

So I believe we put out a number of 800 to 850 for the full year and that's where it is this year in regards to higher capital going forward I still think that we may yet still have it next year as well.

Matthew C. Lucey: In regards to op-eds, the single biggest thing that will drive up prices will be running reliably and increasing throughput. And obviously, California didn't do that last quarter, and so you'll see that. You know, putting aside incremental expenses because of some of the downtime. Your OPEX is going to go off on a per barrel basis when you don't operate. I'm encouraged.

Speaker Change: You had.

Speaker Change: A three year period, which was just very very odd where are.

Speaker Change: Credit will Lowe's and incredible highs and capital programs.

Speaker Change: We're tweaked as a result of appropriately so but the net result is a.

Matthew C. Lucey: It's obviously out of our control, but we're heading into 2024 with natural gas prices that are certainly better than they have been over the last couple of years, so that should be a bit of a tailwind. In regards to capital, we put out guidance earlier in the year, and that guidance included about $50 million of discretionary projects, or return projects, at each of the refineries. That's the full extent of our; we don't have any other big projects at the moment. So, I believe we should put out a number of $800 to $850 for the full year, and that's what it is this year. In regards to higher capital going forward, I still think, and we may yet still have it next year as well. You had a three-year period, which was just very, very odd, where incredible lows and incredible highs, and the Capital Program, were tweaked as a result, appropriately so. But then that result is:

Speaker Change: You know you have to end up paying the Piper are at some point in the this year, we see higher than normal turnaround activity and I think to a great degree.

Speaker Change: That was impacted by the previous three or four years, Karen would you make any other comments on capital.

Speaker Change: No.

Karen Davis: Just other than to point out when we look at history.

Karen Davis: Martinez is new to the system and this is really kind of the first year, we've had a a full complement of.

Karen Davis: Capex there.

Karen Davis: Karen do you have a number one thought that long haul watches that normal cycle.

Karen Davis: Psycho average capex spending for the company based on your kind of an often makes.

Karen Davis: I think it's probably in that $7 50 to 800 range and again remembering that looking back in history. We used to talk about a normalized range of six 600 to 650, but that was pre Martinez.

Karen Davis: Right.

Speaker Change: Thank you.

Speaker Change: Our final question comes from Jason Gere Bowman from TD Cowen. Please proceed.

Speaker Change: Yeah, Hey, thanks for taking my questions.

Speaker Change: First I wanted to ask one of your one of your peers discussed a large project on the west coast related to compliance.

Speaker Change: With a rule 1109 0.1.

Matthew C. Lucey: You know, you have to end up paying the piper at some point, and indeed, this year we see higher than normal turnaround activity, and I think to a great degree, that was impacted by the previous three or four years. Karen, would you make any other comments on capital? You know, just other than to point out when we look at history... Hey Karen, do you have a number on the long-haul watch? The company is based on. I think it's probably in that 750 to 800 range, and again, remembering that, looking back at history, talking about, and normalizing what that was.

Speaker Change: The South coast Air quality Management District.

Speaker Change: In Southern California, and I'm wondering is that something that you have to spend money on to comply with or are you already in compliance with that.

Speaker Change: I would not project any capital.

Speaker Change: The numbers that Karen just shared.

Speaker Change: Yes.

Always spending some money to comply with rules, but theres nothing extraordinary for P. B L.

Speaker Change: Okay. So you're in I mean, whenever you are spending this year.

Speaker Change: Addresses that Nox emissions that you need to comply with them, yes, Southern California, Okay.

Karen Davis: Bye. Thank you. Our final question comes from Jason Gabelman from TD Cowen. Please proceed. Hey, thanks for taking my questions. First, I wanted to ask you, one of your peers discussed a large project on the West Coast related to compliance with Rule 1109.1 in the South Coast Air Quality Management District in Southern California. And I'm wondering, is that something that you have to spend money on to comply with, or are you already in compliance with that? I would not project any capital... The numbers that Karen just shared. You know, we're always spending some money. Go to Beadaholique.com for all of your beading supplies needs!

Speaker Change: And then my second one is just there was.

Speaker Change: It looked like there was a proposal in California to require refiners to stockpiled gasoline in order to address some of the market volatility I believe.

Speaker Change: The commission out there was having a hearing on that either yesterday or today and I'm wondering if you have any any comments around that and then more broadly.

Speaker Change: Any other liabilities, we should be thinking about in terms of cash calls.

Speaker Change: On the environmental liabilities that you mentioned.

Speaker Change: Just.

Speaker Change: In regards to the California.

Speaker Change: It's way too early to speculate a paper was written which was essentially a concept.

Matthew C. Lucey: Okay, so you're in, I mean, whatever you're spending this year addresses the NOx emissions that you need to comply with in Southern California. Okay, and then my second one is just, It looked like there was a proposal in California to require refiners to stockpile gasoline in order to address some of the market volatility. I believe the commission out there was having a hearing on that either yesterday or today, and I'm wondering if you have any comments on that. And then more broadly, any other liabilities we should be thinking about in terms of cash calls, beyond the environmental liabilities that you mentioned? Just a, In regards to California, I think it's way too early to speculate that a paper was written which was essentially a concept.

Speaker Change: I think it's particularly thought through at this point I don't think there's any regulatory agency they can dictate.

Speaker Change: Or make demands on it.

Speaker Change: A private company on how much inventory to hold.

Speaker Change: Concept is is I don't think flushed out to.

Speaker Change: Any great degree and I think.

Speaker Change: <unk> and the state government of California, Ken.

Speaker Change: Evaluate.

Speaker Change: Any number of things obviously, they have to do it within the walls.

Speaker Change: And.

Speaker Change: And in terms of.

Speaker Change: Impacting the market.

Speaker Change: Thanks.

Speaker Change: There's a supply and demand problem and.

Speaker Change: In California as supply is going down so the market is tight.

Matthew C. Lucey: I don't think it's particularly thought through at this point. I don't think there's any regulatory agency that can dictate or make demands on a private company about how much inventory it holds. The concept isn't, I don't think, flushed out to any great degree, and I think regulators and the state government of California can evaluate any number of things. Obviously, they have to do it within the law, and you know, in terms of impacting the market. I don't think there's a supply and demand problem in California as supply has gone down, so the market, on the steps they've taken so far, seemingly has not improved.

Speaker Change: On the steps they've taken so far seemingly have not improved that.

Speaker Change: The concept that that was put to the California Energy Commission.

Speaker Change: But it hasnt been flushed through and it's probably not worth speculating at this point.

Speaker Change: Got it and then more broadly what was the second question.

Speaker Change: Just are there any other liabilities beyond the environmental ones that you mentioned that we should be thinking about in terms of calls on cash for 2024.

Speaker Change: No I mean the.

Speaker Change: I joked earlier and I think a mill even use the term the.

Speaker Change: 10 years ago, and something that looks like on a pig.

Matthew C. Lucey: The concept that was put to the California Energy Commission, but it hasn't been flushed through, and it's probably not. Got it, and then more broadly, yeah. Thanks. But, are there any other liabilities beyond the environmental ones that you mentioned that we should be thinking about in terms of calls on cash for 2024? No, I mean, the joked earlier, and I think O'Malley even used the term 10 years ago or something, where the lipstick on the pig from the fourth quarter was the reduced payout to Shell. And so, where we were expecting that to be a much larger number, that declined to, you know, $20 million. So that's a net reduction on the capital call. But I don't see anything else major coming out.

Speaker Change: The fourth quarter.

Speaker Change: It was the reduced payout to shell and so where we were expecting that to be a much larger number.

Speaker Change: That declined to 12.

Speaker Change: $20 million, so that's a net reduction.

Speaker Change: Capital call, but I don't see anything.

Speaker Change: Anything else major out of the ordinary.

Speaker Change: Alright, great. Thanks.

Speaker Change: We have reached the end of our question and answer session I will now turn the call over to Matt Lucey for closing remarks.

Matthew C. Lucey: Thank you everyone for participating in today's call. We look forward to speaking to you again.

Matthew C. Lucey: And next quarter, and we look forward to a prosperous 24 have a great day.

Matthew C. Lucey: Yeah.

Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Matthew C. Lucey: All right. Great. Thanks.

Matthew C. Lucey: We have reached the end of the question and answer session. I will now turn the call over to Matt Lucey for closing remarks. Thank you, everyone, for participating in today's call. We look forward to speaking to you again next quarter, and we look forward to a prosperous 24. Have a great day. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. The End. www.plastics-car.com, and I'm Manav Gupta.

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