Q1 2024 PBF Energy Inc Earnings Call
Operator: Good day everyone and welcome to the PBF Energy First quarter 2024 earnings conference call and webcast. At this time, all participants have been placed in a listen-only mode, and the floor will be open for questions following management's opening remarks. If For assistance during the conference, please press star zero on your telephone keypad. Please note that 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.
Good day, everyone and welcome to the PBF Energy first quarter 2024 earnings conference call and webcast. At this time all participants have placed in a listen only mode and the floor will be open for quite question following management prepared remarks.
Okay.
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 over to Colin Murray of Investor Relations. Sir you may begin.
Colin Murray: Thank you, Abby. 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-Q filing, including supplemental information, are available on our website. Before getting started, I'd like to direct your attention to the Safe Harbor Statement contained in today's press release. Statements in our press release and those made on this call that express a company's or management's expectations or predictions of the future are forward-looking statements intended to be covered by the safe harbor provisions under federal securities laws. There are many factors that could cause actual results to differ from our expectations, including those we describe in our filings with the SEC.
Colin Murray: Thank you Abby 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-Q filing including supplemental information are available on our website.
Colin Murray: Before getting started I'd like to direct your attention to the Safe Harbor statement contained in today's press release.
Colin Murray: Statements in our press release and doesn't get 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 this.
Colin Murray: We described in our filings with the SEC.
Colin Murray: Consistent with our prior periods, we will discuss our results today, excluding special items. In today's press release, we describe the non-cash special items included in our quarterly results. The cumulative impact of these items increased fourth quarter results by an after-tax amount of approximately $900,000, or $0.01 per share, primarily related to a change in the fair value contingent consideration associated with the Martinez acquisition and our share of St. Bernard Renewables, LLC's lower cost-to-market inventory adjustment, which were partially offset by an adjustment to the gain on the formation of SBR.
Colin Murray: 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.
Colin Murray: The cumulative impact of these items increased fourth quarter results by an after tax amount of approximately $900000 or one seven per share.
Colin Murray: Really related to a change in the fair value for contingent consideration associated with the Martinez acquisition and our share of St. Bernard renewables LLC lower of cost or market inventory adjustments, which were partially offset by an adjustment to the gain on the formation of STR.
Colin Murray: Also included in today's press release is further guidance information related to our expectations for the second quarter. Throughput. For any questions on these items or follow-up questions, please contact Investor Relations after the 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 Matt to speak.
Colin Murray: Also included in today's press release as further guidance information related to our expectations for the second quarter.
Colin Murray: Throughput for any questions on these items of follow up questions. Please contact investor relations. After the 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 Matt.
Matthew C. Lucey: Thank you, Colin. Good morning, everyone, and thank you for joining us on our call. While the markets early in the quarter reflected somewhat typical seasonal weakness, Industry Maintenance and Increasing Consumer Demand Through the Quarter helped strengthen the markets as we progress from the mild winter. [inaudible] With that backdrop, the Toledo and Delaware City refineries underwent significant turnarounds beginning in late February and early March. We completed the Toledo turnaround in mid-April, and the Delaware City FCC is in the midst of startup today.
Matthew C. Lucey: Thank you Tom Good morning, everyone and thank you for joining our call.
Matthew C. Lucey: Well the markets early in the quarter reflected somewhat typical seasonal weakness.
Matthew C. Lucey: Industry maintenance and increasing consumer demand through the quarter helped strengthen the markets as we progressed from the mild winter.
Matthew C. Lucey: Into spring.
Matthew C. Lucey: With that backdrop.
Matthew C. Lucey: We don't and Delaware City refineries underwent significant turnarounds beginning in late February.
Matthew C. Lucey: And then in early March.
Matthew C. Lucey: We completed the Toledo turnaround in mid April.
Matthew C. Lucey: The Delaware City FCC is in the midst of startup today.
Matthew C. Lucey: Despite the impact of the turnaround in Toledo, we did benefit from attractive SynCrew pricing, which improved our capture rate in the quarter. That said, SYNCrew differentials have now normalized.
Matthew C. Lucey: Despite the impact of the turnaround in Toledo, we.
Matthew C. Lucey: We did benefit from attractive syncrude pricing, which improved our capture rate in the quarter.
Matthew C. Lucey: That said syn crude differentials have now normalized.
Matthew C. Lucey: Operations at Chalmette were as planned with no significant issues during the quarter. We do have a turnaround planned for the fourth quarter at Chalmette. Our West Coast refining system was impacted by the carryover of issues from Q4. Capture rates were negatively impacted by higher price inputs flowing through the system.
Matthew C. Lucey: Operations at Chalmette, whereas plan with no significant issues during the quarter, we do have a turnaround plan for the fourth quarter at Chalmette.
Matthew C. Lucey: Our west Coast refining system was impacted by the carryover of issues through Q4.
Matthew C. Lucey: Capture rates were negatively impacted by higher priced inputs flowing through the system.
Matthew C. Lucey: Turnaround work has begun at Martinez on the Hydrocracker and other associated equipment... We expect to complete this work in the second quarter. It should have a clear operational runway for the remainder of the year on the West Coast. We continue to see strength and demand for our products across all operating regions, and inventories remain tight. We enter the quarter in a net cash position. The completion of our balance sheet transformation in 2023 provides PBF with the ability to deliver shareholder returns across market cycles and the flexibility to take advantage of market opportunities should they appear.
Matthew C. Lucey: Terrible turnaround work has begun at Martinez on the hydrocracker and other associated units.
Matthew C. Lucey: We expect to complete this work in the second quarter.
Matthew C. Lucey: And should have a clear operational runway for the remainder of the year for the West coast.
Matthew C. Lucey: We.
Matthew C. Lucey: To see strength in demand for our products across all operating regions and inventories remain tight.
Matthew C. Lucey: We ended the quarter in a net cash position the completion of our balance sheet transformation in 2023 provides PBF with the ability to deliver shareholder returns across market cycles, and the flexibility to take advantage of market opportunities should they up here.
Matthew C. Lucey: We continue to demonstrate our commitment to returning cash to shareholders with approximately $125 million of share repurchases in the first quarter. In addition, our board of directors approved the payment of our regular quarterly dividend of $0.25 per share.
Matthew C. Lucey: We continued to demonstrate our commitment to returning cash to shareholders with approximately $125 million of share repurchases in the first quarter.
Matthew C. Lucey: In addition, our board of directors approved the payment of our regular quarterly dividend of 25 cents per share.
Matthew C. Lucey: Longer term we.
Matthew C. Lucey: Longer term. We continue to be constructive in the global refining market. Global capacity, including new additions, and refined product demand remain tightly bound. New capacity additions are needed to keep pace with growing global demand and offset capacity shutdowns and conversions. Geopolitics and the associated disruptions in historic trade flows continue to create tension in the market that is accruing to U.S. refiners, specifically coastal U.S. refiners such as PBF.
Matthew C. Lucey: We continue to be constructive on global refining market on the global refining market.
Matthew C. Lucey: Global capacity, including new additions and refined product demand remained tightly balanced.
Matthew C. Lucey: New capacity additions are needed to keep pace with growing global demand and I'll set capacity shutdowns and conversions.
Matthew C. Lucey: Geopolitics and the associated disruptions in historic trade flows continue to create tension in the market that's accruing to the U S refiners, specifically coastal U S refiners, such as P. B S.
Matthew C. Lucey: In this environment, PBF should continue generating strong earnings, free cash flow, and promoting long-term value for our shareholders. Before turning the call over to Karen, I'd like to take an opportunity to publicly introduce and welcome our new Head of Refining, Mike McCaskill. Our previous head of refining, Steve Steech, is set to enjoy a well-deserved retirement after a long and successful career. Mike joins us with over 30 years of refining experience, and we are excited that he's bringing his deep expertise and new perspectives to PBF Operations.
Matthew C. Lucey: In this environment PBF should can change yet continue generating strong earnings and free cash flow and promoting long term value for our shareholders.
Speaker Change: Before turning the call over to Karen I'd like to take an opportunity to publicly introduce and welcome our new head of refining Mike Makowski.
Mike Makowski: Our previous head of refining Steve stage is set to enjoy a well deserved retirement after a long and successful career.
Mike Makowski: Mike joins us with over 30 years of refining experience and we're excited that he's bringing his deep expertise and new perspectives to PBF operations.
Matthew C. Lucey: Our focus remains on the safe and reliable operations of all our assets, and we believe Mike will help us to elevate our performance across the system. With that, I'll turn it over to Karen. Thank you, Matt, and good morning.
Mike Makowski: Our focus remains on safe and reliable operations of all our assets and.
Mike Makowski: We believe Mike will help us to elevate our performance across the system.
Mike Makowski: With that I'll turn it over to Karen.
Karen Berriman Davis: Thank you, Matt and good morning.
Karen Berriman Davis: For the first quarter, we reported adjusted net income of $0.85 per share and adjusted EBITDA of $301.5 million. Earnings per share included a benefit of $0.04 per share related to a reduction in our effective tax rate to approximately 21% due to the exercise of employee stock options during the quarter. We expect our effective tax rate to return to the normalized range of 24% to 26%.
Karen Berriman Davis: For the first quarter, we reported adjusted net income of 85 cents per share and adjusted EBITDA of $301 5 million.
Karen Berriman Davis: Earnings per share included a benefit of four cents per share related to a reduction in our effective tax rate to approximately 21% due to the exercise of employee stock options. During the quarter, we expect our effective tax rate to return to the normalized range of 24 to two.
Karen Berriman Davis: 6%.
Karen Berriman Davis: Also included in the PBF results is an $800,000 loss related to our equity investment in St. Bernard Renewables. Standalone EBITDA for SBR, after backing out, a lower cost or market adjustment, was approximately $4 million. We completed a catalyst change and some optimization work in Q4, allowing us to produce an average of 18,000 barrels per day of renewable diesel in the first quarter. We expect similar production levels in the second quarter.
Karen Berriman Davis: Also included in the PDF results is an $800000 loss.
Karen Berriman Davis: Our equity investment in St Bernard.
Mike Makowski: Standalone EBITDA for S. P. R. After backing out a lower of cost or market adjustment was approximately $4 million.
Mike Makowski: We completed a catalyst change and some optimization work in Q4, allowing us to produce an average of 18000 barrels per day of renewable diesel in the first quarter.
Mike Makowski: We expect similar production levels in the second quarter.
Karen Berriman Davis: Cash flow from operations for the quarter was approximately $293 million, excluding a working capital headwind of approximately $278 million. The main drivers of the working capital headwind relate to cash outflows of approximately $100 million due to the tightening of our hydrocarbon net payable position, which was magnified by the impacts of our turnaround activities during the quarter. There was also a payout of accruals related to employee compensation of $110 million, a payment under the tax receivable agreement of $45 million, and approximately $25 million of other items in the aggregate. Consolidated CapEx for the first quarter was approximately $285 million, which included refining, corporate, and logistics.
Mike Makowski: Cash flow from operations for the quarter was approximately 293 million, excluding a working capital headwind of approximately 278 million.
Mike Makowski: The main drivers of the working capital headwind related to cash outflows of approximately $100 million due to the tightening of our hydrocarbon net payable position, which was magnified by the impacts of our turnaround activities during the quarter.
Mike Makowski: There was also a payout at accruals related to employee compensation of $110 million.
Mike Makowski: A payment under the tax receivable agreement of $45 million and approximately 25 million of other items in the aggregate.
Mike Makowski: Consolidated Capex for the first quarter was approximately $285 million, which includes refining corporate and logistics full.
Karen Berriman Davis: Full year 2024 guidance remains in the $800 to $850 million range, which includes about $50 million of discretionary strategic capital. We continue to demonstrate our commitment to shareholder returns by returning approximately $155 million to shareholders in the first quarter, which included dividends and share repurchases. Since the repurchase program was introduced in December of 2022, through the end of the first quarter, we have completed approximately $814 million in share buybacks. This represents over 14% of our outstanding shares at the beginning of the program.
Mike Makowski: Full year 2024 guidance remains in the $800 million to $850 million range, which includes about 50 million of discretionary strategic capex.
Mike Makowski: We continue to demonstrate our commitment to shareholder returns by returning approximately 155 million to shareholders in the first quarter, which included dividends and share repurchases.
Mike Makowski: Since the repurchase program was introduced in December of 2022 through the end of the first quarter. We have completed approximately $814 million in share buybacks. This represents over 14% of our outstanding shares at the beginning of the program we.
Karen Berriman Davis: We have reduced our total share count to approximately 119 million shares as of March 31st, 2024. We ended the quarter with over $1.4 billion in cash and approximately $1.2 billion of debt. Also of note, the final payment of the Martinez earn-out now stands at approximately $19 million, and we expect this payment will be made in the second quarter.
Mike Makowski: We have reduced our total share count to approximately 119 million shares as of March 31 2024.
Mike Makowski: We ended the quarter with over $1 4 billion in cash and approximately $1 2 billion of debt.
Mike Makowski: Also of note the final payment of the Martinez earn out now stands at approximately $19 million and we expect this payment will be made in the second quarter.
Karen Berriman Davis: Maintaining our firm financial footing and strong balance sheet remains a priority. However, 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. Sustainable dividends and share repurchases are important components of our overall long-term capital allocation and shareholder return objectives. As always, 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'd be pleased to take questions.
Mike Makowski: Maintaining our firm financial footing and strong balance sheet remain priorities.
Mike Makowski: They extend 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 and sustainable dividends and share repurchases are important components of our overall long term capital allocation and.
Mike Makowski: Shareholder return objectives.
Mike Makowski: As always we will look at all opportunities to allocate capital through the lens that directs cashed to the option that generates the greatest long term value for our shareholders.
Operator: 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. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your headset before pressing the star keys.
Speaker Change: Operator, we've completed our opening remarks, and we'd be pleased to take questions.
Speaker Change: [noise] if he 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.
Speaker Change: You May press Star two if you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your headset before pressing the star keys.
Operator: One moment, please, while we poll for questions. Your first question: Wells Fargo. Please go ahead.
Speaker Change: One moment, please while we poll for questions.
Mike Makowski: Yeah.
Mike Makowski: Your first question.
Mike Makowski: Sure Reed from Wells Fargo. Please go ahead.
Unknown Speaker: Yeah, thank you. Good morning. I guess if we could, maybe this is a question for the new refining guy. And welcome, Mike.
Reed: Yes. Thank you good morning.
Reed:
Speaker Change: Yes, if we could.
Reed: Maybe this is a question for the new refining Guy.
Mike Makowski: And welcome Mike.
Unknown Speaker: Crude differentials. We've been hearing a lot about sort of tighter light heavies out there. You're going to get probably the opposite of that on the West Coast. Just curious how you're looking at crude availability, how much WCS you could run on the West Coast, and then, you know, how that maybe shakes out across the Gulf Coast and East Coast.
Mike Makowski: Crude differentials, we've been hearing a lot about sort of tighter light heavies out there youre going to get probably the opposite of that on the West Coast. Just curious how you're looking at crude availability how much WCS you could run on the West Coast and then how that maybe shakes out across our.
Mike Makowski: Gulf Coast and East Coast.
Unknown Speaker: Yeah, I'll start, Roger. I think we've disclosed on previous calls that we think we're going to be able to run about 40,000 barrels a day through our refineries on the West Coast, but it's way early days.
Speaker Change: Yeah, I'll I'll start Roger I mean, I think we've we've disclosed on previous calls.
Speaker Change: We think we're gonna be able to run about 40000 barrels a day.
Speaker Change: You know through our refineries on the West coast.
Unknown Speaker: Obviously, you know, all the press is reporting that the pipeline is getting up and running, but the ship hasn't been loaded yet. And indeed, we are getting inbounds on a daily basis, and it will simply go into our calculations as we calculate the economics around all available crudes, but incremental crude to the West Coast is going to be directionally positive. There have been some gyrations in the crude market, as PEMEX has given different signals at different times over the last couple of weeks, and a couple of months. But broadly speaking, crew differentials look very, very attractive at the moment. Paul, do you want to make any other comments?
Speaker Change: Hmm.
Speaker Change: It's way early days, obviously that you know the.
Speaker Change: All the press is reporting that the pipeline is getting up and running but a ship hasn't been loaded yet.
Speaker Change: And indeed, we are getting inbounds on a daily basis.
Speaker Change: It was simply go into our calculations as we calculate the economics around all available crudes that incremental crude to the west coast.
Speaker Change: Is gonna be Directionally positive there've been some gyrations in the crude market as.
Speaker Change: Next is.
Speaker Change: Given different signals at different times over the last.
Speaker Change: A couple of weeks couple of months.
Speaker Change: But broadly speaking crude differentials up there very attractive at the moment quality I'll make another comment I think you said it pretty much right.
Unknown Speaker: I think you said it pretty much right, you know, the Gulf Coast had some gyrations because of Pemex's moves. You know, currently, we see an actually pretty attractive high, you know, light, heavy spread on cruise, mainly in the Gulf Coast. We're seeing tightening in Canada, obviously, with the fill process of TMX, but in general, we see pretty constructive light, light heavies.
Speaker Change: Good Golf course had some gyrations because of our Pemex is moves but.
Speaker Change: Currently we see an actually a pretty attractive high light heavy spread I'm, Chris mainly in the Gulf Coast.
Speaker Change: We're seeing tightening in Canada, obviously with the sale process of <unk>, but in general.
Speaker Change: You see pretty constructive light light heavies.
Unknown Speaker: Okay, appreciate that. And then the other follow-up or the follow-up, I'm sorry, SBR with the performance thus far, if you could kind of compare that to what you expected and what you kind of look at for Q2, like what you've seen to date and how that's been coming along. Yeah, I think the SPR.
Speaker Change: Okay. Appreciate that and then the other follow up on the follow up I'm, sorry, SB are with the performance. Thus far if you could kind of compare that to.
Speaker Change: What you what you expected.
Speaker Change: What you kind of look at it for Q2 like what you've seen.
Speaker Change: To date, and how that's been coming along.
Unknown Speaker: Yeah, I think the SPR. If one was to assess, you know, how SBR is doing, it has to be tethered to the market.
Speaker Change: Yeah, I think the S. P R.
Speaker Change:
Speaker Change: That's one word to assess you know hows SPR doing it has to be tethered by the market. So a few.
Unknown Speaker: So, we compared SBR's performance today compared to the actual performance of what would have taken place a year ago in a very different market. We haven't been in operations for a full year yet, but here's what I'd say about SBR. One, maybe most importantly, we could not be more pleased with the partnership that we have with SBR and E&I. That's going well.
Speaker Change: Compare it spr's performance today compared to the actual performance.
Speaker Change: What would have taken place a year ago.
Speaker Change: Very different market, we havent been in operations, you had a full year, but here's what I'd say on SBR.
Unknown Speaker: I think both partners are adding value, our interests are aligned, and both partners are committed to making sure that SBR is set up for success. We absolutely believe we're in the right spot to deliver the best financial performance for RD being in the Gulf Coast, having access to different grades of feedstocks and having optionality on where we can deliver products. We are pleased that we got the provisional CI score this quarter. That will improve our financial performance going forward. But, you know, in regards to how the unit is running, the unit, I would say, is running fine.
Speaker Change: One maybe most importantly.
Speaker Change: We could not be more pleased with the partnership that we have with S. P. R O with Eni.
Speaker Change: That's going well I think both partners are adding value our interests are aligned.
Speaker Change: And both both partners are committed to making sure that our S. P. R. US up for success, we absolutely believe we're in the right spot to.
Speaker Change: To deliver best financial performance for Rd, being in the Gulf Coast, having access.
Speaker Change: It's a different grades of feedstocks and having optionality on where we can deliver a deliver products. We are pleased that we got the professional Ci score this quarter that will improve our financial performance going forward.
Speaker Change: But you know in regards to house the unit running the year I would say is running.
Unknown Speaker: There have been some lessons learned. I think there's a number of opportunities in front of us, you know, small iterative improvements that will make small iterative impacts, but, you know, when you compile them all together, I think they will be significant. So I think SBR is set up to be a top quartile renewable diesel manufacturer in the U.S. with feedstock flexibility and product disposition flexibility. Clearly, the market is soft, RINs have come down, LCFS credits are down, and that really drives profitability there. But the reality is, for the weaker players in R&D, and certainly bio players, they're probably cash flow negative. And so how long does it take the market to... flush all that through? Time will tell.
Unknown Speaker: There's been some lessons learned I think theirs.
Speaker Change: A number of opportunities in front of us just small iterative improvement.
Unknown Speaker: Improvements that will make small iterative.
Matthew C. Lucey: Impacts, but you know when you compile them altogether I think it'll be significant so I think SBR is set up to be a top quartile renewable diesel manufacturer in the U S West.
Unknown Speaker: Our feedstock flexibility and Prague disposition flexibility.
Unknown Speaker: Clearly the market is offerings have come down L. CFS spreads are down.
Unknown Speaker: And that really drives our profitability there, but the reality is for the weaker players in R&D and certainly by our players are there probably are cash flow negative and so how long does it take the market.
Unknown Speaker: Flush all that through time will tell.
Speaker Change: Thank you for that.
Unknown Speaker: Turn it back.
Operator: Your next question comes from the line of Ryan Todd from Piper Sandler.
Unknown Speaker: Your next question comes from the line of Ryan Todd from Piper Sandler.
Operator: Yeah.
Unknown Speaker: Good, thanks. Maybe.
Ryan M. Todd: Okay. Thanks.
Operator: Maybe.
Ryan M. Todd: Maybe starting out with one on the on.
Unknown Speaker: Maybe starting out with one on cash flow and the balance sheet. I mean, last year, a significant portion of your fee cash flow generation, I think, you know, probably somewhere around $1.3 billion went to the balance sheet in the form of Environmental Liability Reduction and Closure of the J. Aaron Inventory Agreement. As we think about 2024, can you talk about what, if any, you know, kind of remaining calls there are on the balance sheet, whether it's environmental remediation or liabilities or anything like that, that could have on, you know, the impact on cash flow generation and what that might mean for incremental shareholder returns this year?
Ryan M. Todd: On cash flow and the balance sheet I mean last year, a significant portion of your free cash flow generation I think you know probably somewhere around $1 $3 billion went to the balance sheet in the form of an.
Unknown Speaker: Environmental liability reduction in closure of the J Aron inventory agreement as we.
Unknown Speaker: As we think about 2024 can you talk about what if any kind of remaining calls there are on the balance sheet.
Unknown Speaker: Whether it's environmental remediate or liabilities or anything like that.
Unknown Speaker: That could have an impact on cash flow generation and what that might mean for incremental shareholder return.
Unknown Speaker: This year.
Unknown Speaker: Sure. Good morning. Good morning, Ryan. Thanks. Thanks for the question. And, you know, I think we've said we feel like the balance sheet cleanup is done. There really aren't any additional initiatives that we're looking forward to. I think one thing that we all noticed in this quarter was that there was a significant working capital headwind. So as we come out of these, we would expect these sort of turnaround-related headwinds will begin to reverse, and we're going to see some positive free cash flow generation, which would be available for shareholder return.
Speaker Change: Sure. Good morning, Good morning, Brian Thanks for the question and.
Unknown Speaker: I think we've said we feel like the balance sheet clean up as it is done there really aren't any additional.
Unknown Speaker: Initiatives that we're looking forward to I think one thing that we all noticed in this quarter was that there was a significant working capital headwind.
Unknown Speaker: A lot of that relates to turnarounds turnarounds can create a lot of noise in working capital.
Unknown Speaker: You know depending on the units involved.
Unknown Speaker: During turnarounds, we see crude slates changing we produce more intermediates that we either sell or we store and consume them later, we produce less higher value products.
Unknown Speaker: And and sometimes we have to go out and buy finished products to fulfill contractual obligations. So.
Unknown Speaker: In addition to impacting capture these factors oftentimes have different payment terms, which changed the timing of payments and collections.
Unknown Speaker: And we've been in a pretty heavy turnaround period, starting back in the fourth quarter on the West coast, whereas as Matt mentioned, we we had to consume some higher priced crudes into the first quarter and we also paid for them and then and now we've had the tello air and excuse me Toledo.
Unknown Speaker: Turnarounds in the first quarter completing in the second quarter and that and the Martinez turnaround in the second quarter. So as we come out of those we would expect these sort of turnaround related headwinds will begin to reverse and we're going to see some positive free cash flow.
Unknown Speaker: Generation, which would be available for shareholder return.
Unknown Speaker: Thanks, and maybe maybe a follow up on some of your earlier comments on SBR. I appreciate the kind of the commentary on operations. Can you maybe talk about, you know, what, what types of feedstock mix have you been running up to this point? And how might that change in the coming months? What impact could that have on, Profitability going forward. Yeah, the biggest thing with that is the
Speaker Change: Okay, Thanks, and maybe.
Unknown Speaker: Maybe a follow up on some of your earlier comments on S. P. R.
Unknown Speaker: I appreciate the kind of the commentary on operations.
Unknown Speaker: Can you maybe talk about.
Unknown Speaker: What type of feedstock mix have you been running up to this point and how might that change in the coming months.
Unknown Speaker: And what impact could that have on.
Unknown Speaker: Profitability going forward.
Unknown Speaker: Yeah, the biggest thing with that is the provisional CI score whereas before it was predetermined, so it predisposed to, you know, what feedstocks you're going to run because you weren't getting full credit for others. But now, essentially, we have an open LP, and I'm not going to make any comments on what we're going to run because we're going to run the most economical grades available, whether that's fat, grease, tallow, or vegetable oil.
Unknown Speaker: Yeah. The the biggest thing with that is the provisional Ci score, whereas before it was predetermined so it it.
Unknown Speaker: It Predispose you know what feedstocks you got wrong, because you aren't getting full credit for for others, but now essentially we have an open L. P and I'm not going to make any comments on what what we're going to run because we're getting around the most economic.
Unknown Speaker: Grades available, whether that's a fad grease tallow or vegetable oil.
Unknown Speaker: We've been pleased with our access to the feedstock market, and so as the market develops, we're going to just make sure we get the best economic rates and we're not limited or constrained in any respect.
Unknown Speaker: We've been pleased with our access to the feedstock market.
Unknown Speaker: And so as the market develops we're going to just make sure we get the most economic grades and we're not limited or constrained.
Unknown Speaker: You know in any respect.
Speaker Change: Okay. Thank you.
Operator: Your next question comes from Manav Gupta from UBS.
Unknown Speaker: Your next question comes from Manav Gupta from UBS.
Unknown Speaker: Guys, my question is a little bit on the refining macro. We have seen some pullback in refining cracks of late. We saw that last year also, right? Cracks came in and then completely rebounded the other way.
Manav Gupta: Guys. My question is really to make on the refining macro we have seen some pullback in refining cracks obsolete.
Manav Gupta: Saw that last year. It also ranked cracks came in and then completely rebounded went the other way I'm just trying to understand is it a repeat of last year. What are you seeing out there I mean memory market is still pretty tight we've actually got situations. So your near and medium term outlook for both gasoline and diesel markets.
Unknown Speaker: I'm just trying to understand, is it a repeat of last year? What are you seeing out there? Are the inventory markets still pretty tight, the Russia situation? So you're near a medium-term outlook for both gasoline and diesel markets.
Unknown Speaker: Thanks, Manav. It's Tom. Um, in terms of what we're seeing in the market, I mean, I think we kind of really look at The seasonal shift into, you know, gasoline season from, you know, coming out of the first quarter, going from winter to summer gasoline, which, you know, so far in the beginning of driving season, the gasoline market has been, you know, the leader of refining margins. Distillate, you know, did have a, you know, a pullback in terms of, you know, a warm winter, and then ultimately kind of some stability, which has kind of come into the market in terms of, maybe even call it complacency, you know, as you mentioned, there's, you know, been lots of disruptions in the diesel market, but the rate of change in terms of just trajectory on inventories has flattened from a perspective of where it's been in the past, so, you know, a little bit of the fear of sort of the driving of price needing to do solutions for distillate has been solved in the sort of near term, but now at this point, we're going to be looking at a stronger gasoline market, which will clearly be affecting yields, where refiners have incentive to produce more gasoline, less distillate, and certainly as we go through driving season at that point, what, you know, the baton will be passed back to distillate for market leadership, and you'll be sitting there with what we would think would be a reasonable setup going into the second half of the year, or particularly in the fourth quarter as it relates to diesel.
Unknown Speaker: Well, thanks, Manav, it's Tom.
Unknown Speaker: In terms of what we're seeing in the market I mean, I think we kind of really look at the seasonal shift into you know gasoline season from coming out on the first quarter going from winter to summer gasoline, which.
Unknown Speaker: So far in the beginning of driving season, the gasoline market has been the leader of our refining margins distillate you know did have a pullback in terms of a warm winter and then ultimately.
Unknown Speaker: Kind of some stability, which is kind of come into the market in terms of maybe even call. It complacency as you mentioned, there's been lots of disruptions in the diesel market.
Unknown Speaker: But the rate of change in terms of just trajectory on inventories has flattened from a perspective of where it's been in the past. So you know a little bit of a fear of sort of the driving of price needing to do solutions for distillate.
Unknown Speaker: <unk> been solved and this sort of nearer term, but now at this point, we're going to be looking at a stronger gasoline market, which will clearly be affecting yields where refiners have incentive to produce more gasoline distillate and certainly as we go through driving season at that point, what the baton will be passing back to distillate for market leadership.
Unknown Speaker: You'll be sitting there was what we would think would be a reasonable setup going into the second half of the year or is that particularly in the fourth quarter as it relates to diesel.
Unknown Speaker: Perfect. My quick follow up is, and this is very commendable, what you have done with Martinis Refinery. It's delivering an excellent performance. When you acquired this refinery, I think there was a little bit of an earn-out, and I'm not sure where you are in that process. Are there any more earn-out payments due at this point for that Martinis asset that you bought? It's completely behind us, Manav.
Speaker Change: Perfect and my quick follow up is and this is a commendable what do you have done with Martinez refinery is delivering an excellent performance.
Unknown Speaker: When you acquired this refinery I think there was a little bit I'll say, a lot about and I'm not sure where you are in that process are there any more earn out payments do you at this point for that Martin as I said that you bought.
Unknown Speaker: It's completely behind us, Manav. So, we did make our last payment. I think Karen mentioned that. But, yeah, so that is completely out of our control.
Unknown Speaker: And completely behind us.
Unknown Speaker: We did make our last payment I think Karen you mentioned that but yeah. So that is completely over.
Speaker Change: Thank you so much.
Operator: Your next question comes from Matthew Blair from TPH.
Unknown Speaker: Your next question comes from Matthew Blair from T. P H.
Operator: Yeah.
Unknown Speaker: Thank you, and good morning. Can you talk about the moving parts on capture as we move into the second quarter here? You mentioned that in the mid-con, we're likely to see tighter syncrete differentials, which would be a headwind, and then on the west coast, I think there should be some tailwinds from just rolling off that higher cost inventory in Q1. Are there any other big moving parts that we should consider here?
Matthew Robert Lovseth Blair: Thank you and good morning could you talk about the moving parts on capture as we move into the second quarter here, you mentioned that in the mid con likely to see tighter syncrude differentials.
Unknown Speaker: Which would be a headwind and then the west coast I think there should be some tail winds from just rolling off that higher cost inventory in Q1 are there any other big moving parts that we should consider here.
Unknown Speaker: I don't think so. I mean, you have to watch crew differentials every day. That certainly impacts our business in a material way, and there's been some volatility there. But no, I wouldn't call anything else out.
Speaker Change: I don't think so I mean, you have to watch crude differentials are every day that certainly impacts our.
Unknown Speaker: Our business in material way and there's been some volatility there, but no I wouldn't I wouldn't call anything else out.
Unknown Speaker: Sounds good. And then we would have thought that the East Coast Q2 throughput guidance might have been a little bit higher. It sounds like that Dell City turnaround was still a factor in April. Any other reasons why the throughput outlook for the East Coast in the second quarter isn't a little bit stronger?
Speaker Change: Sounds good and then we would have thought that the east coast Q2 throughput guidance might have been a little bit higher it sounds like that del city turnaround what was still a factor in April any other reasons why the the throughput outlook for the east coast in the second quarter isn't it a little bit stronger.
Unknown Speaker: I would just say, literally today, Del City's coming out of turn around and start up, and I can assure you, if we're going to be incentive to go and blow, which I believe we will be, we will be, but, you know, we had a major turn around on the only cat cracker we have on the East Coast, and some ancillary equipments beyond that, so certainly April was impacted because, you know, all of April was impacted essentially there, and so, but now we have a clean runway, you know, get the unit up, and we'll be able to go.
Unknown Speaker: I would just say, literally.
Speaker Change: But I would just say that literally today del city as coming out of turnaround and the startup.
Unknown Speaker: And I can assure you if we're gonna be incentive to go and blow, which I believe we will be we will be but you know.
Unknown Speaker: You had a major turnaround on the only cat cracker, we have on the east coast and some ancillary equipment is beyond that so certainly April was impacted because yeah.
Unknown Speaker: All of April was was impacted are essentially.
Unknown Speaker: There and so but now we have a clean runway you know get the unit up and we'll be able to go.
Speaker Change: Great. Thanks for your comments.
Unknown Speaker: Yeah.
Operator: Your next question comes from Paul Ching from Scotiabank.
Unknown Speaker: Your next question comes from Paul Cheng from Scotiabank.
Unknown Speaker: Hi, good morning. Yes, Matt, or maybe that Mike.
Paul Cheng: Hi, good morning.
Unknown Speaker: If the total maintenance capacity is still at 180, because it seems like in recent years that facility, even with our turnaround, like in the second quarter, you're still running at around 80%. Is that the right way going forward? Or is that something that hinders your ability to run at a higher rate?
Unknown Speaker: Yes.
Paul Cheng: Matt or maybe that Oh.
Unknown Speaker: Oh, yes, the tow depot, mainly capacity is still at <unk> because it seems like in the recent years that that's necessary to deepen the old tenant while ligand second quarter, you're still running at around 80% is.
Unknown Speaker: Is that the why you're one way going forward with that.
Unknown Speaker: Something that seemed to go up anything to one that Ohio Greg.
Unknown Speaker: I assume it's not the economics, because economics should justify one at a higher rate. That's the first question. Secondly, I think Karen mentioned that first quarter, the West Coast, you get carry from the fourth quarter high inventory price or high inventory, high price inventory impact. Could you quantify that for us? How big is that impact? Thank you.
Unknown Speaker: Assuming it's not the economics, because the economics to justify call one day at a higher rate.
Unknown Speaker: That's the first question.
Unknown Speaker: Secondly, I think for Kevin.
Unknown Speaker: You mentioned that first quarter is the worst coal you'll get carried from the fourth quarter high inventory Oh.
Unknown Speaker: High inventory high price inventory impact could you quantify what that Uh huh thickness that impact. Thank you.
Unknown Speaker: Yeah, in regards to Toledo... I don't think you should have Toledo down as 180,000 barrels a day; it simply doesn't run that high. Mike incidentally ran Toledo going back over 20 years ago through predecessor companies. Mike, any other comment on Toledo?
Speaker Change: Yeah in regards Toledo.
Unknown Speaker: I don't think you should have Toledo down as 180000 barrels a day it simply doesn't run that hi, Mike Incidentally, Iran. Toledo are going.
Mike: Back over over 20 years ago through predecessor companies like any other comment on Toledo, Yeah, I think I agree a 180 as he's a high number and it just came out of the turnaround and it's well set up to run real strong throughout the rest of the quarter and the rest of the year.
Unknown Speaker: I agree, 180 is a high number, and it just came out of the turnaround, and it's well set up to run real strong throughout the rest of the quarter and the rest of the year.
Unknown Speaker: And as for the West Coast carryover effect, I don't think we have quantified that specifically, but it was just one of the components of the lower capture rate there.
Unknown Speaker: Right.
Unknown Speaker: And as for the the West Coast carryover effect I don't think we have quantified that specifically, but it was just one of the components of the lower capture rate there.
Unknown Speaker: All right, we will do it. Thank you.
Speaker Change: Alright, thank you.
Unknown Speaker: Yeah.
Operator: Once again, if you would like to ask a question, please press star 1 on your telephone keypad now. Your next question comes from Joe Laetsch from Morgan Stanley.
Speaker Change: Once again, if you would like to ask a question. Please press star one on your telephone keypad now.
Joseph Gregory Laetsch: Your next question comes from Joe <unk> from Morgan Stanley.
Unknown Speaker: Hey, good morning, team. Congratulations on a good quarter. And thanks for taking my questions this morning. So I wanted to ask you about throughput in the first quarter. It looked particularly strong to us on the east coast in MidCon. I was just hoping you could talk to some of the drivers of the outperformance, just if it's better execution on turnarounds, or how would you think about that?
Joseph Gregory Laetsch: Hey, good morning team congrats on a good quarter and thanks for taking my questions. This morning.
Unknown Speaker: So I wanted to ask on throughput in the first quarter. So it looks particularly strong to us on the east coast and mid Con I was just hoping you could talk through some of the drivers of the outperformance.
Unknown Speaker: Better execution on turnarounds or how we should think about that.
Unknown Speaker: I, um... Look we're running to the max where we can grab economics. Like I said, the East Coast was impacted because we had to take a turnaround. Obviously, our results would have been much, much better, you know, had we not had to take turnarounds. But the market is set up, I think, very, very well on the East Coast, and I'm very pleased to think that for the remainder of the year, we have a clean runway.
Unknown Speaker: I.
Unknown Speaker: Look well, we're running as as.
Unknown Speaker: Yeah.
Unknown Speaker: To the Max where we can grab economics are like I said the east coast.
Unknown Speaker: Most was impacted because we had to take a turnaround obviously our results within a much much better.
Unknown Speaker: You know I have.
Unknown Speaker: It may not have to take turnarounds, but the market is set up I think a very very well the east coast and I'm very pleased to think for the remainder of the year, we have a clean runway and as I said Toledo.
Unknown Speaker: And as I said, Toledo, it wasn't as big of a turnaround in Toledo as it was on the East Coast because, you know, it's the Hydro Cracker and a machine that's really configured to make gas more gasoline. So you know, we were able to have more of our operations going in Toledo and then really benefited from crude pricing, which rolled through the system in the first quarter.
Unknown Speaker: It wasn't as big of a turnaround in Toledo as it was on the East coast, because you know as the hydrocracker and a machine.
Unknown Speaker: Machine, that's really configured to make gas more gasoline. So yeah, we were able to have more of our operations going until it all and it doesn't really benefited from crude pricing, which would roll through the system in the first quarter.
Unknown Speaker: Great, thanks. And then, shifting gears, I just want to go back to the West Coast. So we've seen some capacity shutdowns, and recently, conversions as well. So just hoping you could talk about the latest dynamics you're seeing out there on the West Coast from a supply and demand perspective. Look, you know that the question...
Speaker Change: Great. Thanks, and then shifting gears just wanted to go back to the West coast. So we've seen some capacity shutdowns I recently conversions as well. So I was just hoping you could talk to the latest dynamics, you're seeing out there on the west coast from a supply demand perspective. Thank you.
Unknown Speaker: Look, you nailed it. The question is supply and demand, and I think demand looks very constructive, and supply is constrained. Obviously, you can bifurcate between diesel and gasoline, and diesel will be reasonably supplied with the incentive to deliver renewable diesel into the state. Or, you know, refineries have shut down or converted to manufacturing that similar amount of diesel as to what they were prior to being shut down. But you could convert a refinery to make 100% RD or SAF down the road.
Unknown Speaker: You know that if the question is supply and demand and I think demand looks very constructive and supply is constrained. Obviously, you can bifurcate between diesel and gasoline and diesel will be reasonably supplied with the incentive to deliver renewable diesel to the state or refineries have shut down or convert.
Unknown Speaker: Good the.
Unknown Speaker: <unk> had a similar amount of diesel as to what they were prior to being shut down.
Unknown Speaker: But you converted a refinery to make a 100% our D. R. S. A F a down the road.
Unknown Speaker: You're not making any gasoline or any of the other products coming out of it. So, the market hasn't fixed the supply problem, and we're going to do our part to supply the state as best we can with two of the strongest refineries out there. Uh, and I think it's, uh, it's set up to be volatile, and it will have to attract imports.
Unknown Speaker: Not making any gasoline or any of the other products coming out of it so.
Unknown Speaker: The market Hasnt.
Unknown Speaker: It Hasnt fix the supply problem.
Unknown Speaker: And we're going to do our part to supply the state as best we can with two of the strongest refineries out there.
Unknown Speaker: And I think it's.
Unknown Speaker: Setup.
Unknown Speaker: To be volatile and you'll have to attract imports.
Speaker Change: Thank you.
Operator: Your next question comes from Jason Gabelman from Cowan.
Unknown Speaker: Your next question comes from Jason <unk> from Cowen.
Unknown Speaker: Morning, thank you for taking my questions. My first question is kind of dovetailing off the last question on the West Coast.
Jason Daniel Gabelman: Good morning, Thank you for taking my questions My.
Jason Daniel Gabelman: My first question is kind of Dovetailing.
Jason Daniel Gabelman: Off the last question on the West Coast do you have the hydro cracker turnaround into Q I believe that's more of a diesel making unit I think gasoline, making unit and obviously gasoline should lead the complex in the second quarter. So can you just talk through.
Jason Daniel Gabelman: The turnarounds impact.
Unknown Speaker: You have the Hydro Cracker turnaround in 2Q. I believe that's more of a diesel making unit than gasoline making unit. And obviously, gasoline should leave the complex in the second quarter. So you just talked through the turnaround's impact on the ability to capture that gasoline margin on the West Coast in 2Q.
Jason Daniel Gabelman: On the ability to capture that gasoline.
Unknown Speaker: Gasoline margin on the west coast and to Kip.
Unknown Speaker: I think your assessment is correct, meaning a smaller impact certainly than the East Coast in the first quarter.
Speaker Change: I think your assessment is correct.
Unknown Speaker: Meaning a smaller impact certainly than the east coast in the first quarter.
Unknown Speaker: Okay, great. And then the second question is on a comment that was made in the prepared remarks about potentially increasing the percentage of cash that is available for shareholder returns. I think in 2023, it looked like about 50 percent of cash flow from Ops went to shareholder returns. Is it reasonable, based on your comments, to assume that that percentage is going to move higher in the near term, and is that the right metric to look at when assessing shareholder returns, like the percentage of CFO, or is there another way we should look at it?
Unknown Speaker: Okay.
Unknown Speaker: And then the second question is on a comment that was made in the prepared remarks about Patel.
Unknown Speaker: Potentially increasing the percentage of cash that is.
Unknown Speaker: He is available to shareholder returns I think in 2023 and looked like about 50% of cash flow from ops went to shareholder returns.
Unknown Speaker:
Unknown Speaker: Is it reasonable based on your comments to assume that that percentage is going to move higher in the near term and is that the right.
Unknown Speaker: Metric to look at when assessing shareholder returns kind of percentage of CFL or or is there. Another way we should look at it.
Unknown Speaker: I'll make one comment and then turn it over to Karen. Just my only comment, I've made this before and certainly, you know... at conferences, I personally don't like formulas because no one ever tends to stick with them. And, you know, in different markets, you're going to get different answers. And so we're trying to make the best decisions we can, based on the market we just experienced, the outlook ahead, and the cash that we're generating, and try to drive as much shareholder value as we can, as opposed to sticking with a predetermined formula that may or may not be stale and has, you know, an infinite number of variables that can impact Karen, would you make any other comments?
Speaker Change: I'll make one comment and then turn it over to Karen just my only comment that I've made this before and certainly as you know.
Karen: At conferences I personally don't like formulas.
Karen: Because no one ever tends to stick with them and you know in different markets, you're going to get different answers.
Karen: And so we're trying to make the best decisions. We can based on the market. We just experienced the outlook ahead and the cash that we're generating.
Karen: And try to drive as much shareholder value as we can as opposed to.
Karen: Sticking with predetermine, a formula that may or may not be scale and it has.
Karen: Infinite number of variables that can impact it.
Unknown Speaker: Karen would you make any other comments you know just I would add that our our goal with respect to share repurchases is to make it sustainable through all market conditions, which is why you saw us continue to repurchase shares this quarter. When we did not generate free cash flow. So I think you should look at.
Unknown Speaker: You know, I just wanted to add that our goal with respect to share repurchases is to make it sustainable through all market conditions, which is why you saw us continue to repurchase shares this quarter when we did not generate free cash flow. So I think you should look at our past, our track record, as an indication of our commitment to the program going forward.
Unknown Speaker: Or past our track record as an indication of our commitment to the program going forward.
Unknown Speaker: Got it. And just if I could sneak one more in kind of tied to shareholder returns and available cash. Can you remind us if there are any large growth projects that you're pursuing currently or anything that is going to come up in the near term? No, sir. The answer is we're not pursuing anything. I won't answer that. Understand. Thank you.
Speaker Change: Got it and just if I could sneak one more in kind of tied to the shareholder returns and available cash can you remind us if there are any large growth projects that youre pursuing currently or or anything that is going to come up in the near term.
Speaker Change: No Sir.
Unknown Speaker: Okay, that'd be great, but the answer is we're not pursuing anything that I won't answer it.
Unknown Speaker: [laughter].
Speaker Change: Understood. Thank you.
Unknown Speaker: All right, everyone, well, I appreciate your participation in this quarter. Like we said, I think the outlook is quite constructive, and we look forward to continuing to deliver strong returns for our shareholders.
Speaker Change: Alright, everyone. While I appreciate your participation on the quarter like we said I think the outlook is quite constructive and we look forward to continue to deliver strong returns for our shareholders.
Operator: I appreciate it, and have a great rest of the day. Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Unknown Speaker: [inaudible]
Unknown Speaker: I appreciate it have a great rest of the day. Thank you.
Unknown Speaker: This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Unknown Speaker: Yeah.
Unknown Speaker: Yeah.
Unknown Speaker: [music].
Unknown Speaker:
Unknown Speaker: Yeah.
Unknown Speaker: Hmm.
Unknown Speaker: [music] Hum.
Unknown Speaker: [music].
Unknown Speaker: Hum.
Unknown Speaker: Hum.
Unknown Speaker: [music].