PBF Energy Inc. annual report, FY2020

PBF Energy Inc. — 2020 Form 10-K Summary

Business context and reporting period. This is an annual report for the fiscal year ended December 31, 2020, not a standalone fourth-quarter filing. PBF operates six U.S. refineries and a logistics business through PBFX. The filing reports consolidated results for PBF Energy Inc.; PBF Energy Company LLC is also a registrant. PBF Energy owns approximately 99.2% of PBF LLC and consolidates PBFX.

Financial and operating performance

Metric	2020	2019
Revenue	$15.12 billion	$24.51 billion
Operating income (loss)	$(1.42) billion	$649.0 million
Net income (loss)	$(1.33) billion	$375.2 million
Net income (loss) attributable to PBF Energy stockholders	$(1.39) billion; $(11.64) diluted EPS	$319.4 million; $2.64 diluted EPS
Cash from (used in) operating activities	$(631.6) million	$933.5 million
Consolidated gross margin	$(1.63) billion	$913.1 million
Gross refining margin, a non-GAAP measure	$496.8 million; $1.86 per throughput barrel	$2.80 billion; $9.34 per throughput barrel

Revenue and throughput: Revenue fell 38.4%, reflecting lower commodity prices and reduced volumes. Crude and feedstocks throughput averaged 727,700 barrels per day, down from 823,100; production averaged 737,100 barrels per day.
Refining margins and costs: Gross refining margin excluding specified special items was $860.3 million, or $3.23 per throughput barrel, versus $2.55 billion, or $8.51, in 2019. Refinery operating expense rose to $6.89 per throughput barrel from $5.61. Renewable Fuel Standard/RIN costs increased to $326.4 million from $122.7 million.
Cash, investment and liquidity: Cash and cash equivalents were $1.61 billion at year-end. Investing activities used $1.03 billion, including $1.18 billion to fund the Martinez acquisition; net financing activities provided $2.45 billion. PBF stated liquidity of approximately $2.3 billion, including about $1.6 billion of cash and more than $700 million of revolver availability. The credit-facility table separately reports $2.76 billion of borrowing-base availability under PBF Holding’s revolver and $295.1 million under PBFX’s revolver.
Debt: Reported debt was $4.71 billion before unamortized financing costs and an affiliate note eliminated in PBF Energy consolidation. Debt to capitalization was 68%. PBF Holding had $900 million drawn on its revolving facility; PBFX had $200 million drawn on its revolver. The company reported compliance with debt covenants at year-end.
Balance sheet: Total assets were $10.50 billion and total equity was $2.20 billion, compared with $9.13 billion and $3.59 billion, respectively, at the end of 2019. Working capital was $1.42 billion.

Material changes versus 2019

COVID-19-related demand declines and oil-market volatility reduced refinery utilization and margins; all operating regions reported lower refining margins than in 2019.
PBF acquired the 157,000-barrel-per-day Martinez refinery on February 1, 2020 for total consideration of $1.25 billion, including working capital and contingent consideration. Martinez contributed approximately 13% of 2020 revenue; 2019 results did not include it.
The East Coast Refining Reconfiguration was completed December 31, 2020. Certain major Paulsboro units were idled, reducing East Coast system capacity to approximately 285,000 barrels per day.
Cash from operations shifted from $933.5 million provided in 2019 to $631.6 million used in 2020. Year-end cash increased, in part following significant debt issuance and asset sales.
Gross debt increased substantially. PBF issued $1.0 billion of 6.00% senior notes due 2028 and $1.25 billion of 9.25% secured notes due 2025, and redeemed its $500 million 7.00% notes due 2023. Rating agencies downgraded the company’s ratings in the fourth quarter and maintained negative outlooks.

Outlook, management commentary, risks and unusual items

Near-term outlook: Management expected refining-system throughput of approximately 675,000–725,000 barrels per day until sustained product demand supports higher utilization. It forecast 2021 system-wide annual operating expense reductions of $200–$225 million versus historic levels, including the East Coast reconfiguration, and expected approximately $400–$475 million of net refining capital expenditures plus $10–$20 million for PBFX. Management cautioned that the duration and financial effects of the pandemic were uncertain.
Cost and configuration plans: PBF reported 2020 operating expense reductions of $235 million excluding energy savings, or approximately $325 million including energy, exceeding its $140 million goal. The East Coast reconfiguration was expected to save approximately $100 million in annual operating expense and $50 million in annual capital spending; savings are not assured.
Significant and unusual items: PBF sold five hydrogen plants for $530 million gross proceeds and recorded a $471.1 million gain, while entering into lease and long-term supply arrangements with Air Products. Other 2020 items included a $268 million non-cash inventory lower-of-cost-or-market charge, an $83 million LIFO inventory decrement, $98.8 million of impairment charges, $56.2 million of accelerated turnaround amortization, $24.7 million of severance costs, $22.2 million of debt extinguishment costs, and a $373.5 million gain from reducing the Tax Receivable Agreement liability. A $358.4 million deferred tax asset valuation allowance also affected results.
Capital returns: PBF Energy suspended its $0.30 quarterly dividend in March 2020 and did not expect to resume dividends in the foreseeable future. PBFX reduced its distribution to $0.30 per unit per quarter.
Principal risks: Continued pandemic-related demand weakness, volatile refining margins and crude differentials, RIN and emissions-credit costs, high leverage and refinancing needs, lower borrowing capacity, and the potential need for additional financing or asset sales. Other risks include refinery outages, environmental and safety liabilities, labor disruptions, cyber incidents, Martinez integration, and the expiry of J. Aron inventory-intermediation agreements in 2021. If those agreements are not extended or replaced, PBF may need to repurchase and finance the inventory.
Contingencies: The filing describes environmental, safety and other legal matters, including an OSHA citation seeking $401,923 in penalties and several refinery-related claims and proposed settlements. Management said the ultimate outcomes were uncertain and did not expect the identified matters, individually or in aggregate, to materially affect financial position, results or cash flows. Environmental remediation estimates may change.
Controls and audit: Deloitte issued unqualified opinions on the financial statements and PBF Energy’s internal control over financial reporting. The 2020 control assessment excluded Martinez, which represented about 7% of assets and 13% of revenue; the filing says its control integration was completed in the first quarter of 2021.

Important facts for investors to verify

Whether throughput, product demand and refining margins recover, and whether management’s 2021 expense-reduction and East Coast savings targets are achieved.
The precise liquidity available for use: reconcile the company’s stated $2.3 billion liquidity with the borrowing-base availability figures, facility terms and any restrictions or reserves.
Debt-service capacity, rating outlooks, covenant headroom, and the effect of high-coupon secured borrowing on future interest expense and refinancing risk.
Whether the J. Aron agreements are extended or replaced before expiry and the liquidity required to repurchase covered inventory if they end.
The cash and earnings effects of RINs and emissions obligations, including the 2020 increase in RIN costs and the 2021 AB32 credit repurchase commitment.
Whether the Martinez acquisition delivers expected benefits, and whether further impairment charges, contingent payments or environmental costs arise.
The status and potential financial exposure of disclosed legal proceedings and environmental remediation obligations.