PBF Energy Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. PBF operates three U.S. refineries with combined capacity of approximately 540,000 barrels per day. Unless stated otherwise, amounts below are in U.S. dollars; financial statement amounts have been converted from thousands to millions.
Financial and operating performance
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Revenue | $4,746.4 million | $4,797.8 million |
| Income from operations | $260.2 million | $100.1 million |
| PBF Energy consolidated net income | $183.3 million | $69.7 million |
| Net income attributable to PBF Energy Inc. | $77.4 million | $11.4 million |
| Diluted EPS attributable to PBF Energy | $1.42 | $0.48 |
| Net cash from operating activities | $260.6 million | $211.1 million |
| Capital expenditures and turnaround costs | $83.3 million | $58.3 million |
PBF Holding, the operating subsidiary and pass-through entity, reported net income of $232.8 million versus $77.2 million; that figure excludes PBF Energy’s corporate income-tax expense and is not the same as PBF Energy’s consolidated net income.
- Refining margins: Gross refining margin, a company-defined non-GAAP measure, was $598.8 million, or $15.44 per barrel of throughput, versus $362.7 million, or $9.13 per barrel. Gross margin after refinery operating expenses and depreciation was $300.1 million, or $7.74 per barrel, versus $133.0 million, or $3.34 per barrel.
- Operations: Throughput averaged 430,900 barrels per day versus 441,600. Production averaged 428,600 versus 440,300 barrels per day.
- Cash and liquidity: Cash was $237.1 million at quarter-end. Working capital was $723.2 million, and management reported total liquidity of approximately $954.7 million, including cash and ABL availability.
- Debt and obligations: Current and long-term debt totaled $722.8 million on the balance sheet, including $55.1 million of catalyst lease obligations; a separate Delaware Economic Development Authority loan was $12.0 million. There were no borrowings under the new Rail Facility at quarter-end. The tax receivable agreement liability was approximately $509.2 million.
- Shareholder distributions: The quarterly dividend was $0.30 per share. The board declared another $0.30 dividend after quarter-end, payable May 29, 2014.
Changes versus Q1 2013
- Revenue declined 1.1%, while operating income and net income increased substantially. Management attributed the stronger results principally to favorable crude differentials and product margins, and lower Renewable Fuel Standard compliance costs.
- Gross refining margin increased despite lower throughput. Operating expenses rose 30.5% to $268.9 million, largely reflecting approximately $48 million in higher energy and utility costs during the unusually cold winter and higher maintenance-related engineering fees. G&A increased to $36.6 million, primarily from compensation, headcount, incentive pay and severance.
- East Coast throughput was affected by unplanned Paulsboro downtime in January and a planned March turnaround. Mid-Continent throughput improved against a prior-year period that included an 18-day Toledo outage.
- Operating cash flow increased, but working-capital movements differed between periods. Investing cash flow included $37.8 million of railcar-sale proceeds; financing activity included $15.0 million of net revolver repayments and $29.7 million of distributions and dividends.
- Two 15-million-share secondary offerings increased PBF Energy’s interest in PBF LLC from 40.9% at year-end to approximately 71.9%. The selling holders received the proceeds; PBF Energy itself received none. This ownership change affects comparisons of income attributable to PBF Energy and noncontrolling interests.
Outlook, risks and unusual items
- Management expected approximately $275 million of net capital spending in 2014 for refinery improvements, maintenance and turnarounds, and expansion of Delaware City’s crude-rail unloading facilities. It targeted total rail unloading capability of 210,000 barrels per day by year-end, subject to railcar delivery, infrastructure and unit-train availability.
- Management stated that cash flow and available capital resources should be sufficient for the next 12 months, including capital expenditures, working capital, debt service and dividends, while noting that cash generation depends on volatile petroleum markets and other factors. The company reported compliance with debt covenants. No formal earnings guidance is provided in the filing.
- PBF Logistics LP commenced an initial public offering process on April 30, 2014. The timing and completion of the offering remained subject to risks and approvals.
- The company recognized $72.4 million of gains on non-designated commodity derivatives in cost of sales. Commodity-price exposure, hedging results and the distinction between realized and unrealized gains warrant attention. Q1 2013 also included a $15.9 million non-cash benefit related to a prior inventory repurchase liability.
- Significant risks include refining-margin and commodity-price volatility, higher energy costs, refinery outages, crude supply and rail/logistics constraints, counterparty exposure, and the possibility of reduced or discontinued dividends. Termination of the J. Aron inventory-intermediation arrangements could increase the company’s inventory funding needs.
- Environmental and permitting matters include appeals challenging Delaware City crude-barge and rail operations under Delaware’s Coastal Zone Act. The company prevailed before the relevant boards, but court proceedings or further appeals remained possible; an adverse result could be material. The company also disputed a DNREC penalty assessment seeking approximately $529,000 for alleged air-emission violations.
- PBF Energy estimated tax receivable agreement payments of $12.5 million to $47.2 million annually over the next five years, declining thereafter. It estimated that immediate acceleration under specified assumptions would have been approximately $629 million at March 31, 2014; actual amounts may differ materially.
Investor verification priorities
- Reconcile the large year-over-year earnings improvement with refining margins, throughput, the $72.4 million derivative gain and the prior-year non-cash benefit.
- Review refinery utilization, Paulsboro downtime and turnaround effects, and whether the 2014 rail-capacity and capital-spending plans were achieved.
- Confirm liquidity and covenant headroom under weaker refining conditions, and assess debt service alongside the tax receivable agreement liability and dividend policy.
- Track the Delaware City permit appeals, the DNREC assessment and any other environmental or regulatory developments.
- Separate PBF Energy’s attributable earnings and per-share results from PBF Holding’s operating results and noncontrolling interests; note that the secondary offerings were sales by existing holders, not capital raised by PBF Energy.