PBF Energy Inc. — Q3 2022 Form 10-Q
Business context and period. This unaudited quarterly report covers the three and nine months ended September 30, 2022, with comparisons to 2021. PBF operates six U.S. refineries with approximately 1.0 million barrels per day of combined throughput capacity, alongside its logistics segment, PBFX. PBF Energy consolidates PBF LLC and PBFX; unless noted, financial amounts below are PBF Energy consolidated figures in U.S. dollars.
Financial results and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $12,764.6 million | $7,186.7 million | $35,984.0 million | $19,009.4 million |
| Income from operations | $1,400.0 million | $100.9 million | $3,197.6 million | $306.1 million |
| Net income attributable to PBF Energy stockholders | $1,056.4 million | $59.1 million | $2,239.0 million | $65.7 million |
| Diluted EPS | $8.40 | $0.49 | $18.03 | $0.54 |
| Consolidated gross margin | $1,573.2 million | $168.7 million | $3,709.5 million | $508.9 million |
| Operating cash flow | Not separately provided | Not separately provided | $3,648.9 million | $325.7 million |
- Margins and operations: Q3 gross refining margin, a company-defined non-GAAP measure, was $2,262.1 million, or $24.96 per barrel of throughput, versus $727.5 million, or $9.32 per barrel, a year earlier. Throughput averaged 984,700 barrels per day in Q3, up from 848,300. The company attributed stronger results to higher throughput and product sales, improved crack spreads and crude differentials, and stronger demand. RFS compliance costs were $297.6 million in Q3 and $924.7 million for the nine-month period.
- Cash flow and investment: Nine-month cash used in investing was $683.7 million, including $391.5 million of property, plant and equipment expenditures and $240.3 million of turnaround spending. Cash used in financing was $2,398.1 million, primarily reflecting debt redemption and revolver repayments. Cash and equivalents were $1,908.6 million at quarter-end.
- Debt and liquidity: Debt carrying value totaled $2,012.4 million, including $523.8 million classified as current, principally PBFX notes due May 2023. The company had no borrowings outstanding under its revolving credit facilities at quarter-end. It reported operational liquidity above $4.4 billion, including $1.8 billion of cash excluding PBFX and more than $2.6 billion of revolving-facility availability; PBFX separately reported approximately $541.4 million of liquidity. Working capital was $1,148.0 million, down from $1,439.5 million at December 31, 2021. The company reported compliance with debt covenants.
- Balance sheet and obligations: Total assets were $13,304.3 million and total liabilities $8,427.8 million. Renewable-energy-credit and emissions obligations were $1,233.8 million, with approximately $852.4 million of related forward purchase commitments. PBF Energy’s tax receivable agreement liability increased to $336.4 million from $48.3 million at year-end.
Material changes and unusual items
- Revenue rose 77.8% in Q3 and 89.5% for the first nine months, reflecting higher commodity prices as well as increased throughput and sales. Operating income and gross margin increased substantially versus 2021.
- Q3 included a $69.9 million pre-tax loss on redeeming all 9.25% senior secured notes due 2025. The redemption cost approximately $1.3 billion plus accrued interest; management cited annual interest savings of approximately $115 million. Nine-month results also included a $130.9 million contingent-consideration fair-value charge and a $288.2 million tax receivable agreement liability charge.
- PBF released its remaining deferred-tax-asset valuation allowance of $110.9 million in Q3; the total release for the first nine months was $308.5 million. These tax effects materially affect period comparability.
- The 2021 nine-month comparison included a $669.6 million non-cash inventory valuation benefit, an important nonrecurring difference. The company’s non-GAAP adjusted results exclude specified special items and should be read alongside GAAP results.
- Operating expenses and G&A increased, reflecting higher natural-gas costs, production-related maintenance and services, and employee incentive compensation.
Outlook, risks and contingencies
- Management said it expected cash flows and available resources to cover capital spending, working capital, debt service, dividends and tax receivable agreement obligations for the next 12 months, while emphasizing dependence on market and economic conditions. No earnings or margin guidance was provided in the supplied filing text.
- Full-year 2022 refining capital expenditures, excluding the renewable diesel project, were expected to be $550–$575 million. The Chalmette renewable diesel project targets production in the first half of 2023; approximately $103 million was invested in it during Q3. PBFX expected $4–$6 million of net capital expenditures for the remainder of 2022.
- The proposed PBFX merger, announced July 27, 2022, was expected to close in Q4, subject to unitholder approval and customary conditions. Consideration for each eligible public unit includes 0.27 PBF Energy shares and $9.25 cash. The filing estimated cash consideration of approximately $303.3 million based on public units outstanding on October 24, 2022.
- After quarter-end, PBF Energy declared a $0.20-per-share dividend payable November 29, 2022. PBF LLC also made $1,130.1 million of tax distributions in October, primarily to PBF Energy. These subsequent events affect liquidity and capital allocation.
- Key exposures include volatile crude, refined-product and natural-gas prices; refining-margin changes; RIN and emissions-credit costs; environmental regulation and remediation; refinery or supply disruptions; counterparty and cyber risks; and the possibility that the PBFX merger is delayed or does not close. The J. Aron inventory intermediation agreement runs through December 2024, with potential extension by mutual consent; expiration could require inventory repurchases and additional financing.
- Environmental liabilities totaled $153.8 million at September 30, 2022, including $112.5 million associated with assumed Torrance remediation obligations. The filing describes ongoing environmental matters and litigation; management said the specified matters were not expected to have a material impact, but outcomes may be uncertain.
Most important facts for investors to verify
- Whether elevated refining margins, throughput and demand persisted after Q3, and how much of earnings was attributable to market conditions versus sustainable operating performance.
- Cash conversion and working-capital movements, including the large accrued-expense balance and RIN/emissions obligations; distinguish reported operating cash flow from non-cash and timing effects.
- Debt maturities, actual borrowing availability and covenant headroom, particularly the PBFX notes due May 2023 and the revolving facility’s commitment step-down in May 2023.
- Final PBFX merger approval, closing timing, share dilution and cash funding needs; also account for the October tax distribution and declared dividend.
- Renewable diesel project cost, schedule and financing, and the potential evolution of the $336.4 million tax receivable agreement liability and contingent consideration.