PBF Energy Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. PBF is an independent U.S. refiner with six refineries and a consolidated logistics segment operated through PBFX. The unaudited results are not necessarily indicative of full-year performance.
Financial performance and position
- Revenue: $4.925 billion, down 7.6% from $5.278 billion in Q1 2020. Higher commodity prices lifted revenue per barrel, but throughput and sales volumes were lower.
- Profitability: Operating income was $57.7 million versus an operating loss of $1.367 billion. Consolidated net loss was $22.2 million; net loss attributable to PBF Energy shareholders was $41.3 million, or $0.34 per diluted share, compared with $1.066 billion and $8.93 per share, respectively, in Q1 2020.
- Margins: Consolidated gross margin was $138.4 million, versus negative $1.334 billion. Gross refining margin excluding special items, a non-GAAP measure, was $244.6 million, or $3.65 per barrel, versus $512.2 million, or $6.60 per barrel.
- Cash flow: Operating cash use was $13.7 million, compared with $235.8 million used in Q1 2020. Investing cash use was $60.5 million, including $37.4 million of property, plant and equipment spending and $16.8 million of turnaround costs. Financing provided $5.9 million. Cash ended the quarter at $1.541 billion, down from $1.610 billion.
- Liquidity and working capital: Reported working capital was $1.456 billion. Management cited approximately $2.3 billion of liquidity, comprising $1.5 billion of cash excluding PBFX cash and approximately $0.8 billion of revolving-credit availability. PBFX separately had $311 million of revolver capacity and $44 million of cash.
- Debt: Debt principal outstanding was approximately $4.703 billion, including $900 million drawn on PBF Holding’s revolver and $185 million on PBFX’s revolver. Long-term debt on the balance sheet was $4.652 billion. The company reported compliance with debt covenants.
- Other metrics: Refinery throughput averaged 745,500 barrels per day, down from 852,900. Refinery operating expense was $6.86 per barrel versus $6.54. Renewable Fuel Standard compliance costs were $283.1 million, up from $36.8 million.
Material changes versus Q1 2020
- The substantial improvement in GAAP results was heavily affected by inventory accounting: a non-cash lower-of-cost-or-market inventory adjustment benefited Q1 2021 operating income by $405.6 million, while the Q1 2020 adjustment reduced it by $1.286 billion.
- Excluding special items, refining margin weakened: gross refining margin was $244.6 million versus $512.2 million. Management cited lower throughput, weaker crude differentials and pandemic-related demand pressure.
- Operating expenses fell 9.5% to $481.3 million, and general and administrative expenses fell 42.1% to $47.8 million, reflecting the East Coast reconfiguration and cost reductions.
- Net interest expense increased to $80.3 million from $49.2 million, primarily reflecting the 2025 secured notes issued in 2020. The prior-year period also included Martinez acquisition spending and debt-extinguishment costs.
Outlook, management commentary and risks
- Management expected near-term refining throughput of 825,000–885,000 barrels per day, subject to demand and market conditions. It reported improving refinery runs in March versus January and described the second-half 2021 market outlook as constructive, while emphasizing uncertainty around pandemic recovery.
- Expected 2021 refining capital expenditures were approximately $400–$450 million, with about $150 million planned for the first half; PBFX expected $10–$18 million of 2021 capital expenditures. Management said it expected available resources to meet the next 12 months’ needs, but cautioned that prolonged market weakness could require additional capital.
- The East Coast Refining System reconfiguration, completed December 31, 2020, temporarily idled major Paulsboro units. Management estimated annual operating and capital savings of approximately $100 million and $50 million, respectively, relative to historical averages.
- PBF Energy’s $0.30-per-share quarterly dividend remained suspended. PBFX maintained a $0.30-per-unit quarterly distribution; a subsequent distribution was announced for payment in May 2021.
- Inventory intermediation agreements with J. Aron expire June 30, 2021 for Delaware City and December 31, 2021 for Paulsboro, unless extended. If not extended or replaced, PBF must repurchase covered inventory. Management said it intended to extend or replace the agreements.
- Key risks include COVID-19 and uncertain fuel demand, commodity and crude-differential volatility, substantial indebtedness and interest costs, RIN and emissions-credit obligations, counterparty exposure, environmental compliance and litigation. The filing reported $152.7 million of environmental liabilities. It also disclosed ongoing legal matters, including an OSHA citation with proposed penalties of $401,923; management did not expect certain described environmental matters to materially affect results, but outcomes remain uncertain.
Important facts for investors to verify
- Whether reported operating improvement translates into stronger recurring margins and cash generation after removing the $405.6 million inventory benefit and other special items.
- Actual refinery utilization, product demand and refining differentials versus management’s near-term throughput expectations.
- Whether the J. Aron agreements are extended or replaced before expiration, and the liquidity impact if PBF must repurchase covered inventory.
- Progress against capital-spending plans, cost savings and debt reduction, alongside the continuing dividend suspension and PBFX distribution policy.
- Changes in RIN and emissions-credit costs, environmental liabilities, litigation and other contingencies, as well as available liquidity if market conditions deteriorate.