PBF Energy Inc. — Q2 2021 Form 10-Q
Business context and period. Unaudited results cover the three and six months ended June 30, 2021, compared with the same 2020 periods. PBF operates six U.S. refineries and a logistics segment through PBFX. Refinery throughput capacity was approximately 1.0 million barrels per day; the East Coast refineries were reconfigured to operate as one system, with certain Paulsboro units idled. PBF Energy owns approximately 99.2% of PBF LLC and consolidates PBFX.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $6.898 billion | $2.516 billion | $11.823 billion | $7.793 billion |
| Operating income (loss) | $147.5 million | $620.8 million | $205.2 million | $(746.0) million |
| Net income (loss), consolidated | $69.9 million | $413.0 million | $47.7 million | $(649.5) million |
| Net income (loss) attributable to PBF Energy stockholders | $47.9 million | $389.1 million | $6.6 million | $(676.8) million |
| Diluted EPS | $0.39 | $3.23 | $0.05 | $(5.67) |
- Margins and operations: Q2 consolidated gross margin was $201.8 million, or $2.53 per throughput barrel. Management’s non-GAAP gross refining margin excluding special items was $447.3 million, or $5.62 per barrel, versus $94.1 million, or $1.54, in Q2 2020. Q2 throughput averaged 874,200 barrels per day, up from 675,100. Refinery operating expense was $5.81 per barrel, compared with $6.90.
- Cash flow: First-half operating cash flow was $64.7 million, versus cash used of $628.8 million in 2020. Investing used $139.6 million and financing used $54.9 million. Cash declined $129.8 million to $1.480 billion. First-half capital expenditures and turnaround spending included $84.6 million and $38.5 million, respectively.
- Liquidity: Working capital was $1.516 billion at June 30, 2021, versus $1.416 billion at year-end 2020. PBF reported operational liquidity above $2.6 billion, including $1.4 billion cash excluding PBFX and more than $1.2 billion of revolver availability. PBFX separately reported $368.4 million of liquidity.
- Debt: Debt outstanding was $4.670 billion gross, including $900 million drawn on PBF’s revolving facility and $160 million on PBFX’s facility. Long-term debt carrying value was $4.624 billion. The $900 million PBF revolver matures in May 2023; the PBFX facility matures in July 2023. The company reported covenant compliance at quarter-end.
Changes versus the prior comparable period
- Revenue rose sharply year over year, reflecting higher commodity prices and increased throughput as demand recovered. Management cited higher refining margins overall, while noting regional and crude-differential pressures.
- Reported Q2 2021 earnings were below Q2 2020 despite improved underlying refining performance: 2020 included a $471.1 million gain on hydrogen-plant sales and a $584.2 million non-cash inventory valuation benefit; 2021 included a $264.0 million non-cash inventory valuation benefit. Excluding special items, PBF Energy reported adjusted fully converted net losses of $152.6 million for Q2 2021 and $384.8 million for Q2 2020. These are non-GAAP measures.
- For the first half, PBF Energy moved from a substantial GAAP loss to modest attributable income. The comparison is affected by inventory valuation changes, the 2020 hydrogen-plant sale gain, 2020 debt extinguishment and severance costs, and contingent-consideration remeasurement.
- First-half interest expense increased to $161.1 million from $114.7 million, mainly reflecting the 2020 issuance of 9.25% secured notes. Renewable Fuel Standard compliance costs rose to $580.7 million from $96.8 million in the first half; accrued renewable-credit and emissions obligations reached $1.114 billion, versus $528.1 million at year-end.
Outlook, risks, and unusual items
- Management expected near-term system throughput of 845,000–905,000 barrels per day, described the second-half 2021 market outlook as constructive, and forecast 2021 refining capital expenditures of approximately $400–$450 million, excluding PBFX. PBFX forecast $12–$18 million of 2021 net capital expenditures.
- Management said demand was recovering but refineries remained below historic operating levels. It stated that actions taken and available resources were expected to cover capital expenditures, working capital and debt service for the next 12 months, while cautioning that the pandemic’s effects and financing availability remained uncertain.
- The Delaware City J. Aron inventory-intermediation agreement was extended to August 31, 2021, with a possible mutual extension to June 2022; the Paulsboro agreement expires December 31, 2021, with a possible mutual extension to December 2022. If not extended or replaced, PBF must repurchase covered inventory, creating a potential liquidity need.
- PBF’s $0.30-per-share quarterly dividend remained suspended. PBFX continued its $0.30-per-unit quarterly distribution and announced a further distribution payable in August 2021.
- After quarter-end, the Bay Area air district adopted stricter particulate-emissions standards for refinery FCC units by 2026, affecting Martinez. PBF had a previously approved project and was evaluating further measures; compliance costs could be significant if planned measures are insufficient.
- Environmental, safety, and litigation exposures include remediation obligations, regulatory proceedings and claims. The company reported $150.2 million of aggregate environmental liabilities at June 30, 2021 and noted that some potential losses cannot currently be estimated. Commodity prices, RIN and emissions-credit costs, COVID-19, interest rates, counterparty performance, debt covenants and refinery operations are additional material risks.
Most important facts for investors to verify
- How much of reported earnings and refining-margin improvement reflects non-cash inventory valuation effects, and how sustainable are margins excluding special items?
- Whether the J. Aron agreements are extended or replaced, and the cash required to repurchase inventory if they expire.
- Whether RIN and emissions-credit costs and the $1.114 billion related accrued obligation continue to rise or require significant cash settlement.
- Whether operating cash generation and liquidity remain adequate as working capital, capital spending and debt-service needs evolve.
- The cost and implementation path for Martinez’s new emissions standards, and the outcome of significant environmental, safety and legal matters.
- Whether demand recovery supports management’s throughput and capital-spending outlook, and whether PBF reinstates its suspended dividend.