PBF Energy Inc. — Q1 2020 Form 10-Q Summary
Business context and reporting period
Quarter ended March 31, 2020; filed May 15, 2020 after a COVID-19-related filing delay. PBF operates six U.S. refineries and a logistics business through PBFX. On February 1, it acquired the Martinez refinery and related logistics assets for reported consideration of $1.253 billion. The quarter includes Martinez results from the acquisition date; comparisons with Q1 2019 therefore reflect a different asset base. Unless noted, financial results below are PBF Energy consolidated figures.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $5.278 billion | $5.216 billion |
| Operating income (loss) | $(1.367) billion | $364.6 million |
| Net income (loss) | $(1.063) billion | $241.4 million |
| Net income (loss) attributable to PBF Energy stockholders | $(1.066) billion; $(8.93) per diluted share | $229.2 million; $1.89 per diluted share |
| Cash from operating activities | $(235.8) million | $(149.9) million |
| Cash and cash equivalents at period end | $722.1 million | $418.3 million at Q1 2019 end |
| Long-term debt, carrying value | $3.546 billion | $2.065 billion at December 31, 2019 |
| Working capital | $263.8 million | $1.315 billion at December 31, 2019 |
A non-cash lower-of-cost-or-market inventory adjustment of $1.286 billion was the principal driver of the reported loss; it increased the inventory reserve to $1.687 billion at quarter end. Consolidated gross margin was $(1.334) billion versus $425.0 million. Gross refining margin, a company-defined non-GAAP measure, was $(773.4) million, or $(9.96) per barrel, compared with $932.5 million, or $13.94 per barrel. Excluding disclosed special items, gross refining margin was $512.2 million, or $6.60 per barrel, versus $426.5 million, or $6.38 per barrel.
Investing cash outflow was $1.315 billion, including $1.176 billion for the Martinez acquisition. Financing cash inflow was $1.458 billion, including $1.0 billion of 6.00% senior notes due 2028 and net borrowings under PBF’s revolving facility. PBF redeemed $500 million principal of 7.00% notes due 2023, incurring $22.2 million of debt extinguishment costs, and had $900 million drawn on its revolving credit facility at quarter end.
Material changes versus the prior comparable period
- Results swung from profit to a substantial loss, primarily because falling crude and refined-product prices triggered the inventory write-down. In Q1 2019, the LCM adjustment was a $506.0 million benefit, making the year-over-year reported comparison especially pronounced.
- Revenue rose 1.2%, while revenue per barrel fell 12.5% to $57.89. Throughput increased to 867,000 barrels per day from 737,700, reflecting Martinez and the timing of refinery turnarounds; the Toledo turnaround reduced Mid-Continent throughput.
- Operating cash use increased by $85.9 million. Cash fell from $814.9 million at December 31, 2019 to $722.1 million at March 31, 2020, while reported working capital declined by about $1.051 billion.
- Debt rose following the Martinez acquisition financing and new borrowing. Interest expense increased to $49.2 million from $39.5 million.
- Operating expenses increased 11.0% to $531.7 million, including approximately $69.5 million associated with Martinez. General and administrative expenses increased 43.2% to $82.5 million.
Outlook, management commentary and risks
- Management cited COVID-19, stay-at-home measures and oil-market supply and demand shocks as causing sharply lower product demand and extraordinary commodity-price volatility. Refineries were operating at minimum rates; near-term system throughput was expected to be 650,000–700,000 barrels per day. Management said operations would be adjusted as conditions evolved and did not provide full-year earnings guidance.
- Management estimated 2020 operating-expense budget reductions of approximately $140 million and planned capital-expenditure reductions of approximately $357 million, or 49% from the prior budget. Expected 2020 net capital spending was $325–$375 million, excluding PBFX; safety, environmental and regulatory commitments were intended to be maintained.
- After quarter end, PBF sold five hydrogen plants for $530 million gross proceeds and issued $1.0 billion of 9.25% senior secured notes due 2025 for approximately $987.5 million net proceeds. Management estimated liquidity of about $2.0 billion using May 1 cash and borrowing-capacity figures, while warning that weaker commodity prices could reduce the revolving facility’s borrowing base. It believed available resources and planned actions would meet needs for the next 12 months, but noted that this depended on uncertain conditions.
- PBF suspended its $0.30 quarterly common-stock dividend. PBFX reduced its quarterly distribution to $0.30 per unit, its stated minimum. These actions were intended to preserve cash and strengthen liquidity.
- The company’s March 31 liquidity was reported at approximately $1.213 billion; total long-term debt carrying value was $3.546 billion. PBF stated it was in compliance with debt covenants at quarter end. Subsequent secured-note financing and other transactions changed the liquidity and debt picture after the reporting date.
- The Martinez purchase included an earn-out tied to refinery earnings. Its estimated fair value was reduced during the quarter, producing a $52.8 million gain; the estimated undiscounted liability at March 31 was $43.5 million. The preliminary acquisition allocation remained subject to adjustment.
- COVID-19-related demand and price weakness could create further inventory charges, impairments, lower borrowing availability, and pressure on liquidity and debt service. The company reported that its March 31 long-lived-asset impairment test found no impairment, but warned that persistent adverse conditions could require future charges.
- Environmental liabilities totaled $164.3 million. The filing also describes environmental, employment, personal-injury and other legal matters; for certain unresolved matters, the company could not estimate a possible loss range. Compliance costs, RIN and emissions-credit prices, customer credit risk, and J. Aron inventory-intermediation arrangements are additional exposures.
Important facts for investors to verify
- Whether demand, refinery throughput and refining margins recover as restrictions ease, and whether the anticipated 650,000–700,000 barrel-per-day near-term throughput is achieved.
- Post-quarter liquidity and debt after the hydrogen-plant sale and 2025 secured-note issuance, including borrowing-base availability, covenant headroom, interest costs and use of proceeds.
- The size and potential reversal of the $1.687 billion inventory reserve, and the sensitivity of reported results to commodity prices and inventory valuation.
- Martinez integration, final purchase-price allocation, operating performance and future earn-out payments.
- Whether cost and capital-spending reductions are achieved while meeting safety and environmental obligations, and the implications of suspended PBF Energy dividends and reduced PBFX distributions.