PBF Energy Inc. — 2013 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2013. This is an annual filing, not a standalone Q4 report; it also includes unaudited quarterly results. PBF operates three U.S. refineries in Toledo, Ohio; Delaware City, Delaware; and Paulsboro, New Jersey, with combined capacity of about 540,000 barrels per day (bpd). Unless noted, financial figures below are consolidated and in U.S. dollars.
Financial and operating performance
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $19.15 billion | $20.14 billion |
| Gross refining margin (non-GAAP) | $1.35 billion; $8.16 per throughput barrel | $1.87 billion; $11.03 per throughput barrel |
| Gross margin (revenue less cost of sales and depreciation) | $436.9 million; $2.64 per throughput barrel | $1.05 billion; $6.17 per throughput barrel |
| Operating income | $319.9 million | $920.4 million |
| Net income | $214.1 million | $804.0 million |
| Net income attributable to PBF Energy shareholders | $39.5 million; diluted EPS $1.20 | $2.0 million; diluted EPS $0.08 |
| Cash from operating activities | $291.3 million | $812.4 million |
| Capital spending | $415.7 million | $222.7 million |
| Year-end cash and cash equivalents | $77.0 million | $285.9 million |
PBF Energy’s reported net income includes earnings attributable to noncontrolling PBF LLC unit holders; its shareholder-attributable income is therefore substantially lower. PBF reported 2013 throughput of 452,800 bpd, versus 463,200 bpd in 2012. Gasoline and distillates generated 88.6% of 2013 revenue.
For Q4 2013, revenue was $4.82 billion, operating income $142.3 million, net income $102.1 million, net income attributable to PBF Energy $31.2 million, and diluted EPS $0.76.
Liquidity, debt, and distributions
- Year-end working capital was $556.0 million, down from $704.8 million in 2012. Management reported total liquidity of approximately $615.9 million, including $77.0 million of cash and available ABL borrowing capacity.
- The ABL facility had a maximum availability of $1.610 billion; $15.0 million was borrowed and $441.4 million of standby letters of credit were outstanding at year-end.
- Reported total long-term debt, including current maturities and the Delaware Economic Development Authority loan, was $747.6 million. Separately, debt balances comprised $667.5 million of senior secured notes, $15.0 million of revolver borrowings, and $53.1 million of catalyst lease obligations, before current maturities. The notes bear 8.25% interest and are due 2020.
- PBF Energy recorded a $287.3 million tax receivable agreement liability at year-end. After the January 2014 secondary offering, the liability was estimated to rise to $439.6 million.
- PBF Energy paid $1.20 per Class A share in 2013 and said it intended to continue quarterly dividends of approximately $0.30 per share, subject to board discretion, cash availability, and debt restrictions.
Material changes versus 2012
- Revenue declined 4.9%, while gross refining margin fell 27.9% and operating income fell about 65%. Management attributed the deterioration principally to lower industry crack spreads, narrower crude differentials, lower throughput, higher operating and energy costs, refinery downtime, and increased renewable fuel compliance costs.
- Cash from operations fell to $291.3 million from $812.4 million. The filing cites weaker earnings and working-capital movements, including effects of changing product offtake and crude supply arrangements.
- RIN compliance costs increased to $126.4 million from $43.7 million, driven mainly by higher ethanol-linked credit prices and increased on-road fuel production.
- Operating expenses rose 10.0% to $812.7 million; G&A declined to $104.3 million, including an $8.5 million charge related to the tax receivable agreement liability.
- The MSCG product offtake arrangements for Delaware City and Paulsboro ended July 1, 2013, and J. Aron inventory intermediation arrangements began. PBF now markets those refineries’ products independently. The Paulsboro Statoil crude supply agreement ended March 31, 2013.
Outlook, risks, and unusual items
- The filing provides no specific earnings or margin guidance. Management stated that operating cash flow and available capital resources should be sufficient for capital expenditures, working capital, dividends, and debt service over the next 12 months, while noting dependence on oil markets and other factors outside its control.
- PBF expected Delaware City rail-unloading projects to raise total capacity to as much as 210,000 bpd by year-end 2014, subject to railcar delivery, Canadian loading infrastructure, and unit-train use. Toledo improvement projects were estimated at approximately $85 million through 2015; about $30.7 million had been spent by year-end 2013.
- A January 2013 fire at Toledo’s FCC complex caused temporary shutdown; the refinery returned to planned rates on February 18. Delaware City underwent a 40-day coker turnaround in Q4 2013. Both events affected throughput and earnings.
- Key exposures include volatile refining margins and crude differentials, reliance on third-party crude pipelines and rail logistics, refinery outages, counterparty performance under supply and inventory agreements, RIN prices, environmental compliance and remediation, labor negotiations, and substantial secured debt.
- Environmental matters include appeals challenging Delaware City’s crude-barge permit and rail-terminal operations under the Delaware Coastal Zone Act. State boards had ruled in the company’s favor, but appeals or further appeals remained possible. DNREC also sought $460,200 in penalties and $69,030 in investigation cost recovery for alleged air-emission violations; PBF disputed the assessment and was in discussions with the agency.
- The January 2014 secondary offering was a sale by Blackstone- and First Reserve-affiliated holders, not a primary capital raise for PBF. Their exchange of 15 million PBF LLC units increased PBF Energy’s economic interest in PBF LLC to about 56.4%. The filing also discusses a possible logistics MLP offering, but timing and structure were uncertain.
- The 10-K reports effective disclosure controls and internal control over financial reporting, and Deloitte issued unqualified opinions on the audited financial statements and PBF Energy’s internal controls.
Important facts for investors to verify
- Whether refining margins, crude differentials, and throughput recover or weaken further, and how much earnings remain concentrated at any one refinery.
- Whether operating cash flow can support planned investment, debt service, and dividends if market conditions deteriorate; confirm current ABL availability, borrowing-base limits, and letters of credit.
- Actual RIN expense and exposure to future credit-price changes, as well as the effect of evolving fuel and emissions rules.
- Progress, cost, and logistics dependencies for Delaware City rail expansion and Toledo projects, including any changes to rail transportation requirements.
- Developments in the Delaware Coastal Zone appeals and DNREC penalty matter, and adequacy of environmental remediation reserves, insurance, and indemnities.
- Changes to the tax receivable agreement liability and potential cash demands. The filing estimated accelerated payments of approximately $789.4 million under specified assumptions if a triggering event had occurred at December 31, 2013.
- Terms and performance of the J. Aron inventory arrangements, including the working-capital impact if those agreements end or counterparties fail to perform.