PBF Energy Inc. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. PBF is a holding company consolidating its refining operations and PBFX logistics partnership. It operated five U.S. refineries with combined capacity of approximately 900,000 barrels per day; the Torrance refinery was included from July 2016.
Financial and operating performance
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $5,017 million | $3,858 million | $9,772 million | $6,659 million |
| Net income (loss) | $(104) million | $121 million | $(124) million | $97 million |
| Net income (loss) attributable to PBF Energy | $(110) million | $104 million | $(141) million | $74 million |
| Diluted EPS | $(1.01) | $1.06 | $(1.30) | $0.76 |
| Cash from operations | Not separately provided | Not separately provided | $(35) million | $216 million |
Q2 throughput averaged 769,200 barrels per day. GAAP gross margin was a loss of $44 million, or $(0.62) per throughput barrel. The company’s non-GAAP gross refining margin was $5.01 per barrel, or $7.17 excluding special items; the comparable 2016 figures were $8.98 and $6.50, respectively. Six-month gross refining margin was $6.22 per barrel, or $7.45 excluding special items, versus $7.54 and $5.77 in 2016.
Special items weighed on reported results: a non-cash lower-of-cost-or-market inventory charge of $151 million in Q2 ($167 million for six months) and $25 million of debt-extinguishment costs. In Q2 2016, an inventory adjustment instead benefited results by $158 million. Excluding special items, adjusted fully converted net loss was $7 million for Q2 and $30 million for six months; these are non-GAAP measures.
Cash, debt, and liquidity
- Cash and cash equivalents were $173 million at June 30, down from $746 million at year-end 2016. Six-month operating cash use was $35 million; investing cash use was $429 million, including $220 million of capital expenditures and $214 million of turnaround spending.
- Working capital was $668 million, down from $1,351 million at year-end. Management attributed the decrease primarily to capital expenditures and turnaround costs.
- Balance-sheet long-term debt was $2,160 million. PBF reported total liquidity of approximately $954 million, including cash and availability under its Revolving Loan; PBFX separately had $167 million of revolver capacity.
- In May, PBF issued $725 million of 7.25% senior notes due 2025 and used proceeds toward retiring its 8.25% senior secured notes due 2020. The transaction generated $25 million of extinguishment costs; 2023 notes also became unsecured following the collateral fall-away event.
- Quarterly Class A dividends were $0.30 per share. The board declared another $0.30 dividend payable in August.
Changes, outlook, and risks
- Revenue rose year over year, reflecting higher commodity prices and the addition of Torrance. Reported profitability declined sharply, driven by inventory write-downs, weaker East Coast and Mid-Continent margins, refinery downtime and higher operating costs. Excluding special items, Q2 gross refining margin per barrel improved year over year.
- Torrance’s Q2 turnaround and planned or unplanned downtime at other refineries affected throughput. Higher operating expenses and depreciation also reflected Torrance and the expanded asset base.
- Management expected 2017 net capital expenditures of $575–$600 million, including refinery maintenance, turnarounds and Tier 3 compliance. PBFX expected $110–$120 million in net capital expenditures, primarily for growth projects. The filing provides no earnings guidance.
- Management said cash flow and available capital resources should cover expected needs for the next 12 months, while noting that results and liquidity depend partly on petroleum market conditions. The company reported compliance with debt covenants at June 30.
- Key exposures include volatile refining margins and commodity prices, RIN and emissions-credit costs, refinery reliability and turnarounds, and the availability or renewal of J. Aron inventory-intermediation arrangements. Paulsboro’s agreement term runs to January 2018, with a possible extension by mutual consent; Delaware City’s runs to July 2019, also with a possible extension.
- Environmental matters include $140 million of assumed Torrance remediation liabilities. RIN and emissions obligations accrued were $172 million, up from $70 million at year-end. Several regulatory matters and lawsuits remain; the filing says some Torrance notices have uncertain outcomes, while a Chalmette-related claim’s potential amount is not determinable.
- The company estimated a $611 million tax-receivable-agreement liability. It estimated accelerated payments of about $542 million if triggered immediately under stated assumptions; actual payments may differ materially.
Investor verification points
- Assess how much reported and adjusted performance depends on volatile inventory accounting and whether margins excluding special items are sustainable.
- Track refinery utilization, turnaround completion, and Torrance’s operating contribution and costs.
- Reconcile the cash decline, working-capital needs, planned capital spending, and available borrowing capacity.
- Review refinancing terms, debt service and covenants, and the ability to maintain dividends alongside investment needs.
- Monitor RIN and emissions-credit costs, environmental liabilities and litigation, and renewal or termination risk under the J. Aron agreements.