PBF Energy Inc. — Q3 2013 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2013. The combined filing covers PBF Energy Inc., PBF Holding Company LLC and PBF Finance Corporation. PBF Energy consolidates PBF Holding, which represented all consolidated revenue and revenue-generating assets. Unless noted, amounts below are in millions of dollars.
Business context
PBF operates three U.S. refineries in Toledo, Ohio; Delaware City, Delaware; and Paulsboro, New Jersey, with combined capacity of approximately 540,000 barrels per day. PBF Energy held approximately 40.9% of PBF LLC’s economic interests at quarter-end; other members’ interests are reflected as noncontrolling interests.
Financial and operating highlights
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $4,858.9 | $5,395.2 | $14,335.0 | $15,188.3 |
| Consolidated net income (loss) | $(64.9) | $186.6 | $112.0 | $539.8 |
| Net income (loss) attributable to PBF Energy | $(19.8) | Not clearly presented in the filing excerpt | $8.4 | Not clearly presented in the filing excerpt |
| Basic/diluted EPS attributable to PBF Energy | $(0.50) | Not clearly presented in the filing excerpt | $0.28 basic; $0.27 diluted | Not clearly presented in the filing excerpt |
| Operating income (loss) | $(55.6) | $220.1 | $177.5 | $635.5 |
| Gross refining margin | $195.2; $4.75/barrel | $462.6; $10.29/barrel | $940.2; $7.65/barrel | $1,316.4; $10.35/barrel |
| Cash provided by operating activities | Not stated for quarter | Not stated for quarter | $142.6 | $468.8 |
Q3 throughput averaged 446,000 barrels per day, down from 488,900; nine-month throughput averaged 450,700 barrels per day, down from 464,000. Q3 gross margin after refinery operating expenses and depreciation was a loss of $21.6 million, versus income of $261.3 million a year earlier. The filing defines gross refining margin as a non-GAAP measure.
At September 30, cash was $57.4 million, working capital was $582.0 million, and total assets were $4,329.3 million. Current liabilities were $1,609.4 million. Long-term debt was $722.6 million, including $667.2 million of senior secured notes, $15.0 million of revolver borrowings and $40.3 million of catalyst lease obligations. Total liquidity, defined by the company as cash plus ABL availability, was approximately $587.7 million. The company reported compliance with all debt covenants.
Changes versus comparable periods
- Q3 revenue fell 9.9%; nine-month revenue fell 5.6%. Lower throughput contributed, alongside lower refining margins.
- Q3 gross refining margin declined by $267.4 million and $5.54 per barrel year over year. Q3 Mid-Continent and East Coast benchmark crack spreads weakened, and crude differentials narrowed.
- Nine-month consolidated net income declined to $112.0 million from $539.8 million. Gross refining margin fell $376.2 million, while operating expenses increased $63.4 million.
- Operating cash flow for the first nine months fell to $142.6 million from $468.8 million. Investing outflows increased to $197.5 million from $133.9 million, including $201.9 million of property, plant and equipment spending.
- Cash declined from $285.9 million at December 31, 2012 to $57.4 million at September 30, 2013. Working capital decreased from $704.8 million to $582.0 million.
- RIN compliance costs rose to approximately $112.9 million for the first nine months, from $33.2 million, largely reflecting higher ethanol-linked RIN prices.
Outlook, management commentary and risks
- Management expected 2013 capital expenditures of approximately $250–$275 million. Toledo improvement projects were estimated at approximately $85 million through 2015; the Delaware City rail project was expected to add 40,000 barrels per day of heavy crude unloading capacity and be completed in 2014.
- Management stated cash flows and available resources were expected to cover capital, working-capital, dividend and debt-service needs, and tax receivable agreement obligations for the next 12 months. Refining margins, commodity prices and working-capital needs remain important uncertainties.
- PBF Energy intended to pay a quarterly dividend of $0.30 per Class A share, but future dividends remain at the board’s discretion. A $0.30 dividend was declared October 29, 2013, payable November 21.
- In July 2013, J. Aron inventory intermediation agreements replaced MSCG product offtake agreements at Paulsboro and Delaware City. The agreements improve inventory monetization and liquidity, but PBF must repurchase J. Aron-owned products in refinery tanks when the agreements end or are terminated. At quarter-end, approximately 3.2 million barrels were J. Aron-owned and associated accrued liabilities were $366.7 million.
- A January 2013 fire at Toledo caused an 18-day first-quarter interruption and repair/restart costs. Management also cited higher energy costs, narrower crude differentials, lower crack spreads and lower run rates as factors weighing on results.
- The tax receivable agreement liability was $299.1 million. The company estimated potential accelerated payments of approximately $568.2 million if triggered immediately at the assumptions disclosed; actual payments may differ materially.
- Environmental and permit matters include challenges to Delaware City crude-loading and rail-terminal permits, and a DNREC penalty assessment seeking $460,200 plus $69,030 in investigation costs for alleged air-emission violations. PBF disputed the assessment and was discussing resolution.
- Other material exposures include volatile refining margins and RIN prices, substantial capital needs, environmental regulation, counterparty and credit risk, and potential liquidity effects if the J. Aron arrangements end. The company’s annual natural gas use is approximately 37 million MMBTUs; a $1/MMBTU price change was estimated to affect annual costs by about $37 million.
Important facts for investors to verify
- Whether refining spreads, crude differentials and throughput recover, and how those trends affect margins and cash generation.
- Actual RIN costs and exposure to further price volatility, plus progress and spending on Delaware City and Toledo projects.
- Available ABL borrowing capacity, liquidity needs, debt terms and covenant headroom under weaker operating conditions.
- Terms, costs and termination consequences of the J. Aron agreements, including the obligation to repurchase stored inventory.
- Potential timing and amounts of tax receivable agreement payments, including any acceleration scenario.
- Outcome and potential operating impact of Delaware permit appeals and the DNREC penalty matter.
- Execution and economics of railcar sale-leasebacks and other railcar leases; the filing reported a further $35.7 million railcar sale-leaseback after quarter-end.