PBF Energy Inc. — Q1 2013 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2013. 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 controls and consolidates PBF LLC but held approximately 24.4% of its economic interest; the remaining interest is reflected as noncontrolling interest. Financial results below are consolidated unless otherwise noted.
Financial and operating performance
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Revenue | $4,797.8 million | $4,716.1 million |
| Operating income (loss) | $100.1 million | $(164.1) million |
| Consolidated net income (loss) | $69.7 million | $(202.5) million |
| Net income attributable to PBF Energy | $11.4 million; $0.48 per share | Not applicable as presented |
| Gross refining margin (non-GAAP) | $362.7 million; $9.13/barrel | $55.9 million; $1.45/barrel |
| Gross margin | $133.0 million; $3.34/barrel | $(151.2) million; $(3.92)/barrel |
| Operating cash flow | $211.1 million | $(268.7) million |
| Capital expenditures | $56.2 million | $23.4 million |
Throughput averaged 441,600 barrels per day versus 423,500; production averaged 440,300 versus 419,000. Operating expense was $206.0 million ($5.19/barrel), up from $188.1 million ($4.88/barrel). Net interest expense declined to $21.6 million from $31.4 million. PBF Energy recorded $7.4 million of income tax expense; PBF Holding, a pass-through entity, reported $77.2 million of net income before PBF Energy-level taxes.
At March 31, cash was $404.1 million, working capital was $723.0 million, and total assets were $4.51 billion. Long-term debt, including catalyst lease obligations, was $711.5 million; the Delaware Economic Development Authority loan was $16.0 million. The filing reports total liquidity of approximately $609.8 million, including cash and ABL availability. PBF Energy paid a $0.30-per-share quarterly dividend.
Material changes versus prior period
- Results swung from a substantial loss to profitability, driven primarily by stronger refining margins and more favorable crude differentials. Revenue rose 1.7%.
- Gross refining margin increased by $306.8 million. The reported benchmark crack spreads improved, while higher energy costs, Renewable Fuel Standard compliance costs, and Toledo fire-related expenses partly offset the benefit.
- Operating cash flow improved by $479.8 million, including a $107.4 million working-capital cash benefit in Q1 2013. Capital spending increased, and financing cash flow shifted from net inflows in 2012 to $33.7 million of outflows in 2013, largely for member distributions and dividends.
- Comparisons are affected by PBF Energy’s December 2012 IPO and reorganization: Q1 2012 results largely reflect PBF LLC, while Q1 2013 includes PBF Energy-level taxes and noncontrolling-interest presentation.
Outlook, commentary, risks and unusual items
- Management expected approximately $250–$275 million of 2013 capital expenditures, including refinery improvements, maintenance and turnaround work, and Delaware City rail-unloading expansion. A further 40,000 barrels/day of heavy-crude rail capacity was approved, with total rail-unloading capability targeted at 150,000 barrels/day by year-end 2013.
- Management stated cash flows and available resources should cover the next 12 months’ operating, capital, debt-service, dividend and tax-receivable-agreement needs, subject to market conditions. It intended to continue a $0.30 quarterly dividend, but future dividends are discretionary.
- A January 31 fire temporarily shut a Toledo FCC unit; the refinery returned to planned rates February 18. Repair and restart costs were approximately $7.5 million. Toledo throughput was also affected by an 18-day outage.
- The Paulsboro crude-supply agreement expired March 31, 2013, increasing exposure to market-price movements between crude purchases and product sales. Refining margins depend on volatile crude, product and energy prices; management estimated that a $1/MMBtu natural-gas price change could alter annual natural-gas costs by about $37 million.
- Environmental regulation and remediation remain risks. The company could not estimate potential costs of complying with amended refinery emissions standards by July 2015. The recorded Paulsboro environmental liability was $11.4 million. No material legal proceedings were reported.
- The filing states the company was in compliance with debt covenants. It also reports $467.7 million of letters of credit and new railcar leases with expected payments of $78 million over terms of up to 12 years.
- The $21.4 million Toledo acquisition contingent-consideration liability was paid April 30, 2013. A $4.0 million tranche of the Delaware loan converted to a grant in February 2013.
Important facts for investors to verify
- How sustainable Q1’s unusually stronger crack spreads and crude differentials are, and the effect of the Paulsboro supply-agreement expiration on realized margins.
- The exact composition of the reported $609.8 million liquidity figure and borrowing availability under the $1.575 billion ABL facility.
- Progress and actual spending on the Delaware City rail expansion and the full-year $250–$275 million capital-spending outlook.
- Whether refinery reliability, energy and compliance costs, and working-capital requirements affect cash generation and the ability to maintain dividends.
- The effects of PBF Energy’s 24.4% economic ownership, noncontrolling interest, tax receivable agreement, and use of non-GAAP measures when assessing per-share performance.