PBF Energy Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. PBF Energy is a holding company consolidating PBF LLC and subsidiaries. It operates six U.S. refineries and logistics assets and owns a 50% equity-method interest in St. Bernard Renewables (SBR), a renewable-diesel joint venture with Eni.
Key financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $9.16 billion | $14.08 billion | $18.45 billion | $23.22 billion |
| Operating income | $1.39 billion | $1.71 billion | $1.92 billion | $1.80 billion |
| Net income | $1.03 billion | $1.24 billion | $1.42 billion | $1.23 billion |
| Net income attributable to PBF Energy stockholders | $1.02 billion | $1.20 billion | $1.40 billion | $1.18 billion |
| Diluted earnings per share | $7.88 | $9.65 | $10.67 | $9.58 |
| Consolidated gross margin | $510 million | $1.94 billion | $1.09 billion | $2.14 billion |
| Gross refining margin per barrel | $13.62 | $30.41 | $15.86 | $21.54 |
| Adjusted EBITDA | $560 million | $1.92 billion | $1.23 billion | $2.19 billion |
Reported Q2 and first-half 2023 results include a $968.9 million pre-tax gain from forming the SBR equity-method investment. Excluding special items, adjusted fully converted diluted EPS was $2.29 for Q2 and $5.06 for the first half, versus $10.58 and $11.03, respectively, in 2022. These are non-GAAP measures defined by the company.
Management attributed weaker underlying refining results mainly to lower crack spreads and less favorable crude differentials compared with 2022, when global supply disruptions supported margins. Q2 throughput averaged 935,800 barrels per day, versus 942,200 a year earlier; first-half throughput was slightly higher year over year. Q2 RFS compliance costs were $289 million, compared with $433 million; first-half costs were $470 million, compared with $627 million.
Cash flow, liquidity and capital
- Six-month operating cash flow was $506 million, down from $2.27 billion in 2022. Working-capital movements used $569 million of cash; the comparison also reflects timing of environmental-credit obligations and other accrued items.
- Six-month investing cash outflow was $315 million. Capital expenditures were $447 million, turnaround expenditures $268 million, and the company received $431 million of return of capital from its equity-method investee.
- Six-month financing cash outflow was $878 million, including redemption of $525 million of PBFX notes, $268 million of share repurchases and approximately $51 million of dividends.
- Cash and cash equivalents were $1.52 billion at June 30, versus $2.20 billion at December 31, 2022. Working capital was $2.00 billion, compared with $1.35 billion.
- Reported long-term debt was $1.44 billion; gross debt before deferred financing costs was $1.47 billion. No revolving-facility borrowings were outstanding, and the company reported compliance with debt covenants. Operational liquidity was stated as more than $3.7 billion, including $2.2 billion of revolver availability; letters of credit were approximately $287 million.
- Total equity was $6.18 billion. The company repurchased $267.6 million of shares in the first half and increased its authorization to $1.0 billion, with the program extended through December 2025.
Material changes and unusual items
- On June 27, PBF contributed the SBR business to a 50/50 joint venture with Eni. The transaction produced the $968.9 million accounting gain and a $927.5 million recorded investment. Eni paid $431 million at closing; a further $414.6 million distribution was received in July after a project milestone, with an additional estimated $15 million contingent on further conditions.
- PBF redeemed the $525 million PBFX 2023 Senior Notes in February using cash and terminated PBFX’s unused $500 million revolving facility in June.
- The inventory intermediation agreement with J. Aron was terminated effective July 31, 2023. PBF made a provisional $268 million payment for inventory and related exit costs; inventory previously held by J. Aron became company-owned.
- Q2 revenue fell 34.8% year over year, largely reflecting lower hydrocarbon prices. Refining margins also declined, while interest expense fell substantially following debt redemptions and higher interest income.
- Cash declined in the first half amid debt repayment, repurchases and dividends. The quarter-end cash balance does not reflect the subsequent SBR distribution or the July inventory-agreement payment.
Outlook, risks and contingencies
- The company expects approximately $750 million of full-year 2023 spending on facility improvements, maintenance, turnarounds and environmental, regulatory and safety requirements, excluding Renewable Diesel Facility spending. Construction of that facility was substantially complete at June 30; remaining completion expenditures were expected to be immaterial.
- Management stated cash flows and available capital resources should be sufficient for the next 12 months’ expected needs, while noting that cash generation depends partly on oil markets and other factors beyond its control. No earnings or margin guidance is provided in the filing.
- Key exposures include volatile crude, refined-product, natural-gas and RIN/emissions-credit prices; refinery outages and maintenance; environmental requirements; crude and logistics disruptions; counterparty credit; and the risks of operating the SBR venture, which PBF does not control.
- At June 30, renewable-energy-credit and emissions obligations were $792 million, including approximately $501 million of forward purchase commitments. RIN and California AB 32 requirements can create material costs and fluctuate with volumes and credit prices.
- Environmental liabilities totaled $156.7 million, including estimated Torrance remediation obligations. The filing also describes regulatory investigations and notices following a November 2022 spent-catalyst release and a July 2023 petroleum-coke-dust release at Martinez; penalties had not been assessed, and the company said possible penalties could exceed $300,000.
- Other litigation and environmental matters remain unresolved. The company said it could not estimate potential losses for some matters; outcomes could adversely affect results, although it did not expect certain described cases to have a material impact.
- A $0.20-per-share dividend was announced for payment in August 2023. Future dividends and repurchases remain discretionary.
Most important facts for investors to verify
- Underlying refining profitability: reconcile reported earnings with the SBR gain and review non-GAAP adjusted results, gross refining margin, crack spreads and RFS costs.
- Cash conversion and liquidity: assess the causes of the sharp year-over-year decline in operating cash flow and incorporate the July SBR distribution and inventory-agreement payment.
- Refinery execution: monitor turnaround costs, throughput, unplanned outages and the Martinez incidents and related investigations.
- SBR economics: confirm milestone distributions, remaining contingent consideration, operating performance, capital needs and the allocation of decision-making with Eni.
- Capital allocation and obligations: track share repurchases, dividends, debt levels, the $338.6 million Tax Receivable Agreement liability and environmental-credit obligations.