PBF Energy Inc. — Q1 2019 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2019, compared with Q1 2018. PBF operates five U.S. refineries with approximately 900,000 barrels per day of combined capacity and reports Refining and Logistics segments. PBF Energy consolidates PBF LLC and PBFX; figures below are PBF Energy consolidated unless noted.
Key financial metrics
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $5,216.2 million | $5,802.8 million |
| Operating income | $364.6 million | $95.7 million |
| Net income attributable to PBF Energy shareholders | $229.2 million | $30.4 million |
| Diluted EPS | $1.89 | $0.27 |
| Net cash used in operating activities | $149.9 million | $85.4 million |
| Net cash used in investing activities | $260.6 million | $93.3 million |
| Cash and cash equivalents, March 31 | $418.3 million | $597.3 million at Dec. 31, 2018 |
- Margins and operating performance: Consolidated gross margin was $425.0 million, or $6.35 per throughput barrel, versus $161.3 million, or $2.26. Gross refining margin was $932.5 million ($13.94 per barrel), but excluding the inventory accounting benefit it was $426.5 million ($6.38 per barrel), down from $522.3 million ($7.26) in Q1 2018. Refinery operating expense increased to $6.78 per barrel from $5.72.
- Inventory item: A non-cash lower-of-cost-or-market inventory adjustment increased operating income by $506.0 million before tax ($374.4 million after tax); the comparable Q1 2018 benefit was $87.7 million. PBF’s non-GAAP adjusted fully converted result excluding this item was a loss of $143.0 million, or $1.18 per share, versus a loss of $33.4 million, or $0.29 per share. These non-GAAP measures are not substitutes for GAAP results.
- Debt and liquidity: Balance-sheet debt was approximately $2.19 billion net of financing costs, including $2.5 million current debt; the debt table reports $2.23 billion gross carrying value. The company drew $250 million net on its revolving facility during the quarter. Reported total liquidity was approximately $1.65 billion; PBFX separately had $335.9 million of revolver capacity. Working capital was $1.37 billion.
- Capital and distributions: Q1 capital expenditures and turnaround spending totaled $260.6 million. PBF paid a $0.30-per-share dividend during the quarter and announced another $0.30 dividend for May 30, 2019.
Material changes versus Q1 2018
- Revenue fell 10.1%, primarily reflecting lower commodity prices; revenue per barrel declined 8.2% to $66.19.
- Refinery throughput declined to 743,100 barrels per day from 799,600. Planned Delaware City and Torrance turnarounds and unplanned Delaware City downtime contributed to lower East and West Coast throughput; Mid-Continent throughput improved.
- Reported earnings rose sharply, largely because the inventory valuation benefit increased to $506.0 million from $87.7 million. Excluding that item, gross refining margin declined amid weaker crack spreads, unfavorable crude differentials and lower throughput.
- Operating cash use increased to $149.9 million. Investing cash use also increased, mainly due to higher capital and turnaround spending. Cash declined by $179.0 million during the quarter.
Outlook, commentary and risks
- Management said operating cash flows and available capital resources should be sufficient for the next 12 months, including capital spending, working capital, dividends, debt service and Tax Receivable Agreement obligations; results remain dependent on volatile petroleum markets and other factors outside its control. The company reported compliance with debt covenants at March 31.
- For 2019, PBF expected $625–675 million of net capital expenditures excluding PBFX, with most expected in the first half, including refinery turnarounds, maintenance, environmental requirements and strategic projects. PBFX expected $28–36 million of net capital expenditures.
- Management cited weaker industry margins, high gasoline inventories, tighter light-heavy crude differentials, lower crack spreads, reduced throughput and turnaround-related costs. RFS compliance costs were $29.5 million, down from $43.9 million.
- Key exposures include commodity-price and crack-spread volatility, RIN and California emissions-credit costs, refinery outages, crude supply and logistics disruptions, floating-rate debt, counterparty risk, and possible termination or non-extension of J. Aron inventory intermediation agreements. Those agreements were amended in March 2019; the Delaware City agreement runs to February 2020, with a possible mutual extension to February 2021.
- Environmental and legal matters include refinery remediation and regulatory proceedings, an appeal concerning Delaware City’s ethanol permit, and the Thomas litigation relating to alleged historical flaring events at Chalmette; the company said the potential amount of the latter claims is not determinable and an adverse outcome could be material. Other described environmental matters were generally not expected to materially affect results, though outcomes and timing remain uncertain.
- New lease accounting adoption added $245.5 million of operating lease right-of-use assets and $246.0 million of lease liabilities at March 31. A separate hydrogen-supply lease with approximately $212.6 million of future payments is expected to commence in Q2 2020.
- After quarter-end, PBFX completed a registered offering of 6.6 million units for approximately $135 million gross proceeds. PBFX also agreed to acquire the remaining 50% interest in TVPC from PBF LLC for $200 million, with closing expected in Q2 2019.
Most important facts for investors to verify
- How much of reported Q1 profit reflects the $506.0 million non-cash inventory valuation benefit, and how underlying refining margins perform after turnarounds.
- Whether throughput recovers and refinery maintenance, unplanned downtime and 2019 capital spending track management’s expectations.
- Cash generation and working-capital needs, revolver usage, debt service capacity and the availability of stated liquidity.
- Crude differentials, crack spreads, RIN/emissions costs and the terms and continuation of J. Aron inventory intermediation agreements.
- Potential costs or operational effects from environmental matters and litigation, particularly the Chalmette Thomas case and Delaware City ethanol permit appeal.
- PBFX’s post-offering distribution burden and the funding, closing and expected contribution economics of the TVPC transaction.