PBF Energy Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. PBF Energy consolidates its refining business and PBF Logistics LP (PBFX). It owned approximately 94.3% of PBF LLC at quarter-end; PBFX’s public unitholders held the remaining 47.9% of PBFX.
Financial and operating performance
- Revenue: $3.00 billion, down 36.9% from $4.75 billion in Q1 2014, mainly reflecting lower crude and refined-product prices. Throughput increased to 467,800 barrels per day from 430,900.
- Profit: Consolidated net income was $103.1 million versus $183.3 million. Net income attributable to PBF Energy was $87.3 million versus $77.4 million; diluted EPS was $1.00 versus $1.42. The change in PBF’s ownership share and the resulting share count affect period-to-period comparisons.
- Margins: Operating income was $172.4 million, down from $260.2 million. Gross refining margin was $466.1 million, or $11.07 per barrel, compared with $598.8 million, or $15.44 per barrel. Excluding the inventory valuation item, Q1 2015 gross refining margin was $444.9 million, or $10.57 per barrel. Management cited weaker Mid-Continent cracks and crude differentials, partly offset by stronger East Coast cracks.
- Cash flow: Operating cash flow was $132.5 million, down from $260.6 million; investing cash use was $48.1 million and financing cash use was $32.8 million. Cash increased $51.6 million to $449.5 million. Working-capital changes used approximately $96 million of cash.
- Debt and liquidity: Long-term debt was $1.25 billion, including PBFX and rail-related borrowings; the Delaware Economic Development Authority loan was $8 million. Reported total liquidity was approximately $943.4 million, down from $1.14 billion at year-end. Working capital was $910.7 million. PBFX reported $49.9 million of revolver availability; the Rail Facility had $212.1 million of borrowing capacity at quarter-end.
- Investment and distributions: Capital expenditures were $102.4 million and turnaround spending was $18.4 million. Management expected 2015 net capital expenditures of $175–$200 million. PBF paid a $0.30-per-share dividend and declared another $0.30 dividend after quarter-end.
Material changes and notable items
- Lower commodity prices reduced revenue, while refinery throughput improved. Refinery operating expenses fell to $5.54 per barrel from $6.93, partly due to lower energy costs.
- A $21.2 million net reduction in the lower-of-cost-or-market inventory reserve increased Q1 operating income; management reported a $12.7 million net-income benefit. The reserve remained substantial at $668.9 million at March 31.
- The February secondary offering involved shares sold by existing investors; PBF Energy received no proceeds. Exchanges of PBF LLC units increased PBF Energy’s ownership and changed noncontrolling interests and per-share comparability.
- Adjusted EBITDA, a non-GAAP measure, was $201.9 million versus $294.8 million in Q1 2014.
Outlook, risks and contingencies
- Management said cash flows and available capital resources should be sufficient for the next 12 months, while emphasizing dependence on petroleum market conditions. No earnings guidance was provided. The board retains discretion over future PBF dividends.
- Key exposures include volatile crude, product and natural-gas prices; refinery or logistics disruptions; rail transportation regulation; RIN compliance costs; counterparty risks under inventory and supply arrangements; and substantial debt and restrictive covenants.
- The estimated tax receivable agreement liability was $737.4 million. Management estimated accelerated payments of approximately $688.4 million if triggered immediately under stated assumptions; actual amounts may differ.
- Environmental appeals concerning Delaware City crude handling permits remained pending before the Delaware Supreme Court; an adverse outcome could materially affect the company. A separate state penalty assessment sought $460,200 plus $69,030 in costs for alleged air-emission violations, which the company disputed.
- The filing reported $276.5 million of outstanding letters of credit. Railcars were sold and leased back, generating $77.6 million of proceeds and future lease payments; additional railcar leases also entail future payments.
Important facts for investors to verify
- How much of reported earnings and cash flow is sustainable after excluding the inventory-reserve benefit and considering commodity-price movements.
- Current liquidity, facility availability, debt maturities and covenant headroom, including the effect of the April 2015 Rail Facility amendment.
- The size and timing of tax receivable agreement payments and the company’s ability to fund them through subsidiary distributions.
- Developments in the Delaware City permit litigation, the air-emission penalty matter, and pending or changing environmental and rail rules.
- Whether planned capital spending, distributions and refinancing or logistics transactions remain feasible under weaker refining margins.