PBF Energy Inc. — 2014 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2014; filed February 26, 2015. PBF Energy is a holding company that consolidates PBF LLC and its subsidiaries, including majority-owned PBF Logistics LP (PBFX). Unless stated otherwise, financial amounts below are in U.S. dollars.
Business context and reporting period
PBF operated three U.S. refineries in Toledo, Ohio; Delaware City, Delaware; and Paulsboro, New Jersey, with combined capacity of approximately 540,000 barrels per day. Its businesses were reported in Refining and Logistics segments. PBFX, formed to own and operate logistics assets supporting PBF’s refineries, completed its IPO in May 2014 and generated revenue from agreements with PBF affiliates; those intercompany revenues are eliminated in PBF’s consolidated statements.
Financial and operating performance
| Metric | 2014 | 2013 |
|---|---|---|
| Revenue | $19.83 billion | $19.15 billion |
| Operating income | $150.7 million | $319.9 million |
| Consolidated net income | $78.3 million | $214.1 million |
| Net income (loss) attributable to PBF Energy Inc. | $(38.2) million | $39.5 million |
| Operating cash flow | $456.3 million | $291.3 million |
| Cash and cash equivalents at year-end | $397.9 million | $77.0 million |
| Working capital at year-end | $803.8 million | $556.0 million |
- Reported gross refining margin was $1.314 billion, or $7.94 per barrel of throughput. Excluding the $690.1 million inventory write-down, management reported gross refining margin of $2.004 billion, or $12.11 per barrel.
- Average throughput was 453,100 barrels per day, broadly flat year over year. Operating expense was $883.1 million, or $5.34 per barrel, versus $812.7 million, or $4.92 per barrel, in 2013.
- Capital expenditures were $631.3 million, including turnaround and other spending; net capital spending was $428.7 million. Investing cash flow was $(663.6) million and financing cash flow was $528.2 million.
- Total long-term debt, including the Delaware Economic Development Authority loan, was approximately $1.260 billion. The balance sheet reports $1.252 billion of long-term debt, plus the $8.0 million authority loan. PBF had $397.9 million of cash and total liquidity of approximately $1.140 billion, defined by the filing as cash plus availability under its main revolving facility. PBFX separately had approximately $49.9 million of revolver availability; the Rail Facility had $212.7 million of borrowing capacity.
Material changes versus the prior comparable period
- Revenue rose 3.5%, but operating income and consolidated net income declined. The main reported earnings distortion was a fourth-quarter, non-cash lower-of-cost-or-market inventory charge of $690.1 million after crude and product prices fell. The filing says it reduced 2014 operating income by $690.1 million and net income by $412.7 million.
- Fourth-quarter 2014 revenue was $4.52 billion; operating loss was $481.5 million, consolidated net loss was $320.8 million, and net loss attributable to PBF Energy was $277.6 million.
- Excluding the inventory charge, management cited higher throughput, favorable movements in certain crude differentials, and lower renewable-fuel compliance costs as positives, offset by weaker product margins and Mid-Continent crack spreads, higher energy costs, and a $28.5 million impairment charge.
- The WTI (Chicago) 4-3-1 benchmark crack spread fell to $15.92 per barrel from $20.09 in 2013; the Dated Brent (NYH) 2-1-1 spread increased to $12.92 from $12.34. The WTI/Brent differential narrowed to $5.66 from $10.67 per barrel.
- PBF’s ownership of PBF LLC increased to 89.9% by year-end, principally through sponsor secondary offerings and unit exchanges. These secondary offerings did not provide proceeds to PBF Energy. PBFX acquired the Delaware City heavy-crude rail rack and Toledo storage facility for $150 million each, partly funded by PBFX borrowing.
Outlook, risks, contingencies, and unusual items
- Management expected 2015 net capital expenditures of approximately $175 million to $200 million for facility improvements, refinery maintenance, and turnarounds. It also described Toledo projects intended to improve crude sourcing, chemical yields, and ULSD and total-liquid yields.
- PBF intended to continue quarterly Class A dividends of approximately $0.30 per share, subject to board discretion, available cash, debt covenants, and distributions from subsidiaries. The board declared a $0.30 dividend in February 2015.
- Management stated that cash flows and available capital resources were expected to meet capital, working-capital, debt-service, dividend, repurchase, and tax-receivable obligations for the next 12 months, while noting that results depend on volatile market conditions. PBF reported compliance with its debt covenants at year-end.
- Key business risks include volatile refining margins and crude differentials; reliance on third-party crude supplies, railways, and pipelines; refinery outages and turnaround execution; natural-gas and utility costs; counterparty exposure; and changes in regulation. RIN compliance costs were $115.7 million in 2014, compared with $126.4 million in 2013.
- The company reported a $712.7 million tax receivable agreement liability at year-end; it is generally obligated to pay former and current PBF LLC unit holders 85% of specified realized tax benefits. Certain change-of-control or early-termination events could accelerate payments. The filing estimates the liability increased after the February 2015 sponsor-unit exchanges.
- Environmental matters include remediation obligations at refinery sites and appeals challenging permits for crude rail and barge operations at Delaware City. The company reported that administrative boards had ruled in its favor, with appeals before Delaware courts. Separately, Delaware regulators sought $460,200 in penalties plus $69,030 in investigation costs for alleged air-emission violations; PBF disputed the allegations and amount and was discussing resolution.
- PBF abandoned a planned Delaware City hydrocracker project and recorded a $28.5 million impairment; it said an alternative approach was expected to meet low-sulfur heating-oil requirements with less capital. The filing also describes a planned Toledo turnaround of approximately 40 days in fourth-quarter 2014.
Important facts for investors to verify
- Reconcile the $690.1 million inventory write-down and assess how changing crude and refined-product prices affect inventory values, margins, and cash flow.
- Review debt balances, facility availability, maturities, interest-rate exposure, and covenant limits, including PBFX and Rail Facility obligations.
- Assess the sustainability of the $0.30 quarterly dividend alongside planned capital spending, working-capital needs, and the $712.7 million tax receivable agreement liability.
- Track refining margins and crude differentials, refinery throughput and reliability, turnaround outcomes, and the economics of rail-sourced crude.
- Monitor the Delaware City permit appeals, the disputed air-emission penalty, remediation costs, and evolving environmental and renewable-fuel requirements.
- Consider the effects of PBFX’s related-party commercial arrangements, PBF’s control and noncontrolling interests, and the fact that PBFX’s reported logistics revenue is largely intercompany.