PBF Energy Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This is an annual filing, not a standalone Q4 report; quarterly results are included. PBF Energy is a holding company that consolidates PBF LLC and its subsidiaries, including PBF Logistics LP (PBFX). It operates refining and logistics segments.
Business context and key financial metrics
PBF operated four refineries in Toledo, Delaware City, Paulsboro and Chalmette, with approximately 730,000 barrels per day of combined throughput capacity after acquiring Chalmette on November 1, 2015. PBFX operates logistics assets, with revenues primarily from fee-based agreements with PBF affiliates that are eliminated in consolidation.
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $13.124 billion | $19.828 billion |
| Income from operations | $360.1 million | $147.7 million |
| Net income | $195.5 million | $78.3 million |
| Net income (loss) attributable to PBF Energy | $146.4 million | $(38.2) million |
| Diluted EPS | $1.65 | $(0.51) |
| Cash from operating activities | $560.4 million | $456.3 million |
| Cash used in investing activities | $812.1 million | $663.6 million |
| Cash from financing activities | $798.1 million | $528.2 million |
| Cash and cash equivalents at year-end | $944.3 million | $397.9 million |
| Total long-term debt, including current maturities and before debt issuance costs | $1.882 billion | $1.260 billion |
Margins and operating measures: Gross refining margin was $1.512 billion, or $8.02 per throughput barrel, compared with $1.314 billion, or $7.94 per barrel. Excluding the non-cash inventory adjustment, this non-GAAP measure was $1.940 billion, or $10.29 per barrel, versus $2.004 billion, or $12.11 per barrel. Gross margin, after refinery operating expenses and depreciation, was $571.5 million versus $308.4 million. Throughput averaged 516,400 barrels per day versus 453,100; production averaged 511,900 versus 452,100 barrels per day.
Liquidity: Year-end working capital was $1.527 billion. Management reported total liquidity of approximately $1.544 billion, defined as cash plus availability under PBF Holding’s revolving loan. That facility had no borrowings outstanding, but $351.5 million of standby letters of credit were outstanding. PBFX had approximately $298.5 million of additional revolver capacity; a separate rail facility had $82.5 million of capacity.
Material changes versus the prior comparable period
- Revenue declined 33.8%, largely reflecting lower crude and refined-product prices. Operating results also reflected higher throughput, improved East Coast and Mid-Continent crack spreads, and less unplanned turnaround-related downtime at Toledo than in 2014.
- Reported 2015 results included a $427.2 million pre-tax, non-cash lower-of-cost-or-market (LCM) inventory adjustment, compared with $690.1 million in 2014. The 2015 charge reduced operating income by $427.2 million and net income by $258.0 million. The year-end LCM reserve rose to $1.117 billion from $690.1 million.
- Excluding special items, gross refining margin per barrel decreased from $12.11 to $10.29, as narrower crude differentials partly offset stronger benchmark crack spreads and greater throughput. Adjusted EBITDA was $998.3 million versus $1.025 billion.
- The Chalmette acquisition expanded capacity and added Gulf Coast exposure. From acquisition through year-end, Chalmette contributed $643.3 million of revenue and $53.5 million of net income.
- Operating cash flow increased to $560.4 million, but working-capital changes used $338.3 million. Investing outflows included $565.3 million for the Chalmette acquisition and capital expenditures and turnaround spending.
Outlook, management commentary and risks
- Management said cash flow and available capital resources should be sufficient for the next 12 months to meet capital, working-capital, dividend, debt-service and other needs, while noting that cash generation depends on petroleum markets and other external factors. PBF reported compliance with debt covenants at year-end.
- For 2016, PBF expected net capital expenditures of approximately $475–$500 million for facility improvements, maintenance and turnarounds, excluding potential spending related to Torrance and PBFX’s Plains asset purchase. Planned work included Delaware City coker and Paulsboro FCC turnarounds and Tier 3 gasoline compliance projects.
- The pending Torrance acquisition was expected to close in Q2 2016 for $537.5 million plus inventory and working capital, subject to customary conditions and the refinery’s restoration and operating requirements after its 2015 equipment incident. PBF expected to fund it with cash and proceeds from its 2015 equity and notes offerings. Completion was not assured.
- In October 2015, PBF raised $344.0 million net from an equity offering. PBF Holding issued $500 million of 7.00% senior secured notes due 2023; PBFX issued $350 million of 6.875% senior notes due 2023. Debt service, covenants and the largely secured debt structure constrain financial flexibility.
- Renewable identification number (RIN) costs were $171.6 million in 2015, up from $115.7 million in 2014; prices and compliance requirements may remain volatile. PBF said final RFS standards could materially affect compliance costs.
- Key operating exposures include volatile refining margins and crude differentials, energy costs, refinery outages, and dependence on third-party pipelines, rail and marine logistics. The WTI–Western Canadian Select differential narrowed to $11.87 per barrel from $19.45 in 2014. PBF also cited potential effects from the U.S. crude export ban repeal.
- Environmental compliance and remediation could require additional spending. PBF disclosed remediation at several sites and ongoing regulatory matters; it said possible penalties in identified Delaware and Louisiana matters were not expected to be material. The filing says the impact of certain new RFS requirements remained under evaluation.
- PBF recognized a $661.4 million tax receivable agreement liability; the agreement generally requires payment to eligible former and current unit holders of 85% of specified tax benefits. Payments and potential acceleration could affect liquidity.
- PBF declared quarterly Class A dividends of $0.30 per share during 2015 and stated an intention to continue approximately that level, subject to board discretion, cash availability and debt restrictions.
Most important facts for investors to verify
- How much of the improvement in reported earnings reflects underlying refining performance versus the smaller LCM charge, and whether inventory values recover or incur further write-downs.
- Whether Chalmette integration, run rates and expected commercial benefits are sustained, and whether final acquisition accounting or working-capital adjustments change the recorded amounts.
- Whether Torrance meets restoration, safety and regulatory conditions and closes on the expected terms and timetable; also track the planned PBFX terminal acquisition.
- Current debt, borrowing-base availability, letters of credit, refinancing needs and compliance with covenants, including the effect of acquisition financing.
- Actual 2016 capital spending, turnaround performance, RIN costs and environmental or regulatory obligations compared with management’s estimates.
- Cash available for dividends and payments under the tax receivable agreement, including any restrictions on distributions from subsidiaries.