PBF Energy Inc. — Q2 2022 Form 10-Q
Business context and reporting period
Unaudited results cover the quarter and six months ended June 30, 2022, compared with the same periods in 2021. PBF operates six U.S. refineries, with approximately 1.0 million barrels per day of combined processing capacity, and a logistics segment through its 47.7%-owned PBFX partnership, which it consolidates.
Key financial results
| Metric (USD millions, except per-share and per-barrel data) | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | 14,077.7 | 6,897.9 | 23,219.4 | 11,822.7 |
| Operating income | 1,706.6 | 147.5 | 1,797.6 | 205.2 |
| Net income | 1,235.8 | 69.9 | 1,232.5 | 47.7 |
| Net income attributable to PBF Energy stockholders | 1,203.7 | 47.9 | 1,182.6 | 6.6 |
| Diluted EPS | $9.65 | $0.39 | $9.58 | $0.05 |
| Gross refining margin per throughput barrel (non-GAAP) | $30.41 | $8.94 | $21.54 | $9.29 |
Q2 throughput was 942,200 barrels per day, versus 874,200 a year earlier. Consolidated gross margin was $1,939.5 million, or $22.61 per throughput barrel, compared with $201.8 million, or $2.53 per barrel. For the six-month periods, gross margin was $2,136.3 million, or $13.30 per barrel, versus $340.2 million, or $2.31 per barrel. Gross refining margin is a company-defined non-GAAP measure; 2021 comparisons included substantial non-cash inventory valuation benefits.
Operating cash flow for the first half was $2,269.0 million, compared with $64.7 million in 2021. Investing cash outflow was $436.9 million, including $226.5 million of property, plant and equipment spending and $166.8 million of turnaround costs. Financing cash outflow was $999.3 million, primarily reflecting $900 million of revolver repayments.
At June 30, cash and cash equivalents were $2,174.3 million and working capital was $559.5 million. PBF reported operational liquidity above $4.4 billion, including approximately $2.1 billion of cash excluding PBFX and more than $2.3 billion of revolver availability. PBFX reported a further $497.2 million of liquidity. The debt schedule reported $3,327.3 million outstanding before unamortized financing costs and premiums; the main revolving facility had no borrowings and PBFX’s facility had $30 million outstanding. The $1.25 billion of 9.25% secured notes due 2025 was classified as current.
Material changes and unusual items
- Revenue rose about 104% in Q2 and 97% for the first half, reflecting higher commodity prices and increased volumes. Management attributed much stronger refining margins to favorable crack spreads and crude differentials, stronger demand, and global supply disruption.
- Reported PBF Energy earnings included a $267.2 million Q2 charge for the change in its Tax Receivable Agreement liability and a $77.6 million loss from increased contingent consideration, primarily tied to the Martinez refinery earn-out. First-half charges were $286.5 million and $127.9 million, respectively. These were partly offset by tax benefits from remeasuring deferred tax assets; approximately $197.6 million of valuation allowance was released in the first half.
- The 2021 comparison benefited from non-cash lower-of-cost-or-market inventory adjustments of $264.0 million in Q2 and $669.6 million for the first half. Excluding special items, reported gross refining margin was $30.41 per barrel in Q2 2022 versus $5.62 in Q2 2021, and $21.54 for the first half versus $4.72.
- Renewable Fuel Standard compliance costs were $432.7 million in Q2 and $627.1 million for the first half. Renewable energy credit and emissions obligations totaled $1,325.6 million at June 30; the company had $899.4 million of related forward purchase commitments.
- The Martinez contingent consideration fair value was $157.1 million at June 30, of which $90.9 million was included in accrued expenses. The aggregate environmental liability was $156.1 million.
Outlook, risks and contingencies
- Management expected full-year 2022 refining capital expenditures of $500 million to $550 million and said spending and turnaround scope would remain responsive to market conditions. PBFX expected $12 million to $16 million of net capital expenditures for the remainder of 2022.
- PBF was progressing a proposed 20,000-barrel-per-day renewable diesel facility at Chalmette, targeting production in the first half of 2023. It invested approximately $52 million in the project during Q2 and continued discussions with potential partners.
- On July 27, 2022, PBF agreed to acquire PBFX’s publicly held units for $9.25 in cash and 0.27 PBF Energy Class A shares per unit. Closing was expected in Q4 2022, subject to approvals and other conditions; completion was not assured.
- On July 11, 2022, PBF redeemed all $1.25 billion of its 2025 secured notes using cash on hand, paying approximately $1.3 billion plus accrued interest. The company expected to record a $70.4 million extinguishment loss in Q3; management cited approximately $115 million of future annual interest savings.
- PBF’s quarterly common-stock dividend remained suspended, and management did not anticipate a declaration in the foreseeable future. PBFX’s $0.30-per-unit quarterly distribution continued, subject to available cash and governing approvals.
- Key risks include volatile crude, product, natural gas and emissions-credit prices; supply and logistics disruptions; refinery downtime and operating costs; environmental regulation and remediation; substantial indebtedness and covenant restrictions; counterparty exposure; and the inventory intermediation agreement, scheduled to expire in December 2024 unless extended. Management said the company was in compliance with debt covenants at June 30 and believed resources would cover needs for the next 12 months, while noting cash generation depends partly on market conditions.
- Environmental and other legal matters remain pending. The filing describes remediation obligations, regulatory proceedings and litigation, including an air-quality rule challenge and a Torrance-related class action whose proposed subclasses were decertified in July 2022. Management did not expect the disclosed matters to have a material impact, but outcomes remain uncertain.
Important facts for investors to verify
- Whether refining margins, throughput, and cash generation remain strong as commodity prices and supply conditions change.
- The cash cost and timing of the secured-note redemption, resulting debt and liquidity levels, and the anticipated Q3 extinguishment loss.
- How the Tax Receivable Agreement liability, deferred tax asset valuation allowance, and Martinez earn-out valuation evolve.
- RIN and emissions-credit obligations, forward purchase commitments, and eventual settlement requirements.
- Whether the PBFX merger receives required approvals and closes on the stated terms and timetable, and how it affects leverage and share count.
- Renewable diesel project spending, partner arrangements, schedule, and production target, alongside refining capital and turnaround costs.