PBF Energy Inc. — Q3 2020 Form 10-Q
Business context and period. Unaudited results cover the three and nine months ended September 30, 2020, compared with 2019. PBF operates six U.S. refineries and a logistics segment consolidated through PBFX. The period includes the Martinez refinery, acquired February 1, 2020.
Financial and operating performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $3.67 billion | $6.43 billion | $11.46 billion | $18.21 billion |
| Operating income (loss) | $(342.7) million | $151.9 million | $(1,088.7) million | $526.0 million |
| Net income (loss) attributable to PBF Energy shareholders | $(417.2) million | $69.5 million | $(1,094.0) million | $266.4 million |
| Diluted EPS | $(3.49) | $0.57 | $(9.15) | $2.20 |
| Operating cash flow | Not stated separately for quarter | Not stated separately for quarter | $(792.6) million | $432.2 million |
- Q3 consolidated gross margin was $(313.3) million; gross refining margin excluding special items, a non-GAAP measure, was $193.2 million, or $2.98 per throughput barrel, versus $694.6 million, or $8.87 per barrel, in Q3 2019.
- Refinery throughput averaged 706,100 barrels per day in Q3, down from 850,900 a year earlier. Management attributed pressure to lower demand, product prices and refining margins, unfavorable crude differentials, and reduced throughput.
- Cash and cash equivalents were $1.283 billion at September 30, including $27.9 million held at PBFX. Working capital was $1.357 billion. Management reported approximately $1.9 billion of liquidity, including cash and more than $600 million of availability under the asset-based revolver; PBFX separately had $282.1 million of revolver capacity.
- Total debt was $4.461 billion before $49.5 million of unamortized financing costs, up from $2.097 billion at year-end 2019. Q3 interest expense was $70.4 million, versus $39.7 million.
- Nine-month investing cash outflow was $990.3 million, including $1.176 billion for Martinez, partly offset by $529.4 million of asset-sale proceeds. Financing activities provided $2.251 billion.
Material changes and unusual items
- Revenue fell 42% in Q3 and 37% for the first nine months, reflecting lower commodity prices and reduced product demand. The COVID-19 pandemic and related restrictions drove substantial throughput reductions.
- Nine-month results included a $691.5 million non-cash inventory lower-of-cost-or-market charge; Q3 included a $9.9 million benefit as prices recovered. The hydrogen-plant sale generated a $471.1 million gain in the first nine months.
- A $240.6 million nine-month gain from reducing the Tax Receivable Agreement liability, including $252.2 million in Q3, was substantially offset in the quarter by a $235.6 million income-tax expense. PBF recorded a $348.6 million deferred-tax-asset valuation allowance.
- Other notable items included $93.5 million of gains from lower contingent-consideration fair values, $22.2 million of debt-extinguishment costs, and a $7.0 million PBFX impairment following a customer contract termination. Management’s interim review found no impairment of the company’s other tested long-lived assets.
Outlook, management commentary and risks
- Management said refineries were operating at reduced rates and expected near-term system throughput of 700,000–800,000 barrels per day. It said cost reductions exceeded its full-year $140 million goal, reaching more than $225 million through Q3, including energy savings.
- Management expected approximately $360 million of 2020 net refining capital spending, with $45–$50 million remaining for the year. It said liquidity and available resources were expected to cover capital expenditure, working-capital and debt-service needs for the next 12 months, while cautioning that pandemic impacts and estimates remain uncertain.
- On October 29, 2020, PBF announced a reconfiguration of its East Coast system, including idling major Paulsboro units. The company expected completion by year-end, approximately $100 million in annual operating-cost savings and $50 million in annual capital-spending savings versus historical averages, and about $15 million of Q4 severance-related charges.
- PBF Energy suspended its $0.30-per-share quarterly dividend in March. PBFX reduced its quarterly distribution to $0.30 per unit; its general partner announced another $0.30 distribution payable in November.
- Key risks include prolonged weak fuel demand, volatile crude and product prices, borrowing-base reductions, high debt and interest costs, inventory and working-capital volatility, environmental and emissions compliance costs, and possible further asset impairments. The filing also describes ongoing environmental, safety and other legal matters; the company generally could not estimate possible losses for certain proceedings.
Most important facts for investors to verify
- Whether demand, throughput and refining margins recover, and whether planned East Coast savings are realized on schedule.
- Cash burn, revolver availability and borrowing-base headroom, together with debt-service capacity under continued adverse market conditions.
- The assumptions supporting the $348.6 million tax valuation allowance and future Tax Receivable Agreement liability or payments.
- Inventory valuation sensitivity, particularly the substantial remaining LCM reserve, and the effects of commodity-price changes on reported results and liquidity.
- Capital spending, Martinez integration and performance, PBFX contract developments, and the status or financial exposure of disclosed legal and environmental matters.