PBF Energy Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2015. Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions unless noted. PBF Energy consolidates its refining operations and PBF Logistics LP (PBFX).
Business context and operating results
At quarter-end, PBF operated three U.S. refineries with combined capacity of approximately 540,000 barrels per day (bpd), plus PBFX logistics assets. On November 1, 2015, after the reporting period, it acquired the Chalmette refinery and related assets.
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $3,217.6 million | $5,260.0 million | $9,763.4 million | $15,308.2 million |
| Operating income | $90.1 million | $284.1 million | $536.3 million | $632.2 million |
| Net income | $55.5 million | $170.0 million | $317.1 million | $399.1 million |
| Net income attributable to PBF Energy | $42.8 million | $141.0 million | $265.9 million | $239.4 million |
| Diluted EPS | $0.49 | $1.60 | $3.06 | $3.32 |
| Gross margin | $150.8 million | $322.1 million | $686.4 million | $746.6 million |
| Gross refining margin per throughput barrel, excluding LCM item | $12.97 | $12.60 | $10.95 | $12.04 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $240.4 million | $353.0 million |
Financial position and liquidity
- At September 30, cash and cash equivalents were $472.8 million; current assets were $2,303.6 million and current liabilities $1,094.5 million, giving working capital of $1,209.1 million.
- Long-term debt was $1,373.1 million, including $669.4 million of Senior Secured Notes, $350.0 million of PBFX Senior Notes, $234.2 million of PBFX term loan, $24.5 million of PBFX revolver borrowings, $67.5 million under the Rail Facility and $27.6 million of catalyst lease obligations. The filing reports no current maturities.
- Management reported total liquidity of approximately $1,199.6 million, defined as cash plus availability under the Revolving Loan. Separately, PBFX had $298.5 million of revolver availability and the Rail Facility had $82.5 million of borrowing capacity.
- Nine-month investing cash outflow was $166.9 million and financing cash flow was positive $1.5 million. Capital expenditures were $288.9 million, turnaround spending $39.7 million, and asset-sale proceeds $168.3 million.
Material changes and unusual items
- Q3 revenue fell 38.8% year over year, largely reflecting substantially lower crude and refined-product prices. Consolidated crude/feedstock throughput was 475,400 bpd versus 495,500 bpd; Delaware City had unplanned downtime in August and a planned turnaround in September.
- Q3 results included a non-cash lower-of-cost-or-market (LCM) inventory charge of $208.3 million pre-tax ($124.6 million after tax), reflecting the change in the reserve during the quarter. The nine-month net LCM charge was $81.1 million pre-tax. The reserve was $771.3 million at September 30.
- Excluding the Q3 LCM charge, management reported gross refining margin of $12.97 per barrel versus $12.60 a year earlier; improved crack spreads were partly offset by less favorable crude differentials and refinery downtime. The reported Q3 gross refining margin including the charge was $8.21 per barrel.
- For the first nine months, consolidated net income declined, while income attributable to PBF Energy rose to $265.9 million from $239.4 million. The filing notes PBF Energy’s average ownership of PBF LLC increased to 93.7% from 73.7%, affecting attribution between controlling and noncontrolling interests.
- Q3 operating expenses were broadly flat year over year; nine-month operating expenses declined 6.8%, mainly due to lower energy costs. G&A rose 55.3% in Q3, primarily from compensation and PBFX-related costs.
Outlook, transactions, and risks
- Management said cash flow and available capital were expected to cover the next 12 months’ operating needs, capital spending, debt service, dividends, repurchases and tax receivable agreement payments, while noting cash generation depends on volatile petroleum markets. The company reported compliance with debt covenants.
- Management expected approximately $200 million of 2015 net capital expenditures, excluding potential Chalmette-related spending. No specific earnings or margin guidance was provided.
- The November 1 Chalmette acquisition cost $322 million in cash plus estimated inventory and working capital of $233.1 million, financed with cash and revolver borrowings. It adds a 189,000-bpd refinery, increasing stated combined capacity to approximately 730,000 bpd; purchase accounting and final working-capital valuation remained pending.
- The Torrance acquisition was pending: purchase price of $537.5 million plus inventory and working capital, with a target closing in Q2 2016. Closing depends on customary conditions and restoration and operation of the refinery after damage to its electrostatic precipitator and related systems. Management expected financing from cash, debt and the October equity offering.
- On October 13, 2015, PBF completed an 11.5-million-share offering for net proceeds of $344 million. The board declared a $0.30-per-share dividend payable November 24, 2015. Management stated future dividends remain discretionary.
- The tax receivable agreement liability was $735.4 million; estimated payments were approximately $38.4–$59.4 million annually over the next five years, declining thereafter. The company warned payments may accelerate in specified circumstances.
- Key exposures include commodity-price and refining-margin volatility, further inventory write-downs, RIN compliance costs, interest-rate and counterparty risks, substantial indebtedness, and potential disruption or added costs from crude-by-rail rules. Environmental and permit matters include a disputed $460,200 Delaware air-emissions penalty plus $69,030 cost recovery; the company disputed the allegations and was in discussions with regulators. The Delaware Supreme Court affirmed the company’s favorable ruling in the coastal-zone appeals on November 5, 2015.
Important facts for investors to verify
- How much of reported and adjusted refining performance reflects recurring margins versus the substantial LCM inventory charge, and whether inventory prices or reserves change further.
- Actual cash and debt impact of the Chalmette acquisition, including final working capital and integration performance; financing and closing conditions for Torrance, particularly refinery restoration and regulatory approval.
- Liquidity available after acquisitions, debt maturities and restrictions, and the capacity to maintain dividends while meeting tax receivable agreement obligations.
- Refinery uptime, throughput and crude differentials, along with exposure to RIN prices, crude-by-rail regulation, and environmental or permitting costs.