PBF Energy Inc. — Q3 2021 Form 10-Q
Business context and period. Unaudited results cover the three and nine months ended September 30, 2021, compared with 2020. PBF operates six U.S. refineries and a logistics segment through PBFX. PBF Energy consolidates PBF LLC and PBFX; figures below generally refer to PBF Energy consolidated results unless specified.
Financial performance and position
- Q3 revenue and earnings: Revenue was $7.19 billion, up 94.6% year over year. Net income was $78.7 million; income attributable to PBF Energy stockholders was $59.1 million, or $0.49 per diluted share, versus a $417.2 million attributable loss, or $3.49 per share, in Q3 2020.
- Nine-month results: Revenue was $19.01 billion, up 65.2%. Net income was $126.4 million and income attributable to PBF Energy stockholders was $65.7 million, or $0.54 per diluted share, versus a $1.05 billion net loss and $1.09 billion attributable loss in the prior-year period.
- Margins and operations: Q3 consolidated gross margin was $168.7 million, compared with negative $313.3 million; gross refining margin was $727.5 million, or $9.32 per barrel of throughput, versus $203.1 million, or $3.13 per barrel. Nine-month gross refining margin was $2.09 billion, or $9.30 per barrel, versus $108.0 million, or $0.53 per barrel. Excluding specified special items, nine-month gross refining margin was $1.42 billion, or $6.32 per barrel, versus $799.5 million, or $3.92 per barrel.
- Cash flow: Nine-month operating cash flow was $325.7 million, compared with cash used of $792.6 million. Investing activities used $227.2 million; financing activities used $235.5 million. Cash and cash equivalents were $1.47 billion at September 30, 2021, down from $1.61 billion at year-end 2020.
- Liquidity and debt: Management reported operational liquidity exceeding $2.6 billion, including approximately $1.4 billion cash excluding PBFX and more than $1.2 billion of PBF revolver availability. PBFX reported approximately $399.6 million of liquidity. Debt outstanding was $4.44 billion before unamortized financing adjustments, down from $4.71 billion at year-end 2020; the balance sheet reports $4.41 billion total current and long-term debt. Working capital was $1.29 billion, versus $1.42 billion at year-end.
- Costs and obligations: Nine-month RIN and emissions obligations were $1.31 billion at period end, versus $528.1 million at year-end 2020. RFS compliance costs were $653.8 million for the nine months, versus $183.4 million. Interest expense was $243.1 million for the nine months, up from $185.1 million.
Material changes versus the prior period
- Results improved as refined-product demand and refining margins recovered from COVID-19 impacts; Q3 throughput was 848,300 barrels per day, versus 706,100 a year earlier. Nine-month throughput was 823,200 barrels per day, versus 744,600.
- The nine-month 2021 result included a $669.6 million noncash inventory valuation benefit as the prior-year lower-of-cost-or-market reserve was eliminated. This was a major contributor to reported profitability; excluding special items, PBF Energy’s adjusted fully converted result was a $454.1 million loss for the nine months. The comparable 2020 period included a $471.1 million gain on hydrogen-plant sales, a $691.5 million inventory charge, and other significant items.
- In Q3, PBF repurchased $152.7 million principal of 2028 and 2025 notes for $90.9 million cash and recorded a $60.3 million debt-extinguishment gain. Debt reduction also included $75.0 million of PBFX revolver repayments. Total debt was lower than at year-end, although interest expense increased, chiefly reflecting the 2020 secured-note issuance.
- The East Coast Refining System reconfiguration, completed in December 2020, idled certain Paulsboro units and reduced throughput capacity while lowering operating and capital costs. Management estimates recurring annual savings of approximately $100 million in operating costs and $50 million in capital expenditures compared with historic levels.
Outlook, risks, and unusual items
- Management expected near-term refining throughput of 880,000–940,000 barrels per day and full-year 2021 refining capital expenditures of approximately $400–$450 million, excluding PBFX. PBFX expected $10–$13 million of net capital expenditures. Management described its Q4 2021 market outlook as constructive but emphasized ongoing uncertainty.
- Management stated that cash flows and available resources were expected to cover capital expenditures, working capital, and debt service for the next 12 months, while cautioning that pandemic impacts and assumptions remain uncertain. The PBF Energy common dividend remained suspended; PBFX maintained a $0.30-per-unit quarterly distribution.
- On October 25, 2021, the company extended and amended its inventory intermediation agreement with J. Aron through December 31, 2024, with a possible mutual extension to 2025. At expiration, PBF may need to repurchase covered inventory if the agreement is not extended or replaced. The arrangement supports liquidity but exposes the company to counterparty and future inventory-funding risk.
- After quarter end, PBF repurchased another $76.3 million of notes for approximately $55.9 million, with an expected fourth-quarter gain of approximately $20 million, and settled a catalyst financing obligation of approximately $10.9 million.
- Key risks include volatile crude, product, natural-gas and credit prices; COVID-19 and demand recovery; substantial indebtedness and interest costs; RIN and emissions compliance; environmental regulation and remediation; and operational, supply, counterparty, and litigation risks. New Bay Area Rule 6-5 emissions limits affect Martinez by 2026 and could require significant investment. The filing also describes environmental and safety proceedings; management generally did not expect the specified matters to materially affect results, but outcomes remain uncertain.
Important facts for investors to verify
- How much of reported earnings and cash generation reflects sustainable refining performance versus the $669.6 million noncash inventory benefit and other special items.
- Whether demand, crack spreads, throughput, and operating costs support management’s near-term outlook and capital-spending plan.
- Liquidity composition and availability, debt maturities and covenants, and the cash-flow implications of the J. Aron inventory agreement and its eventual expiration.
- Future RIN and emissions-credit costs, including whether the large period-end obligation changes with credit prices or required purchases.
- Potential costs and timing for Martinez Rule 6-5 compliance, environmental remediation, and pending legal or regulatory matters.