PBF
#We've had some minor, I guess, problems and delays but nothing so to speak.
They are allegedly refinancing their debt and trying to get some stability.
We have not been impacted.
We have some contingency plans in place to the extent that there is a problem.
But obviously, on a macro basis, that place is a mess, so it's got to be watched very carefully.
But no impact as of this time.
<UNK>, we see the same yields that you see on the screen.
However we did go out and raise some equity earlier this year when the yield was higher than where it is today.
That is one potential lever that collectively the PBF family thinks that we still have to be able to pull as we go forward.
We now have $280 million of EBITDA that sits at the parent Company that is logistics-related that could be dropped down.
We've got some great assets out on the West Coast that are brand new into the system.
We have some stuff that we acquired in conjunction with Chalmette, as well.
So the map still points to, while the yield may not be circa 4% where it was at its peak, ultimately you still have arbitrage between where PBF trades and where PBF Logistics trades.
So ultimately, Logistics is trading north of 10 times trailing EBITDA and doing drop-downs still makes financial sense as we go forward.
I think we have to continue to weigh that we go forward.
We've got between $90 million and $100 million of legacy, what historically would of been included in refining EBITDA, that is now part of our Logistics business.
We think it's a great platform as we go forward.
We've guided to a long-term growth rate at Logistics.
That's over a two- to five-year period.
So a lot can change in that two to five years.
And ultimately our view is we're going to continue to grow Logistics through dropdowns and third-party acquisitions.
But fortunately it's a relatively small business today, so any incremental growth is going to come probably in $20 million to $40 million EBITDA chunks near term.
What we would say is there is always an ongoing process related to getting essentially cost centers converted into profit centers and getting the associated financial statements done.
We've tackled it multiple times in the past two years and don't see any big obstacles as we go forward.
It's certainly not a 30-day event.
These are steps that can be taken short order, short period of time, assuming you're prepared for them, if you've taken the step to bring in gas oil.
If you wanted to run up, obviously we have to procure that.
But a week, we can make that switch either way.
I do think, and I want to go back on it.
It's interesting, John Rockefeller had the integrated oil strategy and there was a reason he had that.
We have ---+ I sit and I look at this thing a little stump speech time ---+ I tell a story that I pulled into my local retail store in my hometown in New Jersey and I asked the attendant that fill my car up with crude.
And he said, well, I'm sorry, sir, we don't sell that, we only sell gasoline and diesel.
And I think there's a point there.
The integrated model can make sense.
But it really when it comes to why are we entertaining runs cuts.
We don't work for a producer, we work for the shareholder.
And it's in the best interest of the shareholder for us to take steps to try to get the inventory overhang more in balance, and we're doing that.
If indeed the market changes, the refiners will react.
I said incremental economics is the bane of existence problem but it can be done in short order.
Sure.
So we, just conceptually, in following the press release and the associated tear sheets, ultimately what we did is we pre-funded the Torrance transaction.
So you will see essentially the funds from drawing down $550 million on our ABL that show up in the form of cash on the tear sheets.
Ultimately we used the cash from the financing work that we did at the end of 2015 in conjunction with that drawdown to essentially spend just shy of $1 billion for the assets and associated working capital.
As we go forward, we are still very comfortable with circa $250 million of net working capital associated with Torrance.
So we expect to see ---+ and this is near-term, this quarter and into the beginning of Q4 ---+ we should see positive working capital generate anywhere from $150 million to $250 million coming back to the PBF balance sheet, exclusive of any financing work in and around drop-downs.
So ultimately, our view is the $550 million on our ABL is 100% dedicated to working capital.
That's pre-payable debt; the rest of our debt is eventually termed up with pretty hefty make-wholes.
As we go forward, though, the goal is to try to use any excess cash to pay down that $550 million, whether it is from positive working capital, drop-downs or any other levers that we have to pull.
Yes, we're pro forma for our transaction.
We had our reported number at [630] on a net debt-to-cap basis adjusted for the LCM charge was 23%, pro forma for the transaction it's circa 40%.
So consistent with what we've done in the past, we still firmly believe that to finance hard assets that we're going to acquire at the refining Company, you need a fairly modest mix, or conservative mix, of debt and equity.
To keep it very simple, assume it something circa 50-50 debt to equity.
And then we would use, just as we've done with Chalmette, borrowing under the ABL to finance working capital and paying that down as we go.
What we've done with Torrance, we assume if it's a single asset, that is exactly how we would plan on financing something as we go forward.
However, we have acquired two facilities in less than a year now and we're in the process of digesting all of this.
So from our perspective, we're in good financial position today.
But ultimately, there's a big focus on making sure that the balance sheet is safe as we potentially head into any type of headwind.
Yes, we remain comfortable ---+ I think your point is well taken.
We're not going to hit from a November to October period unless there is a market change in the market environment that rate.
But we remain comfortable with the $260 million number that we threw out.
It's all about, from our vantage point, looking at competitive disadvantages and competitive advantages versus our peer group.
I mentioned it's very important to us with this crude tank project to go ahead and de-bottleneck the logistics.
A big piece of improving, getting higher ---+ getting to that $260 million is going to be further penetrate the export market.
The netbacks are better, the RINs, of course, are lower.
That's in the plan.
It's going to be 2017 before we get that tank in but we are already taking smaller steps to try to increase exports.
The people of Chalmette are doing things that we want them to do inside the fence line in terms of ---+ it's a heavy crude machine as well.
It was run as part of the Exxon system, the Gulf Coast system; it's a merchant refinery now.
We are starting to see expansion of the crude envelope, as I said.
There's five, six, seven more crudes that we are running.
And that's the way we run the business.
It really does look at, hey, what is the most economic crude.
So I think we're still very comfortable with $260 million.
We are obviously seeing the headwinds.
We saw the headwinds in the second quarter when the crude differentials compressed because of Mars and LLS getting bid up as a result of the wildfires and the crude impact supply disruption associated with that.
But in a normal basis, normal cracks and normal kind of differentials, we are comfortable.
I wouldn't put in there.
I don't really know the total RIN cost impact but let me talk about what we're going to do, is we're going to ---+ it's got multiple benefits for us in the Delaware City refinery.
Just as an aside, I mentioned that Chalmette has very high dock occupancy, so does Delaware.
Delaware has some constraints with limited amount of draft capability.
So we're going to be bringing in ethanol by rail, which has a benefit for us, which will reduce dock occupancy on the input side.
And then we're going to be able to ship it out.
The intent is ship it out by barge over to maybe <UNK>sboro, a new facility in Plains, a terminal asset that we bought, <UNK>sboro and other assets, and effectively become a merchant player.
We're actually starting that.
I think we're starting next week to load notionally 50 rail cars with ethanol and get the process started.
It's an incremental step; it obviously helps us in the RINs category.
But do you have any idea what the total number might be.
It's going to improve our ethanol cost, our gross margin by $3 million to $4 million.
$3 million to $4 million of gross margin improvement.
I want to go on the record he is older than me.
He was a year ahead.
No, the plan is to rail it in, as I said, rail into Delaware where we have the rail infrastructure to be able to do that.
We are buying some ethanol today, or before that, and we're bringing it into Delaware by barge.
Delaware obviously has a demand for ethanol in the rack that we have in Delaware.
So we will be replacing the barge receipts with rail receipts to supply ethanol into the Delaware rack.
But at the same time, we have a rack in <UNK>sboro, and we have Plains facilities to try to improve our lie there in terms of how much we're moving over a rack.
And that ethanol will effectively be brought in by rail into Delaware and then the intent is to barge it over the water but it's not exporting ethanol.
And then there's the case we haven't been able to see whether or not how much money there is in this as to whether or not we can become a supplier, a more macro supplier in pad one in this particular area.
Yes, and I wouldn't write this on the wall and it's the holy grail.
But in some of the strategic work that we've been doing here recently and are continuing, recognizing that we are faced with headwinds of $400 million, $450 million, the management team has embraced an objective of reducing RINs cost across the circuit by $50 million a year between now and two years from now.
So if the price stayed where it was, we're going to try to get $100 million out of the system in two years.
A lot of that is by export, a lot of that is by increasing the rack sales.
And that may mean that we go ahead and take an opportunity in the logistics side of the business to continue to do that.
But that is the goal.
But we have to do a little bit more work to put more substance in the exact steps beyond what we've talked about to achieve it.
So Torrance makes a little ---+ what, 105,000 barrels a day of gasoline when it's running well, and we're up right now almost 70,000, 75,000 barrels a day moving through the Vernon rack, all of the racks that we have acquired as part of this facility.
So as I said, that's one of the areas that I think having our commercial organization, and frankly, having our whole management team, be out there enjoying the lovely weather in California since November 1, is paying some benefits.
Because they had those plans in place, as opposed to just showing up on July 1 and saying, okay, we own it, now what are we going to do with it.
So we're up a very high percentage already, and that's a success story right now.
Yes, I think I said that mid to late 2017 for the two big ones that we've talked about, which is the crude tank and the startup of the reformer block and gas plant.
The exact dates, if you want them, that they are showing me, I don't necessarily will lay into.
But it's going to be certainly by the end of 2017 and hopefully a little earlier than that, that we should be having these two projects on.
And as I said, that's notionally $100 million in EBITDA improvement associated with that for the $100 million spend.
There will be some ability to do that, but recognize it's going to be limited by the base logistical problem that we have.
Our team is working pretty heavily, fast and hard, on trying to do some things to unload the dock congestion that we've got and obviously give us an opportunity to bring more clean products ships to the dock.
We'll see some marginal improvement, but the step change with take place when we really the de-bottleneck the whole logistics system and that crude tank is a big part of it.
Well, I think the big thing is obviously for our system, ex Toledo, there is a relatively high percentage of co-products that obviously don't move with price ---+ flat price of crude.
The second quarter with a 35% run-up in the price of crude, you effectively can say, okay, if you moved up $12 a barrel then the margin on coke, the margin on sulfur, the margin on carbon dioxide, pretty much the margin on LPGs, decrease by $12 a barrel.
That certainly was what happened in the second quarter.
As we start of the third quarter, I think as someone asked the question before, that obviously prices are going the other way and so we would actually expect to see an improvement in the impact on the capture rate from the co-products, irrespective or regardless of the [crack].
That's a great question, <UNK>.
First question is we've basically taken some of the plans that Exxon had and we're honing them as we speak.
So we believe we have to get some cash operating costs out of there.
We know how we're going to do that to a certain extent.
I don't want to go into it on the line because it's we haven't divulged all of our plans and reviewed them internally even with the people of Torrance.
But we recognize that we've got to get a fair amount of money, $50 million or so, out of Torrance on a go-forward basis on the cash side, operating as a merchant refiner.
Second part of your question, this is a culture issue.
I said this to the people of Torrance.
The hardware is unbelievably good.
Exxon spent a ton of money fixing things that they obviously had problems with.
As I look at Torrance, this is a facility that has somewhat been under a black cloud for a period of time because Exxon ---+ I personally believe ---+ Exxon probably had made a decision that they were not going to run a single refinery operation in the state of California.
And then if you go fast forward to February of 2015 when this explosion took place, envision these people going to work inside the fence line every day, 12 hours, trying to put that place back together.
And then going home and seeing their colleagues on the nightly news getting blasted because of [there] being poor performers.
To a certain extent, they were beating down a group of people, they are better than that, we know they are better than that.
It's all about changing the culture to be a merchant refinery, to understand that this is a core asset for PBF.
It wasn't a core asset for Exxon.
This is our Bay town in effect.
And get them to really engage.
So far we been enthused about it.
The talent level is there, it's just a question of changing the culture.
So you are spot on.
For the refining cash OpEx, we're estimating it to be circa $8 a barrel.
I think our long-term target is consistent with what we laid out on the acquisition call, in the $6.50 to $6.75 that is an aspirational target.
But we like to set our goals high.
As we go forward here through the second quarter, or second half of the year since we just acquired the facility, assume what's built into the guidance that we provided.
It's roughly $8 a barrel at Torrance.
That would come back from Torrance.
So if we think about we had $1.9 billion of liquidity at quarter end but while we pre-funded through the ABL, you don't see any of the PP&E or any of the inventory on our balance sheet.
So assume we used ---+ of the $1.9 billion ---+ we used roughly $1 billion of it to buy $527 million, $537 million of hard assets and another roughly $450 million of working capital, we think we'll get back roughly $200 million of that working capital.
So pro forma for the deal, roughly $900 million liquidity at quarter end.
Roughly $415 million.
I think at this point we're confident that's what the ABL is there for in terms of financing working capital as we continue to buy assets.
And we feel pretty confident with what we have today.
We're looking at the same forward cracks that everyone else sees.
But ultimately it's a focus on CapEx, OpEx and delevering the balance sheet.
Thank you very much for your attendance and attention during the call.
We look forward to seeing you, hopefully with better results at the end of the third quarter.
Everybody have a good day.
Thank you.
