PBF
#Good morning.
<UNK>, just to confirm, I am unclear where you got the number.
What we would say is for the fourth quarter we actually generated positive cash flow.
This is after cash margin, less cash CapEx, cash interest.
We did have a payment under our TRA, so assume that that's a tax payment.
Ultimately, I'm not going to sit here and say we generated hundreds of millions, but we did generate between $25 million and $50 million of positive cash across the overall system.
That includes PBF logistics as well.
What's probably skewing some of the numbers is, while we raised $275 million of equity, it's included in the net cash number at the end of the year.
We also paid down $200 million worth of debt.
Overall, cash balance increased by about $120 million.
But on a net basis, if you strip out the $75 million of net equity proceeds, then ultimately you are looking at roughly a $50 million cash build.
Unclear if that makes sense compared to your numbers.
But as we go forward ---+ I think, we are only about halfway through the first quarter.
We have seen a decent builds in terms of cash.
We paid down another $75 million under the ABL at PBF Energy.
We clearly have a large CapEx number coming at us throughout the course of the year, roughly $325 million of CapEx related to multiple turnarounds that we've outlined for everyone.
there's probably another $175 million of maintenance, health safety, environmental spend.
Then we do have between $50 million and $100 million of strategic capital.
Again, we will touch on what <UNK> mentioned in his comments.
The bulk of that, or over 50% of that, is going to come with our spend on the reformer restart in Chalmette.
One thing we've tried to do as a result of this organic project is have PBF logistics fund a portion of the CapEx for this year.
Aside from what we see coming at us, I don't think were going to see large swings in working capital.
Clearly, reducing inventory at the end of the year was a prudent move.
I think there are going to be times where it ebbs and flows, but overall we have our long-term targets.
There may be times where we are above and below those targets, but I think you guys should assume that we are going to be in and around those targets at the end of every year.
One thing I would add is time will tell, but where we are sitting here mid-February versus where we expected to be from a market perspective, I would agree that the crude differentials a little bit more narrow than what we had budgeted.
But actually our natural gas pricing, or costs, are a little bit better.
The crack has held in there, quite nicely, and the forward crack looks very good.
I think it goes back to previous discussion: watch those inventories.
Right now, with the market that exists, if we can accomplish number one objective.
Is to keep it between the pipes and keep the equipment running, we are going to be in okay shape.
We will try to go with both of those.
We look at this very closely.
What we've said ---+ we wanted to certainly get below $5 per barrel in the relatively short term.
Frankly, the stretch goal ---+ the competition in the Gulf Coast of the United States, our peer group, is pretty much below or around $4 per barrel.
There is no reason why Chalmette should not be meeting that.
It is a similar refinery.
Our plans are to ultimately get down to around that $4 barrel level.
And I will tell you that in our budget there is progress being shown towards that.
That's a budget.
You hold us accountable as to whether we make it ---+ how quickly we get there.
I'm sorry <UNK> I couldn't hear the very beginning you came across ---+ I couldn't hear it on the mic.
I hate to ask you to do this.
Can you repeat the question.
I would say there's some slight timing shift in Chalmette, as I referenced.
We took an opportunity on the crude unit that is currently down and being turned around, which predominately has been run in the ExxonMobil system as a sweet crude unit.
The economics on the sweet crudes with the cracks that existed in the fourth quarter were not that great, so we decided to shut down the furnace and get a jump on that.
That cut crude for a period of time.
The rest of the turnaround is undergoing ---+ is underway as I said.
By the way, we think we will be souring up that still when we start it up with some of the improvements that we are making.
It is not significantly more investment.
These are really just improvements.
That unit has been on stream for a significant period of time.
Let me say that it needs a turnaround.
In Torrance there is some minor things that we are doing that are geared towards improved reliability.
Again, at Torrance they did a terrific job, ExxonMobil, on the SCC and the equipment that was impact the Appalachian unit.
We got that given to us in tip-top shape.
But that crude unit has run for a long period of time.
Frankly, there are [insit] through reliability issues that the organization there has been having to deal with that are going to be taking care of during this turnaround.
As I said, I want to emphasize that while we had these two events ---+ I hate the term events in refining.
That means something bad really happened.
The reality is the two power outages, they were somewhat average because, frankly, it's not like it happens all the time out there in Torrance.
They were basically a result of human error and improper procedures on the part of the outside utility.
That being said, we have to get a much more robust electrical system inside Torrance.
I'm going to ask <UNK> to give you an update on where that stands.
Yes, thanks, <UNK>.
As I think we talked about last quarter, there are a number of things we have pushed and really kept our boot to the throat of Southern California Edison to improve what were just basically extremely poor work practices on their part.
And we have been very successful with that.
We would like to get, I think, some additional help from the regulatory community to keep the pressure on Edison to follow through.
But we have had a very good cooperative relationship with them.
Great communication.
They have replaced a great deal of cable, transformers, relay systems.
They have really improved the current infrastructure that is feeding the refinery.
Their work practices have improved with, again, some urging, I would say, from my technical team at the refinery.
We are continuing to advance and are now getting into the permitting and advanced engineering for allowing the refinery to have a direct connection to the high-voltage 220 KV system on the Edison grid.
Then, we will take directly off that system rather than coming through the current Edison infrastructure, and then work that project internally from there.
Obviously ---+ well, the short answer is yes.
Confident with the $360 million guidance.
Obviously, the first half of this year will be challenged somewhat because of the turnarounds.
We are very anxious to get those turnarounds behind us and get a free runway.
Yes, the $360 million is something that we are confident in.
I will tell you, and I mentioned this before, I think the people of Torrance are very anxious to demonstrate their capabilities.
We're going to resource that place and support it so that it becomes a very successful operation.
We see the upside there.
I am also very pleased with the progress that we are making in the commercial arena on the West Coast and in Torrance.
I think we are going to get some surprises, which hopefully will allow us to get to that $360 million pretty quickly.
We've all ready seen some.
We've been able to de-bottleneck the plant.
We're going to make more distillate.
We can make more than 12,000 barrels a day of distillate today then they were making under ExxonMobil.
It was just because of the they were running some of the equipment versus what we can do.
Now, does that mean we are going to go up 12,000 barrels a day.
No, but if the market is there, we have the capability of doing that.
As we mentioned, we're in the Las Vegas market.
We are taking advantage of octane length that we have out there.
The crude optionality.
So long-winded there, but I am very, very confident that that $360 million number will bear out.
It starts right after we've come up.
There is no reason we shouldn't be burning at that rate after we get this turnaround behind us.
Yes.
We are looking at several different options.
We talked with both the suppliers and the other crude conveyance systems, both in the LA Basin and into Bakersfield-Taft area.
We have already put a new truck rack in at one of our pump stations outside of Taft to bring some truck barrels into our M70 system.
The beauty of a lot of these, particularly connections we're exploring in the LA Basin, involves zero capital because either the producers or the other pipeline systems can put the connections in.
We all recoup the benefits of that over time.
There are various different avenues we are pursuing, both on the inbound and quite frankly on the outbound side, as well, trying to diversify our pipeline outlets to move product out of the refinery.
Yes, look, everybody's got an opinion on this, but mine is very clear.
If the borders tax goes with what we understand and there's a 20% increase in the price of crude oil, I think you're going to see virtually an instantaneous reaction in PADD 1.
PADD 1 is an import market, so I would expect rapidly, maybe overnight, that the price of plain products in New York Harbor would adjust to reflect the higher cost of raw materials into that import market.
The rest of the regions will then trade, probably, over time in transportation parity.
It may be a little bit of a lag.
It is kind of interesting with the economics that we have and the trade patterns, you actually have a stronger crack in the Gulf Coast much of the time because of the expert poll versus PADD 1 or PADD 2.
But over time, we would expect kind of an immediate reaction in PADD 1, and PADD 1 would lead the way.
Some others may not believe that, but I do.
Simply because it is the one area we are still bringing at a north of 0.5 million barrels a day of gasoline.
That's going to set the price and that price will go up and the rest of the pads will follow.
If there's a lag, maybe there is a lag, but I don't think ---+ ultimately, the problem with this is it's going to be borne by the consumer.
The problem with the borders tax, as I see it, not weighing in on whether or not ---+ how it's exactly going to be implemented.
But at the end of the day, Steve Forbes had it right in the column he wrote.
This could be bad policy and worse politics.
Something that increases the cost of gasoline and every other imported good into the United States by 20% is going to have a significant impact on the consumer who has a limited amount of discretionary spending capability.
Frankly, that could have an impact on the economy.
Certainly I think, the people on the other side of the aisle will portray it as a aggressive tax on the lower class and the middle class with the overall objective of rewarding big oil or big corporations or the E&P producers.
Yes.
If you do the math, you actually do get an expansion.
There's a number of consultants that the AFPM has hired and others have hired to basically go through all of this thing.
Sometimes they produce volumes of paper, but basically they came down and said that you're going to wind up expanding the crack by the same 20%.
Does that happen.
Yes, it probably does.
The issue that I have, see, is over time a $0.50 or $0.30 or $0.50 a gallon increase in the price of gasoline and distillate is not something I would like to see from a demand disruption capability.
Will let me take the first one, first.
We remain comfortable on Chalmette with the $260 million.
Hopefully, this turnaround continues to go well, and I think that the folks are off to a very good start.
We come up with a clean unit, and it's supposed to start up on March 3.
With the cracks that we've got now and even some tightening of the crude differentials, we actually expect to blunt that by running more sour crude, Mars type crude on the sweet crude unit and not impact ---+ have a positive impact on our overall crude costs at Chalmette.
Of course then, we're going to have the projects that come behind this thing in relatively short order.
The $70 million, $80 million margin improvement associated with the start up of the pre-treater and the reformer and the gas plant, that is real money.
That is going to happen relatively quickly, and the crude tanks come behind it.
Again, I really do think we have done two good acquisitions.
I know it's incredulous perhaps because we haven't been able to run them yet, but that is the focus.
We will be able to do that.
What is the second part of the question.
We did a one-year analysis looking at Chalmette.
Of course, in the model we had $260 million, but we didn't expect to get the $260 million the first year.
We had $153 million or something like that for the first year, and we came in out $125 million EBITDA.
If we had had the cracks that we had envisioned ---+ if you looked at that back [cast], we had crude differentials that were fine.
But we had a drop in the 211 Crack of ---+ I think it was $1.50 or $2, if we had had that and RINs costs were $25 million higher than what we had modeled.
That's not an insignificant item, and that was because we obviously had the higher RINs headwinds in 2016.
Even, if you just take a look at RINs alone, we would have probably met the model for the first year.
If you overlay that on the fact that the crack was lower, we would have outperformed.
Yes, I think it's helpful to take a step back.
There's around 90 alkylation units across the country.
About half of them use hydrofluoric acid; the other half use sulfuric acid.
The AQMD in Southern California came out at the end of last year saying they were going to explore rulemaking on the use of HF at the refineries in Southern California.
We then later learned that might include a phase-out of hydrofluoric acid.
We've met with them.
We have talked with them about what the ramifications of such a phase-out would be, as have others in the industry and, quite frankly, as well as a much broader coalition of other industry groups in California, who recognize the ramifications of this are not insignificant on a much broader scale.
We will continue to have those conversations and participate in that rulemaking process in a meaningful way.
The units in Southern California, including the one in Torrance, are some of the most advanced units in the world.
They have a modified form of hydrofluoric acid, and they have a large number of mitigation and safety measures built into them that you don't necessarily see on plants elsewhere in the country.
So we're pretty confident that rather than moving away from this proven technology that has operated safely in Torrance for well over 50 years, instead of pushing towards a alternate technology that literally would increase the emissions from the plant that the air quality management district would be well suited to allowing these units to continue on.
Yes.
Good question, <UNK>.
I think in both cases, I would say, the positives are that we probably have more upside than what we expected over the longer term, just simply with the market scenarios and the amount of things that were not done.
If we take Chalmette, there's a lot of things that just was put ---+ not only the equipment we're looking at starting up here in the short term.
A lot of things that weren't done because of the problems with the joint venture.
We look at, obviously, the ability to export more, take advantage of the ---+ we're in the asphalt business.
We really didn't envision that when we put the model in.
In Chalmette ---+ and by the way, who knows.
But if [ma paul] goes and in 2020, you've got an international (inaudible) of 25% weight sulphur, my guess is that small idle coker at Chalmette will be brought to life because the economics could be compelling.
Similarly in Torrance, I think lots of upside on two areas.
We didn't envision this 12,000 barrels a day increase that we got on distillate.
That we've already executed.
It's really just the commercial people that are out there working with the people inside the plant and embracing a more merchant approach to the business.
Again, some of the things that <UNK> mentioned in terms of getting into the gathering system, we're bringing curl in, coming in through Plains/Bakersfield.
These are things that while we had some ideas there, the number of things that we're looking at doing have increased.
On the other side of the equation.
We ---+ not so much in Chalmette.
I think Chalmette, frankly, the people who have come over have now completely embraced the merchant culture, and so have the people in Torrance, by the way.
They are very anxious to succeed, and we are going to do everything we can to help them.
Frankly, that organization was probably dominated more by a corporate headquarters that was bringing a lot of people from an outside engineering help, their ExxonMobil research organization.
So what we have got to do ---+ and we've had to bring in more talent.
We've changed some people out.
Initially we didn't have everybody available to us from Exxon, so we put some of our own people in and people we know from prior life.
Frankly, we've had to make some changes since we took it over.
That's going to continue.
That's going to be a process that we have to work through in terms of making sure everybody is embracing the approach that we take to run the business as a merchant refiner.
Let me take the second one first.
All of our tier three projects are effectively done with the exception of Chalmette.
I might point out, they all came in on budget, on schedule, and so we instituted or started up the project in Toledo in January.
That is done.
The <UNK>sboro and Delaware City was an interactive project, basically as we said, running that as a system.
It is important to note that that is one where we are making margin, not just taking sulfur and losing octane because we are effectively putting a reformate splitter at <UNK>sboro, which takes the reformate from the reformer and basically moves it over to Delaware City, which extracts benzene and increases our chemicals production.
Good story.
The Chalmette refinery has done a piece of the project, but not completely.
We are continuing to use credits that we've all ready bought so that we can push out the capital, probably to 2018, to finish that up.
When it comes to the first quarter, we have slightly lower guidance on the East Coast.
Some of that is because we had some delays that continued.
We actually ran <UNK>sboro pretty low in the first quarter.
We are running Delaware City at a reduced rate.
We did have some slippage on Venezuelan, and we've had some minor incidents there.
The West Coast is down a little bit, and that is, again, mainly because of some throughput reductions we've had so far during the quarter because of some either pipeline deliveries or other related events.
I don't think ---+ if we get these units turned around and get them up clean, I don't think it's going to have an effect on our full year.
I will.
The head of our Commercial Group for the Western region, <UNK> Davis, has been telling me for the last six, eight weeks, things are going to get good in California, and it is because of the inventories.
They are lower ---+ certainly, in much better position than the rest of the country is in terms of the absolute level of gasoline, days of supply.
You put that in context ---+ and that is even with some really rough weather out there that has impacted demand, just because of the rains and things of that nature.
Of course, we're seeing a response in the crack.
We have moved over to summer-time gasoline now.
We got a $17 crack out there.
There's 3% less gasoline production, probably, in the state now because of the light ends coming out of it.
My commercial colleague and friend has told me that he thinks it's going to be a good runway, and we will hold him to that.
Actually, we have been very pleased.
Again, one of the area of highlights is in the wholesale marketing business.
We've got up over 90,000 barrels a day through the rack system.
That has almost come ---+ that's come pretty much seamless.
Again, the fact that we set up the West Coast office in Long Beach well in advance of the close, and it turned out to be well in advance of the close because the close kept slipping.
But we were always able to hire his team.
Get people in place.
Start working with the econ planning group inside the refinery.
That has worked very well.
Our rack business is very strong out there.
Thanks, it's <UNK> <UNK>.
I would just look at it this way.
We are always going to be incentivized to put the first barrels into the Southern California market.
That's going to be the plants best netback.
As <UNK> just mentioned, we've done a great job developing a wholesale business, focused both in LA and expanding out to Las Vegas.
We're going to keep our wholesale customers full and honor those commitments.
Once we have those markets where we've got them fully supplied, then we're going to look where else we've got opportunities.
As <UNK> mentioned, there was an opportunity to get some gasoline components exported over the past quarter.
That was a great opportunity, not something the plant has necessarily done in the past.
But we are going to be incentivized to chase the best netback we can get.
We have been very successful at expanding the wholesale business and getting new customers and opening up new avenues for outlets for product from the plant.
It's a pretty simple question for me to answer, at least give our views on.
We probably couldn't buy anything in PADD 1.
The only facility we really have any interest in looking at in PADD 1 is the Bayway refinery, and we're not going to be able to buy that from a regulatory standpoint.
So that's off the table.
PADD 2, we certainly would be interested in looking at something in PADD 2.
Frankly, I still believe the bid-ask is going to be way too high given the grill of refineries there running WCS and those crudes.
Our emphasis would be looking at hedging the position that we got effectively in PADD 3 and particularly in PADD 5 by getting another refinery.
Obviously, the discipline that <UNK> talked about is paramount.
Sometimes it's very difficult to get over paying too much for a facility.
But the focus is going to be on something that would hedge Chalmette, something that in case we had a weather-related event ---+ and particularly as we've talked before.
California is a market, as demonstrated by when Exxon had their problem, a loss of a refinery can create wonderful opportunities from a margin standpoint because of the island-ized nature of the supply chain.
If you have two refineries in that region, you obviously can blunt the impact, if the other one is running.
So that would be our focus areas
There was definitely ---+ we got positive working capital as a result of, primarily, the price of crude or hydrocarbons overall during the fourth quarter rose when compared to end of third quarter.
It was a bit volatile during the quarter, but ultimately we reduce inventory.
I think we will consistently go back to ---+ in a rising hydrocarbon environment, refiners in general will generate strong cash markets.
As a result of marking our latest purchase on the income statement, ultimately reported earnings may be lower than what the cash generation is.
I think we saw that across our peers that have already reported, and I think we saw that in our Q4 numbers, as well.
I think from a pure cash working capital, it is probably between $100 million and $140 million.
I think ---+ and it is a sense and it is ---+ certainly, we don't have a microscope into knowing exactly what's going on.
We are pleased, obviously, that the RINs costs has come down.
It is evidence that there is an understanding with some of the comments that have been made by the Trump and incoming administration and whether the Attorney General Scott Pruitt becoming Carl Icahn's influence.
The reality is, RFS is broken and has been broken for some period of time.
I think that is somewhat recognized.
Now the question is, what next, if anything.
We'll see.
Pruitt is potentially getting nominated this week, although the other party is trying to hold that up.
As I said at your conference, I think there is several paths they could take in both: Moving the point of obligation ---+ whilst, the comment period I think is just about over on that.
Once the new EPA administrator is in, there will be some period of time where the comments are digested, and we will see.
I personally think there is still a 50% or higher probability that the point of obligation gets moved.
Somebody comes out and says they don't think it's going to get moved because it's very complicated, that's not an acceptable reason for allowing something that's broke to continue to be in existence.
Then I think, again, May will be the next point.
Hopeful, that either through the Flores Bill are just some recognition by the administration and the EPA that they recognize that there is a finite amount of ethanol that can be put onto gasoline, face this gasoline demand in the country.
They are going to use the authority that the EPA has to adjust accordingly.
Now that assumes that the current court proceedings that are going on, the courts don't come around and say that the EPA doesn't have that authority.
If they do, it's going to get kicked back to the legislature and it might move pretty quickly.
<UNK>, you got the $325 million and the $175 million correct.
The remaining CapEx is $75 million to $100 million, again for refining and corporate.
The vast bulk of that, over $50 million, would be for the reformer restart, which again is strategic capital with returns coming out of the Chalmette.
<UNK> will handle the second part of your question.
Good question.
On the electrical side with Edison, and as I mentioned, you put the nail on the head.
Keeping the pressure on Southern California Edison is a continual focus.
I think I have learned that.
It needs to come from the top down at Edison.
We have had very good cooperation and very good access to top management at Edison to continue to move these initiatives forward for Torrance.
That part of it has worked well, and I anticipate that that relationship will continue and work well going forward.
With the support of particularly the city of Torrance, we really feel like the pressure will stay on Edison and we will keep their attention focused on this.
All of the immediate actions that have been taken and that continue as far as improving existing infrastructure and replacing equipment and upgrading equipment, none of that requires any permitting per se.
That work will continue and the existing infrastructure will continue to improve as we work forward on the larger project.
On the connection of connecting the refinery directly to the 220 system, the bulk of that will really be just be permitted through the city of Torrance.
We have already begun meeting with them and outlining that process.
We don't anticipate that to be an impediment to moving the process forward.
There will be other pieces to the process, but we're pretty confident we're going to be able to work through that pretty well.
It's actually a fairly short connection to get the refinery connected to the 220 system, so we believe that really works to our advantage.
Yes, more of an 2018 event.
It is actually something we can spread out pretty well, and we would look at it as a late 2018 or slightly beyond that for that to come online.
Thank you, everybody, for your attention on the call.
We look forward to hopefully delivering better results and reporting them at our next call.
Thank you.
