PBF Energy Inc. Q3 FY2025 earnings call

• Martinez Refinery Restart: On schedule for December restart, maintenance teams to turn over impacted units in early December, plan to have it fully operational by end of year.
• Third Quarter Performance: Sequential improvement, product cracks strong, crude differentials improved towards end of quarter, seasonally weaker period but product cracks strong and crude differentials widening.
• Near-Term Outlook: Refined product supply constraints and well-supplied crude market to support domestic and global refining, global demand outstripping net refining capacity additions.
• Refining Business Improvement Program (RBI): On track to implement $230 million of annualized run rate savings by end of 2025, achieved $21 million in run rate savings via procurement model revamp, focusing on maintenance efficiency, energy reduction, and continuous improvement.
• Financial Overview: Adjusted net loss of $0.52 per share, adjusted EBITDA $144.4 million, $250 million gain on insurance recovery related to Martinez fire, $19.7 million loss on equity investment in St. Bernard renewables, cash flow from operations $25 million, cash invested in CapEx $132 million, regular quarterly dividend of $0.275 per share, net debt $1.9 billion, net debt to cap 32%, liquidity $2.1 billion.

No detailed breakdown of product segment financial performance with absolute terms and revenue contribution % provided in the transcript.

• Martinez expected to be fully operational by end of 2025.
• Aim to use periods of strength to focus on deleveraging and preserving balance sheet.
• RBI program expected to result in run rate savings over $350 million by end of 2026.

• Uncertainty in renewable fuel market due to policy shifts, tariffs, and changing regulations.
• Potential regulatory delays or issues, though Matt Lucey stated no anticipated regulatory issues for Martinez restart.
• Impact of market dynamics on crude differentials and refining margins.

Q: Would like to first welcome Joe in his new role and wish him all the luck in his role. Matt, maybe for you or somebody else. But just -- I mean, you made some positive comments about Martinz restart. I think there's a lot of focus on that given the capacity closures that are happening. And yes, some new pipelines might get built, but that could take 2, 3 years. So the key here is to get that refinery up and running. And I'm just trying to understand your confidence level in getting this thing across the line. I understand sometimes there could be regulatory delays, but it looks like the government wants you to get this up and running. So help us understand where we are in the process and your confidence level in getting this asset up and running by year-end.

A: Thanks, Manav. I don't anticipate any regulatory issues, to be clear. We have all our permits, and we've had a good working relationship with the state. And as you said, I think they're very, very interested in getting the refinery back up and running. I have tremendous confidence in our team. They have done amazing work to get us to this point. It is a major lift. As Mike Mikowski can detail, any project that a refinery does usually has years of advanced work done. And when you have an unplanned incident like we had, it creates a much more difficult environment to execute because there is no preplanning. And so our team has just distinguished themselves. And indeed, we have -- that requires us doing everything as safely and reliably as we can. If there's a moment in time when we need to take a breath or introduce a bit more time, there's always time for safety. But I have complete confidence in the team. We have all our permits in place. And so I think we just need to let it play out over the next couple of months.

Q: Your first question comes from Ryan Todd from Piper Sandler. Maybe -- this might be hard to answer, but maybe it's great news on the approval of another $250 million installment of the insurance proceeds. Is there a way to think about this from a time line point of view in terms of what it covers or what is -- kind of what is included in the installments up to this point? Does it cover cost and losses implied through year-end under the current plan or through the end of third quarter? I guess as part of it, like how should we think about the possibility of further meaningful installments in the future?

A: Yes. Happy to address that to some degree, we don't want -- we're not going to get into the detailed accounting over the dissection of it. Here's how I would describe it. In the third quarter, we got a $250 million payment shortly after the quarter. So it wasn't in the results. So if you look at the third quarter and you take credit for that $250 million that came in just after September 30, we're a little bit in arrears. So if you pull out more broadly and look at the third quarter, -- and we had an asset sale of $175 million -- and you take that out, but then you solve for the insurance payment that came in right after the quarter and you account for us being in a bit of arrears in some insurance collections through the quarter, I look at our operations on a pro forma basis for Q3 as being cash flow positive to the tune of between $100 million and $200 million. In regards to going forward, all I can say is we've had a tremendous relationship with the insurance markets, with the underwriters. I don't know if that can always be said for other companies and other industries and other incidents. But we've had a long standing relationship with our insurance underwriters. I was along with our team over in London, meeting with the insurance markets over there. We hosted the group here in New Jersey for the U.S. underwriters, and we continue to really value the relationship we have with them. There will be some payments that are in arrears, but it's very, very manageable.

Q: Your next question comes from Doug Leggate from Wolfe Research. I wonder, Matt, if I could hit on the lower turnaround expenses. And I'm wondering, as part of your efficiency drive, do we basically get -- you referenced Delaware in your remarks just there in the last question. Do we think about higher utilization being a new normal, I guess, for PBF going forward? It seems to us that the whole industry has managed to shift up its utilization. Obviously, that resets our view of mid-cycle free cash flow. We're just wondering if that also applies to you guys.

A: We -- so our turnaround program is set up a couple of different ways. And in the past, we haven't been happy with our performance on cost and schedule. And then also, we have an opportunity to optimize our intervals. And so we think we'll see a lengthening of intervals for one thing. So that will allow more run time. We are working with a third-party benchmarking firm to really set our turnaround budgets and schedules going forward, and that's how we're going to drive the savings. And so we would expect to see somewhat shorter duration turnarounds and much more effective turnarounds, which ultimately will turn into higher utilization while the units are up.

Q: Your next question comes from Neil Mehta from Goldman Sachs. There's been a lot of talk about moving product into the West Coast as some of your competitors retire capacity with 3 independent projects talked about either to the Southwest or even into California. Just your perspective on whether that can alleviate some of the pressure on PADD 5? And how do you think about timing and potential impacts of that?

A: Yes. Thanks, Neil. Good to hear from you. In regards to some of the announced projects, I'm not going to speculate in regards to which, if any, are going to get to the finish line. I would just say in the base case -- in the base case, we're going to be very, very expensive. In the base case, you're going to take a lot of time. And as an observer of the market and as a participant in the market, my guess is that the base case may be aspirational in regards to time and money in regard -- I probably tend to take the over on time as nothing is easy. As a result, it's costing us money, I'd probably take the over. Regardless of how long it takes, there will be substantial tariffs on any new pipes that are built. And so we continue to think our in-state manufacturing facilities will be the low-cost producer. The state is going to require imports, whether it comes from the water or from pipe, that will be higher-priced imports. And so I think with the sort of rebalancing that has happened within California refining, we're very, very well positioned from a product standpoint, but also from a crude standpoint. If you have one refinery just came down, one refinery is still scheduled to come down, but you then also have less demand on local crudes as a result. So I think our position in California is particularly attractive and interesting going forward regardless of the potential pipes when they come on, how they come on, they will be coming on because it's a product short market.

Q: Your next question comes from Phillip Jungwirth from BMO. I was hoping you could just talk to what you're seeing this month in the SoCal market, just given the moving pieces with Phillips L.A. closing down two weeks ago. Are you seeing any benefit here? And obviously, we had the unplanned downtime, which really helped get along with other product prices.

A: Well, I would say it's hard to tell what the impact of Phillips is this -- there's [ tensions ] because there is a tremendous amount of unplanned outages that are going on currently. So as you highlighted, the market is quite dynamic, there's tensions on everything, gasoline, jet fuels and distillates. So hard to judge these tensions as to what impact the overall markets have with just Phillips going down by itself. But there's a fair amount of planned and unplanned events going on, on the West Coast, this tension. So it is what we call an all-bid market.

Q: Your next question comes from Matthew Blair from TPH. Could you talk about your outlook for refining capture in the fourth quarter? It seems like it could take a big step up. I think you already mentioned that crude diffs are trending a little bit wider, but it seems like other factors might be moving in your favor, less maintenance, less turnaround expense, better market structure, better jet versus diesel spreads, lower RINs. I mean, pretty much everything across the board seems to be moving in your favor. I think you're in the mid-30% range on capture in Q3. Do you think something north of 40% is realistic for the fourth quarter?

A: We agree with everything you said -- bringing on staff. Look, I think it's very constructive to look ahead. Crude diffs is the single largest thing. There's no question about it. And I think they're set to continually improve over the quarter. RINs is a tough one in regards to -- they have been relatively stable in regards to RIN prices. RIN prices are eventually going to have to move up. But of course, that goes to the cost to import as well. And if you look at the marketplace at the moment, it's pretty interesting. European gasoline is pricing higher than the U.S., not only for today, but out on the strip. And that's true for Asia as well. And so it sets up a constructive environment whereas either European prices have to come down, and we don't see that in the short term, or North America, Atlantic Basin PADD 1 prices have to increase to attract those imports. But everything you said, we agree with in regards to an improved marketplace.

Q: Your final question comes from Connor Fitzpatrick from Bank of America. Might have been a mix up there. I apologize if some of this has been touched on before, but we're hearing that the vessels that need to be installed at Martinez have a 60-day time frame to install and construct. Have those been -- have those arrived at the Martinez site yet? We think they also need to be inspected and blessed by Bay Area Air Quality Management, EPA and OSHA. Can federal sign-off be done during the government shutdown? I know you mentioned permitting before, but should there be any further issues as it relates to shutdown and oversight? I guess, more broadly, can you break down the time line of equipment left to be received, authority to construct and shutdown impacts on that and time to place all the equipment into service?

A: All right. Look, I'm aware, maybe there was some fake news or stories. I would suggest everyone focus on what the company's official comments are. I'm not entirely sure where you're getting some of your information. But as I said, we have all of our permits to construct. We have a very good relationship with not only the state, but with the county in regards to get us to the finish line. And we have our plan, again, to commence restart in December, which takes into consideration everything that is required. We're certainly not going to get into explicit details despite you being in-house as a PBF person, you're not a PBF employee. We're not going to get into explicit details on exactly what equipment is being restarted when. But we have a very thoughtful and deliberate plan to restart the equipment, and we'll have all the approvals necessary to do that.