PBF Energy Inc.

Good day, everyone, and welcome to the PBF Energy Third Quarter 2020 Earnings Conference Call and Webcast. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following management's prepared remarks. You may register to ask a question by pressing the star and 1 on your touchtone phone. Please note this call may be recorded. I'll be standing by should you need any assistance. It is now my pleasure to turn the floor to Colin Murray of Investor Relations. Sir, you may begin.

Thank you, Reid. Good morning and welcome to today's call. With me today are Tom Nimley, our CEO, Matt Lucey, our President, Eric Young, our CFO, and several other members of our management team. A copy of today's release, including supplemental information, is available on our website. Before getting started, I'd like to direct your attention to the Safe Harbor Statement contained in today's press release. In summary, it outlines that statements contained in the press release and on this call which express the company's or management's expectations or predictions of the future are forward-looking statements intended to be covered by the safe harbor provisions under federal securities laws. There are many factors that could cause actual results to differ from our expectations, including those we describe in our filings with the SEC. Consistent with our prior quarters, we will discuss our results excluding special items. Non-cast special items including in the third quarter 2020 results which decreased net income by a net after-tax charge of $73 million or 62 cents per share consisted of a net tax expense on re-measurement of deferred tax assets, an impairment expense related to the PBF logistics write-down of certain long-lived assets offset by a lower of cost or market inventory adjustment, Thank you. Thank you. Thank you. Please refer to the supplemental tables provided in today's release. I will now turn the call over to Tom Nimley.

Thanks Colin. Good morning everyone and thank you for joining our call today. The challenges brought on by the global pandemic and ensuing restrictions imposed on the U.S. and global economies continue pressuring refining margins as a result of demand destruction. Crude oil differentials remain tight as refineries are processing less crude. A return in demand across all products and in turn a higher call on crude will result in improved market conditions. Through these challenging times, PBS focus has been on managing the aspects of our business that we can control. We remain focused on safety, both personal and operational. As you will have noted in today's press release, we continue taking a close look at our refining portfolio and are determined to emerge from the current crisis as a stronger company with increased efficiency and lower costs at all of our assets. In tandem with our ongoing system-wide cost reductions, the East Coast reconfiguration is another important step on the path to increasing our long-term competitiveness. We are putting all of our operations across the country under a microscope and committed to find additional efficiencies. We saw the largest opportunity and a rapid path to execution on the East Coast. We identified significant opportunities for further integration through preserving the greatest strengths of both Paulsboro and Delaware city refineries while significantly reducing costs going forward. Unfortunately, The positive effects of East Coast configuration will come with a burden. It will directly impact the livelihoods of many of our employees here in New Jersey. The current crisis has necessitated difficult decisions for the company and those decisions have consequences which I do not take lightly. We are committed to assisting those impacted with their transitions and hopeful for better times ahead. With our stated goal of increasing competitiveness, we continue to actively review all of our assets and all of our options. While the urgency of this is heightened given the current market conditions, the decisions will result in a stronger base business. On the positive side, we have seen demand incrementally increase over the last several months, and inventory levels have been trending down favorably. Product inventories continue to moderate, with gasoline well within the five-year average range, distillate inventory levels have come down, and while demand is still anemic, jet inventory levels are below the five-year average. We think this is a positive backdrop for demand ultimately recovering. Maintaining operational discipline is key in preserving this tenuous path to improving fundamentals. We are seeing very few signals which would necessitate increased utilization rates. The market is rebalancing and will continue to do so until there is a widely available medical solution that allows greater freedom of movement, increased business and personal travel, resulting in a return of demand. Lastly, I would like to thank all of our employees for continuing to unflinchingly rise above the current challenges and maintaining the safety and integrity of our operations, as well as for following our COVID-19 protocols. With that, I will turn the call over to Matt to provide an update on our operations during the quarter and the steps we are taking moving forward.

Thanks, Tom. The current market reality requires us to take aggressive action to navigate the near term but more importantly, to strengthen our position and maximize cash flow in the long term. In regards to the East Coast reconfiguration, which was highlighted in our press release this morning, I would make three important points. One, rationalization is necessary. Two, the move creates significant savings in the current market without a decrement in a normalized market. And three, the reconfiguration creates a stronger East Coast system. As to the first point, in light of the current environment, PBF recognizes the need for rationalization across the industry. The net result of the East Coast reconfiguration is effectively removing 85,000 barrels per day of refining capacity. Going to the second point, The reconfigured East Coast improves cash flow by about approximately $75 to $100 million per annum based on today's market through reduced operating and capital expenses, which are offset by a reduction in gross margin associated with the lower throughput. Importantly, once the market normalizes, we do not believe there will be an economic debit to the historical earnings power with the new on configuration. On number three, we believe we have strengthened our East Coast system as we have isolated Paulsboro's most profitable businesses, at the same time, we'll increase utilization on Delaware City's secondary units. For the Paulsboro Refinery, we are maintaining our lubes and asphalt operations while significantly reducing fuel production. We will be increasing the interdependence of the two refineries and promoting higher utilization and efficiency from the remaining units. Delaware City will process the intermediate feedstocks that Paulsboro will continue to produce. Essentially, the East Coast will be shedding its least economic crude and its lowest net BEX products. Historically, we have purchased intermediates on the East Coast, which will no longer be required post-reconfiguration. Specifically, we will be shutting down the smaller of Paulsboro's two crude units, the FCC, the Reformer, the Occulation Unit, and the Coker. We will be lowering our East Coast operating expenses by over $100 million annually and reducing our capital requirements by approximately $50 million per year versus historical averages. Again, the East Coast reconfiguration will result in a refining system that will be stronger by isolating Paulsboro's strengths and increasing Dell City's utilization. We are beginning the reconfiguration work as we speak and expect to be complete by the end of 2020. With regards to our refining operations in the third quarter, We ran our refining system at approximately 70% of capacity or approximately 706,000 barrels per day in total. Until demand picks up and inventory levels come down, we will likely continue to operate at reduced rates. We are on track to exceed our previously announced expense reduction targets for 2020. Operating expenses have come down in part as a result of lower throughput. but also through a meaningful and targeted reductions, we plan to convert to long-term savings. In July, we guided towards $140 million of operating expenses for the year, which breaks down to $40 million related to lower throughput and $100 million of expense reductions. Our current estimates are to achieve $280 million for the year or twice our previous guidance. The $280 million consists of $125 million associated with the reduced throughput and deferrals, and $155 million of expense reductions. Going forward, assuming normal throughput, we expect to maintain $115 to $130 million of expense savings, excluding the changes at Paulsboro. Then, and in addition to, The East Coast reconfiguration provides an incremental $100 million of operating expense savings, which brings the total OPEC savings on a run rate basis as of January 1, 2021 to $215 to $230 million. We continue to be focused on the items within our control. In the months ahead, we are committed to crystallizing our current operating cost reductions into permanent savings and generate incremental margin through unit level optimization. Now I'll turn the call over to Eric.

Thanks, Matt. Today, PBF reported an adjusted loss of $2.87 per share for the third quarter and adjusted EBITDA of negative $229.7 million. As Tom and Matt outlined, we are taking aggressive steps to reduce our cost structure and continue to focus on shoring up our balance sheet. Our current liquidity is approximately $2 billion based on a cash balance of $1.3 billion and available borrowing capacity under our ABL. As a result of commodity market volatility, we have seen significant working capital swings since the beginning of the year. Assuming no material change to current commodity prices, we expect our working capital to continue to normalize and generate incremental cash in the fourth quarter. Additionally, as we complete our East Coast reconfiguration, We expect to see a one-time cash benefit of approximately $35 million as a result of a reduction in inventory. This is partially offset by roughly $15 million in expected legal and severance costs associated with the reconfiguration. Consolidated capex for the quarter was approximately $56.7 million. The consolidated capex includes $55 million for refining and corporate capex, and 1.7 million for PBF Logistics. Consistent with our prior outlook and guidance, we expect to incur roughly 15 million of CapEx per month in the fourth quarter and our full year refining CapEx should be approximately 360 million. We are still finalizing our 2021 capital program and expect to have a flexible plan that will be responsive to market conditions. Importantly, we have no planned turnarounds or significant major maintenance activity scheduled for the first half of 2021. Our initial CapEx estimate for this period is $125 to $150 million. We will be adjusting our plan as we go, depending on market conditions, similar to the flexibility we've demonstrated thus far in 2020. Operator, we've completed our opening remarks, and we'd be pleased to take any questions.

At the moment, we will open the call to questions. The company requests that callers limit each turn to one question and one follow-up. You may rejoin the queue with additional questions. To register to ask a question, please press star and 1. You may remove yourself from the queue by pressing the pound key. Again, that is star and 1. We'll go first to Roger Reed with Wells Fargo.

Yeah, thank you. Good morning. Understand the tough decisions being made here. I guess along those lines, as we think about the East Coast reconfiguration, how long did you have something like this planned? I mean, it's not like a secret the East Coast has been one of the more competitive markets out there. So I was just curious, as we think about the savings and the reconfiguration here, is this The Step, is there more that can be done? You know, is it the kind of thing that improves as you go along? And typical with this is you kind of learn the processes, you know, you see additional opportunities for improvement.

It's a great question, Roger. Kind of the answer is all of the above, to be honest. We've contemplated this in the past. We actually did, obviously, interact or put Delaware City and Paulsboro together earlier in our process. and a number of others. As we got into this situation, we realized, hey, there's an opportunity for us to step that up. The physical distance of 30 miles between the two locations is an opportunity. As Matt alluded to, we then put everything under the portfolio. By the way, that is a true statement for the entire logistics and refining system. So this is the first step, but we will look at everything. But what we did in Delaware and Paulsboro I'd love to say it makes one plus one equal three. I don't think that's the case, but I do think it's one plus one equals two and a half. What we set up is a smaller footprint, clearly, 80,000 valet equivalent refinery, but it is a refining complex that has lubes production capability, asphalt, which has been a high margin product and probably will be in the future because of stimulus, Delaware produces chemicals and Delaware has the strongest fuels capability of the two refineries because of its hydro-treating, hydro-processing, and hydro-cracking. So it was the obvious first step for us to go. To your last point, I want to make this because I absolutely believe this. While we have looked at this thoroughly and we know we're doing the right thing, I personally believe that there will be more opportunities to improve the market as we get the operation, as we get into the position where we're looking at the sites running this way. So I think it's absolutely the right thing to do, but I think there's upside potential over what we've advertised. Okay, great, thanks.

And I guess the follow-on question, kind of open-ended to whichever of y'all want to take it. As we think about, you know, further cost reductions, I mean, obviously we've got the highlight here of the up to 230, as we think about kind of 21 versus 19, I guess. But where else, as you're looking across, do you think you can eke out some additional savings, or are we looking at a situation where You know, there's only so much that can come out. And, you know, at this point, it's hang on and wait for, you know, let's call it the turn in demand and turn of the market here.

Yeah, absolutely. It's not the latter. It's the former. Obviously, we're looking forward to the turn of the market. If we get some continued progress in the medical front, we would certainly be happy to see that. But I want to go back to your point. We have multiple initiatives that we've had underway, which Matt has spoken to, that we did right off the bat when we saw that we were in the throes of the demand destruction we had. Major effort on OpEx, major effort on CapEx. We put together a turnaround best practices team that are looking at ways to go ahead and reduce our turnaround costs by Extending runs, taking squats on units to repair certain things to allow us to run longer. And importantly, we have every refinery looking at inside the fence line for smaller margin initiatives, which I think is going to also pay dividends that is going to be north of $100 million outside of what we've already talked about before. So there's a lot of things we're doing in the base business, the blocking and tackling of this business that are now giving us good results, but there's more that can be achieved. That being said, we go back to Are there opportunities to consolidate or look at the synergies between Torrance and Martinez in a different way? Yeah, there may well be. Nothing's off the table. Everything is going to be looked at and put under a microscope.

Yeah, I guess just as a quick follow-up on that, I mean, I was sort of looking here, and I know some of these quarters aren't totally comparable because of work that's been done, you know, like turnaround work and stuff, but I mean, you go back to Q1 of 2019, you had cash op-ex expenses $453 million, this quarter $458 million, and that's obviously the addition of Martinez is in there. So, I mean, there's an ability to bring costs down. I guess I really was just trying to get at, is there anything else you expect you'll identify in terms of cash op-ex savings for us as we think about the other four units across the country?

Roger, it's Matt. Look, we have not gone pencils down. We have taken concrete steps already where we've reduced the amount of people within the refinery. That includes our employees as well as significantly reducing contractors. Those steps have been taken, but in addition to that, there are over 25 major initiatives within the refining operations team looking at reducing expenses. I've highlighted what we've captured so far. We think it's a positive step, but by no means is it complete and we'll continue to work it. In regards to managing the business that is within our control, it's pretty simple. It's managing expenses, managing capital as Eric laid out. The turnaround team has done an exceptional job of managing its business, taking squats where otherwise turnarounds were necessary, elongating turnaround cycles, which has a major impact on the cash flow, So it's managing operating expenses, it's managing your capital expenditures, but it's also increasing the optimization of each of your refineries, which Tom alluded to, which we're doing actively as well.

And as a reminder, the company does request you limit each turn to one question and one follow-up. You may rejoin the queue for additional questions. And we can go next to Teresa Chen with Barclays.

Good morning. I wanted to touch upon what the outlook for the East Coast is in a more normalized environment as we haven't had a real summer driving season since PES closed last year and with the come by chance refinery also down which seems to be more permanent given that it's not going to be sold for now at least and the reconfiguration of your assets. How do you think these dynamics play out in the path to normalization and what can happen as far as margin and demand goes?

I think We've given that a lot of thought. Obviously, if come by chances, permanently off the line, they are a refinery that sold their products into the harbor, moved it down here. Obviously, us taking capacity off, which really is in the Philadelphia area, would perhaps give us a benefit here. at Laurel or in the Philadelphia area. But the other thing that we're actively looking at and watching, and I believe it will happen, is the rationalization is underway. And as bad as the margins are in the United States, they're better in the United States than they are in many parts of Asia, Singapore, and in Northwest Europe or the Midwest. Those refineries are under significant pressure. We've seen indications of rationalization starting, and I think that will continue. Obviously, Europe has got a different mindset in how they want to transfer from traditional fossil fuels at the pace that they're doing. That's been well announced by BP, Total, Shell, etc. So we would expect that there will be less product being produced. Europe, as you know, is typically one of the major sources of imported products into the U.S. East Coast or Northeast. So we're watching that very closely, and we do realize, everybody realizes, there's a huge short in this part of the country. We are aware that people eat this stuff, and so there's a need for imported gasoline, but the fact that you're going to have this rationalization, there's no economics, really, for them to run barrels and then have to pay the freight to move here. So we're going to watch that pretty closely, but we're somewhat optimistic that we'll see some benefit. Tom, do you have anything you would add?

No, I mean, I think just we look well. I will add just we are talking about, as you mentioned, the higher cost of conveyance to replace the barrels that have been lost.

Got it. And Eric, if I can ask you about the liquidity options from here, and clearly there's no imminent concern in the very near term, but if it is a lower for longer period of uncertainty, How much more can you do in the secured market? How much assets can you sell as far as MLPable assets go? And is there more room in terms of inventory remediation?

So just going in kind of reverse order there on the inventory intermediation side, that's always an option that I think we've laid out for investors. We do have, you know, call it free and clear anywhere from 25 to 30 million barrels of inventory. So that could potentially free up cash. There are assets. for both the MLP that I think in a normal way environment you could say you could sell, but ultimately for PBF Logistics to suddenly do some type of drop down more than likely would require equity. I don't think that's something that near term seems to be a viable option. I believe we did lay out back in the summer something similar to, and I think we're gonna continue to explore this, however we don't have anything that's imminent, but similar to what we did with the hydrogen plants. We do have assets. that are part of our refining system throughout the United States that ultimately you could do some type of sale-leaseback system or structure that would free up cash, but as a result of the freeing up cash you would have incremental Thank you very much. very strongly that we are on firm ground right now. What we are dealing with ultimately is what's going to happen in the future. And I think liquidity for us, we just go back to cash is king. Liquidity is the most important thing that we're trying to manage right now.

Thank you.

And we can take our next question from Brad Heffern. Brad, your line is open.

Brad, if you're asking a question, we cannot hear you.

Operator, let's move to the next.

Next to Neil Mehta with Goldman Sachs.

Good morning, guys.

Can you hear me okay?

Yes, Neil. All right, great. The first question is just on capital spending. You've done a good job getting CapEx lower in 2020. I'm sure you're doing a lot of planning here for 2021. What do you view as sort of sustaining CapEx levels? And if we are in a tougher situation, Thank you very much.

I think excluding any major planned turnaround and planned downtime, if you took kind of an LTM look from the second half of 2021, so what we've laid out for you in terms of $150 million for the first six months of next year, combined with the roughly $150-ish million for the second half of 2020, $300 million is probably a reasonable sustaining number when we think through general maintenance, We do have regulatory spend that we are obligated to incur. There's clearly an element of safety that needs to be incurred as well. So that's probably a pretty good number. And then we layer on top of that turnarounds and major maintenance. And I think to Matt's point earlier in terms of flexibility, that is something that we have really been working behind the scenes. And I think We've now seen all of the hard work kind of pay off as these refiners have each been able to come back to us at corporate and say, we have the capability to essentially extend run life and be very flexible from a capital plan standpoint.

All right, great. And Eric, this follow up is for you. As you know, I'm no credit analyst, but we've spent a lot of time with your credit investors about the pressure the bonds have been under here really over the last two weeks. Can you help unpack that for us a little bit? What's going on in the credit markets? And then what do you think is being misunderstood?

To be completely honest with you, Neil, I think our focus has been a bit more internally focused. We pay a ton of attention to what goes on in the market and try to talk to as many people as possible to get some color on what's going on. We do spend time with our fixed income investors. What at least we can see based on hearing different things is that we still have very strong support from our large long-only holders in the fixed income structure. And ultimately, the fixed income market is very unique. It does not have the same level of transparency that we see on the equity side of things. We have absolutely paid attention to, across our structure, all of the bond price reductions over the past, call it, four to six weeks. Clearly, the trajectory has accelerated here of late. Don't have any real tidbits for you. I think we would probably push back to the market and ask them what exactly is going on since they are the market experts. But ultimately, we are paying attention. I think our message is very firmly rooted in liquidity is the number one priority for this business. We took some steps back in the spring. We were in triage mode. We did exactly what we were supposed to do, raising a billion and a half dollars of capital. As we sit here today, we've got a billion three of cash. We are focused on operating these assets, reducing and optimizing our cost structure, and making sure that we do all the right things that are ultimately in our control. And I hate to say it, but the bond price is somewhat out of our control right now. Yeah, very clear. Thanks, guys. Appreciate the time.

I'll go next to Phil Gresh with J.P. Morgan. Please go ahead.

Yes, hi, good morning. Just a follow-up on the 21 CapEx. Eric, on the last call, I think you said $500 to $600 million is a good starting point for next year, but now you've referenced the ability to kind of extend the run life and the $300 million of sustaining and the incremental cost out from the East Coast. So are you at this point thinking – roughly that it might even be below that five to six hundred at this point.

I believe the five to six hundred that we gave was assuming that everything returns to normal, whatever the new normal will be. But let's just say in a better refining macro environment than what we see today. So I think that goes back to regular way throughput. You know, it sure doesn't feel like we're going to be there effective on a run rate basis January 1st, 2021. So we really have tried to approach this from a monthly, quarterly, six-month, nine-month view on a go-forward basis. And we're trying to respond to different things that we see in the market. I think our message right now is we don't have the final capital budget approved by our board of directors, but we do feel very firmly that We're going to have to be responsive. I do believe we will have an update, a more fulsome update for you on our February Q4 call. We'll also have a lot more clarity on what 2021 kind of looks like and the medical advances, that sort of thing in response to this pandemic.

Got it. Okay, that's fair. I understand. My second question would be, I guess, for Tom. With the actions that have been taken by the industry on the West Coast, your actions here on the East Coast and some other smaller things, I mean, how are you viewing what amount of capacity you think needs to be rationalized in the United States moving forward, recognizing it's a global challenge? and the U.S. Gulf Coast is lower end of the cost curve. Do you think the United States needs to contribute a lot more in terms of refining capacity out and specifically on the Gulf Coast?

First of all, we've said, I think, before that we're looking a need for somewhere in the area of probably five million barrels a day of rationalization across the globe. and perhaps two million, two and a half million from North America. There has been a fair amount that has either been shut down already, and I include PES in that because obviously that tragic situation, or could have been a tragic situation, took 340,000 miles a day capacity out of the East Coast. So I think we're going to see more rationalization. I think we will see rationalization. Obviously, we have Martinez in the West Coast. We'll see what happens when P66 is announced. They're going to do a renewable plant. There may be more rationalization on the West Coast. There are some... Refinery's out there. They're not that strong, especially when we get back to a more normalized market condition. I think we'll see rationalization in the Gulf Coast. Obviously, you're not going to see it in the guerrilla refineries. You're not going to see it from Beaumont or Baton Rouge. But there's a lot of smaller refineries, TI-based refineries. And again, you've got some majors who have announced that they want to get out of this business, the European majors, who may in fact take some Take some steps. So three to five million barrels, maybe north of that, and that includes some of the Chinese teapots, and two, two and a half million in North America. That's probably realistic.

Got it. So North America, accounting for what's already been announced, it still sounds like you think we need another million to a million and a half, perhaps.

Maybe a million. Yeah, there's been North America with come by chance. And again, I used to, if you just take a look at what I said, and I did have PES in it, you got 340 for PES, you got 160 from Martinez, you've got 130 from come by chance, you've got the Holly refineries, you're already up around Calcasieu I can't say that so you know we're pretty high up there already now Calcasieu may not be permanent but they did issue a one notice so they're obviously contemplating that and you take our 80 and you're already up you know north of a million I think and maybe there's another million very helpful thank you Matthew Blair with Tudor Pickering Holt

Hey, good morning, everyone. I was hoping you could talk about RINs. Do you think the recent move up in D6 RINs is due to lower ethanol inventories? How much RIN expense are you projecting for 2020? And do you feel that just the overall looser environment, does that make it tougher to pass through any RIN costs to the end consumer?

As far as RINs, I would truncate the discussion analysis to there's going to be an election in five, six days, whatever it is. And that so dramatically influences the dynamics around the RINs program. And you have a number of different outcomes depending on who wins. Is there a lame duck period? You know, what happens after the election. So to get into what's driving it, I think there were some concessions that were directly related to the vote that's going to happen next week. And I think there will be some more movements after the election. and it's really as simple as that at this point and I don't think anything has changed between the whipsaw that the RIN market has been lying between and you know so it's not in one direction going to go one way what goes up goes down what goes down goes up but it's continual but the biggest thing is the election next week and nothing that's going to happen you know the EPA is essentially and many more.

We'll just have to see how things unfold from that point.

And our rent obligation will go down in 21 with the reduction on the East Coast.

Right, right. Okay, thanks. And then it seems like there could be a lot of renewable diesel entering the California market, so much so the potential for existing petroleum diesel to get pushed out. I was wondering if you've looked at that and If that were the case, what are the options for Torrance and Martinez? Could you export diesel to Singapore or Mexico? What kind of options do you have?

I would caution some skepticism on the amount of renewable diesel coming on the market. Obviously, we'll react as things come online and even if we can see it coming online. But I think there's been a number of of initiatives that are being studied and being analyzed, but I think we're a long way from coming to fruition. And obviously with the reductions that Tom mentioned earlier on the West Coast, it's still a net reduction of distillate supply once you get to that point. So there's a number of initiatives that have been mentioned. but there's also a number of headwinds that stand in the way. So we'll see how that develops over the next couple of years.

Sounds good. Thanks, guys.

We'll go next to Doug Leggett with Bank of America.

Sorry, guys. I was on mute. Good morning. Good morning. Thanks for taking my questions. Fellas, I hate to beat on this issue, but when you wrap everything together, the potential working capital release, the lower maintenance level, lower capital and so on. When you look at the current futures strip, what do you think your rate of expected cash burn would be on a manual basis looking at the 2021?

I think directionally obviously depending on what what curve you're actually looking at and then break it down by region you're probably including interest in capex we're in the for the for the next call it six to nine months we're probably in the 50 to 75 at times uh again things are kind of moving around with the curve but up to 100 million dollars a month I think we'll start to see the benefit of the east coast reconfiguration really hit in the first quarter So I think our target is in that $50 to $75 million a month range, assuming no change, and assuming that nothing else that we are doing and that we've kind of tried to outline for you in terms of things behind the curtain that our team is really working on, assuming none of that is actually coming to fruition. Okay, that's really helpful.

Go on, Tom. Just an aside. While we're obviously preparing for the worst, and the activities we've laid out are that in mind, there are some green shoots, if you will, in that obviously the margins have been terrible, and they were terrible because there was too damn much inventory. And particularly, first it was gasoline, and then it was diesel. and I don't expect to see significant improvements in margins until that inventory overhang has been cleared, but there is evidence that it's being cleared. Since the end of July to yesterday's EIA numbers, 50 million barrels of Dislit gasoline and jet has been drawn down in that three-month period. And we have gasoline right around the five-year average. Dislit's still got another 20, 22 million barrels to go. Jet demand is going to stay low because people aren't flying, but the refiners have done a good job with lower utilization in keeping jet production such that we're actually below last year's level on jet inventories. I think once we get the inventories cleared and you're not sitting there supplying your sales out of inventory and you actually have to increase production in order to meet your sales commitments, we will get some support in the marketplace. We won't get full support until we can get the demand all the way back. But we will start to see some improvement, at least that's my view.

From your mouth to God's ears, Tom. So let me just ask one quick follow-up, fellas. I know it's something of a sensitive topic, but I just want to make sure we're clear on this. What, if any, are the covenant issues you have on debt? And I'll leave it there, please.

We don't have any covenant issues at all. We are very much covenant light across the board, both including our ABL as well as obviously each of the indentures has its own set of related restrictions. But I think at this point we are well clear of all covenants, both at PBF as well as at PBF Logistics.

That's what I thought. I just wanted to check. Thanks again. Good luck, guys.

Thank you.

We'll go next to Paul Chang with Scotiabank.

Hey, guys. Good morning. Good morning, Paul. Tom or Matt, you're saying that there's no planned turnaround for the first half of the year. In the second half, is there any major turnaround you have to do?

I'll ask Paul Davis who runs the West Coast. We have a turnaround in the second half planned for the West Coast.

We have some turnaround working on the West Coast, but it's not major.

Not major. And previous question, Herman Seedorf, who runs the refining system for us, we had some sessions earlier as we were getting ready to do our business plan. The 2021 capital plan, as Eric laid it out, It's back-ended if it's $500 to $600 million because we've got to return to normalcy. It's back-ended into the second half. No major turnarounds, no turnarounds really, period, in the first half, and really no major turnarounds, but there is some incremental smaller units. But this is a flexible plan. We will respond to the market, and if the market continues to be in this type of situation, the $500 to $600 million is going to go down.

Okay. Maybe this is for Eric. For the 100 million of the cost saving you expect from the reconfiguration of the East Coast, can you break down for us between the personnel cost and other benefits?

I don't think we're going to get into that level of detail across the board, but you should start to see The benefits from the cost savings run through in Q1 of 2021 in the East Coast segment of our financials.

Okay. All right. Thank you.

We'll go next to Benny Wong with Morgan Stanley.

Good morning, guys. Thanks for taking my question. My first one, I think, is for Eric, and I apologize if this was covered already and I missed it. Just wanted to get a sense, if you can give me a little more color of your current liquidity situation and the capacity of your ABL, just trying to bridge your cash position quarter per quarter as well as your ABL capacity there.

So it's essentially, it's slightly increased from our Q2 position. So we have, as opposed to kind of $1.2 billion of cash, we've got closer to $1.3 billion of cash as we sit here today. And ultimately, we've got more than $700 million available under our ABL, which is consistent with where we were at the end of the second quarter. Okay, thank you. So just to confirm, total liquidity of roughly $2 billion as we are sitting here on the 29th of October. Okay, thank you.

And just wanted to get your thoughts around Alberta curtailments, which are lifted by year-end. Do you guys have any anticipation of that having any impact on crude differentials on the Canadian side and if it affects your crude sourcing abilities or improves it for the Canadian barrels?

Thanks, Benny. I mean, yes, the curtailment being going away is certainly a positive development. But, you know, I mean, Canada has had economic shut-ins and then had maintenance or unplanned issues going throughout the second quarter and into the third quarter. So while it's going away, it is certainly a positive development, and we're starting to see the market, you know, not trading in quite as strong as the single-digit discounts to WTI that we had seen throughout the Great, thanks guys.

We'll go next to Jason Ebelman with Cohen. Please go ahead.

Hey, morning. I wanted to circle back on the OPEX cuts that you've discussed. So I just wanted to clarify what the cuts are relative to your run rate right now. So if I'm looking kind of year over year, it looks like SG&A is down $20 million, so annualized $80 million. and you're targeting underlying structural expense cuts of 155 million so does that imply an additional 75 million dollars of annualized cuts and then specifically on the east coast so it looks like OPEX in total is down about on an annualized basis 100 million dollars versus 3Q last year. So is there an additional $100 million to go on an annualized go-forward basis? And then just to round out on the expense guidance, are these cost reductions inclusive of the higher costs related to the hydrogen salmon leaseback? And then I have a follow-up. Thanks.

So there's a lot there to unpack. In regards to the $100 million, that's above where we are today. So as the cost expenses that are in the third quarter, we expect on a run rate basis for the fourth quarter to be similar to the third quarter. And then getting the benefit of the incremental $100 million on the East Coast. In regards to the overhead, my suspicion is what you're referring to is obviously there was bonus compensation in previous years. We don't budget for that. That will certainly come down in the year 2020.

What else did you have? Just if the higher expense from the hydrogen cell leaseback, if that's incorporated into your expense reduction guidance. That's an offset.

No, that's built in.

Okay. Great. That's really helpful. And then I just wanted to circle back on the liquidity, which was asked a couple times because it's not clear. So liquidity was flat quarter over quarter despite – negative free cash flow. So if you just clarify what happened there. Did you take more cash down on the ABL, but then the ABL capacity expanded, or was there something else going on?

Thanks. Round numbers, Jason. We ultimately had $300 million that went out of the system, combined PBF and PBF Logistics. PBF Logistics paid down some debt. We borrowed $300 million, which is what we paid down during the second quarter under our ABL. The overall value of the inventory and receivables that we carry inside of that ABL went up. and ultimately we sold $50 million worth of precious metals through a sale-leaseback transaction kind of regular way that we've done with all of our refineries. It's primarily the Martinez precious metals that we sold. So net-net if you think through 300 out the door, 300 in the door from the ABL and $50 million from the precious metals, that's your net increase in cash of about $50 million quarter over quarter.

Got it. Thanks a lot.

Go to Jason Mandel with RBC Capital Markets. Please go ahead.

Hi, my question was just asked and answered. Thank you very much.

We've reached the end of today's call and I'd now like to turn the call over to Tom Nimbley for closing remarks.

Thank you everyone for joining the call today. We again are looking at our system relentlessly and we hope to show you further improvements and see a better market when we have our next call. Thank you.

This does conclude today's program. We appreciate your participation and you may now disconnect.