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spk01: Good day, everyone, and welcome to the PBF Energy second quarter 2022 earnings conference call-in webcast. At this time, all participants have been placed in the listen-only mode, and the floor will be open for your questions following management's prepared remarks. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. It's now my pleasure to turn the floor over to Colin Murray, Investor Relations. Thank you, sir. You may begin.
spk07: Thank you, Melissa. 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. Copies of today's earnings release and our 10-Q filing, including supplemental information, are 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. The statements in our press release and those made on this call that 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 prior periods, we will discuss our results today excluding special items. In today's press release, we described the non-cash special items included in our quarterly results. The cumulative impact of the special items decreased net income by an after-tax amount of $116 million, or approximately $0.93 per share. For reconciliations of any non-GAAP measures, please refer to the supplemental tables provided in today's press release. I'll now turn the call over to Tom Nibley.
spk04: Thanks, Colin. Good morning, everyone, and thank you for joining our call. For the second quarter, PBF reported earnings per share of $10.58 and adjusted net income of $1.3 billion. Our strong financial results have provided us with the resources to accelerate the repayment of debt we incurred during the pandemic and to continue actions to strengthen our balance sheet. To be clear, the work is not complete. as we remain highly focused on doing more to recover from the ravages of the pandemic. The second quarter picked up where the first quarter ended with volatile market conditions and rising energy prices. Refinery margins expanded as available refiners, other than Russia and China, were called on to run at high utilization levels. The Russian invasion of Ukraine continues to alter trade flows. Russian waterborne crude exports are generally flowing to Asia as Western nations continue rejecting Russian crude and feedstocks. As trade flows reorganize, a couple of themes are appearing. European refiners are lightening their crude slates as the replacement crude for rejecting Russian barrels is generally light sweet crude produced within Europe, West Africa, or the United States. Also, For some time, Europe has been facing a natural gas and power crisis that has only been exacerbated by the Russian invasion. High-priced natural gas in Europe has made upgrading units and hydrogen plants very expensive to operate, giving U.S. refiners a significant competitive advantage. Differentials for light sweet crude versus heavy salad have been widening for a variety of factors. Light sweet crude is for the reasons I just mentioned, plus available upgrading units, coking capacity, et cetera, are generally full. We are seeing a heavy part of the barrel trade at wider discounts to the global benchmarks for light-free crude than we have seen in many years. Heavy fuel oil is quite weak, and there is some market commentary about support coming from the reemergence of IMO 2020 market dynamics. The beginning of the third quarter has seen a 15 to 20 percent correction in oil prices and refining margins. However, underlying fundamentals remain strong. Low inventories, tight supply, improving demand, and reduced refining capacity. Despite that, there are macroeconomic concerns that are weighing on the market. High inflation, rising interest rates, and a rising U.S. dollar. The macro concerns point to contracting oil demand to help bring the energy markets back into balance as the status quo is simply not sustainable. Inevitably, inventories will need to be replenished from these extraordinary low levels. This will require refineries to continue running at high levels of utilization. Our valued employees continue working tirelessly to keep our assets running safely and reliably and we appreciate their contributions to our performance. With our balance sheet improving and the bulk of our 2022 turnarounds complete, we anticipate that our assets will continue generating cash, which we will use to further strengthen our balance sheet and reward our investors. With that, I will turn the call over to Matt.
spk02: Thanks, Tom. As Tom mentioned, PBF's second quarter is one for the books. and demonstrates the earnings power of our refining system and the dedication of our employees. While the extraordinary market conditions seen during the second quarter will eventually normalize, the fundamentals and outlook remain strong. On the East Coast, we completed work on the Delaware City Reformer and other secondary units, which began in March and concluded in April. Additionally, We are in the midst of restarting our idle 50,000-barrel-a-day crude unit at Paulsboro, which we expect to have online in mid-August. We are confident that we'll have enough access to feed for the unit and will help us help ensure that all of our other secondary units on the East Coast remain full. On the West Coast, we recently completed a significant turnaround in torrents of the Alkalation and other ancillary units. The work was conducted primarily in June and wrapped up in the first 10 days of July. Looking ahead to the third quarter and the remainder of the year, our capital expenditure and throughput guidance is presented in today's press release. We have no significant plan maintenance for the remainder of the third quarter. We do have a planned turnaround in Chalmette in the fourth quarter. In addition to our refining capex, we continue to invest in and progress our renewable diesel project in Chalmette. We anticipate startup with full pretreatment capabilities in the first half of next year. Importantly, the project remains on time and on budget. In terms of the Ford refining market, as Tom said, the market needs to reset, as the current high price low inventory conditions are unsustainable in the long term. Over time, we expect that product inventories will eventually return to their historical average levels. However, with a global reduction in refining capacity as well as natural gas advantages in the U.S., we expect to see above mid-cycle refining margins, which is what we are seeing today. Our assets are running well and are positioned to keep the market supplied and capture that margin. Lastly, this morning we announced that PBF Energy has agreed to acquire all the common units of PBF Logistics that it does not already own. This transaction will ultimately allow us to simplify our corporate structure and eliminate administrative, compliance, and cost burdens of running a separate public company. Following consummation of the merger, we believe we'll have a significantly enhanced financial strength. With that, I'll turn it over to Eric.
spk03: Thank you, Matt. For the second quarter, we reported adjusted net income of $10.58 per share and adjusted EBITDA of approximately $1.9 billion. This brings our trailing 12-month adjusted EBITDA to over $2.8 billion. This financial performance provided the foundation for us to accelerate our deleveraging plan. Over the last 18 months, we have reduced consolidated debt by more than 2.6 billion. In addition to the $900 million pay down of our bank facility during the second quarter, we redeemed the full 1.25 billion of secured notes due 2025 on July the 11th. When we include the more than 250 million of open market purchases at a discount to face value, our unsecured debt is now below the pre-pandemic balance. Importantly, we were able to execute our plan while maintaining significant liquidity and have a current cash balance of more than $900 million. On a go-forward basis, we expect to recognize over $165 million of annualized interest expense savings. Simply put, PBF's balance sheet is vastly improved with quarter-end net debt to cap of 24% and net debt of less than $1.1 billion. These statistics represent levels that we have not achieved since 2018. Consolidated capex for the second quarter was roughly $211 million, which includes $157 million for refining and corporate capex, roughly $52 million related to continuing development of the RD facility, and $2 million for PBF logistics. For the second half of 2022, we anticipate total refining and corporate capex to be approximately 200 to 225 million, excluding the RD project. This reflects a return to our normalized pre-pandemic turnaround schedule. Operator, we've completed our opening remarks, and we'd be pleased to take any questions.
spk01: Thank you. In a moment, we'll open the call to questions. The company requests that all callers limit each turn to one question and one follow-up. You may rejoin the queue for additional questions. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Roger Reed with Wells Fargo. Please proceed with your question.
spk05: Yeah, thank you. Good morning and congratulations on the quarter, guys. Nice execution. I guess the biggest question we keep getting from investors is, you know, where do we sit today in terms of demand? We've had some, I'll just say, questionable numbers from the DOE, but overall, you know, things still look pretty solid. So I was just curious what you see on demand and maybe how that fits into some of the discrepancies we're seeing right now in terms of the cash markets, thinking how much stronger the the East Coast is than, say, the Gulf Coast?
spk04: Great question, Roger, and thanks for your comments. We share the same kind of thoughts. There was some aberrance in the coming out of the July 4th weekend that saw, you know, questionable what you do there, and then there was some true-up, I think, between the monthly EIAs from June that got flowed into July, and perhaps that has run its course now, and yesterday's numbers were a little bit stronger. I'll make another comment. So we're seeing, frankly, while there's some headwinds and we've seen some decrease in demand, EIA is reporting that. In our own business, and I'm going to turn it over to Paul Davis in a moment to talk regionally, our demand wholesale level is holding up. We're at basically the same levels we've been for the last 90 days. But you made a very good point on the East Coast. The East Coast demand, the East Coast is structurally impacted more than any other region in the country by what has happened over the last several years. When you look at the amount of refining capacity that's been shut in or cut back in the Atlantic Basin, including PES, including come by chance, a disproportionate amount of capacity in the Northeast. At the same time, the pipes are full coming up from the Gulf Coast. So we have the only coking capacity on the East Coast. So we think the Atlantic Basin has actually had a bigger step forward, if you will, than the other regions, even though the other regions have benefited from what's been going on than some of the others. Paul, why don't you go give Roger an idea by region?
spk06: Well, we can start with the East Coast. You said it pretty well. Cash markets in New York Harbor are very strong and have been very strong. The backwardation is just arguably historic. on cash valuations. Gasoline obviously leads it. Distillates early in second quarter, we're leading it. Jet has been incredibly strong. Jet's actually pricing inside of diesel with net of rent. So the East Coast has really moved up tier and markets for us. Gulf Coast is, as you said, it's pricing for tiers. It's running very strong. We see strong, strong export demands. We see arbitrages into the Midwest and to the East Coast pricing accordingly. We would call it a normalized market. Wholesale-wise, it's probably the weakest market we have, but it's very normalized. Our July numbers look just like our Q2 numbers did on a month-to-month basis. West Coast, very strong. It stayed constant all the way through second quarter and into the beginning of the third quarter. Even with the price challenges at the street, we're seeing our wholesale markets there very strong and remain very strong and supported by the return to work on the West Coast. And in the Midwest, we have a big wholesale business in the Midwest that's remained strong throughout.
spk05: Great. Thanks for that. And then pivoting a little bit here to you, Eric. obviously a tremendous improvement in terms of balance sheet, liquidity, everything. But at this point, what do you feel is the most important thing to do? You're going to consolidate PBFX, so that's got some debt with it. You've got, obviously, some of the environmental obligations that are still out there, and then just the general balance sheet, ultimately maybe a reinstatement of the dividend. Just curious, as you think about
spk03: priorities how that flows through i think you you laid out kind of our plan at this point number one we've we've taken out most of the prepayable debt uh at this point in time and we believe you know the unsecured debt that we have on the books we have ample time to deal with the 25 notes that will come due then uh once pbfx ultimately rolls in, we will handle that particular debt. But ultimately, we've provided ourselves enough financial flexibility here. And quite candidly, that debt's already consolidated on the balance sheet. So when we talk about our $1.1 billion, just shy of $1.1 billion of net debt, that includes that level. From our standpoint, it is simply a matter of continuing to reduce the overall net debt balance, operate well, take advantage of the market when it is afforded to us, and ultimately be reliable because otherwise profitability will not translate into free cash flow. So from our standpoint, we've gotten things significantly in order. And for us now, it's just a matter of execution on the day-to-day business.
spk05: And on the various environmental obligations that have been out there, is there any, does it make sense to go ahead and fund those? Is there any incentive at all to fund them, you know, preemptively?
spk03: I'm not so sure that preemptive. We now have a significant amount of clarity in terms of when these, you know, this is an unprecedented time where we have three outstanding periods under the renewable fuel standard. And so we at least have line of sight in terms of dates when we need to actually turn in credits. Fortunately, I think we've tried to highlight for folks our 2020 obligation is done. That will be turned in at the end of this year. And then we have through Q1 and then into the end of Q3 next year to fulfill the 2021 and 2022 obligations. So included in our accrued liability line is about $850 million of balance sheet related accrual for RENs. Investors should expect that those numbers will start to tick down over time. And then the remainder is ultimately the combination of AB 32 cap and trade and LCFS credits. Those will also trade down or tick down over time because, again, the AB 32 program is a multi-year program that will involve multiple step-downs through the remainder of the existing period. So I think over time they will absolutely go down, but currently there is zero plan to preemptively take care of any type of RIN-related obligation simply because we need to see more of this renewable diesel come online that will ultimately create more RINs. Great. Thank you.
spk01: Thank you. Our next question comes from the line of Doug Leggett with Bank of America. Please proceed with your question.
spk00: Thanks. Good morning, everyone. Thanks for taking my questions. So, guys, you opened up your comments talking about we will see inventories normalised. I guess my question is, what about costs? And I'm thinking specifically about the dynamics on the East Coast, Tom, as you pointed out, have changed dramatically, which... presumably makes the US incrementally more dependent on European imports. And they're paying $60 per 1,000 cubic feet for natural gas today. So when you talk about normalized inventories, how do you think about normalized margins?
spk04: Well, I think, Doug, we would not expect to see a continuation of the margins that we saw in the second quarter. Excuse me. We do expect to be above mid-cycle, and that's because of the structural things that you pointed out, others have pointed out, and we see. We have this extraordinary change in
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