PBF Energy Inc. Q3 FY2020 Earnings Call

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 opened for your questions following management’s prepared remarks. Please note, this call may be recorded. It is now my pleasure to turn the floor to Colin Murray of Investor Relations. Sir, you may begin.

Thank you, Rid. Good morning and welcome to today’s call. With me today are Tom Nimbley, our CEO; Matt Lucey, our President; Erik Young, our CFO, and several other members of our management team. A copy of today’s earnings 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 described in our filings with the SEC. Consistent with our prior quarters, we will discuss our results excluding special items. Non-cash special items included in the third quarter 2020 results, which decreased net income by an after-tax charge of $73 million, or $0.62 per share, consisted of a net tax expense on re-measurement of deferred tax assets, and impairment expense related to the PBF Logistics write-down of certain long-lived assets, offset by a lower-of-cost-or-market inventory adjustment, change in the fair value of the contingent consideration associated with the earn-out provision related to both the Martinez acquisition and the PBF Logistics CPI acquisition, and a benefit related to the change in our tax receivable agreement liability. As noted in our press release, we will be using certain non-GAAP measures while describing PBF’s operating performance and financial results. For reconciliations of non-GAAP measures to the appropriate GAAP figure, please refer to the supplemental tables provided in today’s press release. I will now turn the call over to Tom Nimbley.

Thanks, Colin. Good morning, everyone, and thank you for joining our call today. The challenges brought on by the global pandemic and restrictions imposed on the U.S. and global economy continue to pressure 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 improved conditions for crude will result in a better market environment. Through these challenging times, PBF's 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 have noted in today's press release, we are closely examining our refining portfolio and are determined to emerge from the current crisis as a stronger company with increased efficiency and lower costs across all of our assets. In tandem with our ongoing system-wide cost reductions, East Coast reconfiguration is another important step on our path to increasing our long-term competitiveness. We are scrutinizing all of our operations across the country and are committed to finding additional efficiencies. We identified significant opportunities for further integration by preserving the greatest strengths of both Paulsboro and Delaware City refineries while significantly reducing costs going forward. Unfortunately, the positive effects of the East Coast configuration will come with burdens. It will directly impact the livelihoods of many of our employees here in New Jersey. The current crisis has necessitated these 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 are hopeful for better times ahead. With our stated goal of increasing competitiveness, we continue to actively review all of our assets and options. While the urgency of this is heightened given the current market conditions, the decisions will yield a stronger based business. On a positive note, we have seen demand incrementally increase over the last several months, and inventory levels have been trending down favorably. Product inventories continue to normalize, with gasoline well within the five-year average range, and distillate inventory levels have decreased. Although demand is still weak, jet inventory levels are below the five-year average. We believe this is a positive backdrop for demand ultimately recovering. Maintaining operational discipline is crucial in preserving this delicate path to improving fundamentals. We are seeing very few signals that 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 resiliently rise above the current challenges and maintaining the safety and integrity of our operations, as well as for adhering to 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. Regarding the East Coast reconfiguration, which we highlighted in our press release this morning, I would like to make three important points. First, rationalization is necessary. Second, the move creates significant savings in the current market without a decrement in a normalized market. And third, 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. Moving to the second point, the reconfigured East Coast improves cash flow by approximately $75 million to $100 million annually, 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 believe there will not be an economic debit to the historical earnings power with the new configuration. To the third point, we believe we have strengthened our East Coast system by isolating Paulsboro's most profitable businesses, while also increasing utilization on Delaware City's secondary units. For the Paulsboro refinery, we are maintaining our lubes and asphalt operation while significantly reducing fuel production. We will increase the interdependence of the two refineries and promote higher utilization and efficiency from the remaining units. Delaware City will process the intermediate feedstocks that Paulsboro continues to produce. Essentially, the East Coast will be shedding its least economic crude and its lowest netback products. Historically, we have purchased intermediates on the East Coast, which will no longer be needed post-reconfiguration. Specifically, we will be shutting down Paulsboro's two smaller crude units: the FCC, the reformer, the alkylation 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 compared to historical averages. Again, the East Coast reconfiguration will result in a refining system that will be stronger by isolating Paulsboro's strengths and increasing Delaware City's utilization. We are beginning reconfiguration work as we speak and expect to complete it by the end of 2020. With regards to our refining operations in the third quarter, we ran our refining system at approximately 70% capacity, or approximately 706,000 barrels per day in total. Until demand picks up and inventory levels decrease, 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 decreased in part due to lower throughput but also through meaningful targeted reductions we plan to convert into 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. This $280 million consists of $125 million associated with reduced throughput and deferrals, and $155 million of expense reductions. Going forward, assuming normal throughput, we expect to maintain $115 million to $130 million of expense savings, excluding the changes from Paulsboro, and in addition to the East Coast reconfiguration, which provides an incremental $100 million of operating expense savings. This brings the total OpEx savings on a run rate basis as of January 1, 2021, to $215 million to $230 million. We continue to focus on the items within our control. In the months ahead, we are committed to crystallizing our current operating cost reductions into permanent savings and generating incremental margins through unit-level optimization. Now I'll turn the call over to Erik.

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're taking aggressive steps to reduce our cost structure and continue to focus on bolstering 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 due to 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 respond to market conditions. Importantly, we have no major turnarounds or significant maintenance activities scheduled for the first half of 2021. Our initial CapEx estimate for this period is $125 million to $150 million. We will adjust 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.

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. We'll go first to Roger Reid with Wells Fargo.

Yes. Thank you. Good morning. I 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 plan? I think it's not like a secret that 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 a step? Is there more that can be done? Is it the kind of thing that improves as you go along? And typically with this, as you kind of learn the processes, you know, you see additional opportunities for improvement?

It's a great question. The answer is that we've considered various options in the past. We initially connected Delaware City and Paulsboro during the company's formation to utilize the assets effectively, aiming to produce ultra-low sulfur diesel without significant capital investment by transferring intermediate stocks between the two locations. As we evaluated the situation, we recognized the potential to enhance our operations, with the 30-mile distance between the sites presenting an opportunity. Everything has been integrated into our overall portfolio, which applies to our logistics and refining system as well. This is just the first step, but we're open to exploring all possibilities. The integration we established between Delaware and Paulsboro may not create enormous synergies, but I believe it will yield better than the sum of its parts. The setup consists of a small-scale refinery, but it’s a complex that optimizes our production capabilities. For instance, asphalt is a high-margin product that we anticipate will remain valuable in the future, while Delaware specializes in chemicals and benefits from superior crude processing capabilities. This was the logical initial move for us. Ultimately, I am confident that as we delve deeper into operations, we'll uncover additional opportunities to enhance the market beyond what we've projected.

Thank you. The next question is open to anyone who wants to answer it. As we consider additional cost reductions, we see the potential to reach 230 when comparing 2021 to 2019. Can you share where else you might find extra savings, or are we at a point where only limited savings are possible, and now we must wait for improvements in demand and market conditions?

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

I wanted to follow up on that. Some of these quarters may not be entirely comparable due to things like turnaround work. If we look back to the first quarter of 2019, cash operating expenses were $453 million, and this quarter they are $458 million, even without the addition of Martinez. This suggests there is potential to reduce costs. I'm really hoping to find out if there are other areas where you anticipate identifying cash operating expense savings as we evaluate 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. 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 on it. In regards to managing the business, what is within our control. It's pretty simple: managing expenses, managing capital, as Erik laid out. The turnaround team has done an exceptional job of managing this business, taking downtime where otherwise turnarounds were necessary, elongating turnaround cycles which has a major impact on 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 actively doing as well.

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 Theresa Chen with Barclays.

Good morning. I wanted to discuss the outlook for the East Coast in a more normalized environment. We haven't had a real summer driving season since PF 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 will play out in the path to normalization? And what can happen as far as margin and demand goes?

I believe we have thoroughly considered this situation. If Come-by-Chance is indeed permanently offline, it was a refinery that sold its products into the harbor and transferred them to our area. Reducing our capacity in Philadelphia could potentially benefit the region. We are also closely monitoring the ongoing rationalization process, which I expect will continue. Although margins in the United States are poor, they are still better than in many areas of Asia, Singapore, and Northwest Europe, where demand is under significant pressure. We have observed the beginning of rationalization, and I anticipate this trend will continue. In Europe, there is a distinct approach to transitioning away from traditional fossil fuels at a pace that companies like BP, Total, and Shell have publicly announced. This should lead to a decrease in production, and Europe typically supplies a considerable amount of imported products to the U.S. East Coast or Northeast. We're keeping a close eye on this situation and recognize the significant shortfall in our region. There is a demand for imported gasoline, but because of the rationalization process, running barrels and incurring shipping costs to move products here is not feasible for them. We will continue to monitor this closely, but we are cautiously optimistic about potential benefits. Tom, do you want to add anything?

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

Got it. And, Erik, if I can ask you about the liquidity options from here. Clearly, there's no imminent concern in the very near term. But if it is a lower for a longer period of uncertainty, how much more can you do in the secured market? How many assets can you sell as far as MLP-able assets sold? And is there more room in terms of inventory remediation?

Going in reverse order there, on the inventory intermediation side, that's always an option that we've laid out for investors. We do have, call it, free and clear anywhere from 25 million to 30 million barrels of inventory. So that could potentially free up cash. There are assets for both the MLP that in a normal environment, you could say you could sell. But ultimately, for PBF Logistics, some type of drop down would likely require equity. I don't think that's something that seems viable in the near term. I believe we laid out something similar back in the summer, and I think we're going to continue exploring this. However, we don't have anything imminent. Similar to what we did with the hydrogen plants, we do have assets that are part of our refining system throughout the U.S. that could ultimately be put into some type of sale leaseback structure that would free up cash. However, freeing up cash would result in incremental liabilities being placed on our refining system on a go-forward basis. From a financing standpoint, we have $250 million carve-outs available for incremental first lien secured debt. We have another basket of roughly $500 million in second lien capacity that is available. What I would tell you is right now; your point is absolutely spot on. There is no near-term issue for us in terms of liquidity. We feel very firmly, very strongly that we are on solid ground right now. What we're dealing with, ultimately, is what will happen in the future. I think liquidity is paramount for us. We just go back to cash is king. Liquidity is the most crucial thing that we are striving to manage right now.

Thank you.

And we can take our next question from Brad Heffern with Macquarie. Please go ahead.

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

Operator, let's move to the next.

We'll go next to Neil Mehta with Goldman Sachs.

Good morning, guys. Can you hear me, okay?

Yes, Neil.

Alright, great. The first question is just on capital spending. You've done a good job getting CapEx lower in 2020. You 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 environment as the curve implies for next year, how low can you drive capital spending without compromising the quality of your assets or reliability?

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 million for the second half of 2020. $300 million is probably a reasonable sustaining number when we think about general maintenance; we do have regulatory spend that we are obliged to incur. There’s clearly an element of safety that needs to be taken into account as well. So that's probably a good number. And then we layer on top of that turnarounds and major maintenance. To Matt's earlier point, in terms of flexibility, that is something we have really been working hard on. I think we’ve now seen all of the hard work start to pay off as these refiners have each been able to come back to us, corporate and say we have the capability to essentially extend run life and be very flexible from a capital plan standpoint.

Alright, great. And Erik, 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 is 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 inward. We pay significant attention to market trends and make an effort to engage with as many people as possible to gather insights. We also spend time with our fixed income investors. From what we've heard, we still have strong support from our large long-only holders in the fixed income structure. The fixed income market is distinct, lacking the same transparency seen in equities. We have noted all the bond price reductions over the past four to six weeks, and that trend seems to have accelerated recently. I don’t have specific insights to share; we would likely turn to the market experts for clarification. Nonetheless, we are aware of these developments. Our primary focus remains on liquidity, which is our top priority. Earlier this year, we took necessary steps by raising $1.5 billion in capital. Currently, we have $1.3 billion in cash and sufficient liquidity through our ABL. We are concentrating on managing our assets, optimizing our cost structure, and making decisions that are within our control. Unfortunately, the bond prices are somewhat beyond our control at the moment.

Yes, very clear. Thanks, guys. Appreciate the time.

We'll go next to Phil Gresh with JP Morgan. Please go ahead.

Yes. Hi. Good morning. Just a follow-up in the 2021 CapEx. Erik, in the last call, I think you said $500 million to $600 million is a good starting point for next year. But now you've referenced the ability to extend the run life and the $300 million of sustaining and the incremental costs from the East Coast. So, are you at this point thinking roughly that it might even be below that $500 to $600 at this point?

I believe $500 to $600 million was given assuming everything returns to normal, whatever the new normal will be, but let's just say it in a better refining macro environment than what we see today. So, I think that goes back to regular way throughput. As it stands, I don’t feel like we’re going to be there effectively on a run rate basis by January 1, 2021. So, we really have tried to approach this from a monthly, quarterly, six months, nine months view on a go-forward basis. 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 strongly that the refineries that we have and the teams at the refineries have all done a good job. We think $150 million is ample CapEx to incur during the first six months of the year. We’re going to have to be responsive. I do believe we will have an update, a more detailed update for you on our February Q4 call. We'll also have a lot more clarity on what 2021 looks like and what the medical advances are that sort of thing in response to this pandemic.

Got it. Okay. That's fair. Understand. My second question would be, I guess, for Tom. With the actions taken by the industry on the West Coast, your actions here in the East Coast, and some other smaller moves, how are you viewing the amount of capacity you think needs to be rationalized in the U.S. moving forward? Recognizing it's a global challenge? And the U.S. Gulf Coast is lower down 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, we've stated I think before that we're looking at a need for somewhere in the area of probably 5 million barrels a day of rationalization across the globe, and perhaps 2.5 million from North America. There has been a fair amount that is either been shut down already. I include PES in that because obviously, that tragic situation took 340,000 barrels per day of capacity out of the East Coast. So I think we'll see more rationalization. I think we will see rationalization. Obviously, we have Martinez on the West Coast. We'll see what happens when P66 announces their renewable plant. But there may be more rationalization on the West Coast. There are some refineries out there that are not that strong, especially when we return 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 major refineries. You're not going to see it in Vermont, or Baton Rouge. But there are a lot of smaller refineries, TI based refineries. And again, you've got some majors who have announced that they intend to exit this business. The European majors may well take some steps. So a range of three to five, 5 million barrels might be north of that, and 2 to 2.5 million in North America is realistic.

Got it. So North America accounting for what's already been announced. It still sounds like you think we need another million to 1.5 million, perhaps?

Maybe around a million. In North America, we have Come-by-Chance. If you look at what I mentioned, it includes PES as well. You've got 340,000 from PES, 160,000 from Martinez, 130,000 from Come-by-Chance, and the Holly refineries. We're already close to that figure. While these numbers may not be permanent, they did issue a notice, indicating they are considering it. Adding our 80,000, we are already above a million, and potentially another million could be on the way.

And Matthew Blair with Tudor Pickering & Holt. Please go ahead.

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 again the election in five, six days, whatever it is. That so dramatically influences the dynamics around the RINs program. You'll have a number of different outcomes depending on who wins. There’s their lame-duck period. What happens after? So to get into what's driving it? I think there were some concessions directly related to the vote that will happen next week. And I think there will be some movement 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 lays in between. And so, it’s not in one direction. It can go one way; what goes up can come down and vice versa, but it's continual. The biggest issue right now is the election next week; nothing will happen until we know which direction the country is going.

From an expense standpoint, for the year, I think a reasonable number is probably in the $250 million to $300 million range. We still have a couple of months to go for the fourth quarter, but ultimately, we've incurred year-to-date about $185 million of expense hitting the P&L. Roughly $85 million of that was expense during the third quarter. So, we’ll just have to see how things unfold.

And our RIN obligation will decrease in 2021 with the reduction on the East Coast.

It seems there could be a significant amount of renewable diesel entering the California market, potentially pushing out existing petroleum diesel. Have you considered this? If that happens, what are the options for Torrance and Martinez? Could you export diesel to places like Singapore or Mexico? What options are available to you?

I would advise some skepticism about 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 there’s been a number of initiatives that are being studied and analyzed. I think we're a long way from coming to fruition. And obviously, with the reductions mentioned earlier on the west coast, it's still a net reduction of distillate demand once you get to that point. There are numerous initiatives that have been mentioned; but there are also several headwinds standing 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 Leggate with Bank of America.

Sorry, I was on mute. Good morning. Thank you for taking my questions. First, I don't want to dwell on this issue, but considering everything together, the potential working capital lease, the lower maintenance level, and lower capital expenses, where do you anticipate your annual cash burn rate will be for 2021?

I think directionally, obviously, depending on what curve you're actually looking at and then breaking it down by region. You're probably including interest in CapEx. We're probably in the, call it, $50 to $75 million at times, again, things are kind of moving around with the curve, but up to $100 million a month. I think we'll start to see the benefit of the East Coast reconfiguration hit in the first quarter. So I think our target range is in that $50 million to $75 million a month, assuming no changes and assuming that nothing else that we are doing and that we've outlined for you in terms of what's happening behind the curtain is actually coming to fruition.

Okay. That was really helpful. Go on, Tom.

Just as an aside, while we're obviously preparing for the worst and the activities we've laid out are in mind, there are some green shoots. If you will, margins have been terrible, primarily due to excess inventory. Initially, it was gasoline, then distillate. We don’t expect to see significant improvements in margins until that inventory overhang has been cleared. However, there is evidence that it has been cleared. Since the end of July to yesterday’s EIA numbers, 50 million barrels of distillate gasoline and jet have been drawn down in that three-month period. We have gasoline right around the five-year average. Distillate still has another $20 million to $22 million to go. Jet demand will likely stay low because people aren't flying, but 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 clear the inventories, and you're not supplying your sales out of inventory but actually producing to meet your commitments, we should see some support in the marketplace. We won't get full support until demand recovers. But I believe we will see improvement at least. That’s my view.

And that's a fair assessment. Thank you.

Thanks, Doug.

So let me just ask one quick follow-up. First, 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 at this point, we are well clear of all covenants both at PBF and at PBF Logistics.

And 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, do you think that there's no kind of 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. Do we have a turnaround planned in the second half for the West Coast?

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

Not major. To Paul’s previous question, one aspect of our refining system was we had some sessions earlier as we're preparing our business plan. The 2021 capital plan, as Erik laid out, is back-ended. If it's $500 million to $600 million because we need to return to normalcy, it's back-ended into the second half. No major turnarounds or any planned in the first half. Additionally, there are no major turnarounds, but there are some incremental smaller units. If it is a flexible plan, we will respond to the market. If the market continues to be in this situation, the $500 million to $600 million is going to go down.

Okay. Maybe this is for Erik. For the $100 million of the cost savings expected from the East Coast reconfiguration, can you break it down for us between personnel costs 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 reflected in the Q1 of 2021 in the East Coast segment of our financials.

Okay. Alright. Thank you.

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

Hey, good morning, guys. Thanks for taking my question. My first one, I think is for Erik, and I apologize if this was covered already. I just want to get a sense if you can give me a little more color on your current liquidity situation and the capacity of your ABL. I'm just trying to bridge your cash position quarter by quarter, as well as your ABL capacity there? Thanks.

Thanks. So, it’s essentially, it's slightly increased from our Q2 position. So, we have as opposed to $1.2 billion of cash; we've got closer to $1.3 billion of cash as we sit here today. Ultimately, we've secured 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.

To confirm, total liquidity of roughly $2 billion as we're sitting here on the 29th of October.

Okay, thank you. And just want to get your thoughts around Alberta curtailments, which are lifted by year-end. Do you guys have any anticipation of that impacting crude differentials on the Canadian side? And does it affect your crude sourcing abilities or improve it for the Canadian barrels?

Thanks, Benny. The curtailment being lifted is certainly a positive development, but Canada has faced economic challenges and had maintenance or unplanned issues throughout the second quarter and into the third quarter. So, while removing the curtailment is certainly positive, we are starting to see the market not trading as strong as the single-digit discounts to WTI that we’ve seen throughout the second and third quarters. Traditionally, you would expect production to increase in the fourth quarter and the first quarter with differentials being slightly wider. As it stands, we are consuming a little bit of WCS related products right now and will be assessing it as the market changes.

Okay. Thanks, guys.

We'll go next to Jason Gabelman with Cowen. Please go ahead.

Hey. Good morning. I wanted to circle back on the OpEx cuts that you've discussed. I just wanted to clarify what the cuts are relative to your run rate right now? So if I'm looking year-over-year, it looks like SG&A is down $20 million. So annualized that's $80 million. And you're targeting underlying structural expense cuts of $155 million. So does that imply an additional $75 million of annualized cuts? And then specifically on the East Coast, so it looks like OpEx in total is down about an annualized basis of $100 million versus Q3 last year. So is there an additional $100 million to go on an annualized basis? And around the expense guidance, are these cost reductions inclusive of the higher costs related to the hydrogen sale-leaseback? And then I will follow up. Thanks.

So, there's a lot there to unpack. Regarding the $100 million. That is above where we are today. The current cost expenses in the third quarter are at a run rate. We expect from the fourth quarter to be similar. Additionally, we will benefit from the incremental $100 from the East Coast. Regarding the overhead, my suspicion is what you're referring to is obviously, there was bonus compensation from previous years and we don't budget for that. That will certainly be down for 2020. What else did you have?

Is the higher expense from the hydrogen sale-leaseback included in your expense reduction guidance? Is that considered an offset?

No, that is built-in.

Okay, great. That's really helpful. And then I just want to circle back on the liquidity, which was asked a couple of times, because it's not clear. So liquidity was flat quarter-over-quarter despite negative free cash flow. So can you 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 at 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. Overall, the value of the inventory and receivables we carry inside of that ABL went up. We also sold $50 million worth of precious metals through a sale-leaseback transaction. This primarily came from the precious metals at Martinez. So net-net if you consider $300 out the door, $300 in the door from the ABL and $50 million from the precious metals, that accounts for your net increase in cash of around $50 million quarter-over-quarter.

Okay. Jason Manda 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. Again, we are looking at our system in a relentless manner, and we hope to show you further improvements and see a better market when we have our next call. Thank you.

This concludes today's program. We appreciate your participation, and you may now disconnect.