Good day, everyone, and welcome to the PBF Energy Fourth Quarter 2020 Earnings Conference Call and Webcast. It is now my pleasure to turn the floor over to Colin Murray of Investor Relations. You may begin.

Thank you, Daryl. Good morning, and welcome to today's call. With me today are Tom Nimbley, our CEO; Matt Lucey, our President; Erik Young, our CFO; Tom O'Connor, our Senior Vice President of Commercial; Paul Davis, our President of Western region; 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 periods, we will discuss our results today, excluding special items. In today's press release, we provide a detailed list of the noncash special items included in our fourth quarter 2020 results. A cumulative impact of the special items decreased the Q4 2020 net loss by an after-tax benefit of $246 million or $2.04 per share. Additionally, due to the significant losses in 2020, certain deferred tax assets were revalued and drove a significant reduction on our effective tax rate for the fourth quarter and full year 2020. Going forward, we continue to recommend using an effective tax rate of approximately 26% for modeling purposes. As noted in our press release, we'll 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'll now turn the call over to Tom.

Thanks, Colin. Good morning, everyone, and thank you for joining our call today. While we are starting to see some improvement overall, the pandemic continues to wreak havoc on families, communities and businesses globally. PBF was hit hard by the pandemic, and our employees dealt with many hardships at home and at work. Our employees, contractors and business partners operated under enormous pressure during the year, and their resilience allowed PBF to operate safely and reliably through what has hopefully been the worst of the pandemic. The demand destruction experienced by the industry is unprecedented in its severity and duration. Our immediate response was to ensure the safety and security of our people and our facilities. On top of the normal challenges presented by our 24/7 operations, the demand destruction for our products required PBF to operate our assets at lower rates than we had ever attempted over an extended period. Beyond our immediate response to the pandemic, PBF embarked on a strategic review focused on driving efficiency in all areas, including our refineries, logistics assets, systems and corporate back office. We focused on reducing cost, eliminating redundancy, improving processes and determining the appropriate configuration and path forward for the company in order to create a stronger base business. Ensuring the company was financially positioned to operate through the pandemic was a top priority. We raised approximately $1.8 billion to provide the company with the liquidity required to weather the pandemic and stabilize our financial footing. As a result of our strategic review, we reconfigured our East Coast refining assets to operate as a fully integrated system, allowing us to maintain the most profitable aspects of each business, while idling redundant capacity, which should result in $150 million in annual operating and capital expense savings. We expect initial results of our ongoing cost reduction programs to generate an incremental $100 million to $125 million in operating expense savings for the rest of our refining system. In total, our cost reductions in 2020 resulted in over $700 million of savings for the year. Our goal is to make our business more cost competitive, ensuring that all of our assets remain safe and reliable and are positioned to ramp up rates as demand for products improves. We do believe that marketing conditions are improving. Lower utilization rates in 2020, while operationally challenging, meant that supply and demand were reasonably well matched following the initial surge in inventories last spring. By the end of the year, inventory levels were relatively in line with the normal five-year historical ranges. We are not out of the woods yet, as the pandemic continues to dominate our lives and business, but we are seeing positive signs. The vaccine rollout is improving, and more people have now received the vaccine than have tested positive for COVID. This is a good trend that needs to continue in order for demand for our products to recover as people are able to return to their normal routines. We will continue to solidify the savings and operational improvements we've made over the course of 2020, and we anticipate that the fruits of our labor will show as the recovery gains momentum. Lastly, I would like to thank all of our employees for following our pandemic protocols, while continuing their tireless efforts in maintaining the safety and integrity of our operations. And with that, I'll turn the call over to Matt.

Thanks, Tom. As Tom mentioned, the demand destruction required us to take aggressive action to navigate 2020 and, more importantly, to improve our competitive position for the long term. We aggressively targeted cost reductions and operational excellence in 2020. As part of that ongoing effort, it's now incumbent on us to cement that cost discipline as we continue to look for efficiencies across our system. On an apples-to-apples basis, assuming normalized throughput, we have permanently reduced our cost structure by $0.50 per barrel across our system. Of note, the $0.50 takes into account a reduced denominator as a result of the East Coast reconfiguration, which equates to an achieved expense reduction of over $200 million. In the fourth quarter, we ran our refining system at just over 675,000 barrels a day in total. Until demand picks up, we will continue to operate at reduced rates. We believe that the global industry rationalization was necessary and will likely continue. PBF participated in this effort with our East Coast reconfiguration. As of December 31st, the reconfiguration is complete. Obviously, anytime there's a loss of jobs and shutdown of units, it becomes a very difficult working environment, but the people at Paulsboro distinguished themselves as consummate professionals, as everything was done safely and in line with our expectations. I would like to comment on the renewable fuel standards as we've seen RINs prices double since the third quarter and rise over ten times since last January. The RFS remains a broken program, which brings specific harm to independent merchant refiners like PBF. The prior administration made attempts to level the playing field but left the situation worse than when they started. While the new administration is still getting its feet on the ground, there are steps that can be taken in the immediate term to address the current crisis. PBF is actively engaged in addressing the immediate steps as well as long-term solutions for the RFS program. We look forward to working with all the constituents on promoting a fair and balanced program that levels the playing field and does not disadvantage domestic merchant refiners. However, unless the administration and Congress address the program, the unfortunate trends of refinery closures and loss of jobs in the U.S. are likely to accelerate, which will increase U.S. reliance on import fuels, further impacting our energy independence. As I mentioned, there's a lot of work to be done by the EPA in taking comments on proposals in front of it, including proposed economic harm waivers, deciding on SREs, establishing the 2021 required volume obligations. Additionally, there are cases in front of the courts in the next couple of months that will give us further clarity on the program going forward. Looking ahead, as we continue to focus on improving our core refining operations, we fully recognize that certain aspects of our business are seeing increased momentum in terms of the drive for cleaner and more sustainable fuels. We certainly believe that cleaner fuels are going to be a part of the future, and PBF will be a part of that evolutionary process. We are committed to producing clean fuels in an economically responsible manner. Today's fuels are the most affordable, abundant, and economic sources of energy for transportation and literally make modern life possible. They are also critical to a strong economy, which is necessary to advance investments in a more diverse energy mix. Refining assets are well suited for supplying a variety of both conventional and renewable fuels. At PBF, we have two distinct pathways to participate in the fledgling renewable diesel market. Number one, all renewable diesel produced in this country, and most of the produced in the world for that matter, has a market incentive to be sold in the state of California. As the owner and operator of two large California refineries, along with proprietary logistics assets, PBF will look to play a significant role in the distribution of renewable diesel as it enters the state. Number two, with our refining footprint, PBF has a competitive advantage to manufacture renewable diesel. While PBF has viable opportunities to enter the market on the West Coast and the East Coast, Chalmette has unique attributes that distinguish it above our other prospects. Chalmette is well positioned in the Gulf Coast with excellent access to water, rail, and truck logistics. Additionally, Chalmette happens to have an idled hydrocracker with an ample supply of hydrogen that would allow for a 15,000 to 20,000 barrel a day project, which would be capable of processing any renewable feedstock to come on stream in half the time and at half the cost as other projects that have been announced in the marketplace. Over the last three years, our Chalmette project team has returned two other idled process units to service. Those projects were delivered on time and on budget and provide insights and experiences that will be valuable in this exercise. Technical feasibility is ongoing, and we are advancing discussions with potential feedstock suppliers and strategic partners. While we continue to advance this project, it is still in the development stage and, as such, we have not yet gotten to our final investment decision, but we are encouraged by the prospects. We continue to focus on items within our control, reducing costs, improving the competitiveness of our refining assets and business as a whole, and running safely and reliably. With that, I'll turn it over to Erik.

Thank you, Matt. Today, PBF reported an adjusted loss of $4.53 per share for the fourth quarter and adjusted EBITDA of negative $364 million. Included in our results for the quarter was the previously disclosed severance expense included in G&A related to the East Coast refining reconfiguration. Additionally, as outlined on Page 6 of our press release, there were a number of significant onetime special items included in our GAAP results. As a result, our effective tax rate for the fourth quarter and full year 2020 differ from comparable prior periods. In 2020, we used the flexibility of our balance sheet to support the challenges of our business during the pandemic, which included a $250 million tack-on to our secured notes in December of last year. Our current liquidity is over $2.1 billion based on a cash balance of $1.25 billion and available borrowing capacity under our ABL. As we outlined in our last call, we expected working capital to be a tailwind in the fourth quarter. We were successful in reducing overall inventory to meet certain year-end targets, which, when combined with the onetime reduction in East Coast inventory associated with the reconfiguration and increased net payable terms for feedstocks, resulted in a benefit of more than $300 million. The benefit was larger than we forecasted in November primarily as a result of the rising hydrocarbon price environment. Prices have continued to climb since the fourth quarter, which will reverse a portion of the working capital benefit if the current price trajectory continues. Consolidated CapEx for the quarter was approximately $50 million, which included $47 million for refining and corporate CapEx and $3 million for PBF Logistics. For the full year 2020, our consolidated CapEx, excluding acquisitions, was $394 million. That included $11 million for corporate CapEx and $12 million for PBF Logistics. Our 2021 capital program is designed with intended flexibility, which will allow us to adjust our plans, depending on market conditions. For the first half of 2021, we expect to spend approximately $150 million in refining capital. Importantly, we have no planned turnarounds or significant major maintenance activity scheduled for the first half of this year. As has been mentioned, we took aggressive action to provide the necessary liquidity for PBF to successfully emerge from the pandemic. Based on the forward curve, assuming a continuing demand recovery, we see a path to positive cash flow from operations during the second quarter. Our top capital allocation priority upon generating cash, following the safety and reliability of our operations, will be to focus on delevering and continuing to strengthen our balance sheet. Operator, we've completed our opening remarks and we'd be pleased to take any questions.

Our first questions come from Doug Leggate of Bank of America.

Look, you guys are navigating a really, really tough environment, and I think you need to be congratulated for the steps you've taken. So we realize it's tough, but we also recognize the steps you're taking. So good luck with the continued efforts there. I do have a couple of quick questions. So first of all, I wonder if you can speak to the cost competitiveness of the balance of the system. You've taken some pretty drastic steps already. But if you look, for example, at the external benchmarking, like Solomon and things of that nature, where do you think the PBF system sits today? And are you comfortable that the current configuration, the current portfolio is now viable or sustainable through the balance of the bottom of this cycle?

Thank you, Doug, and I appreciate the opening comments. Let me address the last part of this. I'm not a huge supporter of Solomon, though it has its advantages; it works better for operating costs than for margins. Regarding the portfolio, we are confident we have strengthened it significantly with the East Coast configuration, which has proven beneficial for both parts of the system. We maintained the strong aspects of Paulsboro, particularly in loose production and high margins, with asphalt performing significantly better than I expected last year, likely due to infrastructure investment. We also eliminated 85,000 barrels of lower-performing fuel operations in Paulsboro and transferred some of that to a more robust fuels operation in Delaware, which has improved our operating cost structure. We've seen significant improvements in operating costs in Chalmette and Toledo. There is still work to be done on the West Coast, but our main issue right now is utilization, which will only be resolved when the pandemic situation improves. Increasing throughput means we can do so on a variable cost basis, leading to a notable reduction in our unit costs from where we are today, which is unsustainable. However, we are confident in our asset base; we have two of the highest-performing assets on the West Coast, which are not currently rewarded, but we feel secure about those facilities. Matt, would you like to continue?

Yes, Doug, I want to emphasize that we aim to present information simply. When discussing expenses, different throughputs can create confusion, particularly regarding fixed and variable costs. I focus on comparing the pre-pandemic normalized throughput with the post-pandemic normalized throughput, which is lower since we've reduced 85,000 barrels a day on the East Coast. Despite this, we expect to reach $0.50 a barrel, which includes a significant rise in insurance costs unrelated to PBF. This increase is due to the global insurance market and wildfires in California. Insurance costs are unpredictable, and while they may decline in the future, it's not something we can control. Nonetheless, we are actively working on this challenge every day. Although the reconfiguration on the East Coast is complete, there is still optimization work to be done since it began on January 1. Each day, we learn better ways to optimize the newly reconfigured East Coast.

The new administration's RINs is what we can expect next. So just wondering at a high level, I'll let someone else ask about margin outlook and so on, but we're obviously facing a different outlook, an uncertain outlook in terms of things like carbon tax, in particular. So I'm just wondering what contingencies or what steps you can take. Will it be through lobbying, negotiations, discussions, just highlighting the challenges?

Doug, you're cutting out. Regarding our efforts in Washington, it's unfortunate that it consumes a lot of time. I want to emphasize that the RINs and the RFS program is not a partisan issue; it involves agriculture and traditional energy sources. The constituents are not simply categorized by red or blue states. Clearly, Mr. Biden often references his credentials with labor unions, but I believe they made a significant compromise with the workforce represented by the XL pipeline. We are actively engaged in Washington concerning the RFS program and related initiatives. In terms of carbon tax or similar programs, PBF's influence diminishes when there are programs that are administered equitably. The main issue with RFS is its unfair administration. If a gas or carbon tax is applied equally, that conversation is between politicians and citizens to discuss. Our specific concern with RFS is that it is flawed. There are merchant refiners, retail refiners, integrated oil companies, and blenders, all of which face different economic situations due to the way the RFS program was structured. These discussions are ongoing. I believe the EPA administrator was confirmed by the Senate yesterday, so he will likely start his work immediately. I expect him to approach this issue with an open mind, given his previous experience in North Carolina. He's reasonable and serious, and we look forward to discussions with him, as well as with the administration, Congress, and governors. The discussions are dynamic and follow a repetitive pattern, as they have not yet implemented a long-term solution for the program.

Our next questions come from the line of Neil Mehta of Goldman Sachs.

The first question is just around liquidity. Can you just remind us again where you are real time? It sounds like working capital unwound a little bit at the beginning of the quarter. And just daily cash flow burn, if you have any back-of-the-envelope around that or monthly cash flow burn, just so we can map out how the balance sheet is going to evolve if current conditions persist.

Sure. Thanks, Neil. It's Erik. We observed a significant influx of working capital in the fourth quarter, exceeding our expectations. We anticipate that most of this working capital will likely flow out of our system throughout 2021. To counterbalance this, based on the current forward curves, we firmly believe that as we move into 2021, we will face a monthly cash burn of $50 million to $75 million, which we expect will eventually turn into a positive cash flow, particularly around the timing of the second quarter. This outlook is contingent on no significant changes to the forward curve. In the fourth quarter, we incurred slightly higher losses than we had initially projected, but this was mitigated by working capital. The forward curve, however, is starting to align with our expectations, and we look forward to seeing increased demand moving ahead. We are confident in stating that $50 million to $75 million a month is a reasonable estimate for cash burn as we approach the second quarter, and we anticipate a positive shift around the middle of the second quarter.

Right. Yes. That should get better as demand improves. The follow-up is around renewable diesel. You threw out a teaser there for us, Matt, so I wanted you to flesh that out. And the related cost question is around RINs. One of the ways, obviously, you can mitigate your RINs expenses is to build out a renewable diesel business. So first question is sort of how do you think about 2021 RINs expenses if current prices hold? And then the follow-up is what is the strategy around renewable diesel? Can you flesh out some of what you were saying in your prepared remarks?

I think it's challenging to consider RINs as static. While it’s a possibility, there's a lot to learn in the coming months. Many who aren't directly involved recognize that the program has issues. Additionally, the Supreme Court's decision to review the Tenth Circuit’s ruling speaks volumes. We'll see what unfolds in the next few months. Regarding our RIN program, we will continue to manage it. The program offers flexibility concerning compliance periods, which allows us to navigate it effectively. The best approach we see is proactive management, similar to our past practices. The renewable diesel opportunity, along with RINs, LCFS credits, and blender’s tax credits, is crucial for economic viability since it involves converting a more costly product to meet BTU content requirements. This discussion is ongoing, and while it does offer some RIN protection, the renewable diesel segment must be viable on its own, and it currently is. We believe we are in a strong position because we have an idled hydrocracker and all the necessary infrastructure like tankage and logistics. This makes it significantly more expensive for others to enter the market through brownfield projects compared to our existing setup. We also benefit from operational synergies, as our marginal costs for steam and hydrogen are lower than those of a standalone facility. It's crucial to note that RINs cannot be double counted, but the renewable diesel initiative will certainly provide some protection regarding RINs.

And Neil, I think just to put some numbers around the RIN expense. For 2020, we had RIN expense of just over $325 million that flowed through the P&L. So obviously, with the rising price that Matt mentioned in Q4, we expensed just shy of $145 million of RINs. And ultimately, for 2021, as we've seen, unfortunately, coming out of DC, we do not know the RVO for 2021. But based on our current estimates, a safe assumption is probably PBF on a net basis should have a RIN liability in terms of number of RINs of around $550 million to $600 million RINs. That will obviously move depending on what we do in terms of exports, other strategies that we may employ. And at this point, I think it's difficult to say exactly what this RIN price is going to be through the end of the year, but that's a pretty good parameter to use.

Our next questions come from the line of Phil Gresh with JPMorgan.

Erik, just a follow-up on the RINs. You mentioned the expense in the quarter and the year. Where does the balance sheet liabilities stand at the end of the year? And how do you anticipate the cash outflows associated with that? I presume that might be outside of the free cash flow or cash burn numbers you were talking about, so I just wanted to clarify.

No, I believe we are accounting for the RIN expense we expect to incur this year, along with the working capital from hydrocarbons and other elements that will contribute to the $50 million to $75 million. We have addressed most of it in that estimate. When the 10-K is released, you will see that the figures are not solely based on RINs, and we are not comfortable disclosing the specifics of this composition as we strive to manage all our environmental credits as effectively as possible. There is proprietary work involved, so I go back to what Matt mentioned about RIN prices increasing tenfold this past year. We prefer not to share many details regarding our strategies. However, at a high level, you should expect to see that accrued expense figure around $500 million, which will include RINs, AB 32 credits, and other environmental credits grouped together. The key takeaway is that we currently hold more than $2 billion in liquidity, which we believe is sufficient. Furthermore, as long as our forecasts remain unchanged, we anticipate transitioning to positive cash flow. While we generated a significant amount of cash from working capital in the fourth quarter of last year, most of that will return throughout this year and will be counterbalanced by positive cash flow from operations starting in the middle of the second quarter. This will enable us to meet all regulatory requirements moving forward.

Okay. Got it. And then just in terms of the improvement that you're seeing in the market today from a fundamental perspective, I'm frequently getting the question of how much the improvement in the crack is from the increased RINs. I think others have suggested it might be up to half of the improvement, and the crack spread is coming from the RINs. But I'm just curious how are you thinking about the fundamental picture today, kind of outside of your own cash burn numbers that you provided.

Phil, this is Tom. We are feeling cautiously optimistic about our direction. It ultimately hinges on controlling the virus, and there has been notable progress in that area. Every state has now vaccinated more individuals with the first dose than the confirmed cases they have reported, and this is true nationwide. Nearly 45 million doses have been administered compared to 27 million confirmed cases. That’s a significant number. We are currently inoculating up to 1.5 million people daily, with a four to five-day average around 1.35 million. We are on the right path, and we have a stable supply of vaccines. With Johnson & Johnson expected to be approved around the end of this month, we will soon have an additional vaccine available. Currently, cases are below 100,000, and hospitalizations are under 80,000. The vaccination program is effective, especially for high-risk groups, which reduces ICU capacity and helps lower case numbers across all states. States are beginning to reopen, and when combined with a strong stimulus package, I believe there will be significant pent-up demand. When the weather improves, we could see surprises in a positive direction. We are confident that demand recovery prospects are genuine, compelling us to increase utilization. As I mentioned earlier, every barrel we allocate operates on a variable cost basis, which will reduce our cost structure. Importantly, the additional crude required to meet the anticipated demand will likely come from a heavier, sour crude sourced from OPEC, OPEC+, and potentially by year-end from Iran and Venezuela. Our advanced infrastructure in the PBF complex has not benefited in recent years due to market intervention and sanctions. As demand rebounds, we expect the increased reliance on heavier barrels will widen crude differentials, which will be advantageous for our operations.

Our next questions come from Matthew Blair with Tudor, Pickering, Holt.

So the EPA has proposed extending the compliance deadline for the 2020 RFS. I think they're talking about moving it to January 31, 2022. Currently, it's March 31, 2021. Does this have any impact on PBF? And if so, can you walk us through it? And also, would this affect your cash or liquidity balance if it was not extended?

No, to answer the second part first. But to answer, will it have an impact on liquidity if it's not extended, no. Going to the first point, does it help? Yes, because it provides more flexibility in the way we want to manage the program and not only PBF but the rest of the marketplace. And so by extending the deadline by ten months, it just provides more time. And then there's other levers that you can play with in regards to compliance periods as well. So yes, I mean, I think it was the one thing that the previous administration left behind that was directionally helpful. I think they obviously failed in that they left the program worse than when they found it, which is the ultimate test. But yes, the compliance period is directionally helpful, and it provides more flexibility for all the participants.

Sounds good. And then I had a couple of clarification questions on renewable diesel proposal. First, would this impact the existing diesel production at Chalmette? And then second, I think there was a comment that you're looking to run any renewable feedstock. So I just want to confirm that, that means you envision building a pretreatment unit to run the lower CI feedstocks.

Yes, the project contemplates a pretreatment facility. If we learn anything in the refining business, you need to have optionality on feedstocks, and so that's how we envision the project. To go to the first question, the renewable diesel effort at Chalmette would have zero impact on the remaining refining operations at Chalmette. You'd be able to essentially ring-fence the hydrocracker and run it as a standalone unit. And like I said, it simply won't have any impact on refinery operations.

There are no further questions at this time. I'd like to turn the call back over to Tom Nimbley for any closing remarks.

Well, thank you very much for your interest and attendance today. We look forward to talking to you and hopefully delivering on the fact that we have turned positive cash flow in the second quarter in the next call. Thank you.

This does conclude today's call. You may disconnect your lines at this time. Thank you for your participation, and have a great day.