PBF Energy Inc. Q1 FY2021 Earnings Call

Good day, everyone, and welcome to the PBF Energy First Quarter 2021 Earnings Call and Webcast. At this time, all participants have been placed in a listen-only mode and the floor will be open to your questions following management's prepared remarks. Please note this conference is being recorded. It's now my pleasure to turn the floor over to Colin Murray of Investor Relations. Sir, you may begin.

Thank you, Melissa. 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; 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 first quarter 2021 results. The cumulative impact of the special items increased net income by an aftertax benefit of $273.9 million or $2.27 per share. 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 contained 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're not out of the woods yet, our business saw a strong recovery during the first quarter. The vaccine rollouts have picked up and people are starting to come out from their respective COVID and winter hibernations. Market conditions are improving; lower utilization rates in 2020 kept refining product inventories within very reasonable ranges coming into 2021. Aside from the catastrophic personal impacts of Winter Storm Uri, the storm continued to clean up and balance inventory levels. The crash responded as a result of the storm, but operational discipline meant that the impacts we're seeing in lower inventories rather than higher utilization. Product inventory levels are now at or near their five-year average levels. Industry data shows that gasoline demand, domestic gasoline demand has recovered to approximately 95% of normal levels. Distillate demand has fully recovered and is even 5% or so above historic levels. While jet demand remains at about 75% of normal levels, it continues its slower recovery. Demand is the key driver. Increased demand will provide support for improved refining margins, which in turn will support incrementally higher utilization. Higher refining run should increase the calls on crews from producers, and this should have a positive impact on differentials. We're seeing green shoots of this effect with discounts widening modestly for shallow crude oils as incremental barrels are coming from the Middle East. We expect this trend to continue as demand improves. To be clear, the industry is coming off a very low base, and many of the incremental data points are positive. We believe that a strong domestic recovery from the pandemic will continue to drive increased demand for our products. Internationally, the recovery has not been as consistent or smooth as we've experienced in the U.S. But those regions will recover as well. This should provide a backdrop where we see a more gradual but sustained growth in product demand. We're encouraged by what we have seen in the market. We expect utilization going forward will be pulled by demand rather than run ahead of it. We're expecting to run almost 25% more barrels through our system in the second quarter than we did in the fourth quarter of 2020. This is a very big step in our recovery. Lastly, I'd 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. We look forward to the day when we will have all of our team members back to the office, which we believe will occur by the end of the second quarter. With that, I'll turn the call over to Matt.

As Tom mentioned, markets are being driven in the right direction as demand is increasing. Our aggressive efforts to improve PBF's competitive position should help accelerate the company's recovery. We targeted cost reductions and operational excellence. We're cementing the savings achieved over the last 12 months and realizing the benefits of continued cost discipline. We believe our ongoing efforts will result in a permanent shift of our refining cost structure that will make us more competitive. We're expecting more than a $0.50 per barrel reduction in operating costs across our system versus historical levels. That's over $250 million per year at full run rates. In the first quarter, we ran our refining system at just over 745,000 barrels per day in total, which is 10% higher than we ran in the fourth quarter. The midpoint of our second quarter throughput guidance is approximately 855,000 barrels per day or approximately 15% higher than Q1. We believe the demand recovery for our products is taking shape and our rate increases reflect a response to that demand. We're not going to run ahead of demand, but we'll continue to be disciplined and responsive to the market. The challenges faced by our industry during the pandemic were met with discipline by operators, which resulted in the difficult but necessary decision to rationalize capacity globally. As recently as last week, we have continued to see global capacity rationalization with the announced conversion of the South African Engine Refinery into a product terminal. This trend will likely continue outside the U.S., which was early to rationalize capacity. In addition to the pandemic, runaway compliance costs under the RFS program are creating another unsustainable burden on merchant refiners. The RFS program is a broken program, and if the problem is not addressed, it will likely result in a reshaping of the U.S. refining industry. The RIN basket now equates to $0.18 per gallon cost on transportation fuel, a value equivalent to the Federal excise tax. However, this cost is not being collected by the Federal government, nor is it levied equitably on market participants. This cost is being borne by the consumer and the merchant refiner. And as it pertains to D6 ethanol RINs, it accrues to the benefit of large integrated oil companies and large retailers. PBF is engaged in discussing the immediate steps needed, as well as possible long-term solutions for the RFS program. We continue to work with all 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 the U.S. reliance on imported fuels, increase costs to consumers, and further impact our energy independence. Looking ahead, focusing on the things within our control, we're concentrating on the cost competitiveness of our core refining operations and improving margin capture. While refining remains our core business, we fully recognize the increased momentum and desire for renewable fuels. Today's fuels are the most affordable, abundant, and economic sources of energy for transportation, and they literally make modern life possible. They're also critical to a strong economy, which is necessary to advance investments in a more diverse energy mix. In February, PBF announced a potential renewable diesel project at our Chalmette refinery. Our project is intended to maximize the benefits of Chalmette's strategic location on the Gulf Coast with excellent access to water, rail, and truck logistics, as well as our synergistic California logistics footprint. Additionally, Chalmette has an idle hydrocracker with an ample supply of hydrogen that would allow for approximately 20,000 barrels a day renewable diesel production facility. We continued our detailed review of the project and expect that once we reach final investment decision, our project would be capable of coming on stream within 12 months of that decision at a significantly lower cost than similarly announced projects. We're in active discussions with potential strategic partners and expect to reach a decision point in the coming months. Our assets are running well today. Thanks to our dedicated employees, we have put ourselves in a position where we should be able to benefit from improving market conditions. With that, I'll turn it over to Erik.

Thanks, Matt. As mentioned a moment ago, there were a number of significant one-time special items included in our GAAP results that are outlined on Page 6 of our press release. Today PBF reported an adjusted loss of $2.61 per share for the first quarter and an adjusted EBITDA loss of $190.9 million. Consolidated CapEx for the quarter was approximately $60 million, which includes $59 million for refining and corporate CapEx and $1 million for PBF logistics. As we have discussed on previous calls, our 2021 capital program was designed with intended flexibility. For the first half of 2021, we continue to expect roughly $150 million in refining CapEx. As a result of improving market conditions, we elected to advance some of the maintenance on the East Coast into the second quarter, and this is finishing up now. Please note that our Q2 throughput guidance is inclusive of this activity. Looking to the second half of the year, we expect capital expenditures to be roughly $250 million to $300 million, and we expect to perform turnarounds and related projects at Delaware City, Chalmette, and both West Coast plants. Our financial results, while not cash flow positive for the first quarter, continue to improve as the rebound from the pandemic progresses. We believe March was an inflection point as we generated positive adjusted operating margins, and we still believe that the combination of an improving market backdrop and a more streamlined cost structure at PBF should result in a return to positive cash flow. Our liquidity position remains strong, with over $2.3 billion of total liquidity, including $1.5 billion of cash at the end of the first quarter. We continue to manage our balance sheet and financial resources to provide us with flexibility in the near-term. There are many factors that can change the trajectory of working capital flows, namely commodity prices, inventory levels, feedstock differentials, and the cost of renewable energy credits will be a factor over the remainder of 2021. We do expect to see approximately $550 million of working capital outflows through the remainder of the year. Operator, we've completed our opening remarks and we'd be pleased to take any questions.

Our first question comes from the line of Theresa Chen with Barclays. Please proceed with your question.

Good morning, everyone. Tom and Matt, in your prepared remarks, you specifically spoke about the unsustainable headwind of elevated RIN costs for the industry. And I wanted to delve into this a little bit more, just with the Supreme Court currently reviewing the SRE case. Can you walk through the different scenarios of what you think can happen from here? And what are your expectations at this point for the blend mandate, and maybe the program going forward?

Thank you for the question. There are many unresolved issues as the Supreme Court case has sparked interest among those I've spoken with. People seem hopeful, but the government has not yet released the Renewable Volume Obligations for this year, and it's overdue. That leaves a lot of uncertainty. The primary concern remains the need for direct communication with the administration, the EPA, and Congress to clarify the intended and unintended consequences of their decisions. The RFS program is flawed. With Secretary Reagan coming in, he appears to be a fresh perspective with no prior vested interest. We're collaborating closely with our colleagues to engage directly with the administration. The reality is that the RFS program is dysfunctional; we keep reiterating this. In the case of biodiesel, the market operates fairly well as a pass-through, but the situation with gasoline, ethanol, and D6 RINs is entirely unfair. If this is not rectified, increasing soybean prices will make refining less profitable, leading to broader implications.

Let me just add a few things to that. I mean, as Matt spoke of it, obviously, the Supreme Court case was heard. Before that, there was a hearing at the Circuit level on the E15, a decision made by the EPA to allow year-round E15. Certainly, there was a motion to basically go back and dismiss that. So there are two places, and the course that could still remain unknown, that will weigh in on this. With the lobbying efforts that Matt spoke of, we've got governance petitions that have gone into the EPA that have not been responded to regarding requests for economic farm waivers for merchant refiners in particular. The EPA will ultimately have to respond to that. And the last piece of your question is, if this thing just keeps going and going and going. Of course, this program sunsets. It sunsets at the end of December 31, 2022; at that point, it would remand to the EPA. The EPA has already reached out and requested comments from all parties, including the agricultural lobby and the refining industry, as to what things could be done to make the program better if indeed, we go down that route. One of the things that is being discussed is to go to more of an LCFS program, which, as you all know, I’m sure that is all pass-through to the consumer 100%. There’s no prioritization given to large retailers and large refiners versus merchants. So a lot of activity, but we need action sooner than later on this.

Thank you for that thorough answer. I guess, turning to your assets in the West Coast, and it looks like you're looking for a material step-up in throughput quarter-over-quarter, along with your other regions, maintenance aside. But specifically to this region, can you talk about what you're seeing there and what you're seeing in terms of demand across your footprint, and is this step-up just primarily a function of things opening up, mobility increasing, or are there other factors at play?

Well, it's primarily associated with mobility and the state opening up; obviously, the State of California has announced that effective June 15, the state is opened completely. Paul Davis, our President of the West Coast region was out there last week, and the traffic on the highways is pretty much back to what it was pre-pandemic. So demand is clearly up. We talked about the demand comparisons pre-pandemic to now across the region. But it's the same story, and in fact, a little bit more bullish on gasoline right now. And on PADD 5, we are about 97% of pre-pandemic demand. So clearly, we've seen utilization come up. But I would point out, and I think everybody is aware of this, we’ve mentioned in previous calls, what we watch closely, we’re very confident we already seen diesel eclipse our pre-pandemic levels. That's being driven by the fact that we saw at Port of Long Beach, Port of LA, cargo ships, container ships, in April, March, and April that were unloaded. We are at a 40-year all-time high. So there’s a ton of container ship traffic out there. Obviously, that means that there's diesel demand as you unload those containers and they transport the material that was in and across the entire country. Gasoline demand is coming back very strong. Jet is moving grudgingly, but jet is the one thing that we have to really pay attention to not only in PADD 5 but across the whole system. But it really is a little bit, for PBF it is more of an issue on PADD 5 because of the amount of international travel that comes out of Seattle, San Francisco, and LA. Of course, it's the international travel that is recovering more slowly; we are actually seeing domestic travel start to come up pretty nicely. But overall, we're seeing good demand and utilization in California right now, at both refineries is about 85%.

Thank you. Our next question comes from the line of Phil Gresh with J.P. Morgan. Please proceed with your question.

Yes, hi, good morning. Maybe just starting with the cash flows in the quarter. I think in the fourth quarter call, your cash balances were around $1.25 billion. Now they're almost $300 million higher than that. So Erik, if you could give a little color about some of the moving pieces there. I appreciate the commentary about the working capital for the rest of the year; maybe some of that was just a push out of that impact to the rest of the year, but any additional color would be helpful.

Yes, I think we have discrete uses of cash that we expect to roll through Q2 through Q4 of roughly $550 million. We've tried to keep it consistent with where we were, essentially in the February timeframe, when we walked everyone through the Q4 results. We did see a stronger benefit from working capital than we expected, and quite frankly, a portion of that is probably going to be quasi-permanent. What we don't know, we built some inventory; there are puts and takes across our working capital, ups and downs. We don't know where crude prices are going to go. We did build some inventory during the first quarter, for example. Some of that has been offset by essentially deferral of payment on a variety of different topics, and quite frankly, I think our team continues to do a very good job of managing cash, managing suppliers, and extending payment terms. A combination of all those things on a normalized basis resulted in about $150 million of cash coming through the system. One thing that I think is important to note is our financial results do include roughly $130 million of a noncash mark-to-market on our environmental law obligations that shows up in the form of working capital as well. But this is essentially accounting treatment based on our overall net position of where we are for our environmental obligations. I think Tom and Matt give a pretty thorough overview on RINs. One very important change since our last call is that the EPA has now allowed the 2020 obligation to essentially be fulfilled by the end of January 2022. Our 2021 obligation does not change; our fulfillment date is still the end of March 2022. However, there is the opportunity to extend that 2022 obligation for the fulfillment period until March of 2023. Where we stand today, with the volatility and the current state of the RIN program, we are going to maintain as much financial flexibility as possible when it comes to managing our RIN and environmental credit position. So I think the key message is, while we were able to generate some incremental cash from working capital during the quarter, we do know that there are roughly $550 million of cash discrete uses that will again roll through our cash flow statement, hit the balance sheet, obviously reduce our cash balance through the remainder of the year. But we do believe that we have reached an inflection point here. As we transition not only to generating positive operating margins but most importantly, generating enough margin to cover all of our CapEx and interest, that ultimately a portion of that $550 million will be offset by net cash from operations through the second half of the year.

Okay, guys, that's very helpful. I guess, just to clarify on your environmental liabilities commentary, and the push out to January of next year, does the $550 million of outflows include any prepayment, I guess, of what would essentially be a 2022 obligation at this point? And order of magnitude, how much is that obligation today?

I don't think we're comfortable disclosing all of the nitty-gritty detail behind what we're doing from a credit standpoint because quite frankly, while the cost of credits have increased, I think just looking at where the market has gone over the past three to five months, we've seen a significant run. If commitments are made, for example, to purchase credits three months ago, suddenly, those credits might not actually have been paid cash for yet; they’re left to settle, and they could be worth 35% more today, or this is just round numbers as an example. Overall, included in the $550 million is ample cash for us to ultimately fulfill our obligations for our 2020 timeframe.

Okay. Okay. And then just my second question on renewable diesel, do you have a rough sense of perhaps what a CI score target might be given that you have a pretreatment unit and any work you've done around feedstock or just color there? Thank you.

Yes, in our design and planning, we are preparing to build a pretreatment unit, which will provide us with the flexibility to utilize whatever feedstocks are available. There is certainly an incentive to use the lowest carbon intensity feedstocks possible. Therefore, we will have the capacity to process any of those types or specific feedstocks, such as coking oil, that have the lowest carbon intensity scores.

Thank you. Our next question comes from the line of Doug Leggate with Bank of America. Please proceed with your question.

Thanks, fellas. Good morning. Thanks for taking my question. I know you spend a lot of time on RINs earlier this morning, but I wonder if you could help us with how you see the net cost in the quarter. So obviously, the RIN obligation is a cost of RINs, but obviously some of that is reflected in the cost. So how would you characterize your net cost of the RFS in the first quarter?

So, Doug, we expensed roughly $280 million of RINs during the first quarter, and again $130 million of that had absolutely nothing to do with our day-to-day activity during the quarter. So our net RIN expense for what our six plants manufactured and ultimately sold is roughly $150 million for Q1.

Okay. Give an expectation for how that could play out in the balance of the year or what are you assuming for the balance of the year?

I think we are still consistent in our thinking. It would be helpful to know the actual Renewable Volume Obligations for the year. We are making some estimates here. Based on last year's obligations, we project that we will have between $550 million and $600 million in net Renewable Identification Numbers gallons that we need to fulfill by either March 2022 or March 2023, depending on our choices. Honestly, we likely won't be able to make that decision until the second half of this year.

Okay. Thank you for that. My follow-up just real quick on the cost reductions. I'm just curious if you could give any color on the breakdown on sustainability; I'm really looking for how much of the cost reductions are structural versus something you might have to get back as demand, and obviously markets and pricing recover?

Yes, we aim to be as transparent as we can. When we mention the $0.50 per barrel, it refers to our operations versus 2019 when we normalize. We are $0.50 per barrel better across our system. It’s important to note that comparisons can be tricky when volumes fluctuate and energy costs vary. However, we have focused on a direct comparison and have reported only the sustainable changes in our cost structure. In reality, our cost savings are more substantial than what we’ve disclosed since our variable costs have decreased. On a true comparative basis from 2019 to the normal run rates post-pandemic, we have successfully lowered our cost curve by $0.50 per barrel.

Thank you. Our next question comes from the line of Manav Gupta with Credit Suisse. Please proceed with your question.

Hey guys. My question relates to the OPEC and South East indicating that they would actually raise their volumes. I wanted to know what your thoughts are on the heavy-light spread. Additionally, do you think the OPEC dynamics change if Iran is given a deal by President Biden?

That's a great question. Let me take the first part. We certainly believe that the path to recovery here for the refining industry and PBF, in particular, starts with getting the pandemic under control. That is clearly happening in the United States with the pandemic under control, the economies of the state open up. With the opening up of the economies, we see the demand growth, as we're sitting here; Matt indicated to me that the first quarter GDP numbers came out with a 6.4% GDP growth in the first quarter. We are seeing that increase in recovery and in demand; demand begets utilization, utilization begets improved cracks. The coal on OPEC+ crude is going to be somewhere around 6 million, 7 million barrels a day by many forecasts. As I say, that may include some WCS, but almost all of the rest of it is going to be OPEC. We are seeing indications that Iran is already supplying at least those reports that they're supplying somewhere around 900,000 barrels to 1 million barrels a day of crude to the Chinese through different avenues. But it certainly appears the Biden administration is very interested in getting back to a deal with Iran on the nuclear deal. We would not be surprised to see Iran pumping 2 million, 2.5 million barrels a day of crude by the end of the year, but we'll have to watch it closely.

Thank you. That's a very detailed answer. My quick follow-up there is, earlier in the year, we saw the Governor of California trying to ban internal combustion engines now he wants to ban fracking; it looks like he wants to remove California from oil and gas completely. And you indicated you're working with the federal government and Biden administration. Are you also working with the Governor of California and trying to convince him that some of these plans are not exactly making sense?

Yes, absolutely. And we're not doing it alone, obviously. It’s interesting, both in the United States with the issues with RINs etc. and specifically to California, Governor Newsom has come out and said, okay, firstly, ban the internal combustion engine by 2035, ban fracking by 2022. The fracking is not a huge component of the production. Then he also put in a cease and desist on all crude oil production by 2045. While I won't be around in 2045, I’m sure that may change in the intervening period. The Unions are very upset with the Governor of California; he's betting everything he's got on the Green movement. They are seeing these jobs being threatened and going away. We've already got one refinery that shuttered; we have another one that may convert to renewable diesel. The California Energy Commission is getting concerned about what's going on, and we're working very closely individually, going to Sacramento to make a case. The Western States Petroleum Association, which is basically the lobbying arm for the Western states, is all over this pushing mightily and trying to get support from many people, not just the Unions, but basically people who are going to see their jobs threatened or see gas prices go up. I would not be surprised to see gas prices in California go past $5 a gallon here, maybe even around Memorial Day. Sooner or later, the U.S. population is going to say enough is enough. I think there's going to be a lot of pushback, but there’s certainly a green agenda for Governor Newsom as he gets ready to fight his recall.

Thank you. Our next question comes from the line of Neil Mehta with Goldman Sachs. Please proceed with your question.

Good morning team. I just wanted to go back to the renewable diesel project. You talked a little bit about the pre-treatment facility and how you're managing feedstock. Can you talk a little bit more about the conversations you're having with potential partners? What are you looking for them to bring to the table from a strategic or financial perspective to advance the project?

We've had robust discussions across the spectrum. We came into it with a whiteboard with one critical aspect that was a guiding principle: money is a commodity, and that can be priced. Clearly, we're looking to offset some amount of capital by bringing in a partner. But we're not bringing in a partner simply to bring in a commodity. We've been in active discussions with several parties that can bring strategic value. Depending on who the partner is, it can be potentially on the feedstock side, it could be on the optic side, it could be any number of ways where, together, the two parties can get the project to the finish line and make the partnership stronger. We’ve been very pleased with the discussions we've had. It's our hope and expectation over the next couple of months to cement the partner that we want to move forward with and see if we can get the project to the point where we'd like to go forward. I expect that by the time of our next call, I expect more news on that.

Okay, and at the point of FID, Matt, how long do you think it will take for construction? We're just trying to think, is that something that will come online in 2022 to capture the benefit of the BTC?

Look, when I take a step back, and we look at the competitive landscape and the attributes we potentially bring, we believe the Gulf Coast is the best place to construct and have the operation. This is because it's sitting at our refineries, at the mouth of Mississippi, where you have access to a wide variety of feedstocks. Not only that, you're a point of distribution, you have the ability to deliver it into California if that's the highest netback at a much more competitive rate than the Eurail from the middle of the country. But then you also have the flexibility to deliver, whether it's to Europe or Northwest Canada, wherever the market is demanding and you can get the highest netback. One of the single greatest attributes we have at Chalmette is an idle hydrocracker. To your point, I've had discussions with partners, where they’re saying their alternative discussions are talking about projects coming online in the second half of the decade. We believe we will be operational essentially in a year from our FID. If we get to a point over the next couple of months that we’re able to move forward, we think we'll have the project operating within a year.

Thanks, Matt. And the follow-up is just around integration on the East Coast. Obviously, tough margins in Q1, and it sounds like things are getting better. But you're bringing together two facilities. So just talk about how that's going and what's left to be done?

Nothing's left to be done; it has gone very well. We've achieved our cost goals and integration. This was not a brand-new initiative; ever since we acquired both facilities, we had the intent to optimize the two systems. We have further tied the two facilities. In regards to how it's proceeding and what more needs to be done, the optimization effort is always continual. But all the cost reductions have been put in place, and we're moving feedstocks and finished products back and forth between the two facilities, as we've designed. Nothing’s ever a completely finished product. But we're pleased with the efforts; the employees did an amazing job. We need the market to be there to reward us, but we feel our system is definitively stronger today than it was six months ago.

I'd just add, Neil. At the high-level 50,000 feet, the logic here was to move the fuels operation to Delaware City to shrink the fuels operation at Paulsboro, but importantly retain the lubricant and asphalt operation in Paulsboro; it remains very strong. With that infrastructure, we expect that we're going to see a strong asphalt market going forward. So we’re pleased with how it's going so far.

Thank you. Our next question comes from Karl Blunden with Goldman Sachs. Please proceed with your question.

Hi, good morning, guys. Thanks for the time. Just digging a little bit more on the working capital side of things. You mentioned discrete uses of cash of about $550 million. Could you break that out a little bit more in terms of your expectations around AB 32 and inventory and remediation if anything over there?

I think it's consistent with where we were back in February. We have roughly $250 million of discrete cash that we're going to need to ultimately use in the fourth quarter related to AB 32. The remaining $300 million relates to environmental credits. Again, there's nothing that will roll through in all three quarters coming at us here. There’s nothing we see that's a one-time bullet payment that will hit in Q2, Q3, and Q4.

That's it. Thanks, Erik. And then, in terms of free cash flow, in recent quarters you provided some guidance on how that might look as you go through the quarter sequentially by month. Is there anything you could offer on that front? Or is visibility quite limited at this point?

Well, I think obviously, we're getting closer. We started laying out kind of this nine-month view, and with every passing day, we’re getting closer to the end of that nine-month timeframe. I think we feel firmly consistent that we're going to be in that $50 million to $75 million a month number; that includes EBITDA or operating contribution, whatever metric you'd like to start with, less CapEx and less interest. It also takes into account all corporate expenses, as well as working capital. We still believe we're in that range. What we have seen probably since February, it has occurred more over the course of the past month; where our exit rate at least from an estimate standpoint, as we exit the second quarter, we believe we will be exiting at an EBITDA or positive operating contribution rates that will allow us to cover our monthly CapEx and interest. Therefore, we should be free cash flow positive as we exit the second quarter; margins have been pushed a bit to the right, but ultimately, the margin profile has increased. It’s a little too early to really walk through what's going to happen here; the pandemic response and the vaccination rates have been rocky in certain regions. But ultimately, we believe March was very much an inflection point for us. Our first step was to generate positive operating contribution on the activity that occurs every day at the plant; we've done that. Now we need to generate enough money to cover all of our costs, and then will come off the back of incremental margin, higher capture rates, and ultimately lower operating costs as a result of permanent cost structure reductions that should be rippling through our system through the remainder of the year.

I'll just add on that last point that Erik made. Up until the time that we saw the increase in demand, obviously, we were running as everybody was at very low throughputs, which effectively meant that your fixed costs were divided by a very low number and therefore elevated. As we come up in utilization, we now cover those fixed costs. It’s almost three barrels on the fixed cost side and on the secondary cost side. That’s a big deal in terms of not only are we seeing the margin improvement from the fracks, but we're going to get out from under the burden of the low utilization, which is causing us to have high unit costs.

Thank you. And just finally, on the renewable fuel project, I know you've touched on it quite a few times with different ways to structure it. But should we assume that you would look to prioritize the liquidity impact of that and limit the initial cash outflow as you complete that? Or is that just kind of one of the range of elements as you think about the economics of the project?

Yes, clearly a partner will be bringing in some amount of capital. And obviously, PBF already has the infrastructure and facilities in place and everything that can dramatically reduce time to market and capital costs, operating costs. In terms of how that ultimately looks, that’s something we’re working on, as we speak.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the floor back to Mr. Nimbley for any final comments.

Well, thank you, everybody for joining the call today. As you can tell, we’re encouraged about the recovery in the United States, and that's good for the health of every citizen of the United States, and it's good for our company. We look forward to talking to you with the next quarter.

Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.