Good day, everyone, and welcome to the PBF Energy Third Quarter 2021 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 conference is being recorded. At this time, it is now my pleasure to turn the floor over to Colin Murray of Investor Relations. Sir, you may now begin.

Thank you, Rob. 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 and our 10-Q filing, including supplemental information are available on our website. Before getting started, I'd like to direct your attention to the Safe Harbor statement contained in today's press release. In summary, it outlines that statements contained in the press release and on this call that express the company's or management's expectations or predictions of the future are forward-looking statements intended to be covered by the Safe Harbor provisions under federal securities laws. There are many factors that could cause actual results to differ from our expectations, including those we described in our filings with the SEC. Consistent with our prior periods, we will discuss results today excluding special items. In today's press release, we describe the non-cash special items included in our third quarter 2021 results. The cumulative impact of the special items increased net income by an after-tax benefit of $45 million, or approximately $0.37 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 provided in today's press release. I'll now turn the call over to Tom Nimbley.

Thanks, Colin. Good morning, everyone, and thank you for joining our call today. We are pleased to report positive quarterly net income for the first time since the onset of the pandemic. Reaching this point took longer than anticipated, yet it is indicative of the continuing global recovery from the grip of the pandemic. Demand has improved for our products, as economic activity increased, and more people resumed their pre-pandemic routines. Gasoline demand has been robust and is currently at pre-pandemic levels, while distillate demand is beyond 2019 levels. We are seeing improvements in all our regions and expect to see strong demand persisting, as more people return to their offices, get on planes for both leisure and business, and we move beyond the impacts of the current COVID variant. Increases in demand coupled with clean product inventories that are at or below the five-year levels should be supportive of above mid-cycle margins in the near term. Additionally, we are seeing incremental crude oil production coming from some of the world's largest producers, which modestly widened medium and heavy sour crude differentials during the third quarter. We expect this production trend will continue, because global markets are calling for increasing supply. Given our exposure to heavier and sour barrels, we expect widening differentials to provide an incremental benefit to the strong underlying demand. Heading into year-end, rising natural gas prices have been gaining a fair amount of attention. In refining, natural gas is an important input in terms of both refining processes and operating expenses. For PBF, approximately 15% to 20% of our operating expenses are related to natural gas in terms of direct use and energy consumption. We do expect to see elevated costs relative to natural gas, but we also expect these costs to be somewhat offset through clean product margin support for liquid fuels, primarily distillate, as power providers and other end users elect to switch from gas to liquid fuels. Our belief is that domestic refiners, especially in the Atlantic Basin, are at a competitive advantage because higher costs associated with natural gas increase the advantage on a relative basis versus our international competitors. Demand remains the key driver. We expect that demand in 2022 will continue its strong recovery and certainly exceed 2021. With that, I will turn the call over to Matt.

Thanks, Tom. As Tom mentioned, we are pleased with the current market conditions, as they are certainly trending in the right direction. Our assets operated reasonably well during the quarter, while navigating some challenges, not the least of which was Hurricane Ida on the Gulf Coast. We have a well-tested hurricane preparedness plan, and the team in Chalmette closely monitored the storm's development and executed the plan flawlessly. We safely brought the refinery down in advance of the storm as its path changed and the storm's intensity increased. As a result, the refinery experienced very little damage, and we are able to quickly resume operations after power was restored to the plant. We are very proud of the way our Chalmette team performed even as many employees were dealing with their own storm-related hardships. In Toledo, during the quarter, we had some power issues that resulted in minor mechanical issues with the FCC and a few other supporting units that were resolved within the quarter. On the West Coast, we executed a major turnaround at Torrance, completing work on the hydrocracker, alkylation unit, and jet hydrotreater, as well as a few other ancillary units. We returned to normal operations in Torrance in late August, August 22 to be precise. Looking ahead to the fourth quarter, our throughput guidance is included in today's press release, including the impact of plant turnaround work on the East Coast and at Martinez. In Martinez, we are planning to install new reactors for the cat feed hydrotreater, which we mentioned on our last call. As part of our ongoing strategic review and future path of the company, earlier this year we announced a potential renewable diesel project located adjacent to the Chalmette refinery that we are continuing to pursue. The project will seek to maximize the benefits of Chalmette's strategic location on the Gulf Coast with its excellent access to water, rail, and truck logistics, as well as our synergistic California logistics footprint. In early August, we partnered with Honeywell UOP in anticipation of using their proprietary single-stage ecofining technology for our potential project. To date, we have committed the funds needed to fully develop engineering for the project, secure the necessary permits, and reserve longer lead items. We are progressing discussions with partners to develop a projected market-leading 20,000 barrel a day renewable diesel production facility at Chalmette. Costs related to the RFS program continue to be one of the industry's largest headwinds and are driving costs higher for every consumer at the pump. Market rumors indicate the administration and the EPA are well aware of the problems that are with the RFS and the attendant harm they are causing the independent refining sector, and, importantly, the American consumers. I am hopeful we will see action by the current administration that will enable us to have a workable program in the very near future, which will allow us to avoid a major crisis. Now I'll turn it over to Erik, who will go over the financials.

Thanks, Matt. Our positive third quarter financial results reflect the continuing market improvement driven by the pandemic recovery as we were able to generate free cash flow in excess of our fixed costs, namely CapEx and interest. This was a critical step for us as we are now able to focus on a deleveraging strategy that required an improving market backdrop, coupled with a more streamlined cost structure at PBF. In conjunction with this process, today, we announced two key financial achievements with the multiyear extension of our inventory intermediation facility and a 13% reduction in our outstanding unsecured debt. In addition to inventory held at our East Coast assets, the inventory intermediation agreement now provides us the flexibility to include inventory at the Chalmette refinery, which could decrease our working capital needs and provide additional liquidity. We reduced our unsecured debt through the repurchase of 229 million of PBF Holding senior notes for approximately $147 million of cash, representing a weighted average price of $0.64 on the dollar. When combined with the $75 million of debt paydown at PBF Logistics, the consolidated debt for PBF Energy Inc. has been reduced by over $300 million this year. Moving on to the third quarter results. Today, we reported adjusted net income of $0.12 per share and adjusted EBITDA of approximately $226 million. Consistent with previous 2021 quarterly results, these figures include approximately $77 million of net non-cash mark-to-market expense related to our West Coast environmental credits and $73 million of net RIN expense. We continue to fully expense and accrue our full 2020 and 2021 obligations for renewable credits. Consolidated CapEx for the quarter was approximately $87 million, which includes $84 million for refining and corporate CapEx and $3 million for PBF Logistics. Consistent with prior guidance, we expect full year CapEx to be in the $400 million to $450 million range. This includes amounts for our scheduled fourth quarter turnarounds, plus our continued investment in the development of the RD project. As a result of our improved earnings profile, our liquidity position remains consistent with more than $2.6 billion of total liquidity, including approximately $1.4 billion of cash and in excess of $1.2 billion of borrowing availability at the end of the quarter. And looking at the accrued expense footnote in the 10-Q filed this morning, PBF reported accrued renewable energy credit and emissions obligations of approximately $1.3 billion. This figure includes approximately $600 million related to our current and future California environmental credit obligations and roughly $700 million related to our consolidated 2020 and 2021 RIN compliance years. In the fourth quarter, we expect to use approximately $185 million of cash to settle our fixed price purchase commitments for RINs. These purchases should satisfy our 2020 obligation, plus a portion of our 2021 program. This month, we fulfilled our $250 million AB32 repurchase obligation for calendar years 2018 through 2020. This will satisfy more than $360 million of the California-related balance sheet accrual. As a reminder, California's cap and trade program is a multiyear scheme that provides significant flexibility in the management of obligations on an annual basis. Going forward, our focus remains on operating safely, improving the cash generation of our assets, and continuing to restore the strength of our balance sheet. Operator, we've completed our opening remarks, and we'd be pleased to take any questions.

Thank you. And our first question is from the line of Carly Davenport with Goldman Sachs. Please proceed with your question.

Hi, good morning. Thanks so much for taking the questions. The first one was just around volumes. It's great to see the utilization rates ticking back up here with strong guidance for 4Q. So can you just talk a bit about what's giving you confidence to run at these type of levels? Is it demand? Is it inventory levels? Just any color on the moving pieces there would be helpful.

The short answer is yes, but the main driver is demand. If you look at the demand numbers, as I said in the comments, gasoline has returned to pre-pandemic levels. Distillate is in excess of pre-pandemic levels. Jet is still lagging, although we are pleased that the administration has announced that they will lift the travel bans, international flights into the United States for fully vaccinated people effective, I believe, it is November 8. And so we would expect to see an uptick in international travel demand, particularly from Europe, people coming in for the holidays and more importantly, perhaps, the opening of the Asia to the West Coast routes, which would increase demand in Bradley Airport terminal and LAX. So demand is the key driver. At the same time, as I said, inventories are tight in the Atlantic Basin. There's no question about it. 9% to 10% below the five-year average on distillate, 3% to 4% below the five-year average on gasoline. You put that in context with that type of a demand recovery with those type of inventories and overlay the fact that compared to 2019, it's more than one million barrels of refining capacity that has come off the line in North America. And that's what we think. And we think those trends will continue and that's what gives us the confidence in why we believe utilization, and in fact cracks will remain supportive.

That's great. Thanks for the color there. And then the follow-up was just around leverage. Debt reduction surprised us to the upside this quarter. So, when you think about where the macro environment stands and where RIN prices currently are, how do you see capacity over the next couple of quarters to continue to drive debt reduction? And is there a specific target, whether that's on a net debt-to-EBITDA or debt-to-cap basis that you're moving towards?

Overall, our target is lower. That's a broad statement. Our plan is to continue reducing our debt. The pandemic has significantly impacted this industry, with the independent refining sector taking on more than $15 billion in additional net debt. We are all in a position to start reducing this debt as we generate positive cash flow moving forward. To do this, as Tom mentioned, we need to see an increase in demand, and we have noticed that improvement. Looking ahead to the fourth quarter and into 2022, the outlook is much more optimistic compared to the low point we experienced in Q2 of 2020. We don't want to set specific targets yet because there are many factors to consider, and we have several options to explore along the way. The two key achievements this quarter, including completing the inventory intermediation deal and buying back debt below $0.65 on the dollar, represent a positive first step for us.

I appreciate the time.

The next question is from the line of Doug Leggate with Bank of America. Please proceed with your question.

Hey, good morning, guys. Tom, I wonder if I could just pick your brain on your comments on jet fuel. Obviously, distillate demand has been extremely robust. As you pointed out, inventories on both sides of the Atlantic were quite low. But it's also been benefiting, we understand, from jet blending. So, assuming jet demand does recover. How do you see the knock-on effects, if you like, across the complex as it relates to distillate specifically? I got a follow-up specific to PBF, please.

That's an excellent question, Doug. During the second quarter, at the height of the pandemic, we had to add jet fuel to the distillate pool just to find a place to store it. Even then, we had to reduce operations because we couldn't clear the jet fuel out of storage. This situation is starting to improve; it's not fully resolved yet, but there are instances, like in Toledo, where regional jet demand has recovered stronger than coastal demand. We have nearly removed all the jet fuel from the hydrocracker in Toledo and are producing jet fuel, which reduces some distillate and strengthens that pool moving forward. Ultimately, the total demand for clean product barrels is rising, which will support increased utilization and enable us to optimize our refineries. They were not designed to operate the way they did during the peak of the pandemic; we were running them below standards because we had no other options, but that is changing.

I appreciate that. I think it’s one of the overlooked issues in terms of your leverage to how that can play out. My follow-up is really more of a balance sheet question. Clearly, the possibility of transferring value from debt to equity is one of the biggest catalysts to drive a recovery in your share price. I’m just wondering, beyond the recovery in cash flow you’re seeing, what other options you may consider to accelerate that move. For example, are there any additional drop-down opportunities? Is there something on the credit lines that you mentioned again this morning that could allow you to take capital or debt from PBFX back to PBF? I’m just curious, especially since the share price is still about $5 or $6 off the average level pre-pandemic. Would you ever consider equity as an option to accelerate your balance sheet recoveries as well? I will be there. Thanks.

At this point, our key focus is on transitioning from losing money to breaking even, then to making a profit and generating positive free cash flow beyond our fixed costs. We achieved this for the first time in a long while this quarter. Looking ahead, there may be opportunities for non-core asset sales in the next four to six quarters. We've shown that we can access markets by extending our multiyear inventory intermediation facility. There is anticipated news from D.C. that we believe will be significant for our business and alleviate some of the current challenges. I expect we will receive questions regarding RINs, but we are not ready to outline a strategy until we gain more clarity on broader macro issues that are critical at this time. We feel confident with $2.6 billion in liquidity. The business has pivoted, which is crucial. Our assets are continuing to generate free cash flow, and 2022 appears to be significantly better than 2021 based on our projections. However, we need to reach 2022 before we can capitalize on that. Therefore, we won't be outlining any multiyear plans today, as the necessary changes have already occurred. Moving forward, we expect a steady improvement in business performance. We needed to reach this point before we could start making strategic moves. Our team has effectively responded across the board, but we require continued global demand to assist all independent refiners and integrated companies in improving their situations. With the additional free cash flow, we anticipate new opportunities as we advance into 2022.

I appreciate the answer, guys. I'm going to leave someone else to ask the detailed RIN questions, but I would like to make a comment. You guys have been extremely vocal, extremely candid about the absurdity of this issue. So I commend you for staying in front of this and hopefully they're listening, and I'll let someone else into the details, but good work with that. Thanks.

Thank you, Doug.

The next question is coming from the line of Connor Lynagh with Morgan Stanley. Please state your question.

Yes. Thanks. A couple of questions here, so why don't we just go ahead and talk about RINs. So just curious where your head is at on the program right now. There's obviously been some leaked reports about what the RVO might look like. So just curious how you're thinking about managing it and how investors should think about the cash flow impacts as we move into 2022.

How do we view the program? Our perspective remains consistent with the last decade. It is arguably one of the most flawed programs within the federal government, which is quite an achievement in itself. The federal government does not adhere to the regulations it established for itself without accountability, and this mismanagement is shameful. That said, we believe we are on the verge of seeing the RVO released, which we are eagerly anticipating. It was expected to be announced a few weeks ago, and we hope it will come out in the next couple of weeks. However, the issues with the program are so severe that if they go unaddressed, we could soon deplete RINs, which would impact gasoline availability. I doubt there is any politician willing to face those repercussions. Therefore, we are confident that it will ultimately be resolved. It should have already been addressed, and we remain hopeful for a quick resolution.

Got it. And just thinking through, you guys have obviously been relatively tactical in terms of how you've managed whether or not you're actually purchasing RINs or not. So I guess the question is, is your view that right now prices are still a bit elevated because of the sort of uncertainty premium, if you will? Are you avoiding purchasing? And should we expect sort of a deferred cash outflow in 2022, or what's sort of the big swing factors we should consider relative to that?

Just in regards to the lack of information, there's no question that's impacting the price of RINs. We've seen, as the press reports you alluded to came out, RINs prices dropped precipitously and then no actions taken, and they rise precipitously. It's inexcusable and bureaucrats sort of mindlessly go to lunch and get on with their lives, while it's impacting and threatening jobs and impacting everyone that goes to the gas station every day. So hopefully, we'll have that rectified soon. And obviously, information will help markets determine what the right price of these things are. At the end of the day, RINs can't be scarce. It's a government-created commodity. And if you create scarcity, they will only go in one direction, and that wasn't the intent of the program. So I think that can get rectified, and then there'll be price action accordingly. In regards to the cash flow, I'll leave it to Erik.

So I think, Connor, we laid out at the end of June timeframe that we had about $300 million left to spend through the second half of the year. During the quarter, we invested roughly $100 million of cash in purchasing RINs. We have continued to be active in that market. I think I outlined in my comments that we have roughly $185 million left to spend. There is about $15 million left that will then probably dribble into the early part of 2022 to purchase some of these credits. And just as a reminder for folks that are listening, all of these are firm fixed-price commitments. So these are transactions that we have entered into previously at a variety of different prices. And then what ultimately hits our P&L is a mark-to-market adjustment for those credits where we are short. So the $73 million of net RIN expense is net of our firm price commitments as well as all of the mark-to-market adjustments related to 2020 plus 2021. So said a different way, while RIN prices dropped from June 30 through September 30, the benefits of our procurement program have also been rippling through our P&L during the third quarter.

That’s helpful. I’ll turn it back.

Thank you. Our next question is from the line of Theresa Chen with Barclays. Please proceed with your question.

Good morning. So I wanted to switch gears and talk about the crude side because, clearly, in the Mid-Con, we're seeing strong demand, and the jet situation seems much better than Coastal. So all things on that front look good. But clearly, we're seeing some volatility on the feedstock side. And I was wondering if you could just talk about your expectation for Cushing inventories and what it will take to get WTI differentials and spreads in general to normalize from here?

Yes. I'm going to ask Tom O'Connor to talk about all things crude-related.

Yes, Theresa, as we assess the situation now, it's evident that Cushing inventories have significantly decreased over the past month. Several factors have contributed to this. The expansion of Line three has played a role, along with disruptions in Canadian light production towards the end of summer, and the improving demand and margin environment you mentioned, as well as the Capline reversal and futures on the horizon. Essentially, Cushing is destocked and has transitioned from a discount market to a premium market, which has a considerable effect. We anticipate that in the upcoming months, there will be adjustments to the flows, moving away from the previous incentives to evacuate Cushing, leading us to a point where the draws will be mitigated, potentially resulting in some seasonal modest builds.

Understood. And on your logistics strategy, in light of one of your competitors announcing the roll-up of their MLP, can you tell us how you view the long-term outlook for the logistics segment? And had a simplification of your corporate structure also make sense from here given the changes in the MLP capital markets over the past years?

I think we've been closely tracking developments in the MLP sector. Currently, there are two fewer MLPs than last week, with Oasis and PSXP exiting the market. For us, PBF Logistics has historically provided an alternative and lower-cost source of capital. While that situation has changed, we remain clear that most of the assets at PBF Logistics are essential for the daily operations of our refining business, making the two companies interconnected. Regarding potential options moving forward, we have observed a significant increase in the overall equity value of the MLP sector since the second quarter of 2020. Looking ahead, PBF Logistics might play an important role in our growth, depending on future treatment of MLPs. Keeping that option available is important for us. PBF Logistics will continue to distribute $0.30 per quarter, which means cash will be recycled back to the parent company. This is one of the strategies we plan to evaluate as we move forward.

Thank you.

Our next question is from the line of Phil Gresh with JPMorgan. Please proceed with your question.

Hey. Good morning. Erik, just a couple of quick follow-ups on some of the quarterly and cash flow items that you talked about. Within the $73 million of net RIN expense, did you say what the mark-to-market impact was? I apologize if I missed that.

I did not specify that because I want to ensure everyone understands that there are two main components involved. The $73 million of RIN expense is quite low considering the market prices during the third quarter. In our income statement, we recognize two aspects: one is a true mark-to-market adjustment related to our short positions, and the other involves expensing RINs that we purchased at lower prices in the past. This is simply how our accounting operates. We have discussed our procurement strategies, but we won’t go into extensive details regarding our handling of RINs. Overall, we believe we are managing the program as effectively as possible given the challenges. For context, there are likely around $100 million worth of mark-to-market adjustments connected to our short positions.

Right, okay. No, that makes sense.

And I think, Phil, it's also important to note, offsetting that $100 million benefit, right, that rippled through the income statement, there was an offset to that. There's a $77 million mark-to-market expense that is dedicated to the West Coast. So it's worth a little less than $2.50 a barrel that hit the West Coast P&L during the third quarter associated with the remark of these AB32 credits. And again, this is the way the accounting works. We essentially pre-bought these credits that ultimately are worth significantly more today, but our purchase price was lower, and therefore, we had to take an expense. So the offset to that $100 million is about $77 million.

Okay. I did have a follow-up on the West Coast actually. I wasn't sure if they go through the gross margin or the OpEx, because I was just curious how you're thinking about the West Coast OpEx right now. I know you've had certain goals out there in the past where you'd like to get that to. So I just want to get a refresh on your thinking.

It would impact the gross margin, showing about $2.40 a barrel. Therefore, if we refer to the tear sheets, the pro forma gross margin would be approximately $10.46. Additionally, it's important to mention that we recently had a significant turnaround at Torrance.

Regarding the progress on operating costs on the West Coast, we had the turnaround in Torrance and are making steady improvements, especially at Martinez, in reducing our fixed costs. As natural gas prices rise, it will affect our costs since the West Coast is a significant consumer of natural gas. However, I am very pleased with the advances we are making in terms of personnel, contractors, and other areas related to fixed costs.

And my last question, Erik. Just on the fourth quarter cash outflows that you talked about, there have been past quarters where you've talked about outflows and then they end up being some offsetting inflows. So is there a way to think about that for the fourth quarter or just how you're aiming for an ending cash balance? Is there any additional color just to help us bridge the different moving pieces?

The two key points regarding outflows are the $250 million in cash for the AB32 credit repurchases, which offsets over $360 million of the balance sheet accrual, and $185 million of RIN-related cash that will exit the system this quarter. While we cannot predict the direction of hydrocarbon prices, we aim to meet our year-end inventory targets, which are lower than our current levels. This should help us reduce inventory and generate cash as we proceed. It is difficult to determine an exact figure, but we believe our liquidity position is strong. If our cash balance decreases, it decreases, just as we anticipate our inventory balance to decline by the end of the year. Our current focus is on making continuous progress with our business.

Okay. Thank you.

Our final question is from the line of Matthew Blair with Tudor, Pickering, Holt. Please proceed with your question.

Hey, good morning. Thanks for taking my questions here. Congrats on the free cash flow progress in the quarter. Erik, I think you had a comment earlier that the forward curve for 2022 looks really good, and we definitely agree. I know it's not your normal practice, but is there any thought to potentially locking in some of this 2022 product futures curve, just given your debt load?

We probably cannot comment in terms of what our derivative strategy is longer term. What we have said historically is, we don't carry massive derivatives positions. But at this point, I think we're continuing to capture as much of the crack as we possibly can.

Got it. And then it looks like your share of medium and heavy crudes rose a little bit quarter-over-quarter. Is this just kind of a normal volatility, just from quarter-to-quarter, or is there a specific push to run more sour barrels given the widening dips?

Our goal is clear. We expect that as OPEC+ continues to add roughly 400,000 barrels of crude daily, which the world requires, we will need this crude to satisfy demand. It all comes back to demand. The additional crude is medium and sour. We have noticed an incremental widening in the light-heavy or sweet-sour spread. Currently, Maya is priced about $7 below Brent. As this develops, we have decent coking economics. If we examine the clean dirty spread in New York harbor, it's over $32, although this is somewhat inflated due to the RIN price on the diesel side. There is more work to be done, but we are certainly heading in the right direction. Tom, do you have anything to add?

Yes, I would expect that trend to continue. However, one thing we are observing today, which differs from our previous discussions, is that the widening of crude differentials is primarily being influenced by the strength of light sweet crude rather than weakness in heavy crude. Various factors are contributing to this, particularly capital discipline in shale. Additionally, we are noticing some mitigating factors, including potential constraints in European refining due to high natural gas prices, which makes hydrogen expensive. This situation may lead to a shift in Europe's crude slate, possibly resulting in more barrels being sent back to the Atlantic Basin.

Thanks for all the color.

Thank you. Our final question is coming from the line of Karl Blunden with Goldman Sachs. Please proceed with your question.

Hi. Good morning. Thanks for the time. A lot of good disclosure here on the balance sheet and what you've been doing with the bonds. I was wondering if you could comment on your thoughts around liquidity and the ideal liquidity level you'd like to maintain as you go into the next couple of quarters. Visibility, I think, is improving into demand. You took on more liquidity with the secured bonds last year in a time of uncertainty. And I'm now starting to use some of that liquidity to take out notional debt. Is that something that you could continue doing? How do you think about the trade-off there between liquidity and debt takeout?

We will keep focusing on reducing our debt. Historically, we have provided insights into our liquidity levels, and prior to the pandemic, we did not require $2.6 billion to operate effectively. Although there are times when significant cash flows pass through our accounts, such as when we pay large cargo bills, we can manage our business with less than $900 million in liquidity on a daily basis. Therefore, we are maintaining a considerable amount of excess liquidity. Since our secured note issuance of $1 billion in May 2020, we've considered this as an insurance policy that we want to hold until we see enough positive momentum indicating that our business can generate enough free cash flow to cover capital expenditures and interest expenses. Already, with our debt repurchases, we anticipate a reduction of $14 million annually in interest expense. We expect to see the benefits of improved business performance, increased free cash flow, reduced debt, and lower interest-related impacts on our overall financials. Our long-term target for liquidity is comfortably below $900 million. However, I believe it's premature to give specific liquidity guidance for the next couple of quarters, especially as we are just emerging from the Delta variant period and observing positive trends. It's crucial to note that our team has maintained an abundant liquidity level. When the right moment comes, we will begin to lower our liquidity and clarify our reasons for doing so, which will likely align with accelerating our debt reduction efforts.

That all makes sense. I guess just one follow-up on RINs. When you think about the exposure at this point being fixed or locked in versus floating, is that something that you can comment on what the balance is?

Yes. So of the $700 million that exists on the balance sheet today, there's a little north of $200 million that's fixed. All of the remainder is floating rate exposure. So we've got $185 million that we will spend through the remainder of 2021. And at this point, it appears there's about $15-ish million that will dribble into the early part of 2022.

If I could squeeze one more in. Is it too early now to start thinking about, talking about the PBFX bonds and those would come current mid-2022 and what your strategy would be around that? Maybe it's a bit early, but interested in your thoughts there.

It's probably a little too early. There's clearly significant news coming from the EPA. The bonds have been callable for a while and are trading below par. From our perspective, we want clarity on what the administration and the EPA will do regarding RVO for 2021 and guidance for 2022. This is important as we consider the overall capital stack. We believe we have enough time to manage debt maturities. We took the first step with the inventory intermediation agreement, extending it by several years. This is a start of positive momentum in getting everything back on track.

Thanks, Erik. Appreciate all the time.

Thank you. We have reached the end of the question-and-answer session. I will now turn the call over to Tom Nimbley for closing remarks.

Thank you all for joining today's call. We look forward to speaking with you again at the fourth quarter call. In the meantime, PBF wishes you a safe, healthy, and enjoyable holiday season, hopefully much better than last year. Have a great day.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.