PBF Energy Inc. Q2 FY2022 Earnings Call

Good day, everyone, and welcome to the PBF Energy Second Quarter 2022 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 that this conference is being recorded. It's now my pleasure to turn the floor over to Colin Murray, Investor Relations. Thank you, sir. You may begin.

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; and several other members of our management team. Copies of today's earnings release and our 10-Q filing including supplemental information are available on our website. Before getting started, I'd like to direct your attention to the Safe Harbor statement contained in today's press release. Statements in our press release and those made on this call that express the company's or management's expectations or predictions of the future are forward-looking statements intended to be covered by 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 describe the non-cash special items included in our quarterly results. The cumulative impact of these special items decreased net income by an after-tax amount of $116 million, or approximately $0.93 per share. For reconciliations of any non-GAAP measures, please refer to the supplemental tables provided in today's press release. I'll now turn the call over to Tom Nimbley.

Thanks, Colin. Good morning, everyone, and thank you for joining our call. For the second quarter PBF reported earnings per share of $10.58 and adjusted net income of $1.3 billion. Our strong financial results have provided us with the resources to accelerate the repayment of debt we incurred during the pandemic and to continue actions to strengthen our balance sheet. To be clear, the work is not complete, as we remain highly focused on doing more to recover from the ravages of the pandemic. The second quarter picked up where the first quarter ended with volatile market conditions and rising energy prices. Refinery margins expanded as available refiners, other than Russia and China, were called on to run at high utilization levels. The Russian invasion of Ukraine continues to alter trade flows. Russian waterborne crude exports are generally flowing to Asia, as Western nations continue rejecting Russian crude and feedstocks. As trade flows reorganize, a couple of themes are appearing. European refiners are lightening their crude rates, as the replacement crude for rejecting Russian barrels is generally light sweet crude produced within Europe, West Africa, or the United States. Also, for some time, Europe has been facing a natural gas and power crisis that has only been exacerbated by the Russian invasion. High price natural gas in Europe has made upgrading units and hydrogen plants very expensive to operate, giving U.S. refiners a significant competitive advantage. Differentials for light sweet crude versus heavy sour have been widening for a variety of factors. Light sweet crude is strengthening for the reasons that I just mentioned, plus available upgrading units, coking capacity, etc., are generally full. We are seeing the heavy part of the barrel trade at wider discounts to the global benchmarks for light sweet crude than we have seen in many years. Heavy fuel is quite weak, and there is some market commentary about support coming from the reemergence of IMO 2020 market dynamics. The beginning of the third quarter has seen a 15% to 20% correction in oil prices and refining margins. However, underlying fundamentals remain strong: low inventories, tight supply, improving demand, and reduced refining capacity. Despite that, there are macroeconomic concerns that are weighing on the market: high inflation, rising interest rates, and a rising U.S. dollar. The macro concerns point to contracting oil demand to help bring the energy markets back into balance as the status quo is simply not sustainable. Inevitably inventories will need to be replenished from these extraordinarily low levels. This will require refineries to continue running at high levels of utilization. Our valued employees continue working tirelessly to keep our assets running safely and reliably, and we appreciate their contributions to our performance. With our balance sheet improving, and the bulk of our 2022 turnarounds complete, we anticipate that our assets will continue generating cash, which we will use to further strengthen our balance sheet and reward our investors. With that, I will turn the call over to Matt.

Thanks, Tom. As Tom mentioned, PBF’s second quarter is one for the books and demonstrates the earnings power of our refining system and the dedication of our employees. While extraordinary market conditions seen during the second quarter will eventually normalize, the fundamentals and outlook remain strong. On the East Coast, we completed work on the Delaware City reformer and other secondary units, which began in March and concluded in April. Additionally, we are in the midst of restarting our idle 50,000 barrels a day crude unit at Paulsboro, which we expect to have online in mid-August. We are confident that we'll have enough access to feed for the unit and that will help ensure that all of our other secondary units on the East Coast remain full. On the West Coast, we recently completed a significant turnaround in Torrance and other ancillary units. The work was conducted primarily in June and wrapped up in the first 10 days of July. Looking ahead to the third quarter and the remainder of the year, our capital expenditure and throughput guidance is presented in today's press release. We have no significant planned maintenance for the remainder of the third quarter. We do have a planned turnaround in Chalmette in the fourth quarter. In addition to our refining CapEx, we continue to invest in and progress our renewable diesel project in Chalmette. We anticipate startup with full pretreatment capabilities in the first half of next year. Importantly, the project remains on time and on budget. In terms of the forward refining market, as Tom said, the market needs to reset. As the current high price, low inventory conditions are unsustainable in the long term. Over time, we expect that product inventories will eventually return to their historical average levels. However, with a global reduction in refining capacity as well as natural gas advantages in the U.S., we expect to see above mid-cycle refining margins, which is what we're seeing today. Our assets are running well and are positioned to keep the market supplied and capture that margin. Lastly, this morning we announced that PBF Energy has agreed to acquire all the common units of PBF Logistics that we do not already own. This transaction will ultimately allow us to simplify our corporate structure and eliminate the administrative compliance and cost burdens of running a separate public company. Following consummation of the merger, we believe we'll have significantly enhanced financial strength. With that, I'll turn it over to Erik.

Thank you, Matt. For the second quarter, we reported adjusted net income of $10.58 per share and adjusted EBITDA of approximately $1.9 billion. This brings our trailing 12-month adjusted EBITDA to over $2.8 billion. This financial performance provided the foundation for us to accelerate our deleveraging plan. Over the last 18 months, we have reduced consolidated debt by more than $2.6 billion. In addition to the $900 million pay down of our bank facility during the second quarter, we redeemed the full $1.25 billion of secured notes due 2025 on July 11. When we include the more than $250 million of open market purchases at a discount to face value, our unsecured debt is now below the pre-pandemic balance. Importantly, we were able to execute our plan while maintaining significant liquidity and have a current cash balance of more than $900 million. On a go-forward basis, we expect to recognize over $165 million of annualized interest expense savings. Simply put, PBF's balance sheet is vastly improved, with quarter-end net debt to capitalization of 24% and net debt of less than $1.1 billion. These statistics represent levels that we have not achieved since 2018. Consolidated CapEx for the second quarter was roughly $211 million, which includes $157 million for refining and corporate CapEx, roughly $52 million related to continuing development of the RD facility, and $2 million for PBF logistics. For the second half of 2022, we anticipate total refining and corporate CapEx to be approximately $200 million to $225 million, excluding the RD project. This reflects a return to our normalized pre-pandemic turnaround schedule. Operator, we've completed our opening remarks, and we'd be pleased to take any questions.

Our first question comes from Roger Read with Wells Fargo.

I guess the biggest question we keep getting from investors is, where do we sit today in terms of demand? We've had some larger, say, questionable numbers from the DOE, but overall, things still look pretty solid. I was just curious what you see on demand, and maybe how that fits into some of the discrepancies we're seeing right now in terms of the cash markets, thinking how much stronger the East Coast is than, say, the Gulf Coast?

We have similar views on the situation. There was some averaging effect following the July 4 weekend, which can be uncertain to interpret. Additionally, there was likely a correction related to a monthly EIA from June that was carried into July. That might have stabilized now, and the figures from yesterday seemed a bit more robust. While we have encountered some challenges and a reduction in demand, the EIA indicates that our business demand at the wholesale level remains consistent; we're basically maintaining the same levels as we have for the past 90 days. You pointed out an important issue concerning the East Coast, which has been more significantly affected than any other region in the country due to changes over the past few years. The reduction in refining capacity in the Atlantic Basin, including facilities like PES and Come By Chance, has been quite impactful in the northeast, coinciding with full pipelines coming from the Gulf Coast. We maintain the only coking capacity on the East Coast. We believe the Atlantic Basin has made more progress than the other regions, even though the other areas have also seen benefits. Paul, why don't you provide Roger with a regional overview?

Well, we can start with the East Coast, you said it pretty well. Cash markets in New York Harbor are very strong and have been very strong, the backwardation is just arguably historic on cash valuations. Gasoline, obviously leads it, distillates early in the second quarter, were leading it. Jet has been incredibly strong. Jet’s actually pricing inside of diesel with lead of RINs. So the East Coast has really moved up here in markets for us. Gulf Coast is, as you said, pricing for tears. It's running very strong. We see strong export demand, we see arbitrages into the Midwest and to the East Coast pricing accordingly. And that's a normal. We would call it a normalized market. Wholesale-wise, it's probably the weakest market we have, but it's very normalized. Our July numbers look just like our Q2 numbers did on a month-to-month basis. West Coast, very strong, it stayed constant all the way through the second quarter and into the beginning of the third quarter. Even with the price challenges at the street, we're seeing our wholesale markets there very strong and remain very strong, supported by the return to work on the West Coast. And in the Midwest, we have a big wholesale business in the Midwest, that's remained strong throughout.

And then pivoting a little bit here to you, Erik. Obviously, tremendous improvement in terms of balance sheet, liquidity, everything. But at this point, what do you feel is the most important thing to do? You're going to consolidate PBFX so that's got some debt with it. You've got, obviously, some of the environmental obligations that are still out there, and then just the general balance sheet, ultimately maybe a reinstatement of the dividend. Just curious as you think about priorities, how that flows through.

I think you laid out kind of our plan at this point, number one. We've taken out most of the pre-payable debt at this point in time, and we believe you know, the unsecured debt that we have on the books, we have ample time to deal with the 2025 notes that will come due then. Once PBFX ultimately rolls in, we will handle that particular debt. But ultimately, we've provided ourselves enough financial flexibility here, and quite candidly that debt's already consolidated on the balance sheet. So when we talk about our $1.1 billion, just shy of $1.1 billion of net debt, that includes that level. So from our standpoint, it is simply a matter of continuing to reduce the overall net debt balance, operate well, take advantage of the market when it is afforded to us, and ultimately be reliable because otherwise profitability will not translate into free cash flow. So from our standpoint, we've gotten things significantly in order. And for us now it's just a matter of execution on the day-to-day business.

Regarding the various environmental obligations that are present, does it make sense to fund them, and is there any incentive to tackle them proactively?

I'm not sure that preemptive funding is wise. We now have significant clarity regarding the timelines for our obligations under the Renewable Fuel Standard. Currently, we are dealing with three outstanding periods, so we have a clear view of the dates when we need to submit credits. Fortunately, our 2020 obligation will be fulfilled at the end of this year. We then have through Q1 and until the end of Q3 next year to meet our 2021 and 2022 obligations. Our accrued liability includes about $850 million related to RINs. Investors can expect those numbers to decrease over time. Additionally, the remainder involves AB32, Cap-and-Trade, and LCFS credits, which will also decline gradually. The AB32 program is multi-year and involves several step-downs throughout the current period, so we expect those figures to go down as well. However, we currently have no plans to preemptively address any RIN-related obligations, as we need to see more renewable diesel production that will generate additional RINs.

Our next question comes from line of Doug Leggate with Bank of America.

So guys, you opened up your comments talking about we will see inventories normalized. I guess my question is, what about costs and I'm thinking specifically about the dynamics on the East Coast, Tom, as you pointed out, have changed dramatically, which presumably makes the U.S. incrementally more dependent on European imports. And they're paying $60 per thousand cubic feet for natural gas today. So when you talk about normalized inventories, how do you think about normalized margins?

We do not anticipate the margins from the second quarter to continue. However, we expect margins to be above mid-cycle due to several structural factors that you and others have highlighted. There has been a significant shift in the price differential between European and Asian natural gas, which notably raises production costs in Europe, especially for sour crude, as hydrogen to remove sulfur is becoming more expensive. This situation goes beyond operating expenses, as it also entails substantial costs for sulfur removal. Additionally, with Russia's cutbacks in feedstocks and crude shifts, we foresee a lasting change resulting in margins above mid-cycle moving forward. We believe the East Coast will perform as strongly as any other region, while the West Coast may lag, depending on the outcome of developments in 2023 regarding plant conversions to renewables. Nonetheless, inventories need to be restored, as they are currently very low, particularly on day one. Consequently, steps to replenish these inventories must be taken, and refining utilization must remain high, which will support margins above mid-cycle.

Yeah, I guess the reason with my question Tom is there's a lot of folks in this business who still think about the seasonal trade in refining and that structural longer-term reset is I think getting a little bit lost, which is why I asked the question. So thanks for your answer. I guess my follow up is for Erik. Erik, you're obviously issuing some equity for PBFX and I think we discussed that when we were on the road a couple of months ago that PBFX could be next on the agenda after the balance sheet. But they're still retaining a sizable amount of debt. And that obviously amplifies your equity volatility, as we've seen recently with your share price. So I guess my question is, where does, dare I say, a potential buyback of your stock feature as a use of cash, given that you've pretty much done as much debt as you can without sizable premiums, presumably?

From our perspective, considering our pro forma for buying the secured notes and a debt balance of $2 billion, it's important to note that this does not include any cash offsets. We should reflect on Tom's recent comment regarding the new mid-cycle. The structural changes in refining, along with the increased flexibility of the refining sector post-COVID compared to pre-COVID, have shown our capability to adjust utilization rates to align with demand. This will be crucial moving forward. Our strategy is to focus on building cash due to the current market conditions, which will help reduce our net debt. However, prepaying a significant amount of expensive long-term debt doesn't seem advisable at this moment. We will allocate some cash to environmental credits, but this will occur over the next 12 to 14 months.

So to be clear you're issuing equity for PBFX; could you presumably buy that back in overtime?

Look, I think from the transaction that is on the table for PBFX Logistics is ultimately more or less a 50-50 equity cash deal; there's a cash component there. So we'll be allocating $9.25 per unit, around $300 million of cash, and the rest will be funded with equity. The amount of that equity will clearly be dependent upon where PBF Energy shares trade at the time of close. From our perspective, now again, I think it is we're going to continue to operate safely and reliably. And that is the number one focus for us.

I want to add to that. In response to your question, Doug, we, as a management and executive team, set several milestones and objectives for 2023, and we accomplished about half of them in the second quarter. Two of those objectives are recognizing that we work for our shareholders, who have invested in this industry and in PBF over the last two years. It's certainly something we will consider if we continue to maintain above mid-cycle margins and build cash. We might look at resuming dividends in the future and possibly financing some equity. However, our current focus is on managing our debt well and integrating PBFX. If we keep performing well, we will have more options available to us.

Our next question comes from the line of Carly Davenport with Goldman Sachs.

I would like to discuss the crude markets, which are experiencing significant volatility in stock prices and crude differentials overall. Can you explain what the crude market is indicating in terms of production runs across the portfolio, particularly regarding maximizing heavy sour runs or other options?

I'm going to ask Tom O'Connor to handle that question. He's been all over this.

I believe that looking at the current market conditions, if we reflect on recent trends or glance a few weeks ahead, we are essentially experiencing peak runs as we approach the fourth quarter, which indicates some seasonal shifts. However, as you pointed out, the incentives at this stage are definitely favoring high utilization, with heavier sour crude making up a larger share of the available capacity.

The follow-up questions are about the RINs aspect, specifically regarding the current liabilities in California. Additionally, I would like to know how much of the outstanding amount consists of fixed price contracts compared to those that are subject to mark-to-market assessments.

There's about $850 million of RIN-related accrual and roughly $450 million of AB32, both Cap-and-Trade as well as a small amount of LCFS. And on the RIN piece, I think the rough order of magnitude is you should assume it's about 50/50 between what we have contracted that has just not yet been settled, and ultimately, what is the short related to our overall position, which quite candidly, is now a ‘22 related short.

Our next question comes from line of Manav Gupta with Credit Suisse.

This might be for Erik or Matt, whoever wants to take it. But look, it appears you have a lot of conviction in your renewable diesel project, you like your project, you see a very good fit for it. And our base case somewhere was that you will get a partner. But again, knowing you guys, you will not take a bad deal. So what we're trying to get to is let's say you get in a situation where you don't really like the deal you are getting, would you be okay with taking this project to completion on your own? If you could help us answer that?

We are very satisfied with our current position. I want to share some thoughts about our renewable diesel projects. If we were to start that project now, considering we began the incubation process over a year and a half ago, I believe our capital costs are significantly favorable, as we have not halted the hydrocracker operations. However, if we were starting the project today, I estimate the capital costs would be about 25% higher, with a potential increase in time to market by around 30%. As we progress with our project, the dynamics are improving, and our project team has done excellent work by securing long lead items early. We feel confident in our ability to withstand the current inflationary pressures. Regarding partnerships, we are actively exploring collaboration with various parties, focusing on finding a partner that will enhance our operations and the overall value of the project, rather than just seeking the lowest financing. We are considering several options and are very satisfied with our discussions thus far. Your question about bringing in a partner centers on how we can expand our opportunities, rather than simply splitting what we already have.

One quick thing, if you could help us understand. We're seeing something where you’re buyers have both Syncrude and you're also buyers of WCS. Now, they tend to move in the same direction generally. But what we're seeing is they're moving a little against each other, Syncrude is going at a premium to WTI, and WCS premium discount is widening. So it can’t only be aggressed. Help us understand what's driving this almost $30 differential in the two Canadian crudes that you buy? Thank you.

I'll make one comment and turn it over to Paul Davis. Obviously, it's a big spread, but directionally all three crudes are commanding a premium, because of what we talked about in terms of the deal with high natural gas prices, etc., and the cutbacks from Russia. So you've got pressure on the light sweet side going up, and some pressure on the downside because of the sulfur content of the heavier crude. Paul, why don’t you speak specifically to Manav's questions.

Yeah, and Manav, there is a market pressure on that spread. But primarily it's all maintenance up in Canada, the upgraders that had planned and not an insignificant amount of unplanned maintenance. And that's put a premium on the Syn of the business.

Our next question comes from the line of Theresa Chen with Barclays.

I actually just wanted to come back to your comment about mid-cycle margins being higher, and the industry needing to replenish inventories over time. How concerned are you about the incremental capacity coming online, either ramping up today in the Middle East and Asia or recently ribbon-cut in Mexico or penciled in to come online in Africa? Hope to get your thoughts there.

I believe we need additional capacity to come online in order to replenish inventories. I don't anticipate it affecting utilization. Regarding our business, we will see continued growth, there's no doubt about that. Some capacity has been delayed significantly due to COVID, but ultimately that capacity needs to be brought online. As the developed world continues to improve and grow, Asia also requires that capacity. We expect additional capacity to come online. Mexico aims for energy independence, although this may take longer than expected. We are noticing a decrease in costs linked to some refining capacity, but it is progressing toward that goal. Simultaneously, as I mentioned earlier, there are still instances, particularly in the U.S. and on the West Coast, where refineries are facing challenges. This includes pressures on fossil fuels and a ban on internal combustion engines by California in 2035. The former Tosco refinery in Avon, now owned by MPC, will convert to renewable energy, and so will the former Tosco site. Interestingly, while developing a renewable project means producing renewable diesel, it doesn’t involve producing gasoline or jet fuel. Therefore, while we expect global capacity to increase, I'm not sure we'll see much growth in the United States. In fact, it could go the other way, and I suspect utilizations will stay high unless there is a significant recession or similar event in the U.S.

Our next question comes from line of Connor Lynagh with Morgan Stanley.

I wanted to talk about the buy-in of PBF Logistics, excuse me. Just in terms of the strategic thinking, obviously, you highlighted the cost savings and some of the mechanical savings not having to run two separate companies, but just strategically thinking, what's your sort of thought on the value creation there?

This is likely less focused on PBF, but many of the advantages that came with having a dropdown MLP have diminished over the years. It was a well-performing entity in terms of its operations and financial performance, but the benefits that initially prompted us to create that structure have declined. Therefore, cleaning it up now, as several other companies have done, makes a lot of sense. I believe it is quite straightforward. We present a simpler structure, and while there are benefits to reducing certain costs, I don't view that as a primary motivator. PBF serves as a growth platform, and demand for yield has significantly decreased over the past couple of years. We are pleased to consolidate the assets; many of our employees have been juggling multiple roles, so this will greatly simplify things. We aimed to create a transaction that was equitable for all parties involved, working closely with a complex committee at PBFX. We followed a thorough but fair process, and we are satisfied with the outcome.

And I just wanted to talk and return to the conversation about the balance sheet. So understand that you don't want to buy back debt at a high premium. I was trying to parse your comments; it sounded to me like maybe you're thinking there isn't sort of a need to run at a lower, structurally lower debt level than before. Basically, could you just help us think through the framework of your buying in Logistics, which can probably support a little bit more leverage? I think you're pointing to flexibility that you've demonstrated in the refining system, but just curious, is there an argument to be running at a lower debt level based on what we've just gone through or no change to that?

I believe we still need to determine the appropriate long-term level of debt. Currently, there are no plans to incur additional debt; we have approximately $675 million outstanding for 2025 and $525 million for PBF Logistics. There's a suitable long-term aim for going debt-free, but this business doesn’t appear to be highly responsible. We’ve also observed the issues that arise from having an over-leveraged refining business, and we're trying to identify the optimal balance. At this moment, we have a debt to EBITDA ratio of less than 0.4 times based on the trailing twelve months, especially considering we generated nearly $2 billion in EBITDA last quarter. However, projections suggest numbers exceeding $1.7 billion, $1.8 billion for our business in the coming years. Therefore, we're working to determine the right level of debt. But we can be patient now; we have the upper hand compared to the reactive state during COVID.

Our last question today comes from the line of John Royall with JPMorgan.

I think you made a comment in the opener about IMO 2020 kind of coming back into view. Can you talk through some of those dynamics and the impact you're seeing from IMO now and I guess how that could evolve going forward?

I want to point out that the difference between high sulfur fuel oil and low sulfur diesel is currently very significant. Several factors are influencing this situation, with the most crucial being the shift from sour crudes to sweet crudes due to high natural gas prices. The costs associated with removing sulfur from crude oil have also been affected by these high natural gas prices. As we've mentioned before, there's been pressure on the heavier crudes and feedstocks because of this dynamic, while there's a demand on the sweet side. Additionally, one of PBF's strengths over the past decade has been our complexity. However, we haven't been rewarded for this in recent years because of the narrow spreads between light sweet and heavy crudes. This was partly due to the availability of reserve destruction capacity. Although that situation has changed somewhat, coking capacity is now becoming limited, which will impact the difference between light sweets and heavy sours. In summary, a combination of factors is at play, but we have definitely observed increased utilization of reserve destruction equipment recently, driven by the need to treat high sulfur fuel for use in the bunker fleet.

Can you talk about a recession case and what that could mean for the industry and for product inventory balances and cracks, if it happened in, let's say, the next 12 months? Would that change your view on the structural crack being above mid-cycle if we had a bit of a reset due to recession?

Not really. I think, well, it all depends upon the gravity of the recession. So if we have, we do have basically full employment in the U.S. right now. And I'm not saying that there isn't going to be a correction here, a recession; there is no doubt that inflation has got to be dealt with, and there's no doubt that the Fed indeed is going to do that. But there are other factors, that on the other side of the equation. As I said, you know, disposable income, people had a lot of disposable income coming out of COVID, and we do have effectively full employment, and there's more job openings than there are people out of work. So hopefully, if there is a recession, it won't be a drastic recession; it'll hopefully be a little bit more shallow, who knows. But the fact is, what we're seeing already is the price of gasoline has dropped what was at the center down. And what has to happen really to the next steps in this correction is to work the food side and the other things in the supply chain to get those things turned around and bring the rate of inflation down. But there'll be an impact, there is no doubt. But I don't think it's going to be an impact that is going to knock us off the need to run the refineries that are very high utilization because of the supply-demand balances and the fact that we don't have as much capacity on the ground as we used to.

Our next question comes from line of Karl Blunden with Goldman Sachs.

Just had a question on RINs. I think it was helpful when you broke out the fixed versus floating exposure there. I was curious, is there a thought to change in your approach to how much you run fixed versus floating? It's just been such a focus for people, maybe a distraction away from the core business from time to time?

Absolutely. Moving forward, we find ourselves in a unique position with these three outstanding annual periods. The RIN market differs significantly from traditional equity and debt markets, and we've tried to make that clear to everyone. As these periods become part of the past, we are optimistic that we will be able to disclose our RIN expenses more openly. However, our aim is to move past much of this complexity, as the program has been quite convoluted. We are also working to forecast what the 2023 program will entail for us. Right now, our primary focus is on fulfilling our 2022 obligations and ensuring compliance with the program for 2021 and 2022.

The follow-up just on the bond maturities that you have coming up, I think you've been clear that you can be patient. As you look forward, do you think the business or the appropriate capital structure could be one where you just take out the 2023 and 2025 debt and don't replace any of it? So, run leaner in terms of how much debt you have on the balance sheet? Is that something still kind of thinking through what the appropriate quantum of debt is?

We still need to determine what the appropriate level of long-term debt is. Currently, there are no plans to incur additional debt; we have about $675 million outstanding for 2025 and the $525 million for PBF Logistics. We are considering a long-term strategy of reducing our debt, as the business hasn't demonstrated extreme responsibility in this area. At the same time, we recognize the challenges posed by being over-leveraged in refining. We're trying to identify what we believe to be the optimal balance. Currently, on a trailing 12-month basis, our debt to EBITDA ratio is less than 0.4, and we've recently generated nearly $2 billion in EBITDA for the quarter. The forward projections suggest figures well above $1.7 billion to $1.8 billion for our business in the coming years. Ultimately, we are trying to ascertain the right level of debt, but we can afford to be patient now. We are in a strong position compared to how we had to respond during COVID.

Our last question comes from the line of Matthew Blair with Tudor Pickering Holt.

First one, could you talk about the product yield and feedstock slate for the upcoming RD plant? On the product side, do you anticipate having any SAF flexibility? And then on the feedstock side, I believe you're looking at full pretreatment. But do you think you'll be able to access these discounted waste oils and animal fats? Or would it be more like a crude SPO feed?

We are currently building out our commercial operations. While the projects will not be operational until the second quarter, we are actively staffing up and developing the capabilities to source the most cost-effective feed available. A key advantage of our project is our timing; several projects behind us will be in a position to start purchasing feeds. We believe we will have access to the market and are hiring professional staff to execute our plans. This will allow us to maximize our operations based on economic conditions, providing us with flexibility. We find the project very appealing for this reason. Regarding yields, we are still assessing the news about the potential compromise relating to the renewable identification number. However, we expect that sustainable aviation fuel will be in demand and we will have the capability to produce it from our project.

Any initial thoughts on what the SAF yield might be?

I think we could get it up to 20% without much capital and for a modest amount of capital, we could get it higher than that.

And then the comment on you expect above mid-cycle refining margins for now. When we think about the math behind it looking at European gas at $50 per MMBtu, U.S. call it around $7, and then we think about generally every $1 per MMBtu in that gas, is about $0.25 per barrel in refining margins. And so just doing the math there that'd be about an $11 margin benefit from just a steeper global cost curve; does that make sense to you? Is that how you think about it as well or any different numbers there?

Directionally, that's the way we look at it. And there's a number of publications that have put out in the scale of what the spread is between European gas and Henry Hub. If indeed we wind up holding a $50 spread, that is going to be a very big driver for improving margins. Because obviously, European refiners have got to cover those costs, and we will be cost-managed in many ways. But you're directionally correct.

Ladies and gentlemen, we come to the end of our time for questions. I'll turn the floor back to Mr. Nimbley for any final comments.

Thank you folks for joining the call today. We look forward to continuing to recognize our employees and reward our shareholders and talking to you at the third quarter call. Thank you very much.

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