PBF Energy Inc. Q2 FY2025 Earnings Call

Good day, everyone, and welcome to the PBF Energy Second Quarter 2025 Earnings Conference Call and webcast. Please note, this conference is being recorded. It is now my pleasure to turn the floor over to Colin Murray of Investor Relations. Sir, you may begin.

Thank you, Mike. Good morning, and welcome to today's call. With me today are Matt Lucey, our President and CEO; Mike Bukowski, our Senior Vice President and Head of Refining; Karen Davis, 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 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. Consistent with our prior periods, we'll discuss our results excluding special items, which are described in today's press release. Also included in the press release is forward-looking guidance information. For any questions on these items or other follow-up questions, please contact Investor Relations. For reconciliations to any non-GAAP measures mentioned on today's call, please refer to the supplemental tables provided in the press release. I'll now turn the call over to Matt Lucey.

Thanks, Colin. Good morning, everyone, and thank you for joining our call. While PBF's second quarter was a marked improvement over the prior few quarters, we definitively see constructive tailwinds ahead, specifically on the crude side. The Martinez refinery was partially restarted in late April, and now with much better discovery, we are working towards a full restart by the end of this year. The work our team in Martinez is doing is commendable. They continue to work diligently to maintain safe operations and produce much needed products for the California market, while at the same time, managing the significant project to restore full operations. The rest of our refining system has largely operated to plan. Second quarter product margins were supported by strong demand, while the light-heavy crude differentials continued to be a significant challenge. Close to 4 million barrels of medium and heavy crude were taken off the market between 2022 and 2023 timeframe. Based on announcements to-date and projecting forward, we should see between 2 million and 2.5 million barrels per day coming back by this autumn, which will coincide with seasonal refinery maintenance. With this, we expect to see light-heavy spreads widen out as we move deeper into the third and fourth quarters. Looking ahead, the product markets are looking attractive. Distillate in particular looks quite strong. Global distillate supply/demand balances remain in deficit and with long inventory, distillate crack should remain supported. With already high refinery utilization, it will be difficult for distillates to restock with continuing strong demand. Longer term, we continue to see incremental product demand growth exceeding net refining capacity additions. Recent research indicated only approximately 500,000 barrels a day of net refinery capacity additions in 2025. This does not keep up with growing global demand. And as we have seen, capacity rationalization can happen quickly and unexpectedly. We are seeing more rationalizations than expected in 2025 and 2026 with fewer new additions as we look further out. Europe recently lost 113,000 barrel a day Lindsey refinery in the U.K., and we still have the pending shutdowns of Phillips 66 Los Angeles and Valero's Benicia plant over the next 10 months or so. This is a constructive setup for the global refining environment. PBF remains focused on controlling the aspects of our business that we can control. As Mike will update shortly, I'm very pleased with our progress on the business improvement initiatives that we've initiated. This effort will result in improved efficiency and reliability across our system, which should, in turn, drive superior refining performance. To be successful and enhance value for our investors, we must operate safely, must operate reliably and responsibly, but we must do it as efficiently as possible. With that, I'll turn the call over to Mike Bukowski for comments on operations.

Thank you, Matt. Good morning, everyone. Before updating on the progress we've made on our Refining Business Improvement program, RBI for short, I'll provide a few comments on second quarter operations. On the West Coast, we continued to progress with the full repair and restart of Martinez. We are managing a number of work streams, including running the available elements of the refinery and building the damaged areas. At this point, we've completed the demolition of the damaged areas. As we progress through the demolition and deeper into those areas, we identified additional elements that need to be addressed in the rebuild process, which has expanded our previous scope of work and adjusted the timeline to reflect an expected restart by year-end. Torrance is currently conducting a hydrocracker turnaround, and we expect it to be complete by the beginning of September. Aside from a few minor issues, the rest of our system operated reasonably well in the quarter, and we have no major turnaround work for the remainder of the year. Shifting topics to RBI. Last quarter, we announced that we expected to recognize $230 million of annualized run rate savings by the end of 2025 and $350 million of run rate savings by the end of 2026. We are currently on track to exceed those stated targets. We currently have over $125 million of run rate savings implemented so far. The savings will materialize as we implement the programs in refining operating expenses, capital and turnaround budgets and general and administrative expenses. As a reminder, we will realize the full value of these savings in 2026 and a prorated portion in 2025 as we move through implementation. We started the process with the East Coast, Torrance, procurement and our top to bottom organizational review from headquarters to the refineries. This is a continuous improvement effort. In addition to the ongoing work streams, we are now working at Martinez and Chalmette to generate additional actionable ideas that will translate to real cost savings. We have a number of positive initiatives going on across our organizations, but our main priority will always be to focus on safe, reliable and responsible operations across our systems. I'll turn the call over to Karen Davis for our financial overview.

Thanks, Mike. For the second quarter, we reported an adjusted net loss of $1.03 per share and adjusted EBITDA of $61.8 million. Our discussion of second quarter results excludes the net effect of 4 special items, including: $30.4 million in incremental OpEx related to the Martinez refinery incident, a $189 million gain on insurance recoveries, an $8 million gain related to PBF's 50% share of SBR's lower-of-cost-or-market adjustment for the quarter and approximately $13.6 million of severance and other charges associated with the RBI initiative. The $189 million gain on insurance recoveries related to the Martinez fire is a result of the initial unallocated payment of $250 million that we received from our insurance underwriters in the second quarter. $61 million of the total proceeds was applied to the insurance receivable that was recorded in Q1 and the remaining $180 million was recorded as a gain on insurance recoveries for the quarter. We expect that we will negotiate additional interim payments. However, the timing and amount of any agreed upon future payments will be dependent on the amount of covered expenditures that we actually incur plus calculated business interruption losses. Our Q2 P&L reflects incremental OpEx at Martinez of $30.4 million that we are reflecting as a special item because it relates to construction of temporary equipment to restart undamaged units, costs incurred to address impacts of the fire on the units that were being prepared for turnaround and other fire-related impacts. We anticipate recovering a portion of this amount through insurance, but the specific amount of the recovery will be determined as we progress further into the claims process. Generally speaking, any insurance proceeds that we receive in future periods will be reflected as gain on insurance recoveries on our income statement and reported as a special item. Shifting back to our normal quarterly results discussion. Also included in our results is a $4.3 million loss related to PBF's equity investment in St. Bernard Renewables. SBR produced an average of 14,200 barrels per day of renewable diesel in the second quarter after completing a planned catalyst change that began in March and ended in April. Third quarter renewable diesel production is expected to be 16,000 to 18,000 barrels per day. Cash flow from operations for the quarter was $191.1 million, which includes a working capital benefit of approximately $79 million, primarily related to an approximately 2-million-barrel reduction in inventory during the quarter as compared to March 31 levels when inventories were elevated as a result of the Martinez fire. This benefit was partially offset by a decrease in our payables position. Also included in our operating cash flow is $118 million of the $250 million in total insurance proceeds received in the quarter. Cash invested in consolidated CapEx for the quarter was $154.7 million, which includes refining, corporate and logistics. This amount excludes second quarter capital expenses of approximately $104 million related to the Martinez incident. Year-to-date, rebuild capital expenses at Martinez are approximately $132 million. Additionally, our Board of Directors approved a regular quarterly dividend of $0.275 per share. We ended the quarter with approximately $590.7 million in cash and approximately $1.8 billion of net debt. Maintaining our firm financial footing and a resilient balance sheet remain priorities. At quarter end, our net debt to cap was 30% and our current liquidity is approximately $2.3 billion based on cash balances of approximately $590 million and borrowing capacity under our ABL. Our liquidity position is ample. The anticipated receipt of a $70 million tax refund plus the receipt of the proceeds from the pending sale of the Knoxville and Philadelphia terminals that we reported last quarter should bolster our liquidity position further this quarter. As we look ahead, we expect to use periods of strength to focus on deleveraging and preserving the balance sheet. Operator, we've completed our opening remarks, and we'd be pleased to take questions.

Your first question comes from Doug Leggate from Wolfe Research.

Matt, the cost-cutting targets are obviously gating pace. I wonder if you could help us understand how to track those in terms of where it's going to show up, whether it would be capital, operating cost, capture rate, because obviously, $250 million run rate, I guess it's about $0.75 a barrel, pretty material if it's sustainable.

You broke up at the end. Will it be sustainable?

Yes. I'm basically saying that, I'm trying to understand how we track it, how do we model it, how do we bake it into what we think is a go-forward part of your valuation?

I'll pass it over to Mike briefly, but just so we're clear, we are taking extensive steps to make sure that everything that we do is absolutely sustainable and resilient going forward. There is going to be some amount that is on the capital side and turnaround side. So, it may at times be forensically difficult to tick and tie, but we're here to illuminate where it all resides. And so, it will be in the dollars per barrel on the OpEx side, but also a reduction on the capital side. But Mike, why don't you expand?

Yes, Doug, thank you for the question. At a high level, about 70% will be allocated to operating expenses and approximately 30% towards capital expenditures. I will elaborate on the sustainability and reliability aspects. We refer to this as the Refining Business Improvement initiative, which goes beyond mere cost reduction. Sustainability is essential for us, just as much as the cost savings, as it will enhance business improvements across all areas, including operational excellence, safety performance, and reliability. For example, regarding turnarounds and capital spending, we are implementing robust processes to optimize the scope of our sustaining capital, improve turnaround productivity, and enhance the intervals between turnarounds. This ensures we maximize our capital investment by achieving the highest returns from a reliability standpoint, which in turn drives sustainability. On the operating expense side, every initiative has a sustainability plan attached to it, comprising a set of key performance indicators. We are employing technology to disseminate this information throughout the refineries. These initiatives and their corresponding KPIs will be regularly monitored, with some tracked daily and others monthly. We will maintain visibility on our progress moving forward, which will also serve as a foundation for continuous improvement. We view this initiative as the beginning of an ongoing improvement process.

I appreciate it guys. So just to be clear, there's nothing in the capture rate. This is all operating expenses and capital expenditures, I mean?

This initiative so far is focused on OpEx and capital, nothing in the capture rate.

Got it. Matt, could you follow up on your comments regarding the light-heavy differential? As you mentioned, there are supposed to be a number of new barrels returning to the market, and Chevron is back in Venezuela. However, we haven't seen the actual barrels yet. Are you noticing any signs of light-heavy spreads widening in your feedstock opportunities, or not?

I believe we are beginning to see changes now. Let’s step back and consider the light-heavy differential along with the market disruptions, whether they were voluntary or involuntary due to OPEC or other geopolitical events. No refining company has felt the impact more than PBF, which is unfortunate. However, the positive aspect is that as these issues are resolved and barrels re-enter the market, PBF stands to gain the most from the widening differential. When examining the refining market, the first thing to evaluate is reasonable demand, which is tied to attractive crack spreads that we currently have. Therefore, the overall demand outlook appears positive and encouraging for our business. A significant advantage for PBF moving forward, as these barrels come back into the market, will be the reduction of our feed costs, which translates directly into our profits. Tom, would you like to discuss the specifics?

Yes. Doug, it's Tom. I mean, just to expand a little bit, I mean, I think in terms of why it's been masked at this point is just really kind of a seasonality, right? We've got a very high run environment and also combined with seasonal demand for crude and fuel burn in the Middle East. So as production has been increasing, it hasn't necessarily turned into increased exports yet. But certainly, our expectation is that would be seen in the next few waterborne trade cycles as we proceed into there. And obviously, combines with just the seasonal aspect that turnarounds will start commencing in that time frame as well.

Your next questions come from Neil Mehta from Goldman Sachs.

Just want to spend some time on the Martinez refinery. You got limited operations that were restored in the second quarter, but you talked a little bit about the path to restart different units. And so, can you just go through the logistics between now and year-end? What are the gating items? What are the things that we should monitor as an investment community?

Thank you, Neil, for your question. I want to acknowledge the team at the Martinez facility for their outstanding efforts in safely recovering and bringing the units back online. The demolition and area clearing work has also been executed exceptionally well. We reached an important milestone by completing the demolition, which has helped us clarify and finalize our project scope. We still have some additional items to address. Most of our long lead procurement activities are complete, and we had wrapped those up before the demolition since we were aware of what they entailed. However, we are beginning to experience some delays with delivery schedules, which has raised our concerns and pushed the start-up timeline towards the end of the year, although we are continuously keeping an eye on the situation. We have already commenced civil work and have begun receiving modules and equipment, putting us in a good position to install them soon. Given that this project is unconventional, we are working on multiple fronts simultaneously. The next significant milestone for us will be the initiation of major construction activities.

That's really helpful. And then just in terms of some of those gating items, I guess you talked about regulatory permitting and approvals. Can you just remind us again what those are and then the certain critical equipment and components? It sounds like, based on the comments that you just made, some of those are coming to the site. But again, remind us what those are as well?

On the regulatory front, we are in the process of securing a permit to operate, which is standard for a project of this scale. We have cultivated a strong relationship with the air district in the Bay Area, and they are collaborating closely with us to clarify their requirements for obtaining a temporary construction approval. We are committed to meeting those requirements and expect to receive the permit very soon, enabling us to commence all major activities. Our relationship with them has been very positive. Regarding the long lead items, there are a few key components that are influencing our schedule, namely some major process vessels and critical rotating equipment. We were aware of their location relative to the damage and promptly placed orders for them within approximately six weeks of the fire.

Great. And then my follow-up is just around Delaware City. You guys have excess real estate. There's talk about potentially given the length there, is that a natural place to build data centers and so on. So, just your perspective on that? Is that something that we as an investment community should be spending time on?

Thanks, Neil. Well, we've been talking about for quite some time. We're blessed with a tremendous amount of land around our Delaware City refinery that has not been commercialized, and the value of which has not been maximized. And as everything we own, we want to maximize the value of it. So, as I've discussed in the past, we're looking at ways to do just that, and we're exploring opportunities. And to the extent that we can maximize value there, we're absolutely going to look to do it. And so, we've been working with some counterparties, with some subject matter experts. And I do believe there's going to be an opportunity to really create a win-win-win where you can have incremental investment, incremental jobs and incremental value created around a refinery in Delaware.

Your next question comes from Manav Gupta from UBS.

Hi, guys. So, my first question is around the cash position. I'm trying to understand, it looks like you did not burn any cash in Q2. But going ahead, Q3, by the time you actually restart your refinery, what could be the cash position? And do you expect to be within your means in terms of not looking to raise more debt or any other form of financing? And can you continue to work within the means by year-end because most likely by year-end, once Martinez comes back, you should be fine.

Thank you for the question, Manav. We are always looking at ways to properly capitalize our company. And the $800 million unsecured notes offering that we did earlier in the year, we think has positioned us well. We do believe that we have ample liquidity going forward. Our current net debt position is at 30%. We target being under 35%. At the moment, our cash burn, as you saw in the first quarter, was fairly neutral. So, we believe we are well positioned to weather what comes.

I'd just add that the relationship and the working relationship with the insurance market and providers has been very constructive so far. And so, we've got a whole team that works with them hand in glove. And so, any working capital swings as a result of expenditures and receipts from the Martinez project are mitigated to some degree provided that we can continue working as collaboratively as we have with the insurance providers.

And going back a little, I think we didn't miss this one, but there was a filing on Starwood Digital Ventures. Looks like they are looking to build a massive data center. And one of the companies they're working with is New Castle Campus Development, which is an entity linked to you. So, I'm just trying to understand this filing a little better, what opportunities it creates for you guys? And would you be only the land provider? Could you also be providing some electricity? How can you collaborate with Starwood to bring forward this project?

Thanks. As I said, we're exploring ways in which we can maximize value for our shareholders. We have been working with Starwood, who has been an excellent subject matter expert. They've done such projects in the past. We don't have anything formal to announce at the moment, but we'll continue to develop opportunities at Delaware and do it in a way in which we can, like I say, absolutely drive the best value for our shareholders. And so, we are actively working on that project, but we don't have anything definitive to report at this time.

Your next question comes from Ryan Todd from Piper Sandler.

Maybe one on the West Coast. After a very strong second quarter, margins on the West Coast have softened a little bit of late. Can you maybe talk about what you're seeing in terms of market dynamics there in the Western half of the U.S. and any outlook from there going forward?

Yes. Again, from a very high level, and we're just in the midst of a refinery shutting down in Los Angeles that I think will sort of happen over the next 6, 8 weeks. Indeed, I think we're actually having some new employees from that facility. But structurally looking at California sort of in a post-LAR shutdown, even ignoring the reduction from Martinez, you're going to be short gasoline by upwards of 150,000 barrels a day. Then, the other announced closure in San Francisco will increase that by another 100,000 barrels a day. It's upwards of 250,000 barrels a day. When you rely on imports, they do not come in perfectly ratable. And so you do have periods where a significant amount of product is brought in, and so you have a little bit of an up and down where the market has escalated to a point where it's going to attract those imports. And then they'll arrive in sort of a large size and then it brings the market off. Going forward, it's our belief that market is going to be very constructive just based on the amount of product that they have to import, that our refineries are very well positioned to be the low-cost provider for California who will be desperate to be able to attract the fuels necessary for their society to prosper as it has. So, I think California is set up in a very constructive manner. Paul, do you want to talk to the micro in regards to what we're seeing now?

Yes, sure. I mean, Ryan, if you take a look at what came in during the second quarter, it was about 120,000 barrels a day of products. That's about where the market is short currently with all the refinery activity that's going on. But Matt mentioned it, right? It comes in all at once and then it bleeds into the systems across a given month. And so, there's a tremendous amount of pricing volatility that we see in that marketplace because of that. Ours are opening and closing based on that volatility. So, just as an example, I take a look at August, we're going to have a very limited import market into the state during the course of August because of the closed arbitrages to support the business there. End of the day, the market is going to price itself to balance. We anticipate that it costs a lot of money to bring products into that state from abroad. Molecules will show up. They will get there, but it will be an expensive adventure for everybody to balance.

Great. And then maybe one question on the renewable diesel side. Can you talk about, during the second quarter, how much were you able to monetize in terms of credits from the PTC and should we expect further tailwinds from that as we look into the second half of 2025? And maybe any broader thoughts on what you're seeing in terms of the macro in the near term there on renewable diesel?

Ryan, we don't give details on specific credits. I will tell you that we did accrue 45Z revenue during both the first and the second quarters based on the preliminary treasury guidance and in conjunction with our qualifying sales of renewable diesel. What we did see in Q2, though, is with RINs pricing increasing, we did come close to offsetting the decline in revenue from the BTC to PTC switch.

Your next question comes from Joe Laetsch from Morgan Stanley.

So, on the California landscape, can you talk to how recent discussions have been with the state? It seems like at least from a headline perspective, government officials have begun to realize the importance of refined product and impact of upcoming refinery closures?

You are absolutely correct, and it’s true that nothing sharpens focus like an imminent crisis. Over the past couple of years, our engagement with the State of California has undergone a significant change, and it has become a priority for us. We've dedicated a considerable amount of time to educating various regulatory agencies and groups in the state, highlighting not only the significance of our products but also the implications of market disruptions. There has been some productive dialogue with the state, although some aspects still need to be validated. Positive discussions are encouraging, but real outcomes are essential. As the legislature reviews matters in August and as the Governor's team, the CEC, and other stakeholders work through issues, there is a growing acknowledgment of the potential crisis ahead. We are collaborating closely with them, and I am satisfied with the cooperative nature of our discussions. However, it is crucial that these conversations lead to tangible improvements, which we still anticipate.

That's helpful. And then, shifting gears a little bit. There's been several refinery closures that have occurred or been announced in Europe. Could you give your perspective on the East Coast market here and implications that you're seeing on transatlantic flows?

Yes, it's an evolving situation, but we've noticed a significant decline in imports from Europe, where historically, the U.S. East Coast had been a destination for surplus products. Europe would send goods to the U.S. East Coast to offload excess supply. Now, it seems the U.S. East Coast needs to increase its appeal to attract shipments instead of just accepting them, regardless of market conditions. It’s fair to say this situation is developing. Recently, we were surprised by the closure of a refinery in the U.K. The dynamics are definitely changing significantly, whether we're looking at California or Europe, and we've observed a notable reduction in imports from Europe lately.

Your next question comes from Paul Cheng from Scotiabank.

Matt, on the RBI, if we look at trying to put it together and see how that is going to look like in your refining OpEx going forward. Can you give us some idea that by the end of this year, what will be a reasonable refining OpEx we can assume using a $4 natural gas price? And by the end of 2026, what that number may look like? That's the first question.

Well, I think Mike alluded to it before. If you take what we're saying as run rate savings, $240 million, 70% should reside in OpEx.

Is there any other factor that might offset inflation and other considerations we should take into account?

No.

So, you think that that would be a net saving then?

Yes.

Okay. Second question, real quick, on SBR, I'm a little bit surprised that you will be targeting a 16,000 to 18,000 barrel per day run. Given the current market condition, I think a lot of your competitor is talking about reduced run. So, trying to understand that what is the rationale behind and how the decision-making process on that?

It's no different than anything else we run; we aim to maximize profit. You can't evaluate all manufacturing the same way. Clearly, location is a significant factor. One of the advantages we highlighted when launching SBR was the optionality that comes with its location in the Gulf Coast, particularly at the mouth of the Mississippi River. This gives us flexibility regarding feedstocks and where the product will be sent after leaving the plant. We completed a catalyst change in the second quarter, and in the third quarter, we'll strive for an optimized economic outcome. As you mentioned, you have our estimates moving forward.

And Matt, are you guys making money right now in SBR?

Yes. I would describe it as somewhat breakeven. The market is experiencing significant changes, and there's a larger story regarding the RFS. We've seen a substantial increase in RIN prices, which have essentially doubled, but feedstock costs have also risen. Additionally, there are still many unanswered questions regarding the RFS.

Your next question comes from Connor Fitzpatrick from Bank of America.

I wanted to follow up on the U.K. closures, specifically Grangemouth and now Lindsey. Between the 2 refineries, transatlantic capacity should be down about 57 kbpd of FCC capacity and 12 kbpd of alkylation, which are similar numbers to the capacity you have idling at Paulsboro. Do you think the option to restart those units has become more attractive? VGO feed cost was a barrier last time. This possibility was discussed in, I think 2022, but that cost has eased a bit since then. And are there other opportunities to take advantage of PADD 1 tightness?

At the moment, we're not exploring a restart of units at Paulsboro. We're happy with the system and the equipment we have in place. Obviously, as markets develop, we can look at things in the future. But as of right now, we're not evaluating the restart of any units.

What factors are influencing your decision not to consider that?

I didn't say we're not looking into it. I said that we don't have any plans to restart it at the moment. We always evaluate every option that we have, but we have no intention at the moment to restart those units. As markets evolve, there are assets that we own and to the degree that they can be optimized and create long-term value, we'll certainly look to do that.

Your final question comes from Jason Gabelman from TD Cowen.

I wanted to ask on the sequencing of insurance proceeds and just make sure I understand it correctly. It looks like on the cash flow from investing side, insurance is going to offset on a one-to-one basis, capital expenditures to fix Martinez. But then, can you just kind of describe on the cash from operating side, the insurance proceeds that come in? How much has come in so far to cover the past quarter's lost profit opportunity? And then, should we expect to see that roll in on kind of a 1 quarter in arrears basis?

Yes. I can respond in a few ways. First, we received $250 million in the second quarter, which effectively totals $280 million since we retained the first $30 million. It's not practical to meticulously separate the property and business interruption aspects. I would describe our insurance collection related to the economic impact of the incident as balanced. There are components related to both property and business interruption. It’s one policy that uses two distinct methods to assess losses, and we cannot precisely delineate what portion is for business interruption versus property. Overall, I would say that our collections so far have aligned with the incident's impact.

Okay. So, is it fair to say in totality, the inflows on a 1 quarter delay should kind of cover those 2 buckets, the lost profit and the capital component?

We're working with the insurance company. Obviously, we got a payment last quarter. There's not definitive guidelines in regards to must pay dates with the insurance policy. But like I said, we've been working collaboratively with them, and we expect to receive interim payments as we did in the second quarter going forward.

Please go ahead.

Yes, I think we’ve reached the end of the questions. I greatly appreciate it. As mentioned, we look forward to promising times ahead and are very encouraged, particularly on the product side. Looking forward, it appears that the crude side will be much more advantageous. Thank you for your attention, and I look forward to speaking with you next quarter.

This concludes today's conference, and you may disconnect your line at this time. Thank you for your participation.