Earnings Call Transcript - PBF Q1 2022

Operator, Operator

Good day, everyone, and welcome to the PBF Energy First 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 of Investor Relations. Thank you. You may begin.

Colin Murray, Investor Relations

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'll 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 $64.4 million or $0.53 per share. There are a number of other notable items included in our results that Erik will highlight in his remarks. For reconciliations of any non-GAAP measures mentioned on today's call, please refer to the supplemental tables provided in today's press release. I'll now turn the call over to Tom Nimbley.

Tom Nimbley, CEO

Thanks, Colin. Good morning, everyone, and thank you for joining our call. Before commenting on PBF results and the macro environment in general, I would like to comment on current events. The war in Ukraine has caused shock waves across the world. However, any impact outside the borders of Ukraine pales in comparison to what is being endured by the Ukrainian people. Our thoughts and prayers go out to those who are suffering and we hope to see the conflict end soon. Prior to the events in Ukraine, global oil markets were delicately balanced. Crude supplies were tight, but meeting demand, while product supplies and refining capacity were struggling to keep up with post-COVID demand strength. We are seeing volatility in global crude markets driven by supply concerns. Trade flows have shifted in response to sanctions, but the crude markets remain adequately supplied despite increasing demand for incrementally more crude. Strength in global product prices is being driven by a combination of increased demand and low product inventories. Global refining capacity is more than four million barrels lower today than in 2019. Even with relatively high utilization, current refining capacity can barely keep up with demand and is incapable of concurrently increasing global product inventories. US refining utilization is operating at near capacity as we are about to enter the traditionally peak summer demand period. For the first quarter, PBF reported earnings per share of $0.35 and adjusted net income of $43.3 million. To put this in context, the first quarter is generally a seasonally low point for demand and high point for industry maintenance. Through this, PBF generated positive earnings. Our valued employees are working tirelessly to keep our assets running safely and reliably. We completed a significant amount of maintenance in the first quarter as we get the bulk of our planned turnarounds behind us in the first half of 2022; our assets are well positioned to benefit from the favorable market conditions we are seeing. With that, I will now turn the call over to Matt.

Matt Lucey, President

Thanks, Tom. As Tom mentioned, PBF is off to a solid start. During the quarter we completed more than one-third of our planned turnaround activity for the year. On the East Coast, we completed work on the Del City reformer and other secondary units, which began in March and concluded in April. At Chalmette, we completed a major turnaround of the reformer and air mags complex. And on the West Coast, we completed turnarounds at Martinez on the distillate hydrotreater and hydrocracker, while Torrance finished planned work on one of our hydrotreater trains. Torrance had some unplanned downtime in March related to a utility power disruption and while that disruption was costly, it is behind us. Looking ahead to the second quarter, our capital expenditure and throughput guidance is presented in today's press release. We completed the work at Delaware this month and have planned work at Torrance in June. In addition to our refining CapEx, we continue to invest and progress our renewable diesel project in Chalmette. We anticipate start-up with full pretreatment capabilities in the first half of next year. Importantly, the project is on time and on budget. We believe our 20,000 barrel a day facility is a top-tier project with regards to capital costs, operating costs, geographic flexibility, feed and product optionality, and time to market. In parallel, with the project development, we continue to evaluate a number of different financing alternatives across the capital structure. We are working with financial advisers and are very encouraged by the interest expressed by potential counterparties. Before I turn the call over to Erik, I feel like I must comment on the RFS, as it is unquestionably driving costs higher at the pump for every consumer in the country. The administration has been hearing from a lot of stakeholders on the pain consumers are feeling at the gas pumps, as well as problems with the inflated 2022 conventional biofuel requirements the EPA proposed. We are hopeful there will be a pathway to a more sensible and workable program with the final rule. Importantly, the program's unintended consequences on the price of food will certainly become more severe, if not addressed. We hope to hear something further in early June, as the courts have mandated that a decision must be made. Like you, we are waiting to see if the Biden administration will take this opportunity to lower fuel costs, as motorists are taking to the road. And with that, I'll turn it over to Erik.

Erik Young, CFO

Thank you, Matt. Our first quarter financial results reflect strong product demand as world economies continue rebounding from the pandemic. Today, we reported our fourth consecutive quarter of profitability, with adjusted net income of $0.35 per share and adjusted EBITDA of approximately $271 million. This brings our trailing 12-month adjusted EBITDA to over $930 million. Our first quarter adjusted EBITDA includes a non-cash benefit of approximately $24 million, driven by changing market prices and the management of our California environmental credit obligations. To that end, our $1.1 billion environmental credit accrued expense consists of approximately $500 million related to our California obligations and roughly $600 million related to RINs. As a reminder, California AB 32 Cap-and-Trade program settlements span several years. Of the RIN accrual at the end of Q1, approximately one-third are fixed price purchase commitments that will settle this year and the remainder are subject to mark-to-market adjustments. We remain an active participant in the RIN market and look forward to clarity on the program. Consolidated CapEx for the quarter was approximately $225 million, which includes roughly $185 million for refining and corporate CapEx, approximately $40 million related to continued development of the RD facility and roughly $1 million for PBF Logistics. Our first half refining and corporate CapEx should be approximately $325 million to $350 million, including $225 million to $250 million of turnaround expenditures. For the second half of 2022, we expect total refining and corporate CapEx to be roughly $200 million. This reflects a return to our normalized pre-pandemic turnaround schedule. Primarily as a result of the rising price environment for hydrocarbons during the quarter, our liquidity position strengthened to a robust level of more than $2.6 billion, including approximately $1.4 billion of cash and in excess of $1.2 billion of borrowing availability at quarter end. Since the end of 2020, we have reduced our long-term debt by approximately $390 million, including $55 million in 2022. In addition to $25 million of repayments on the PBF Logistics revolver, we opportunistically repurchased $30 million of unsecured bonds at PBF Energy this year. Pro forma for this debt reduction, our consolidated net leverage on a trailing 12-month basis is inside 3 times. The official process to amend and extend our asset-backed credit facility at PBF Holding commenced during the first quarter. We are pleased to report that things are proceeding as planned and we anticipate a successful closing during this quarter. We expect this positive momentum to carry forward into the PBF Logistics refinancing efforts, for both the revolver and the term debt. Refinancing of both facilities should close over the next few months. Once these initiatives are complete, we can then address the 2025 debt maturities at PBF. Given the strong product fundamentals and current outlook for our business, our goals are achievable only if we continue focusing on safe and reliable operations, cost control, and free cash flow. Operator, we've completed our opening remarks and we'd be pleased to take any questions.

Operator, Operator

Thank you. In a moment, we’ll open the call to questions. The company requests that all callers limit each turn to one question and one follow-up. You may rejoin the queue with additional questions.

Roger Read, Analyst

Yes. Thank you. Good morning. Certainly an interesting time to be in refining, but I guess we could say that for the last two years. Curious, given your position on the East Coast and where we seem to see some of the greatest tightness for products, I mean it seems very important given that's kind of where we price everything on the wholesale market. As you look at it and I want to get past any maintenance issues at Delaware, but how do you see that market getting supplied? Is what we're seeing a lack of imports coming from across the Atlantic? Is it a lack of stuff coming up the Colonial Pipeline? I'm just kind of curious how you see the market ultimately achieving something akin to balance.

Tom Nimbley, CEO

That's a great question, Roger. The short answer is all of the above and more. We've seen a reasonable recovery in product demand, although it's not yet back to pre-pandemic levels, it's certainly stronger than before. Jet fuel demand has increased. We've also had capacity rationalization in PADD 1. With PES no longer operating and Come By Chance out of the refining business, we are experiencing significant changes in the import-export balances. For the past few weeks, Line 2 of the Colonial pipeline has not been allocated, which is unusual because it's typically always allocated. This line transports distillate from the Gulf Coast to Linden, New Jersey. The reason for this situation is that the United States has become the marginal supplier of export barrels due to reductions in Russian production, which has hindered their ability to meet market demands in the US and Latin America. As a result, the US is now providing distillate exports, particularly ULSD, with net exports from the Gulf Coast being very high. When we consider all these factors, we've encountered an interesting scenario in recent weeks. The EIA reported decent demand, though not as robust as last year, with high-capacity utilization in the US in the low 90s. Despite this, we've actually seen declines in clean products, especially distillate. In PADD 1, we are extremely tight and significantly low on distillates compared to the five-year average.

Roger Read, Analyst

Yes. It's really quite something to watch. Okay. Well, I guess my second question since the other super-tight market seems to be the West Coast, obviously detailing the issues in Q1. I was just curious, as you look at that market with the planned work at Torrance in June, seems to be balancing out a little bit better on gasoline there. But is it the same situation on the tightness in distillate that is what's driving the West Coast, or is it an improvement in demand? Just curious what you see there.

Tom Nimbley, CEO

We're seeing demand hold up on the West Coast relatively strong. Distillate, yet has recovered. One big thing that we're seeing is the traditional imports from Asia of jet fuel into the West Coast had slowed down significantly. That in combination with there has been a fair amount of downtime. We had some in the first quarter that Matt referenced and we do have some planned in June. But there are other refiners, Chevron Richmond has I think scheduled a crude turnaround in June as well. And again, the West Coast has not been without rationalization. The Rodeo refinery is converted partly already to renewable diesel. And of course the Marathon Avon refinery has been isolated. So, it's kind of the same story. It's reasonably good demand, less refining capacity coming in with tight inventories and in fact less imports into the West Coast. Thank you.

Operator, Operator

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

Theresa Chen, Analyst

Good morning. Tom, I wanted to ask you a follow-up on the East Coast. Given the tightness and the robust outlook there for product balances, how hard would it be for you to bring up your previously idle clean product capacity?

Tom Nimbley, CEO

Very good, Theresa. We have restarted two of the units that were idle during the pandemic at our Paulsboro refinery: the reformer, which produces high-octane gasoline, and the distillate hydrotreater, which produces ultra-low sulfur diesel. This was a beneficial move given the current market conditions, especially as we've seen a significant increase in the spread between premium BOB and RBOB. However, we will likely keep the remaining units offline for now. The main reason is that we have shut down a cat cracker that has a capacity of over 50,000 barrels a day and a crude unit that can process 60,000 barrels a day. Restarting these units would leave us short on feedstocks for the cat cracker. Although the environment looks promising in many respects, particularly for the Ukrainian people, the issues stemming from Russia and their exports are likely to lead to tighter supplies of secondary feeds moving forward, such as VGOs and fuel oils that typically fuel the cat cracker. Therefore, while we have brought back the units we can, starting up the additional units would not be feasible given our current constraints on capacity.

Theresa Chen, Analyst

Got it. That's great color. And Erik, just on capital allocation. How should we think about the path of deleveraging? And is there any appetite to further equitize your balance sheet from here?

Erik Young, CFO

I think at this point our focus today is really on getting these refinancings done at PBF and PBF Logistics. Once those are done we believe that will remove at least some of the overhang that we see on the bond complex. The unsecured bonds should trade up there probably a weighted average circa 90 today. And then from there we can address the 2025 maturities. I think right now we're looking at a forward curve that is extremely attractive and that's why we're continuing just to focus on safe and reliable operations. We've spent a significant amount of CapEx in the first quarter, that's starting to kind of trickle down through the remainder of the year with only $200 million in the back half of the year. So we've got a pretty clean runway across the board. I don't think at this point, there's really much to say in terms of equity. We're really focusing on what we can capture near term.

Theresa Chen, Analyst

Thank you.

Operator, Operator

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

Unidentified Analyst, Analyst

Hey, good morning, guys. This is Kalei standing in for Doug. My first question concerns your cash flow capacity in this environment. So cracks today obviously are unprecedented. So modeling capture will have its challenges, but I'm hoping that you can help us calibrate. So my question is how much cash flow did you generate in the month of March? What does April look like? And if you ran today's cracks, how much could you delever this year?

Erik Young, CFO

Kalei, I think it's going to be very difficult for us to comment on specific monthly performance. What we can say is that, it's relatively easy to look at how much the market improved from the end of last year through March. And so the trajectory was clearly that a significant amount of profitability was generated towards the back half of the first quarter. Clearly that trajectory has continued as we look forward. A couple of things in terms of cash flow. We did build inventory during the quarter. So look, we filed our 10-Q this morning looking at the balance sheet and cash flow statement. You can ultimately see we've got about just shy of $400 million worth of essentially a use of capital during the quarter. We expect that a significant portion of that will come back to us throughout the second quarter as we work those inventories down. The bulk of those inventories were built as a result of the heavy maintenance activity that we experienced along with the unplanned downtime out on the West Coast. So for us I think we're really probably more bottoms up in terms of what costs do we need to cover. And as we look forward into the second quarter, we've got between call it $150 million and $165 million worth of CapEx to cover. We do have interest payments to make. And ultimately we should see – we cannot control the hydrocarbon price, but we ultimately should see some benefit from working capital as we lower our inventory levels through the second quarter.

Unidentified Analyst, Analyst

Thanks, Erik. I know that's not easy. So I appreciate you giving it a shot. The follow-up question is just on diesel time spreads. So obviously the curve today is steeply backward dated. Can you talk about any challenges in capturing those margins?

Erik Young, CFO

Tom, do you want to take that?

Tom Nimbley, CEO

Yeah. I think in terms of that question, I think it's a broader theme across the entire marketplace. I mean, between what we're – dating back to when the disruptions were taking place in the market would initially look like a crude problem has turned into being through a combination of the adjustment of trade flows on the release of strategic stocks that's put the crude market back into better balance. And the product market is certainly telling you to shorten your supply line or your distribution, excuse me, in terms of moving that product out as swiftly as you can in selling it in the local markets.

Unidentified Analyst, Analyst

Perfect. And if I could sneak just one last one in there just one – just a housekeeping question. So the 10-K – or the 10-Q shows that the value of your RIN obligation is increasing in a rather flat RIN price environment. So the question is did you cover your cash obligations in 1Q?

Erik Young, CFO

We did cover our cash obligations in 1Q. I think we're sitting here managing what is essentially a three-year program at this point. That's why the pending news that we expect to come towards the back end of this quarter should ultimately help us understand exactly what we need to do. I think we tried to provide in our commentary of the roughly $600 million of RIN-accrued expense that's carried on the balance sheet today that ultimately roughly a-third of that should be covered with firm fixed price commitments. Just to give a bit more color on that we do expect about 50% to 60% of that one-third should be covered throughout the second quarter of this year.

Unidentified Analyst, Analyst

Perfect. Thank you, guys.

Operator, Operator

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

Phil Gresh, Analyst

Yeah. Hey. Good morning. Erik first question for you, just a bit of a follow-up on the leverage knowing that the refinancing and debt pay-down timing that you laid out there can you kind of contrast that to where you ultimately want the leverage ratio to get to? I think in the past you've targeted under, 40% net debt to cap if I'm remembering that correctly, but if you could just refresh us where you'd like that to get to kind of feel comfortable that you've achieved your leverage targets.

Erik Young, CFO

Yeah. That is a long-term being under net debt to cap of 40%. I think if we were using kind of rating agency-driven metrics from a net debt-to-EBITDA standpoint it's probably somewhere under, 2.5 times. I think one important note on that is, on a trailing 12-month basis we've got adjusted EBITDA of $950 million. It's probably slightly north of that, once we account for all the adjustments related to mark-to-market RIN in AB 32/LCFS noise. The cap can significantly accelerate with the type of forward curve that's presenting itself today. Said a different way our business right we've talked about getting back to a mid-cycle number. You assume our consolidated EBITDA should be between $1 billion and $1.5 billion in a mid-cycle environment we are tracking very well towards that path.

Phil Gresh, Analyst

Right understood. And then my follow-up question would just be around the operating cost in the first quarter knowing it was a heavy turnaround period, winter seasonality, unplanned factors and other things. Would you say there are, any kind of one-time factors that led to a bit more elevated OpEx, or just in general how should we think about OpEx for the rest of the year?

Tom Nimbley, CEO

I'll address that, Phil. One aspect affecting the first quarter is that we are experiencing two different situations. We had high natural gas prices in the U.S., especially on the West Coast, which has impacted our operating costs. We are no longer in the $3 million to $4 million per million BTUs range. The reason I mention two stories is that, while natural gas costs have slightly increased and affected our operating costs, we are in a significantly better position compared to refiners in Europe and Asia, who are facing much higher natural gas prices, particularly in the first quarter and at the end of last year when inventories were low. Although those inventories have improved, having $6 gas here while the rest of the world is paying $25 to $30 per million BTU gives us a long-term strategic edge. Aside from the impact of natural gas costs, which was considerable in the first quarter, the remainder of our operating costs was mainly due to downtime and reduced throughput, particularly because of the power failure at Torrance that affected our per-barrel costs.

Phil Gresh, Analyst

So to think on a go-forward $6.50 to $7 is a more reasonable per-barrel number with the higher throughput you're going to have or...

Tom Nimbley, CEO

Yeah, I think so. In that range certainly and as I said that is a competitive advantage for a U.S. refiner right now. And it's part of the reason back to I think Roger's question we are the exporter of record if you will to supply parts to the world right now.

Operator, Operator

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

Carly Davenport, Analyst

Hey. Good morning. Thanks for taking my questions. Just wanted to start on the macro side on your views on gasoline versus diesel, obviously diesel margins have been extremely robust quarter-to-date, but I wanted to get your thoughts around any potential ARB between gasoline and diesel margins as we move into summer driving season and contemplating any potential demand destruction on the gasoline side as well.

Tom Nimbley, CEO

That's a great question. This is an interesting time for the industry, and we've been involved in it for quite some time. I want to emphasize that any refiner with a good understanding of the business is doing everything possible to convert gasoline into jet fuel or diesel due to current market conditions. This trend will probably lead to a decrease in gasoline availability as long as the market continues in its current structure. Additionally, we’ve entered driving season, and we’ll need to see how demand holds up. I believe that people in the United States and globally will try to return to some semblance of normalcy, leading to a temporary spike in pent-up demand. As you know, we are also entering the low RVP season, which means that butanes and similar components are being removed from gasoline, further decreasing gasoline yield. We need to keep a close eye on the situation. If gasoline supplies become tight, the market will react accordingly, and we might shift production back to gasoline, particularly if the market conditions change. Currently, everyone is focused on maximizing distillate and jet fuel output. If the arbitrage narrows, we will see a shift back to gasoline production. Ultimately, we are facing very tight clean product inventories, which should support a favorable market environment in the short term.

Carly Davenport, Analyst

Great. That's helpful. Thank you. And then the follow-up was just kind of around the Mid-Continent Syncrude, where you've continued to see Syncrude trading at a premium to WTI. It seems like there are a number of factors likely contributing to that dynamic. But just curious how you see those spreads kind of evolving as we move through the year and if that has any impact on the type of crude that you're sourcing at Toledo.

Tom Nimbley, CEO

The second part of the question, do you want to take that? Go ahead.

Tom O'Connor, Executive

In terms of the prompt end of the market, there has certainly been some maintenance in that area, and we contributed to the strength in the marketplace. Looking ahead, our operations in Toledo have some flexibility regarding our production from the synthetic side compared to sweet crude, but I do not expect any significant changes in that regard. Moreover, there are ample incentives indicated by the forward curve for increasing production moving forward.

Carly Davenport, Analyst

Thank you.

Operator, Operator

Thank you. Our next question comes from the line of Paul Sankey with Sankey Research. Please proceed with your question.

Paul Sankey, Analyst

Good morning all. Guys the on market seems to like your utilization outlook. Can you frame any risks around that? You mentioned that you might be pushing more stuff through if you had more VGO. Is there some alternatives? And I assume everything is running well now? Thanks.

Tom Nimbley, CEO

We have moved past the maintenance and unscheduled downtime at Torrance, and our system is currently performing better than it did in the first quarter. Our focus, as we've emphasized over the years, remains on safe, reliable, and environmentally responsible operations. This is always crucial, especially considering our current margin conditions. Regarding challenges, the main one we're facing now, particularly for PBF, stems from the downtimes and turnarounds in the first quarter. As Erik mentioned, we've built up inventory, including in secondary feedstocks. In the short term, we won't need to run slack units, as we will be drawing down that inventory. However, with the situation in Russia, which is significant, we are seeing constraints impacting their refining production. Although they are selling a good amount of crude and haven't experienced the deep cuts expected, they are struggling with product exports due to limited storage, affecting the availability of clean products, VGOs, and fuel oil that we need to keep our cracking units running. In response, we've turned to Latin America for fuel oil and have sourced some alternative feedstocks. Yet, this leads back to the previous point: there will come a time when insufficient secondary feedstocks will impact our hydrocrackers and cat crackers. This could prompt us to evaluate the diesel and gasoline cracks, and if gasoline prices rise significantly compared to diesel, we might consider converting heating oil into gasoline. We have various options to explore, but it's clear that sourcing will remain a limiting factor going forward, especially since I don't foresee an end to the current situation in Russia anytime soon.

Paul Sankey, Analyst

Got you. And then the continuation of that would be someone described the current margin environment as biblical. Is there anything in the capture that you would highlight in terms of whether or not the headline margins are representative? One obvious point is that the coal products, which are not included in the headline margins, are also pricing very strong, right? So I assume that you're essentially capturing this environment?

Tom Nimbley, CEO

There is a noticeable discount currently. The light ends propanes remain strong, but they are still significantly discounted compared to crude prices. However, it is not the same market we are used to, as commodities are tight. The price of coke is considerably higher relative to crude than it has been historically, and demand for coke is still quite strong. Therefore, we are not seeing the usual discount, especially not the percentage discount on coal products that we typically experience, due to the additional strength in those markets as well.

Operator, Operator

Thank you. Our next question comes from the line of Paul Cheng with Scotiabank. Please proceed with your question.

Paul Cheng, Analyst

Hey, guys. Good morning.

Tom Nimbley, CEO

Good morning, Paul.

Paul Cheng, Analyst

Maybe the first question is for Erik. I just want to confirm that you mentioned the second half of the capital expenditures is projected at $200 million, but there's no major turnaround. Can you clarify how much of the $200 million is associated with the R&D project and how much is tied to your normal operations in Refining and Logistics? Looking ahead on a normalized basis, what should the annual capital expenditures look like, not including the renewable business? Thanks for the question.

Erik Young, CFO

The numbers we provided in our prepared remarks do not include renewable diesel. When we refer to the full year 2022, we're discussing a range of $525 million to $550 million, which is based on our annual maintenance capital expenditures averaging between $150 million and $200 million each year, regardless of the pandemic's phases. We expect this trend to continue. In terms of our turnaround cycle, we predict spending between $325 million and $350 million on turnarounds this year. Approximately one-third of that was spent in the first quarter, with another third expected in the second quarter, and the latter half of the year will see around $100 million related to turnaround activities at various plants. Moving forward, we expect to invest between $500 million and $600 million annually in capital expenditures. The timing of turnarounds will be the biggest variable. Some years may see our turnaround costs closer to $300 million, while in other years, they could approach $400 million or $450 million. The expenses will vary depending on a three to five-year cycle based on our major revenue-generating units.

Paul Cheng, Analyst

Erik, how much will you spend on the renewable diesel projects in the second half?

Erik Young, CFO

For the latter part of this year, we expect to have a partner that will cover a significant portion of our $600 million capital expenditure. As a reminder, we have already invested about 15%, or $90 million, by the end of last year and during the first quarter. We anticipate investing an additional 15% to 20% during the second quarter, with some potentially extending into the third quarter. Our aim is to provide a more detailed update on renewable diesel around mid-summer, one year prior to the expected start-up of the project.

Paul Cheng, Analyst

I see. The second question I want to revisit is about equity reinsurance. I understand your focus has been on refinancing. However, last time you used your equity, the secondary equity was around this time as an instrument. Does it make sense to take advantage of the strong demand and significant share performance to obtain some equity, essentially as a form of insurance?

Erik Young, CFO

Again, I think our message, Paul is that we're extremely focused on getting these successful refinancings closed. That is a very big first step for us and then we can address the 2025 maturities. There really is not much to say in terms of equity other than we feel like we've been extremely responsible with the timing around previous equity raises to make sure that ultimately we prepared this business for the long run. We've just come out of the most significant demand disruption event this industry has ever experienced and we made it through by making all of the right decisions. We anticipate continuing to do that on a go-forward basis.

Paul Cheng, Analyst

Okay, great. Can I sneak in one final question?

Tom Nimbley, CEO

Sure.

Paul Cheng, Analyst

It's on the global light/heavy oil potential, has been quite narrow over the recent time at least in the last say four or five weeks. Just curious there how you guys see that's going to evolve.

Tom Nimbley, CEO

Tom, do you want to handle that?

Tom O'Connor, Executive

I mean, obviously, a very tricky market to try to get into, a whole lot of nuances around basis trading when we're in effectively one of the most volatile and unprecedented trading environments we've seen. I think the simple answer in the short-term is that basically a crude barrel is a wet barrel that is going to be consumed and run in its particular refinery. And then on a go-forward basis, I think it's really kind of getting through what the disruption looks like from a longer-term perspective and in terms of Russian crude production. And it's probably a little bit premature at this point to have a longer-term discussion on crude diffs just with every uncertainty in the environment that we're in today.

Paul Cheng, Analyst

Nice. Thank you.

Operator, Operator

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

Manav Gupta, Analyst

Hey, Erik, we know behind the scenes you have been working very hard on the potential of a deal and a partner from the renewable diesel side. I just wanted to understand what would be your personal or company preference here? Because there are two kinds of deals out there Callum at Oaktree where the financial partner comes in but you retain the entire control and whether you should prefer equity or whatever. And the other part is then MPC-Neste deal where a financial but an operating partner comes in brings in a lot of expertise, feedstock and everything. But in the end you do lose 50% of your capacity. Both deals have different kinds of advantages pros and cons. And given that you have been working on this for some time what would be your preference between those two kind of deals?

Matt Lucey, President

Manav, it's Matt. It's too early to determine our direction, but we are evaluating all our alternatives carefully and thoroughly. We feel confident about having access to a variety of financing options, partner structures, and potential partners. We will conduct a thorough evaluation to decide what is best. Interest has been strong from interested parties, which is encouraging. We have received a lot of input from the marketplace about the advantages of our facility. We will keep assessing our options and aim to make the best decision possible. For now, we are focused on bringing in a partner, and I expect that will occur over the next couple of quarters.

Manav Gupta, Analyst

Perfect Matt. And I think in the beginning you mentioned that there was some unplanned downtime at Torrance. If you could help us quantify the opportunity cost of that, so we can understand what would the West Coast results been had that downtime not happened. If you could help a little over there?

Matt Lucey, President

Yeah. So if you look at the West Coast there was a little bit of an LPO at Martinez. They're a little bit slow coming up from their turnaround. And we would characterize it as between $50 million and $60 million on the West Coast of missed opportunity.

Operator, Operator

Thank you. Our next question comes from the line of Matthew Blair with Tudor Pickering Holt. Please proceed with your question.

Matthew Blair, Analyst

Hey, good morning. Thanks for taking my questions here. Your distillate yield of 34% in Q1 was the highest number in several years. Is that where things max out, or are there any other levers you can pull here? And then of that 34%, can you help us understand your jet exposure within that?

Tom Nimbley, CEO

The distillate yield of 34% is a strong result. Anyone not considering how to convert gasoline into jet fuel and distillate isn't doing their job. I’m pleased with the progress we've made. For instance, at our Martinez refinery, we had planned downtime and one unit that was shut down. Previously, Martinez wouldn't have produced any diesel during such times. However, the team found a way to connect different systems and adapt, allowing us to produce distillate for the first time in Martinez's history during the first quarter. We are maximizing our capabilities, and that 34% is a solid figure in today’s market. If there's potential to increase that, we will. Overall, I’m very satisfied with our team's performance. On the jet fuel side, we are producing more than we ever have before. While I don’t have the exact percentage memorized, we are converting everything we can in our crude unit, cat cracker, or hydrocracker to optimize for premium products. I'm really pleased with how our team has handled this.

Matthew Blair, Analyst

Great. And then Erik I think you referenced the strength in the futures curve here on the product side. Have you put on any product crack spread hedges? And if so could you share any details around that?

Erik Young, CFO

I don't think we have anything to share in terms of forward derivative contracts. We've ultimately been running the same derivative program for multiple years here where we're basically hedging against our baseline. So we haven't taken any type of incremental risk there.

Operator, Operator

Thank you. Our next question comes from the line of Daniel Kutz with Morgan Stanley. Please proceed with your question.

Daniel Kutz, Analyst

Thank you, good morning. I wanted to start with a broad question considering the tight conditions in the global refining complexes and the strong margins. I'm curious about your perspective on the potential risks to refining margins. What could lead to a decrease in crack spreads? Is it possible that government intervention could help consumers? Could demand destruction occur, although perhaps it takes longer than expected? Or will supply simply return? I'd like to hear your thoughts on this matter.

Matt Lucey, President

I'm just going to interject one thing at the front end, because you said as the government can kick in to lower the price for consumers. Please do not lose sight of the easiest way for the government to step in and lower the price for the consumer, is do the right thing with the RVO. We say it and we say it again. And I think Pelosi and Schumer were meeting yesterday on ways that they can increase the microscope, with the FTC to see if there's price gouging. There's virtually no price that we are a price setter on. But absolutely the easiest thing the government can do, is to adjust the RVO which is now adding somewhere between $0.20 and $0.30 a gallon to the price of gasoline. So I say that front and then I'll turn the rest over to Tom.

Tom Nimbley, CEO

Yes, there are two sides to your question, which is a very good one. First, I want to highlight that there are current factors contributing to market tightness and favorable conditions moving forward. Two key elements will likely persist: the pricing advantage of natural gas in the United States and the long-term effects of Russia's actions, which may have led to a loss of refining capacity and export capability for a significant time. On the other hand, the biggest threat is the escalation of the Ukraine-Russia situation, which could create more problems for Ukraine and potentially affect other regions globally. Additionally, inflation is a pressing concern, with the White House actively addressing rising gasoline prices. We are observing inflation across various commodities, including food and metals. If the Federal Reserve can manage this well, we might avoid a significant impact, but failure to do so could take us back to conditions like those in the late '70s, leading to demand destruction as people have less disposable income. Therefore, the Russian conflict and general inflation are both concerning, as they could potentially trigger a recession, which is something I worry about, even though I don't believe it will happen. However, it remains beyond our control and could significantly impact the global economy.

Daniel Kutz, Analyst

That's great color. Thanks a lot, guys. And just a quick unrelated follow-up. Erik I think in the past that you kind of shared what the credit facility availability was as of the earnings call as kind of as of today. I was wondering, if you could share that number. And if not no worries. I know you kind of gave a bunch of color on an earlier question that could kind of help us triangulate but just wanted to ask if you had that number that you can share.

Erik Young, CFO

Yes. At the end of the quarter, we had approximately $2.6 billion in liquidity, which includes over $1.2 billion available under the credit facility and about $1.4 billion in cash.

Daniel Kutz, Analyst

Got it. I was asking if you had that number as of today.

Erik Young, CFO

The borrowing base has continued to increase in terms of where prices have gone. So it's flat to where we were at the end of the quarter.

Operator, Operator

Thank you. Our final question this morning comes from the line of Karl Blunden with Goldman Sachs. Please proceed with your question.

Karl Blunden, Analyst

Hi, good morning. You've been carrying a lot of liquidity and I think at times you've described it as excess liquidity or an insurance policy. We're starting to get a bit more visibility into the market but still volatile. At what point, do you think that it would be appropriate to start reducing that excess liquidity? And what's the right level for the business to get to?

Erik Young, CFO

Pre-pandemic we saw liquidity bounce anywhere from $750 million to $1.5 billion. And so that's probably a reasonable number for us long-term. The excess cash that we are carrying around, our belief is once we get through our refinancing efforts that ultimately we'll have cash that's available to continue to delever. It's already delevered on a net basis. We believe that the market will need to see action around what that cash is used for. I think we've been vocal that we have some very expensive secured bonds that are on our balance sheet. That's one potential avenue that we have in terms of delevering on a go-forward. We also do have balance on our ABL that we're carrying. So I think across the board it is using a portion of that cash to then delever the business going forward.

Karl Blunden, Analyst

That makes sense. Thanks, Erik. And then just with – we spoke a bit earlier on the call about the Chalmette renewable fuels project and different options you have available to yourselves. Are you at a point here where you'd be comfortable taking on most of the financing yourself, or are all the options that you're considering going to provide the material financial support from the partners you're looking at?

Matt Lucey, President

At this point we're committed to finding a partner that we think is most attractive. So we're going down that path. Obviously, everything is fluid in today's market. But at the moment we're going down the path. And like I said earlier there's been robust interest from the marketplace. So we'll continue to evaluate it but we're committed to the path we're on.

Karl Blunden, Analyst

Thanks very much.

Operator, Operator

Thank you. Our final question this morning comes from the line of Jason Gabelman with Cowen. Please proceed with your question.

Jason Gabelman, Analyst

Hey, good morning. Thanks for taking my questions. I had two. The first I wanted to follow up on your answer on risks to the refining margin. Staying strong I mean you kind of mentioned a recession being the biggest risk which is more of a tail risk. But I guess my question is in – within kind of a more normalized global environment. Do you see a path forward to refining cracks eventually normalizing, or do you just expect them to remain at very excessive levels further beyond just the immediate future? And if not what's kind of the path forward to getting to a normal absent a recession? And then I have a follow-up. Thanks.

Tom Nimbley, CEO

Okay. First of all I do not have question-like abilities to be able to project what the prices are going to be in the future but the – I will make a couple of comments on your question. I do think there are structural changes right now that are underway that are more – I don't want to say permanent in nature but they're going to have a longer playing field and I referenced those. The advantage for US refiners or any refinery who has got access to a relatively cheaper natural gas is going to be a structural advantage and there will be a disadvantage for refiners in Europe and Asia who have – don't have that. In fact they have to spend a lot more to buy natural gas whether it be to power up their plants or to supply hydrogen in hydrogen plants. And in fact that may result in reduced capacity utilization in those areas. And the other one is the longer-term impacts. I don't know what longer term is but is it two, three, four years of what the outcome ultimate outcome of the Russian-Ukraine invasion is in terms of particularly Russia's ability to continue to be the power that they have been in the energy markets. And so there's a case that says that, there could be tailwinds that will exist for some period of time that are structural in nature that will make a difference. That being said, obviously we have a very favorable market environment right now. And trees don't grow to the sun. So if there's some chance I would expect there'll be some normalization. But at what level? It remains to be seen.

Jason Gabelman, Analyst

Great. Thanks. I appreciate that additional color. And then second just on the renewable diesel project. Since we're a year out I was wondering if you have a sense of what the feedstock slate for that project will be, especially given the feedstock market getting seemingly tighter by the day. Do you have good visibility in terms of the feedstock that you'll be able to access for the renewable diesel project? Thanks.

Matt Lucey, President

Our visibility is really focused on maintaining full optionality and that's why the plant will come on with a full pretreatment capability. Predicting what feedstocks will be in a year's time is probably a fool's errand but we're going to make sure that we have maximum flexibility to process whatever is most economic at any given time. And I'd also comment that Tom's commentary around natural gas in Europe that will also be a big boost for renewable diesel production in the US. So I think we'll be structurally advantaged for some time. And in regards to specific feedstocks I can't tell you but what I'll tell you is we'll be able to process anything that is available. And so we'll be committed to running the cheapest feedstocks we can possibly run or the most economic ones.

Jason Gabelman, Analyst

Got it. Thanks for your answers.

Operator, Operator

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

Tom Nimbley, CEO

Well, thank you very much for your participation in the call. We are certainly in interesting times. So we will do our best to make the right decisions during this period of time and beyond. And we look forward to our next call at the end of the second quarter – after the second quarter. Thank you very much.

Operator, Operator

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