PBF ENERGY INC. Q2 2026 Earnings Call

Good day everyone, and welcome to the PBF Energy Second quarter 2020 Earnings Conference call and webcast. At this time, all participants have been placed in listen only mode and the floor will be open for questions. Following management's prepared remarks. If anyone should require operator assistance during the conference, please press Star zero on your telephone keypad. 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 and good morning and welcome to today's call. With you today are Matt Lucey, our president and CEO. Mike Bukowski, our Senior Vice President and Head of refining Joe Marino, 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 expressing 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 will 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. After the call. I'll now turn the call over to Matt Lucey.

Thanks, Colin. Good morning, everyone, and thank you for joining our call. We clearly. Have reached a transformative moment for PBF. The ongoing disruptions in the Middle East and Eastern Europe have created one of, if not the largest dislocation. The oil markets have ever seen. None of us welcomes the circumstance behind it. But the effect on our industry is both dramatic and constructive. Indeed, the world is in desperate need of the products we produce. Let me spend a few minutes, a few minutes on what we are seeing. First, in crude and refined products, because the story on each is a bit different, and both matter to how we think about the quarters ahead. With the backdrop of the ongoing Ukraine war, hostilities in the Middle East caused initially roughly 15 million barrels a day of crude and 5 million barrels a day of product to be effectively trapped inside the strait. These are significant headline numbers, but we've seen the market exercise some flexibility on the crude side, with alternative routing crude. Supply coming from national strategic reserves and some areas outside the US. Reduced demand as a result of lower utilization. While refining global refining utilization is down roughly 10% year on year.

In the. Near term, crude flows are still searching for a new equilibrium. In. Global pricing is doing the work of redirecting barrels along new routes. Until. Crude re-establishes its historical trade patterns. We cannot predict exactly where flat price or differential land differentials. Land. What we can say with more confidence is in. That is that this environment favors refiners with crude slate flexibility and proximity to stable crude supply in America's. Shorter. Voyages and quicker. More reliable deliveries are real advantages PBS. Footprint is well positioned as we have not. Nor do we expect crude availability to impact our operations. Most. On the product side, product inventories have been drawn down across the globe. Refining. Utilization outside the US has fallen. US markets must incentivize products to stay home as products are being pulled into exports. U.S. and West Coast markets are finding it harder to pull the imports they have historically relied on the West. Coast and East Coast are structurally short refining capacity and depend on imports, often from less stable sources to balance. The temporary Jones Act waivers are helping in this regard. California alone imports on the order of 250,000 barrels a day of gasoline, close to a third of its demand, along with a meaningful volume of its jet fuel.

When the. Supply Titans. Those are precisely the markets that feel it first and are most exposed. It reinforces the point we have made for some time U.S.. Refining is critical infrastructure and has rarely been more evident than it is today. It will take. Time for trade patterns to normalize both during and after these conflicts and. We expect crude to find its footing sooner than products prior to the. Disruption, the Middle East and the Middle East. There was a constructive setup. I'm sorry. Prior to the disruption in the Middle East, there was a constructive setup for refining. With tight refining balances and low product inventories worldwide with. The ongoing conflicts. This situation has been magnified. Product inventories will be slow to rebuild and the restocking that ultimately must occur should provide a favorable backdrop for refining margins over the quarters to come. With the current environment, what the current environment has provided is the prospect for PBF to generate significant value for our investors in. The second quarter, we reduced our net debt by over 1.4 billion. We. Ended the quarter with just under $900 million in cash. And I expect 1st July with approximately 1.5 billion in cash. So to recap, we had a constructive marketplace prior to the Middle East disruptions with ample crude tight refining balances and low product inventories worldwide.

The disruptions around the world have resulted in over 5 million barrels of refining capacity offline. A portion of which has suffered physical damage, which could take significant time to repair. When the disruption passes and the conflict's end, it will take an extended time for product inventories to normalize, thereby maintaining elevated margins for a time. As we saw in a small sample size immediately after the signing of the MoU crude. Can and will normalize much quicker than products. As the dislocated crude will need to compete for market share. This should result in a favorable crude environment. PBF is uniquely positioned to capitalize on the opportunities presented by this extraordinary market. We strengthened our balance sheet. We continue to lower our cost structure, and we are executing initiatives that improve reliability and efficiency. The work is being done. And we expect it to translate into meaningful value for shareholders. And with that, I'll turn it over to Mike. Thank you. Matt. Good morning everyone. Currently, all of our refineries are operating well. In May, we were able to safely restart the fire affected units at the Martinez refinery and have been producing our full product slate since that time.

Again, I thank our Martinez team and all of our partners for their efforts to restore Martinez to full operations while the. Restoration work was underway and the refinery was operating at reduced rates, the Martinez Hydrocracker was doing the heavy lifting in terms of keeping the balance of the refinery operating, providing us with the ability to fulfill our commitments to deliver products to our customers. That said. We will be conducting the upcoming Hydrocracker turnaround at Martinez beginning in the third quarter and finishing in October. Staying on the West Coast in July, we reached an agreement with Air Products to repurchase two hydrogen plants servicing our Torrance refinery. Air. Products has been and continues to be a valuable business partner for PBF. The hydrogen plant in Torrance are heavily integrated into the operation of the refinery, and we feel that owning and operating those assets will improve the overall reliability of Torrance as we will be able to closely manage operating details and coordinate maintenance and turnarounds with the rest of the refinery as a whole outside of the West Coast. We contended with few operational challenges during the quarter. In May, we had a loss of containment event at Chalmette that resulted in a pretreatment and reformer being taken offline until repairs were complete later in Q3.

There was no material reduction in throughput as a result of this event, and refinery is able to run at planned rates while we complete the repairs. The primary impact of the event is increased production of naphtha and a slight reduction in our finished gasoline yields. We expect to have a relatively clean run for the remainder of the year. At Chalmette, as we have shifted after careful evaluation and management of change, the scheduled fourth quarter crude unit and Coker turnaround to 2027. In the Mid-Continent, we performed unplanned work related to Toledo's SCC during the second quarter, which was the driver of the lower than expected throughput. However, we took the opportunity to perform some key maintenance during the outage, which enables us to safely push the planned fourth quarter FCC turnaround to the first half of 2027. Our East Coast assets ran well in the second quarter, and we expect to have an uninterrupted run until we begin our Paulsboro crude unit turnaround late in the fall. We continue to implement the RBI program. Here are some examples of key accomplishments. We have implemented a circuit wide energy efficiency program that resulted in a 20% reduction in purchased natural gas on a per barrel, and price adjusted basis relative to the 2024 baseline.

Our. Performance has seen a marked improvement. Not only have we become more predictable based on industry benchmarking, we are moving up among industry leaders in turnaround, execution. Our new strategic procurement organization is halfway through renegotiating or Rebidding over 60 contracts, with the focus on leveraging our spend nationally or regionally, we expect to see savings of about $60 million a year in goods and services, such as processed chemicals, maintenance and equipment rentals, among others. Our buy is a multi-year effort with periods of focused work at each of the refineries, followed by establishment of new practices to ensure the improvements are sustained. The Refining Business Improvement Initiative is central to improving PBF results, but it will not distract us from our obligation to operate in a safe, reliable and environmental responsible way every day. With that, I'll turn the call over to Joe Marino for our financial overview.

Thanks, Mike, for the second quarter, excluding special items, we reported adjusted net income of $6.22 per share. And adjusted EBITDA of $1.24 billion. Our discussion of second quarter results excludes the net effect of special items, including $23 million in incremental opex related to the Martinez refinery incident, a $250 million gain on insurance recoveries. A $2 million charge related to the repayment of the $800 million senior notes due 2028 and approximately $9 million of charges associated with the RBI initiative, as well as other items detailed in the reconciling tables in today's press release. PBS results for. The quarter are primarily a reflection of the strong product markets driven by tight supply and relatively firm demand globally, refineries that can run are running at high utilization rates. However, a significant portion of refining capacity remains offline or is running at reduced rates due to conflicts or crude availability constraints. The $250 million gain on insurance recoveries related to the Martinez Fire is a result of the fifth unallocated payment agreed to and received in the second quarter. This brings our total insurance recoveries to $1.25 billion, net of our deductibles and retention, including the amounts received in 2025. Important to note the bulk of the spending related to the Martinez rebuild is behind us, with only some cleanup and demobilization items ahead.

However, the claim is ongoing and we expect to recover additional funds as we continue to work with our insurance providers towards finalization of the claim. In the second half of 2026. Shifting back to our normal quarterly results, discussion, also included in our results is net income of $27.5 million. From our investment in SBR. Or approximately $40 million of EBITDA. SVR produced an average of 15,100 barrels per day of renewable diesel in the second quarter. SBR production was as expected and reflected reduced rates because of a catalyst change completed in April. Although it has only been a few months since the installation of the new catalyst. We are encouraged by the improved performance we are seeing and expect to achieve a longer run time on the market side, we are seeing robust margins for renewable diesel, which are being driven by globally high discipline margins combined with elevated Rins pricing. PBF cash from operations for the quarter was $1.6 billion, which includes a working capital benefit of approximately 430 million. The working capital benefit was expected in the second quarter and was driven by a reduction in above average inventory levels from the first quarter, as well as benefits from our net payable position in a higher price environment.

We are now at normalized inventory levels and the working capital headwind from the first quarter has reversed going forward. Working capital fluctuations will depend largely on movements in commodity prices and inventory levels that may vary due to operational needs. Cash invested in consolidated CapEx for the second quarter was $189 million, which includes refining, corporate and logistics. This amount excludes second quarter capital of approximately $56 million related to the Martinez rebuild. Q2 capital expenditures are slightly below expectations as a result of our decision to shift the schedule of Hydrocracker turnaround at Martinez from the end of the second quarter to the end of the third quarter. On that note, we reduced our total capital expenditure guidance for 2026 by approximately $75 million to $850 million at the midpoint of our revised guidance. This is primarily a result of the decision to move the Q4. Toledo and Chalmette turnarounds to 2027. We ended the quarter with $890 million in cash and approximately $855 million in net debt at. Quarter end. Our net debt to Cap was 15% during the second quarter. PBF reduced net debt by over 62% by fully paying down borrowings on our asset backed lending facility and refinancing 802 million of senior notes due 2028.

Using available cash and proceeds from the issuance of $500 million of Senior Notes due 2034. An aggregate gross debt reduction of over $1 billion. As we. Mentioned a moment ago. Subsequent to the end of the quarter, we entered into an agreement with Air Products to acquire two hydrogen plants at our Torrance refinery. This transaction will be financed with an amortizing seller's note. Upon closing of the transaction, this note will appear as incremental debt in our capital structure. The transaction is subject to regulatory review and customary closing conditions, and is expected to be finalized in the third quarter. As. Mentioned over the past several quarters. Our capital allocation framework rests on three core elements invest in the business. Invest in our balance sheet and shareholder returns. We continue to invest in our assets to improve efficiency and reliability. We have made significant progress in just a short time with our balance sheet, but the work there is not done. We operate in a cyclical business and our intention is to continue investing in our balance sheet to ensure we are able to adeptly navigate the next cycle in our industry through our. Leveraging over the last several months, we believe we have delivered significant equity value to our investors.

We're intent on maximizing value across the entire refining cycle. While returning capital remains an important pillar in our framework, we believe. Ensuring our refining assets remain competitive and maintaining a strong balance sheet enhances long term shareholder returns by reducing risk and increasing strategic flexibility. Operator. We completed our opening remarks and we'd be pleased to take any questions.

Thank you. In a moment, we will open the call to questions. The company requests that all callers limit its turn to one question and one follow up. You may rejoin the queue with additional questions. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two. If you would like to remove your question from the queue for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment please, while we Paul for questions. The first question comes from Manav Gupta with UBS. Please go ahead.

Matt. Joe. Congrats! To the entire team. Very strong quarter. and the way things are going probably three Q would be a replica of two Q if not better., my first question to you was you talked about, you know, refining, taking a lot longer to normalize. As you mentioned, over 5 million barrels of capacity has been offline for a sustained time ., we don't know when this reopens, but there is a possibility that global product inventories would have depleted significantly before things start to normalize. So one, I wanted to understand from you the time frame of the normalization. But the bigger question I'm trying to ask is, you know, there are refineries that have been damaged. There are refineries that have been damaged by in Russia, by Ukraine. Even when flows fully normalize. Do you see a scenario where the mid cycle has moved up because the global supply routes have been impacted? Global supply has been impacted. So if you could talk about some of those dynamics, I would be very grateful.

Thanks, Manav. And, and, and I agree with everything you commented on. And obviously every cycle is different. And so then you relate it back to mid cycle. But in this cycle ,, I see the. The floor has been risen unquestionably ., and the consequence of all the damage, I think it could be a long time., it is almost unimaginable working in this industry ., certainly,, in, in places like Russia where you're sort of under attack. So it's impossible for us to predict exactly how long ., but it certainly seems that the consequence of, of these conflicts., is acute,, in, in the refining business. And I think it's going to take,, a. Siderable amount of time. I quantified that exactly. But certainly you're well into 2027., before ,, it's even possible ,, to get inventories,, normalized under sort of normal economic conditions. Tom. Would you make any other.

I mean, madam, I think just in terms of adding that, I think it goes back to sort of the prepared remarks, right. I mean, you know, in terms of the preview that we saw when the MOU was signed, in terms of, you know, obviously there was a correction in crude, there was a correction in margins, but, you know, quite quickly, margins found a floor and started to move back up just because we get really back to the question over really as the refining capacity that's currently offline. So obviously when that comes back, I mean, I think it certainly we've seen it in terms of knowing that it is just about crude. That is normalization is sort of in the weeks to months time frame. And when it comes to products, that's certainly in the months to quarters. So, I mean, just expanding upon that just a little bit. But, you know, very consistent thoughts..

Perfect. Guys. My second question is your net debt to cap special items was 36% in one. Q you dropped it to 15% in two. Q you talked a little bit about the cash generation in July., you would be in a net cash position by the end of third quarter, if not the fourth quarter. So I'm just trying to understand how much cash would you like to build on the balance sheet? And you should,, after which you would also say, okay, this is just too much cash. We probably should go back and look at some of our buybacks or something. So if you could talk a little bit about shareholder returns, once you have gotten to your net cash position.

Yeah. Look.

I think you made a comment. It would certainly appear that the third quarter ,, is. Stronger from a margin perspective than the second quarter. And we've been tracking,, a bit ahead. But that being said, we don't we don't know what's going to happen. And I think I've made this point. Historically. We don't like to openly speculate about money that we haven't earned yet prospectively. It looks very, very constructive. And indeed, I believe we will be able to get our balance sheet., potentially to a place that has never been. And that's where we're focused on at the moment.

Thank you so much. And congrats on a great quarter.

Thanks.

Thank you. The next question comes from Joe Lash with Morgan Stanley. Please go ahead.

Good morning, Matt and team, and thanks for taking my questions., so I wanted to go back to the refining macro, just building on your opening comments. Can you just talk a bit more about how the commercial organization is navigating the disruption? And then could you also just talk about what you're seeing from physical, financial market perspective, freight rate impact, maybe where you're seeing some of the biggest dislocations currently? Thank you Sure.

You know, one comment I would make is that the last. Couple of months have been a bit more calm than the first couple of months., that being said,, there obviously,, extraordinary markets with massive volatility. Tom, do you want to make a comment then? Paul Yeah. I mean, I think in terms of just examining the market, right? I mean, you know, number one, we have concerns about buying crude every day, even in a right way. Market., you know, in terms of obviously the, the, the, the environment certainly has, you know, raised the sort of risk factor on, you know, procuring crude. But as we've gone through the, the cycles of this, right, you know, there's been something that we've yet to been able. We've yet to see a scenario where we've had the impact, you know, our refining operations materially due to a lack of unveils. Right. So it's one of those things we constantly are evaluating it., and certainly I think you can probably add that there's a little bit more of, you know, sort of upside skew. And certainly on the diesel side of the equation. And obviously we're in the midst of hurricane season right now, which could have a, you know, potentially a dramatic effect upon both products and crude.

Right. I mean, if we go back to, you know. Hurricane Harvey, right, it's quite, you know, quite easy to forget, right? Just the impact that that had on U.S. crude exports and how much crude backed up into the Midcontinent and Cushing inventories rebuilt at that time frame., and then Paul, you know, you want to make a comment in regards to how everyone's hand to mouth and this environment.

Sure. The. You know, the markets, the market structure is telling you what everybody should be doing because the fact that we see on products inclusive of the backwardation we see on crudes, everything is hand to mouth., we have dynamic product demands in the Gulf Coast., across the docks. We're participating in that. We have export demand out of the East Coast. We're participating in that inventories., across the pads are at the lowest levels we've seen in many, many, many years. So, primary goal for our commercial team is to keep the refineries full on the inbound and make sure we're empty on the outbound every single day.

That's helpful. Thank you., and then I wanted to just talk a little bit about your comments around delaying some turnarounds to 2027. So it sounds like you're able to get in and assess Toledo during some unplanned downtime last quarter, maybe more, more broadly, are you seeing longer duration between turnaround intervals and just given how fast the data technology and monitoring., landscape. Is evolving? Is there any change to how you're thinking about planning turnarounds going forward?

Yeah. Joe, this is Mike., So the short answer to your question is yes. As part of our buy, we've taken 3 or 4 pronged approach to turnaround improvement and a piece of that is turnaround interval optimization. And so we're certainly looking at techniques such as risk based inspection and other other opportunities to kind of really set durations., but we're also, you know, we're optimizing that against capabilities of refineries in terms of the contract or manpower or available at a given location, the size of the turnaround, as you delay turnarounds, they tend to tend to get bigger., so we're optimizing against those types of things. So in general, yes, interval optimization is a key piece of what we're doing. And I would say that, the industry has been looking at that for the past several years. And, and we're approaching, I think, some limits in terms of that, just based on capabilities of manpower.

That all makes sense. Thank you guys.

Thank you. The next question comes from Philip Jungwirth with capital. Please go ahead..

Good morning.. PBF had initially budgeted,, 235 250 million of capital projects for 26. Was just hoping you could remind us the nature of these. And more importantly, is this an area where you could see