PBF Energy's Refinery Purchase in California Tied to Improved Utilization, Reliability, Says CEO

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Researched by Industrial Info Resources (Sugar Land, Texas)--PBF Energy Incorporated (NYSE:PBF) (Parsippany, New Jersey) expects a refinery in Torrance, California, to earn $360 million per year following its purchase from Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas), provided the facility's reliability improves, company executives said Thursday. PBF leaders explained in a conference call why they think it is a good idea to buy a problem-prone refinery, which has been idled since February due to an explosion. Industrial Info is tracking two projects at the refinery, with a combined investment value of $75 million.

PBF plans to close on the $537.5 million purchase of the 155,000-barrel-per-day (BBL/d) refinery in the first half of 2015, provided Exxon Mobil has completed the installation of an electrostatic precipitator by then. The refinery has been down for more than six months after an explosion heavily damaged the facility and injured four workers. Plans call for the refinery to be up and running at full capacity in early 2016. The shutdown has resulted in a gasoline shortage in California, leading to higher prices for motorists. Because of regulatory holdups, Exxon Mobil has given up on plans to provide a temporary fix to the refinery by employing an older electrostatic precipitator.

PBF executives said the purchase gives the company an opportunity to enter an attractive market in southern California.

In addition to the refinery, PBF will buy logistics assets, including a crude and products pipeline network, product distribution terminals, and crude and product storage facilities with 8.6 million barrels of shell capacity. A 171-mile crude gathering and transportation system delivers San Joaquin Valley crude oil directly from the field to the refinery, PBF said in a press statement, and other pipelines provide access to crude oil from the ports of Long Beach and Los Angeles. Another pipeline moves jet fuel to the Los Angeles airport.

Jerry Wascom, president of ExxonMobil Refining & Supply Company, said in a press statement that the sale "results from a strategic assessment of the site and how it fits with our refining portfolio."

PBF Chief Executive Officer Tom Nimbley said in a conference call that the company plans for the refinery to generate $360 million a year in earnings before interest, taxes, depreciation and amortization (EBITDA), but that goal hinges on a utilization rate of 84% to 85%. The facility has not performed at that level in the past few years, he said, acknowledging that the facility has had reliability issues.

Nimbley said Exxon Mobil has worked to resolve the reliability issues. Exxon Mobil has completed major turnarounds to the fluid catalytic cracking, alky and related units in the last five years, according PBF. Exxon Mobil also will be required to complete all electrostatic precipitator-related repairs before the sale can be completed.

Even so, Nimbley said the Torrance refinery will require more capital expenditures going forward than PBF's other refineries. On average, he said, average annual capital expenses at Torrance will run between $144 million and $155 million during the next four years.

Industrial Info is tracking the rebuild of the Torrance refinery's fluid catalytic cracker unit (FCCU), which was damaged by the February 2015 explosion. Completion of the rebuild, with a total investment value of $15 million, is expected in February 2016.

Also, Industrial Info is tracking a potential FCCU upgrade at Torrance, valued at $60 million. Exxon Mobil was performing a market analysis for the project, which would replace cyclones in the reactor, and replace the reactor head. Construction would take place in 2019.

The Torrance refinery "is a very powerful asset that can run low-cost crude," Nimbley said. The acquisition will give PBF a foothold in the West Coast market, he added, making the company the fifth-largest independent refiner in the U.S., with a total throughput capacity of 884,000 BBL/d.

In June, PBF announced it would purchase a 189,000-BBL/d refinery in Chalmette, Louisiana from a joint venture between Exxon Mobil and Petroleos de Venezuela (PDVSA) (Caracas, Venezuela). The $322 million Chalmette transaction is expected to close in fourth-quarter 2015. For related information, see June 19, 2015, article - PBF Aims to Make Gulf Coast Footprint with Chalmette Refinery Acquisition.

To manage the Torrance operations, PBF said it will set up a subsidiary in Long Beach, California.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.