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Released February 21, 2017 | SUGAR LAND
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Researched by Industrial Info Resources (Sugar Land, Texas)--Having left about $300 million "on the table" in terms of lost opportunities last year due in part to refinery outages, independent refiner PBF Energy Incorporated's (NYSE:PBF) (Parsippany, New Jersey) top executive vowed last week to make refinery reliability the main focus for the company in 2017. Two days later, however, the company's 155,000-barrel-per-day refinery in Torrance, California, was shut down due to a fire.
Nobody was hurt in the February 18 fire, which was extinguished that same day, but the incident illustrates that the company may have its work cut out for it. One of five U.S. refineries owned and operated by PBF, the Torrance facility remained down as of Monday.
PBF Energy says it is the fourth-largest independent refiner in the country, with a total throughput capacity of 884,000 barrels per day. Industrial info is tracking 26 active PBF projects worth $407 million.
Chief Executive Officer Thomas Nimbley made it clear during the company's February 16 earnings presentation that he was less than pleased with PBF's financial performance for 2016, saying the results "were well below our expectations." On top of challenging market conditions and a "burdensome headwind" due to the cost of renewable fuel credits, "we left $75 million on the table in the fourth quarter and more than $300 million in terms of lost profit opportunities for the year." Almost two-thirds of that amount can be tied to just three events, including a coker outage at the company's 190,000-barrel-per-day Delaware refinery in the first quarter of last year, and two external power outages later in the year at its Torrance refinery, he continued.
"This is obviously unacceptable and the company is taking concrete steps to improve our reliability," Nimbley said. One of those steps is to put in place a more robust electrical system for the Torrance refinery, which PBF Energy bought from Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas) in 2015.
The refiner is working with Southern California Edison (SCE) (Rosemead, California) to have a direct connection to a high-voltage 220-kilovolt system on the Edison grid in 2018, said PBF Energy Senior Vice President and General Counsel Jeffrey Dill. For related information, see October 2, 2015, article - PBF Energy's Refinery Purchase in California Tied to Improved Utilization, Reliability, Says CEO.
Capital Projects
Capital expenditures for PBF Energy in 2017 are expected to run between $575 million to $600 million, with roughly $375 million tied to multiple refinery turnarounds. An additional $50 million to $75 million in capital spending is expected from PBF Logistics (NYSE:PBFX), the company's master limited partnership. PBF Energy's capital expenditures for 2016 were $520 million.
The company expects to complete the $50 million revamp and restart of the mothballed Reformer 3 unit this spring at its 189,000-barrel-per-day Chalmette Refinery in Louisiana. For more on the restart of the 32,000-barrel-per-day reformer, see Industrial Info's project report.
Also at Chalmette, PBF plans to add a new 450,000-barrel crude oil storage tank this year to decrease shipping costs. Nimbley said the new storage will help solve a problem that occurs when oil from crude tanker ships fills up the limited storage capacity at the site, forcing the tankers to back off and wait for the refinery to pull down from the storage tanks so the ships can then complete their delivery. For more on the $29 million project, see Industrial Info's project report.
PBF bought the Chalmette Refinery from ExxonMobil and Petroleos de Venezuela (PDVSA) (Caracas, Venezuela) for $322 million, plus working capital. For related information, see June 19, 2015, article - PBF Aims to Make Gulf Coast Footprint with Chalmette Refinery Acquisition.
RINs and Border Tax
Nimbley noted during the earnings presentation that the price of renewable fuel credits, known as Renewable Identification Numbers (RINs), recently dropped 45%, which should help the refiner. PBF Energy paid about $350 million for RINS last year, company executives said. Under the federal renewable fuel system quota system, refiners must either produce a required amount of biofuel or buy RINs.
The RIN system has caused a lot of controversy in the refining industry, particularly when costs rose substantially last year. Nimbley said that while he was pleased with the drop in RIN costs, "the reality is RFS [renewable fuel standard] is broken and it has been broken for some period of time." He voiced hope that the Trump administration and Environmental Protection Agency (EPA) leaders will "recognize that there is a finite amount of ethanol" that can be absorbed by the fuel supply system.
Nimbley also discussed the Trump administration's proposed 20% border tariff on imports. If such a tax were enacted on oil imports, he said, there would be a "virtually an instantaneous reaction" in the PADD 1 region on the East Coast. "PADD 1 is an import market, so I would expect rapidly, maybe overnight, that the price of clean products in New York Harbor would adjust to reflect a higher cost of raw materials into that import market."
Price hikes would then follow in the other PADD regions. Nimbley said he agreed with the assessment by U.S. publishing magnate Steve Forbes that such a tariff "could be a bad policy and worse politics," with the potential to hurt the economy.
Earnings
PBF Energy reported fourth-quarter 2016 net income attributable to the company of $54.6 million, compared with a net loss of $119.5 million in fourth-quarter 2015. For all of 2016, net income attributable to PBF was $170.8 million, compared to net income of $146.4 million in 2015.
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. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
Nobody was hurt in the February 18 fire, which was extinguished that same day, but the incident illustrates that the company may have its work cut out for it. One of five U.S. refineries owned and operated by PBF, the Torrance facility remained down as of Monday.
PBF Energy says it is the fourth-largest independent refiner in the country, with a total throughput capacity of 884,000 barrels per day. Industrial info is tracking 26 active PBF projects worth $407 million.
Chief Executive Officer Thomas Nimbley made it clear during the company's February 16 earnings presentation that he was less than pleased with PBF's financial performance for 2016, saying the results "were well below our expectations." On top of challenging market conditions and a "burdensome headwind" due to the cost of renewable fuel credits, "we left $75 million on the table in the fourth quarter and more than $300 million in terms of lost profit opportunities for the year." Almost two-thirds of that amount can be tied to just three events, including a coker outage at the company's 190,000-barrel-per-day Delaware refinery in the first quarter of last year, and two external power outages later in the year at its Torrance refinery, he continued.
"This is obviously unacceptable and the company is taking concrete steps to improve our reliability," Nimbley said. One of those steps is to put in place a more robust electrical system for the Torrance refinery, which PBF Energy bought from Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas) in 2015.
The refiner is working with Southern California Edison (SCE) (Rosemead, California) to have a direct connection to a high-voltage 220-kilovolt system on the Edison grid in 2018, said PBF Energy Senior Vice President and General Counsel Jeffrey Dill. For related information, see October 2, 2015, article - PBF Energy's Refinery Purchase in California Tied to Improved Utilization, Reliability, Says CEO.
Capital Projects
Capital expenditures for PBF Energy in 2017 are expected to run between $575 million to $600 million, with roughly $375 million tied to multiple refinery turnarounds. An additional $50 million to $75 million in capital spending is expected from PBF Logistics (NYSE:PBFX), the company's master limited partnership. PBF Energy's capital expenditures for 2016 were $520 million.
The company expects to complete the $50 million revamp and restart of the mothballed Reformer 3 unit this spring at its 189,000-barrel-per-day Chalmette Refinery in Louisiana. For more on the restart of the 32,000-barrel-per-day reformer, see Industrial Info's project report.
Also at Chalmette, PBF plans to add a new 450,000-barrel crude oil storage tank this year to decrease shipping costs. Nimbley said the new storage will help solve a problem that occurs when oil from crude tanker ships fills up the limited storage capacity at the site, forcing the tankers to back off and wait for the refinery to pull down from the storage tanks so the ships can then complete their delivery. For more on the $29 million project, see Industrial Info's project report.
PBF bought the Chalmette Refinery from ExxonMobil and Petroleos de Venezuela (PDVSA) (Caracas, Venezuela) for $322 million, plus working capital. For related information, see June 19, 2015, article - PBF Aims to Make Gulf Coast Footprint with Chalmette Refinery Acquisition.
RINs and Border Tax
Nimbley noted during the earnings presentation that the price of renewable fuel credits, known as Renewable Identification Numbers (RINs), recently dropped 45%, which should help the refiner. PBF Energy paid about $350 million for RINS last year, company executives said. Under the federal renewable fuel system quota system, refiners must either produce a required amount of biofuel or buy RINs.
The RIN system has caused a lot of controversy in the refining industry, particularly when costs rose substantially last year. Nimbley said that while he was pleased with the drop in RIN costs, "the reality is RFS [renewable fuel standard] is broken and it has been broken for some period of time." He voiced hope that the Trump administration and Environmental Protection Agency (EPA) leaders will "recognize that there is a finite amount of ethanol" that can be absorbed by the fuel supply system.
Nimbley also discussed the Trump administration's proposed 20% border tariff on imports. If such a tax were enacted on oil imports, he said, there would be a "virtually an instantaneous reaction" in the PADD 1 region on the East Coast. "PADD 1 is an import market, so I would expect rapidly, maybe overnight, that the price of clean products in New York Harbor would adjust to reflect a higher cost of raw materials into that import market."
Price hikes would then follow in the other PADD regions. Nimbley said he agreed with the assessment by U.S. publishing magnate Steve Forbes that such a tariff "could be a bad policy and worse politics," with the potential to hurt the economy.
Earnings
PBF Energy reported fourth-quarter 2016 net income attributable to the company of $54.6 million, compared with a net loss of $119.5 million in fourth-quarter 2015. For all of 2016, net income attributable to PBF was $170.8 million, compared to net income of $146.4 million in 2015.
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. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
