PBF Energy Inc. (NYSE:PBF) Q1 2023 Earnings Call Transcript

PBF Energy Inc. (NYSE:PBF) Q1 2023 Earnings Call Transcript May 5, 2023

Operator: Good day, everyone, and welcome to the PBF Energy First Quarter 2023 Earnings Conference Call Webcast. . Please note this conference is being recorded. It is now my pleasure to turn the floor over to Colin Murray of Investor Relations. Sir, you may begin.

Colin Murray: Thank you, Rob. Good morning, and welcome to today’s call. With me today are Tom Nimbley, our CEO; Matt Lucey, our President; Karen Davis, our CFO; and several other members of our management team. Copies of today’s earnings release and our 10-Q filing, including supplemental information, are available on our website. Before getting started, I’d like to direct your attention to the safe harbor statement contained in today’s press release. Statements 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 the 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 will discuss our results today, excluding special items. In today’s press release, we described the non-cash special items included in our quarterly results. The cumulative impact of the special items increased first quarter net income by an after-tax amount of $13 million or approximately $0.10 per share related primarily to net changes in the fair value of contingent consideration. Also included in today’s press release is guidance information related to our second quarter operations. For any questions on these items or follow-up questions, please contact Investor Relations after today’s call. 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.

Thomas Nimbley: Thanks, Colin. Good morning, everyone, and thank you for joining our call. Before commenting on the quarter and providing some market thoughts, I want to take a moment to discuss yesterday’s announcement on the next phase of PBF’s life cycle. As of July 1, I will be assuming the role of Executive Chairman of the Board, and Matt Lucey will become PBF’s next Chief Executive Officer. Leading PBF over the last decade has been an honor, privilege and a rewarding challenge. The company has never been in better shape, and it is time to turn the future over to Matt and the rest of the executive team. I will continue to serve PBF as Executive Chairman and work with Matt to develop the strategy for the company’s future growth and identify other value-enhancing initiatives.

I would also like to thank the employees of PBF, without whom none of our successes would be possible. Thank you. Regarding results, the first quarter was another strong quarter for PBF. We continued strengthening our balance sheet, rewarding shareholders and finished the quarter with more cash than debt. The safety and reliability of our operations remain our first and top priority. But it is closely followed by maintaining our firm financial footing. Refiners follow the markets and respond to consumer demands. We continue to hear calls for higher refining utilization and see a market supported by low inventories and sustained customer demand. The winter of ’22, ’23 was a mild one in the Northern Hemisphere. Henry Hub U.S. Natural Gas Futures started the year at $4.50 per million Btus, and it ended the quarter at $2 per million.

European natural gas prices fell as well but still command a premium to U.S. Natural Gas prices of 6 to 7x, providing domestic refineries with a competitive advantage. Crude differential was narrowed over the quarter. The OPEC Plus production cuts are expected to be somewhat supportive for medium and heavy grades, which may further compress differentials. Although having narrowed, differentials remain wider than historical patterns. Similarly, despite recent declines, refinery margins also remain well above mid-cycle, but have moderated from the distillate to ’22 levels. A key theme for 2023 is recovery in the demand for jet fuel and gasoline, supported by a stronger summer driving season. In brief, we are experiencing a tremendous amount of volatility in the broader market at intervals of increasing frequency.

This makes it challenging to predict the timing of and future moves in the commodity markets. At the same time, we are seeing stable to growing demand for our products at our refinery gates, which continues the call for higher utilization from our assets. We expect volatility-driven market dislocations will continue to generate strong returns for our business. With that, I will turn the call over to Matt.

Matthew Lucey: Thank you, Tom. Thank you for your leadership and mentoring over the last decade. While we’ll be transitioning roles over the next 2 months, I feel very fortunate and grateful that the company as well as our shareholders will continue to benefit from Tom’s leadership in his new role as Executive Chairman. In our business, there are a number of moving pieces in the market that are beyond PBF’s control. PBF remains focused on the aspects of our business we can control, the safety and reliability of our operations and our financial position. In recognitions of PBF’s commitment to safety, 5 of our 6 refineries were honored with safety achievement awards from AFPM with our Martinez refinery receiving the Elite Silver Award given to the top 10 percentile and safety performance of refining and petrochemical facilities in the U.S. The first quarter was the strongest Q1 in PBF’s history.

Operations and results in the first quarter were impacted by lingering effects from the unplanned downtime due to winter storm Eliott, coupled with the extensive planned maintenance activity. We completed turnarounds at Toledo, Chalmette and Martinez. Q2 performance will be impacted by the currently ongoing coker and hydrocracker work at Del City, which will be wrapping up very soon and to a much lesser extent, minor work on the hydrocracker in Torrance. There will be a larger FCC and alkylation unit turnaround in the Q4 at Torrance. But outside of these activities, we should have a very clean operational runway. We are also progressing the St. Bernard renewables project and are happy to report that we are mechanically complete on the renewable diesel unit, and that aspect of the project has been turned over to operations.

The RD unit comprises the repurposed hydrocracker and ancillary supporting infrastructure. We are in the commissioning stages now. We should be introducing feed to the RD unit this month, primarily vegetable oils, and distillers corn oil. We are still completing construction of the pretreatment unit and expect that work to be complete in June. We expect to introduce additional lower CI feedstocks once the pretreater is up and running. The JV transaction with ENI is expected to close later in the second or third quarter. We are awaiting certain regulatory approvals that are the only items for closing. On the regulatory front, in the first several months of 2023, we’ve seen new policies and positions attempting to prematurely alter the marketplace.

None of these policies address the most critical component of increasing the supply of energy and all ignore the necessity to ensure reliable, ratable and affordable energy. Much like the commodity markets, the policy environment is turbulent, and we expect the current volatility to persist. This has and will continue to create market dislocations. Robust market conditions has provided PBF with the opportunity to generate exceptional results, enabling execution of a financial strategy that has altered PBF’s trajectory. Over the past 3 years, PBF has navigated financial stress to achieve a sector-leading balance sheet with unassailable financial metrics. We are committed to maintaining our safe and reliable operations while demonstrating the durability and transformation of our through-cycle financial strength.

By doing so, we expect our credit ratings will improve, our cost of capital will be reduced and operating results will continue to support balance sheet strength and the potential for increased shareholder returns. And with that, I’ll turn it over to Karen.

Karen Davis: Thanks, Matt. During the first quarter, we continued our work to improve the financial position of the company, strengthen our balance sheet and reward shareholders. We further reduced our gross debt by another $525 million with the redemption of the PBF logistics notes in February, and reduced our outstanding payables related to environmental credits by approximately $300 million. To date, we have repurchased almost $350 million worth of PBF shares, bringing our total outstanding share count to just under 126 million shares. We have now effectively eliminated the dilution of the shares issued in 2022 in the transaction to fully acquire PBF Logistics. That was the first priority of the share buyback program. Additionally, we increased our existing share repurchase authorization by an incremental $500 million to a total of $1 billion.

For the first quarter, we reported adjusted net income of $2.76 per share and adjusted EBITDA of more than $665 million. Consolidated CapEx for the first quarter was approximately $383 million, which includes $220 million for refining and corporate, $3 million for PBF Logistics and just over $158 million related to the continuing development of the St. Bernard renewables facility in Louisiana. Heading into 2023, we continue to demonstrate our commitment to prudent balance sheet management. Taking into account our most recent quarter, we reduced our gross debt and environmental liabilities by approximately $3.5 billion and rewarded investors with almost $400 million in returns through our dividend and share repurchases. We have cash in excess of debt with sufficient liquidity to serve the needs of the business.

In the near to medium term, given heightened market volatility, we plan to maintain a level of cash above our previous guidance. We expect our gross debt and cash to be in the $1 billion to $1.5 billion range, respectively. Said differently, we expect to maintain close to 0 net debt in the near term. Quantitatively, we believe we meet or exceed many investment-grade credit metrics. Our refinery should continue to demonstrate durable earnings power, and we are adding diversified earnings streams as SBR comes online. We will continue to exercise balance sheet discipline, targeting robust rating agency-driven metrics and sound financial costs. Operator, we completed our opening remarks, and we’d be pleased to take questions.

Q&A Session

Operator: . Your first question is from the line of Doug Leggate with Bank of America.

Kalein Akamine: This is actually Kalein for Doug. Firstly, I’d like to also my congratulations to the both of you, Tom and Matt. Tom, I particularly enjoyed listening to your market views over the year. It’s really taught me a lot, and I’m sure other people have benefited as well. And I guess that brings me to my first question here. My first question is on California. It seems like between the RD conversions at and the startup of TMX next year, the setup in California is looking increasingly attractive. Wondering if you can address the evolution that’s going on in that market and touch on several points, the market balance, the destock outlook and the potential impact from what they’re calling the new Oversight Committee.

Thomas Nimbley: Okay. And thank you for your kind remarks, Doug, and good morning to you. I’ll just make some brief comments on California, and I’ll turn it over to Paul Davis because you had 3 or 4 points there, and Paul has been the point person for the company on many of them. But we do expect gasoline and jet demand to pick up in California as we move into the driving season. Certainly, we’ve seen the strongest cracks in the country regionally right now, out in California led by gasoline. We do expect that distillate will be under some stress because of renewables. But then as you mentioned, with Rodeo already being down and — I’m sorry, with Marathon already being down and Rodeo coming down some time probably by the end of the year, certainly to finish the tie-ins to their project, we believe that California is going to be a stronger market as we go further into the future.

And that’s going to be exacerbated by some of the policy decisions that are being made in California. Some of these policies well intentioned, have the result of adding cost to the business, have a result of impacting the supply chain negatively, and that’s what tends to drive the prices. Paul, why don’t you comment on what we’re seeing there in natural throughput and the CEC stuff?

Timothy Davis: All right. Well, the throughput we’re seeing today in that marketplace is very normalized versus ’18 and ’19 demand. So you have a pretty much a normalized marketplace as we speak with the impending shutdown of Rodeo that’s going to exacerbate the supply. That’s the bigger issue in California. They have a supply problem, and there’s really no way for them to deal with that said supply problem. It needs to attract imports. The import volumes that need to come in are above 100,000 barrels a day on this , and jet fuel is right behind it at around 40,000 to 50,000 barrels a day. So that’s the impending challenge for California is how do you attract enough ratable supply to stay balanced for the population. With regards to the CEC and the impending rule-make or not rule-making with the legislative bill.

We’re going to meet with the CEC next week. We’re going to provide some input for them. They have a cleanup build that they’re going to be progressing through the legislation to be able to make sure that they’ve got a bill that can actually work. Right now, the way it’s more related, it’s not going to work for. So we’ll meet with them next week. It’s going to be quite the challenge for the state to be able to manage the amount of information that they’re seeking from others.

Matthew Lucey: Just Trans Mountain.

Timothy Davis: In Trans Mountain pipeline, it looks like we expect that to go in to . That’s what the market has some time in the second half of ’23. It’s slated to start up first quarter of ’24. And most, if not all of that material has the sale right by San Francisco and Los Angeles on its way to the lightering point for transpacific moves. I think we’re going to be positioned as others will in California to be a good outlet for some of that production.

Kalein Akamine: I guess just to put a finer point on that question. Do you see the addition of the WCS barrels in the Pacific Basin advantaging your feedstock procurement costs relative to what you’re seeing today? Does it make heavy crude cheaper?

Thomas Nimbley: Yes. We believe that’s going to be the case. You’ve got 2 things that are rather significant, WCS moving to the West Coast and then being exported. And we’ve got a lot of activity in our system in California, particularly Martinez and refining where we’re looking at what we can do to increase the volumes that we plan to run. The other thing that is apparently still going to happen is that some time by the end of the year, LyondellBasell continues to indicate that they’re going to shut down the refinery in Houston. And that, of course, is a heavy crude refinery. So there are some potential tailwinds on the heavy crude side.

Kalein Akamine: Got it. My follow-up is on the cadence of turnaround. The first quarter here was obviously very heavy and some of that work is filling over here into the second quarter. But as you wrap these up, can you offer some thoughts on what the turnaround outlook looks like maybe over the next year or two?

Matthew Lucey: Sure. So first quarter was heavy. The hydrocracker and fluid coker work at Del City is going to be wrapping up very shortly. We really have minor work in June in Torrance. It should not be too disruptive to earnings. There is a bigger turnaround starting at the very end of Q3, residing in Q4 at Torrance. But absent what I just described, the rest of the runway is very clear, certainly. So for all of our — the other 5 refineries outside of Torrance from this point forward should have a very clear runway through the end of the year.

Thomas Nimbley: And going forward, we’re going to get to a normalized turnaround schedule. We obviously, like everybody else in the industry when we had these high-margin periods. We took steps to safely, but continue to run and the units were put pretty hard. And to a certain extent, we’re paying for that in 2023 with most of that work already underway or done. But we expect to be maybe a little bit higher than normal next year. But from that point on, back to what we would expect.

Operator: Our next question is from the line of Manav Gupta with UBS.

Manav Gupta: Congrats on a good quarter, guys. I just — you buy a lot of heavy sour crude and medium sour crudes globally even from Canada, and you have a very informative view on where that market is heading. So help us understand a little bit what you’re seeing out there, an incremental Canadian barrels, some crude coming from Venezuela, BP ramping up some projects, but then OPEC cutting. So help us understand where the spreads are moving, both medium and heavy in the near term?

Thomas Nimbley: I’m going to take the first part of it, and I’m going to ask Tom O’Connor to weigh in on your question. But as I said in my opening comments, certainly, we’ve seen the light heavy spreads narrow in. Some of that’s due to the fact that OPEC came out with their cut and tighten, and that’s going to be a medium or a heavier barrel. And the other thing is you would expect the dips to narrow when some — with a decrease in flat price. Because basically, you get penalized more when running a medium or a heavy crude if you don’t have cokers, particularly, we do. But if you don’t, there’s a penalty if you’re going to try and run a medium crude, as the flat price comes down and then that penalty decreases. Propane is not as much of a discount.

is not as much of a discount. So you would expect them to narrow in. But that being said, because of the production that’s there, we are continuing to see light heavy dips that are quite a bit wider than the historical norm. Tom, you would add?

Thomas O’Connor: I don’t have a lot to add. I mean, Tom’s comments, I think, summarized it well. I mean, I think the only thing I’d really kind of add is that the market certainly has to deal with sort of the disruption over the fact that, particularly, I think, in the Eastern basin or the Pacific Basin, there’s really a — there’s an imbalance basically in crude cost between people that are consuming discounts at Russian crude versus people that are paying market indicators. So that certainly has, I think, exacerbated some of the moves that we saw coming out of the OPEC Plus cuts. When they were announced, it feels like things normalize just a little bit of a touch. And then as you mentioned, there certainly is some marginal growth at this point coming out of the U.S. Gulf Coast. And certainly, it seems like Venezuela is producing more barrels, which are finding their way to the U.S.

Manav Gupta: Perfect, guys. One quick follow-up here is, over the years, you’ve done a very good job of fixing up these assets and improving the reliability. So 2 small items caught our eye. One was generally, you are much better in your op cost on the West Coast. It seemed a little high in the quarter. So we are hoping it tapers down again. And then Mid-Con, you have a good asset. So just help us understand what exactly happened during the quarter? Because generally, it’s a very good asset.

Thomas Nimbley: Yes, I’ll start and then Matt weigh in. Well, op cost in the West Coast, the natural gas really blew out on the West Coast. Some of that was weather related. But natural gas in the first quarter was high across the entire country. But particularly in Northern California, it was extremely high. So that certainly hit us on operating costs. Those gas prices come back and come back to norm. Toledo, which is a very good machine, but Toledo refinery was hit badly from Winter storm Eliot, that what we call.

Matthew Lucey: The Christmas eve freeze.

Thomas Nimbley: Yes, go ahead. You take it.

Matthew Lucey: So the freeze that happened on Christmas eve, we suffered unplanned downtime both at Chalmette and Toledo. Just from a management of that, we were able to accelerate some work, which mitigated what otherwise would have been a more blatant result from the unplanned downtime. So we were able to sort of couple it with work, but we had to go into the cat cracker at Toledo, and so we’re able to take essentially a surgical strike there, which definitively impacted the quarter between the 2. So nothing has changed at Toledo. It’s still an exceptional refinery. But it has to run and it has to run reliably for that to be the case. So that’s certainly the expectation going forward.

Thomas Nimbley: One other thing I should have mentioned on the West Coast, natural gas prices was a big pillar. But we also did execute a turnaround in Martinez, and it was a good size turnaround. We shut down the crude unit. And we were able to keep because we commercially set up to be able to continue to try to fill or at least run the downstream units, but throughput was down because of that turnaround being down. So on a unit basis, that hurt us on cost.

Operator: The next question is from the line of Ryan Todd with Piper Sandler.

Ryan Todd: Yes. Let me start out. Congratulations, Tom and Matt. You and the team have done an amazing job of transforming the company over the last 10 years and positioning it for success going forward. So congratulations to both of you. I wanted to ask on some of the cash or the uses of cash going forward. You reduced your balance of environmental liabilities by $300 million in the quarter. Can you run through the non-CapEx-related kind of uses of call — potential calls on cash over the remainder of the course of this year. How much more environmental liability you anticipate reducing to get back to a normalized level? I believe there’s a J.Aron inventory management agreement that you could look to address. So what are the noncapital-related potential uses of cash that we should expect to see between now and year-end?

Karen Davis: Sure. Thanks for the question. We ended the quarter with $1.6 billion in cash, and I’m glad you focused. There are certainly some cash calls coming forward. We’re going to continue to execute on the annual capital program, which is elevated above normal levels this year. In the near term, in the second quarter, we’ll be finishing up the SBR project and funding initial working capital. And as you mentioned, we are going to continue to reduce our environmental credit liability. We’ve described that we have a plan that we’ll be doing that over the next 5 to 6 quarters. And I think you would likely should expect to see a more normalized environmental credit liability balance in the 2 to 4 months range, RINs liability range.

Matthew Lucey: Yes, Ryan, the RIN program is obviously matches up with our new operation, which is going to start generating RINs. And so we’ve worked hard in sort of sinking the normalization of the RIN balance to our new production of RIN credits.

Thomas Nimbley: And of course, the other thing that we — I was just going to mention, we obviously got Board approval to, as we mentioned in the script, Karen mentioned, to up the repurchase program. So we’ll be using some cash opportunistically to do that. Go ahead, I’m sorry.

Ryan Todd: I was just going to say on the — and the normal — I think you talked about 2 to 4 months. I mean I guess it depends on RIN prices. But is that $400 million environmental liability, $300 million that kind of remains on a go-forward basis that rolls?

Karen Davis: Well, I think that’s going to be based on we consume about 100 million RINs a year as our RVO.

Matthew Lucey: So yes, depending on price, it’s a couple of hundred million dollars.

Ryan Todd: Okay. And then maybe switching gears. Gasoline inventories remain extremely tight, particularly in PADD 1. Can you talk about what you’re seeing on kind of market dynamics in your areas of operation, particularly in the Northeast and what that might mean for gasoline and distillate markets as we head in the summer driving season?

Thomas Nimbley: I’ll ask Paul to handle that, short answer is as demand wholesale demand remains very strong. Go ahead, Paul.

Timothy Davis: Yes. I mean you stated inventory positions in PADD 1 are around 5-year lows. We’re coming into driving season. Our are starting to show off a pretty good bit. Our wholesale business in the East Coast is year-to-date is up 10% from last year and current run rate right now is 15% above the first quarter. So it’s shaping up to be a strong season going into the summer, and we’re anticipating that really across the country.

Operator: Our next question is from the line of John Royall with JPMorgan.

John Royall: Congrats to Tom and Matt. So we did notice a bump of, I think, about $50 million on full spend on the SBR project. Now I realized in the broader context, it would be $800 million, plus you’re bringing in, it’s somewhat less material. But just any color on that incremental spend would be helpful if we have that right.

Matthew Lucey: You do. And well, we’re not pleased with — we try to drive to perfection with delivering projects on time. There was a small increase, although we’re getting down to the short strokes. So as I said, the renewable diesel unit has been turned over to operations. They’re commissioning it now. And in fact, we expect feed in this month. The pretreatment unit, much of the work is done, but there’s about another month or so of work to get done there. So while I was a bit disappointed with the rise in the budget, the project is well on hand and we’re getting towards the end. And I fully expect the pretreatment facility, like you said, to be turned over to operations in June.

John Royall: Great. And then maybe just 1 follow-up on capital allocation. You talked about some of the moving pieces of environmental liabilities and things like that. But you have this inflow of $835 million coming in related to SBR. Your net debt negative even after paying down a good chunk of the environmental liabilities. And you talked about staying near 0 on net debt and also increase your authorization. So it seems like generally, we can expect most of that $835 million to go back to shareholders via the buyback. But I just want to make sure we’re thinking about that correctly.

Karen Davis: Well, as we’ve been saying for some time, our balance sheet is our first priority. And we do have some additional initiatives that we could do address further strengthening of the balance sheet. You had mentioned potential retiring of inventory financing agreements, we could also reduce long-term debt and then, of course, reducing the environmental payables over the next 5 or 6 quarters is going to require some cash. And then we expect to continue and potentially increase shareholder returns through the dividend and share repurchase program. But also we think it’s prudent to retain some cash for future potential opportunities that might come our way.

Operator: The next question is from the line of Neil Mehta with Goldman Sachs.

Neil Mehta: Congrats, Tom, and congrats to you as well, Matt, wish you well in your new roles. The first question is just around the renewable diesel at Chalmette. As you think about the mid-cycle EBITDA associated with the 320 million gallons of production, how do you — how would you frame that out? There are a lot of moving pieces since you first talked about that last year. So any update on the framework would be helpful.

Matthew Lucey: Obviously, it’s a fledgling business and there’s going to be new market participants. And so you’re going to have a bigger call on feeds. And so what we saw in 2022 was an EBITDA margin for — modeled to what our plan and the capabilities of our plan will be, will be an EBITDA — was an EBITDA margin of $1.25 to $1.50. I think in regards to feedstock side, RD and what will extend to SAF has a distinct advantage over historical biodiesel plants. And so I think as the market evolves, you’ll see feedstock shift probably from biodiesel plants to renewable diesel plants as the economics are much stronger. So there’s going to be lots of puts and takes. We modeled a base case that was below last year’s levels. But we’re still very attractive for the investment and for the returns for the shareholders.

Where it’s going to end up? My guess is it will be below ’22 levels. But certainly, I would expect going forward your EBITDA margins are going to be greater than $1 and hopefully much higher.

Neil Mehta: That’s helpful. And then, Matt, maybe I could ask you just big picture. A lot of what you guys have orchestrated over the last couple of years have been preparing the balance sheet and setting some growth and capacity initiatives in place. Can you talk about how you think about the 5-year strategic vision as you step into this new role?

Matthew Lucey: Thanks. I appreciate the question. The overriding principle is — Tom and I have worked together for 13 years. And it’s been incredibly rewarding partnership, not for the company, just from a personal standpoint, working with Tom. But it’s a strategy that we’re working hand-to-hand in regards to building PBF up. And so continuity will be a big theme, obviously. Tom and I have been lockstep and everything that PBF has done over the last 13 years. But Hopefully, it’s my hope and is not to indicate that there’s a lack of energy. But any change provides a new breadth of energy. And so obviously, we’re a refining company. That is not going to change. Operations is the center of our universe. That’s not going to change.

But we do have some initiatives. SBR is one that’s been in the works for a long time. We’re just getting out of the gates now, which is very, very exciting. I think there’s going to be a lot of growth opportunities with our partnership with ENI there, not only potentially into new products, whether it’s sustainable aviation fuel, or it could be on the feedstock side. That will develop over time in connection with our partnership. I will say with the partnership with ENI, it hasn’t closed yet, but it’s already started bearing fruit. Our renewable diesel team was down, or I shouldn’t say down, was over in Italy visiting both their plants. We got to visit a plant in Sicily and Venice. And so very excited about that partnership. Obviously, beyond St. Bernard renewables, we’re in the sort of mid-stages now, sort of beyond the early stages and exploring a hydrogen hub opportunity on the East Coast.

We submitted an application with a consortium there. And so I think there’s going to be real opportunities there. And we have this unique asset in Delaware City, where beyond being a hydrogen hub, you have — we’re blessed with 5x the amount of real estate that our refinery sits on sort of in surrounding areas. So as that project, if it’s able to move forward, I think the opportunities will be manifest. And then as Karen said, we’re in volatile markets and maintaining a rock-solid balance sheet with terrific liquidity, opportunities will pop up. And to the degree we feel like we can grow the company and reward shareholders, we’ll certainly try to do that.

Operator: Our next question is from the line of Matthew Blair with Tudor, Pickering, Holt.

Matthew Blair: Matt and Tom, congrats on the new roles. I wanted to follow up, I think it was Karen’s comments where you talked about it was prudent to retain cash for future Ops. Could you expand on that a little bit more? And I guess should we take that to mean that PBF would be potentially interested in looking at future refining acquisitions?

Matthew Lucey: Yes, it’s Matt. I think it’s always prudent to maintain some flexibility, especially when you’re entering volatile markets. There’s nothing planned. We look at everything that comes up. And obviously, there’s been activities over the last year where refineries have come for sale and haven’t been able to find a buyer and are going away. So we’ll evaluate every opportunity that is in front of us. But generally speaking, if there’s periods of volatility, opportunities usually come up. We’ve said it before, we’ll say it again, what we sort of say towards down to face. But we are absolutely committed to maintaining a strong balance sheet. By the way, that’s not just for the benefit of our bondholders. That goes directly to the benefit of our equity holders.

Obviously, it lowers your cost of debt as you improve. It lowers your cost of insurance. It improves your trade credit. It introduces new shareholders, all of which is profound in running our business. We want to be opportunistic, but we’re going to stay disciplined. And we think we have a realistic view of what the future holds. So — but we’re very excited about it.

Matthew Blair: Sounds good. And then have you started to procure low CI feeds for the RD unit? And if so, could you just talk about the availability? Are you looking at like U.S. feeds or international feeds? And do you expect the ENI partnership to help in this regard?

Matthew Lucey: Absolutely, we do. And look, they’re already in the business from a just — I don’t want to get too deep into the weeds. But for the first couple of months of operations, we’re going to be running low CI feeds. So we’ve been focused on lining up those feeds for the renewable diesel unit. As we get closer to pretreatment startup, we’ll start in those lower CI feeds. And look, this is where it’s similar to a refining business or traditional petroleum refining business in that we’re a merchant renewable diesel manufacturer, and we’re going to go out and procure the most economic feeds that are available at any given time. And there will be volatility in those markets, and we’ll be as quick and entrepreneurial as we can in shifting between the feeds.

But there’s no question on the feed side with ENI, where they’re already in the marketplace. They’ve been investing in the upstream in regards to feeds, and they have access to some very interesting opportunities, but it also extends to the product side. And I’d say there’s a reasonably high probability in the not-too-distant future once we’re up and running that we could see products going into Europe. And there’s no question, they’ll be adding value to our operation as we execute that business.

Operator: Our next question is from the line of Paul Cheng, Scotiabank.

Paul Cheng: Tom and Matt, first, let me add my congratulation. Tom, are you sure that you’re ready to spend all this time in the golf course? You’re too young.

Matthew Lucey: Spend all these time on the golf course.

Thomas Nimbley: I’ll tell you, Paul, I haven’t played golf around the gulf in 3 years. So I’m not going to spend all the time on a golf course, but I’m going back to the golf course. But I’ll remain as Executive Chair involved in the business. I’ve got too much committed, my General Counsel sitting across me reminds me on occasion I am the largest private shareholder in PBF, and so PBF supply blood forever.

Paul Cheng: All right. Matt, just curious that some of your peers that after they start up their RD projects, they realize that they don’t have sufficient hydrogen. Could you talk about what’s the situation in ? And also that a lot of the feed is high acetic, and that has been pretty mostly to the And the machine itself, that how are you guys going to save up on that? Second question is that strategically, I think California is interesting, right? I mean, on one hand, the shutdown of those facility is probably going to make at least the near term or that for the next couple of years, margins should be good. But at the same time that the regulatory and the government asset is make it very challenging. So I guess my question is that if there’s an asset in California, good asset to be on sale. If the price is right, strategically, do you guys still want to add to your position in California given the regulatory environment and the government entity?

Thomas Nimbley: The short answer is no. We look at everything. But I don’t think we get approval to buy another asset in California, given that we’ve got Torrance and Martinez already, Paul. As I said, we look at everything. But I would doubt that, that would be something that we could effectively do even if something came on the market.

Matthew Lucey: Yes. There’s no question about that. So in regards to hydrogen, look, one of the benefits of being located in the Gulf Coast, hydrogen simply won’t be a problem for us. It’s something that we recognized early on. It’s something that we signed on for well in advance, and there’s abundant supply of hydrogen. And it really does go to one of the competitive strengths of being located down in the Gulf. In regards to feeds, and we’ve talked a lot about internally, obviously, and I know it’s been a focus for all of you guys looking at the company. We’ve worked very, very hard in recognizing where others have stumbled out of the gates. And so we’ve tried to bake in all those lessons that have been learned over time. And so, Jim, would you add anything in regards to the specific low CI feeds and the preparation we did in getting our equipment ready for that?

James Fedena: Well, the low CI feeds that we’re going to bring in will benefit us once we get the pathways approved in through California specifically. So we’ll have provisional CI scores for the facility initially. But as we go through the pathway process in California, which we’re well underway, we’ll be able to fully realize those in the future when they get approved.

Paul Cheng: Matt or Karen, can you remind us that what’s the remaining CapEx spending in the second quarter for the LG project to finish and including the pretreatment unit?

Matthew Lucey: I’m sorry. So there’s two different questions. In regards to the pretreatment unit, we’ve — the project wind up being $675 million. $675 million To $700 million, if you want to it, is worth the total R&D facility project is going to be. In regards to the Torrance work, I don’t know that we’ve given out specific turnaround budgets for any one project.

Thomas Nimbley: The Torrance work in the second quarter, though is not as significant as what we’re going to do in the third and fourth quarter in Torrance. That’s Torrance — when we took Torrance over, of course, you’re all aware that with the precipitator explosion, Exxon was down for a while, and they did an extensive overhaul and turnaround on that cat cracker. And I will tell you, I have never seen a cat cracker run for as long as the Torrance cat cracker ran. It’s finishing up in the fall a 7-year plus run. But that — the one in the second quarter is not going to be material. And you remember how much of that we have left on the PTU or the RD project?

Karen Davis: It’s probably about $140 million to $150 million in the quarter.

Thomas Nimbley: In the quarter, the whole quarter, but some of that has already been spent.

Operator: Our last question is from the line of Jason Gabelman with Cowen and Company.

Jason Gabelman: Tom and Matt, congrats on the new roles and best of luck. First, I wanted to go back to the balance sheet because it’s certainly a focus for us and I believe investors. You discussed keeping debt to cash equal. And so the overarching question is, at what point does that framework change? Is it when you reach investment-grade rating? Is it when you reduce the environmental liabilities? And I guess, tied to the environmental liabilities. Are the RIN obligation that you’re going to pay down to, is there going to be a transfer cost mechanism between kind of the biofuels plants and, I guess, paying down the environmental obligations. Is that going to be at market price? Or are you going to recognize that at something different?

Matthew Lucey: I can take the last piece, for sure, which is PBF, we have a pure partnership with ENI. And so the financials from SBR will be pure market-based everything at market prices. That being said, PBF will acquire the RINs from SBR as they are produced, which will be — will essentially bring ancillary benefits of to PBF and that we’re not going to be in the marketplace acquiring those. So — but it’s a true joint venture and it’s at market joint venture. So there’s not any subsidy there to speak of.

Jason Gabelman: Got it.

Karen Davis: And with respect to cash balances and all the balance sheet initiatives, as I said in my prepared remarks, we’re given heightened market volatility. And as we pursue investment-grade ratings, we intend to maintain this near net debt 0 target. And then after that, it’s going to be pretty much conditions and operations dependent.

Matthew Lucey: Yes. It’s hard to say. I mean nothing is static, obviously. We have a couple of things that we want to address. Quite frankly, we want to sit down with the rating agencies and have a frank conversation with them and understand their perspectives. But as Karen said, that we live in volatile times. It’s hard to imagine over the last 3 years sort of the volatility that we’ve gone through. And so we’ll continually assess what’s best for the company and by extension, obviously, to shareholders.

Jason Gabelman: All right. Based on your conversations with the ratings agencies, do you feel like you’re close to getting that investment-grade rating?

Matthew Lucey: I can’t assess what their timing is, but I can assess what our balance sheet is. And I can certainly look at it, look at the metrics. And there’s no question that when you analyze the financial metrics, we are investment grade.

Jason Gabelman: Okay. My follow-up is — I’m going to ask 2 since we’re at the end of the call, if I may. The first, just a clarification that the OpEx guidance you gave last quarter, $8 to $8.50 per barrel, still holds for the full year. And then the other, just you’ve mentioned you would be interested. It sounds like in pursuing potential acquisitions if they arise, would it be a focus on single refining assets as you’ve done in the past? Or would you be comfortable acquiring, say, a system of refining assets if they were to become available?

Karen Davis: First, with respect to OpEx. The guidance we give is based on our annual budget and our annual budgeted throughput. There is some seasonality. Q1 is typically the highest because of energy costs. Second quarter next highest.

Matthew Lucey: But when we put that guidance out, natural gas was materially higher than it is now. So that will move. In regards to your acquisitions question, I appreciate the desire to sort of get more and more sort of clarity. We don’t know what’s coming down or what will come down the pipe. And so we look at everything. We’ve always said that there’s not an imperative that we must grow by any stretch. And so we’re very pleased with the system we have. If opportunities come up, who knows what they will be, but we’ll certainly look at them and try to do the best for our shareholders.

Operator: We’ve reached the end of the question-and-answer session. I’ll now turn the call over to Tom Nimbley for closing remarks.

Thomas Nimbley: Thank you for joining us today on today’s call. As we have discussed, the markets will continue to be volatile and consumer demand will continue to be resilient. PBF remains in good hands. Our operating principles are unchanged. We are focused on operating safely, reliably and in an environmentally responsible manner. In doing so, we will continue to provide our essential products to meet consumer demand. As we’ve mentioned, our balance sheet is in its strongest condition ever and we expect our operations and financial discipline will allow us to continue rewarding our investors. I look forward to speaking with you all again next quarter. Thank you.

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