Morning all,
If you want to learn more about the complexities of the refining industry, listen in to the hour-long earnings call from Delaware City refinery owner PBF Energy.
CEO Tom Nimbley did a masterful job in going over the complicated business of acquiring crude oil refining it and getting the finished product to the customer. No, I did not understand all the talk about hedging and some of the nitpicking questions from analysts.
Refining is a business loaded with risks that PBF has managed to overcome by building on its initial purchase of the Delaware City site that was on its way to demolition under former owner Valero.
PBF now has five smaller refineries on both coasts, the Midwest and the Gulf Coast and an ability to handle various types of crude oil. The versatility allows the company to acquire some grades at a discount if market conditions are right.
But risks that can include plant breakdowns and markets that can change on a dime are ever-present threats, even for a company with $20 billion in annual revenue.
In the presentation, Nimbley brought up one threat, the RIN system that is used to track ethanol use. The system is costing independent refiners big time, with the market believed to be influenced by speculation.
Integrated oil companies fare better under the system.
Nimbley is hopeful something will change for a system that even threatens profitable refineries like Delaware.
The PBF CEO said in the investor presentation that the recent bankruptcy filing of Philadelphia Energy might be the tipping point.
PBF wisely passed on purchasing the massive Philadelphia Energy’s massive refinery complex that handles nearly as much crude oil as all five PBF refineries.
Instead, a private equity investor paid too much and loaded up the complex with a crushing debt load, made worse by RIN costs. Plans for a stock offering were shelved earlier.
So far, PBF and other independent refiners have lined up support from the Delaware Congressional Delegation and others.
Nimbley stopped short of criticizing a proposed 25-cent gas tax proposal in the Trump budget that would reduce gas consumption. He did note that RIN mess represents a hidden tax on motorists.
Take away RINs and a case could be made for a more modest phased-in gas tax increase. Will that idea fly on the Beltway? Probably not. Still, it is clear that Nimbley is on to something.
In the meantime, keep an eye on those folks juggling a cell phone and a cup of coffee while buying their gas at Wawa. The newsletter returns tomorrow. – Doug Rainey, publisher.