PBF discloses plans for hydrogen plant at Delaware City refinery

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PBF Energy Inc. reported sharply higher fourth-quarter 2017 income from operations of$253.5 million, compared to income from operations of$139.8 million for the fourth quarter of 2016.

Aiding the results are crude oil deliveries from Canada to the Delaware City Refinery. CEO Tom Nimbley also disclosed plans for a project at the Delaware City refinery that would produce hydrogen needed to produce cleaner diesel fuel.

The project received an OK from the Secretary of the Delaware Department of Natural Resources and Environmental Control under the state’s Coastal Zone Act.

Nimbly noted that the First State refinery is receiving increased rail shipments of heavy crude from Canada, which is selling crude at lower prices that make up for the added cost of shipments.

PBF, based in northern New Jersey, started out with the Delaware City Refinery and now has five refineries in Paulsboro, NJ; Toledo, Oh; Chalmette (New Orleans), LA; and Torrance in southern California.

Rail shipments continue

The rail shipments have been a source of controversy in Delaware, due to fears of derailments. The Norfolk Southern has continued to make improvements in trackage between Newark and Delaware City.

The company reported fourth-quarter 2017 net income of$260.4 million, and net income attributable to PBR Energy of$241.9 million. The company also has under its umbrella, PBF Logistics, a company with publicly traded securities.

Net income attributable to PBF Energy for the year ended December 31 was$415.5 million, compared to net income of$170.8 million, or$1.74per share, for the year ended December 31, 2016.

The results for the fourth quarter 2017 were impacted by special items. These special items include a net, non-cash, after-tax gain of$119.3 million, lower-of-cost-or-market (“LCM”) inventory adjustment, and an after-tax net expense of$42.3 million. The Tax Cuts and Jobs Act (the “TCJA”) provided a net tax benefit of$173.3 million.

Adjusted fully-converted net income for the year ended December 31, 2017, excluding special items, was$130.1 million, compared to an adjusted fully-converted net loss of$145.7 million for 2016.

Two different halves for 2017

“2017 was a year of two halves for PBF Energy. During the first two quarters of the year, we invested heavily in our assets and completed the largest turnaround in our company’s history at ourTorrancerefinery. The improvements and strategic capital investments we completed were critical to our operational success in the third and fourth quarters and helped demonstrate the strength of our fully-operational refining system,” said Tom Nimbley, CEO, “Looking ahead, we continue to focus on the safe and reliable operations of our assets. We are beginning 2018 with a strong and flexible balance sheet and are positioned to benefit from opportunities in the market.”

As noted above, the company will dust off a previously shelved project at Delaware City that would produce hydrogen and cut sulfur emissions at the site. The project was confirmed in a teleconference with industry analysts, although few details were offered.

PBF issued the following regarding the project:

“The upgrades to the Delaware City Refinery referenced on the PBF earnings call is the proposed investment in a new sulfur removal project. The proposed construction of a new $100 million hydrogen unit will help us comply with the regulatory changeover to a global, lower sulfur marine fuel standard, similar to what we’ve already done with gasoline and diesel fuel. We expect to award the successful bid in the 2nd Quarter of 2018 and plan to have the project completed in time to comply with the new global marine fuel standard in 2020.”

The project drew little opposition from community and environmental groups at the time, since it would cut emissions at the refinery.

Clean diesel opportunities

PBF sees opportunities in tighter international clean diesel fuel standards for ships that would aid Delaware City and other PBF refineries, if improvements, such as the hydrogen plant, are made.

PBF officials said in the teleconference that the Delaware project would likely be done with third parties.

The Delaware refinery, which employs about 500, often has as many construction workers on site in maintenance and turnarounds that routinely take place. Other jobs are generated from suppliers, railroad workers and others.

Nimbleby said the company is benefitting from improvements in the performance of refineries in Louisiana and Southern California acquired from ExxonMobil.

According to Nimbley, Torrance refinery has vast potential as long as it can run reliably. The company is now working to build commercial business on the West Coast that was not available previously. The Torrance plant was shut down after an explosion and PBF acquire the plant after ExxonMobil proved it could operate reliably.

Nimbley said massive projects at refineries are not contemplated, since the company prefers to buy existing sites. However, he sees few refinery acquisition prospects in the current market, due to sellers seeking high price as the overall petroleum market strengthens.

In 2011, a $1 billion upgrade of the Delaware City refinery was announced. PBF continued to make investments in the refinery but did not undertake the project. The hydrogen plant represents at least part of the original clean fuels project.

PBF did spend $100 million or more at Delaware City on a rail terminal that unloads crude from North Dakota and Canada when prices for crude from those two areas are lower than in other areas. At present, Canadian crude is seeing that price differential.

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