Analysis: Tight oil supplies lead to big profits at Delaware refinery owner PBF

223
Advertisement

Investors to reap the rewards of higher gas prices

  • Delaware City refinery owner PBF Energy Inc. reported second-quarter 2022 income from operations of $1.7 billion compared to income from operations of $147.5 million for the second quarter of 2021.

Revenues doubled on the strength of higher oil prices, with the third quarter figure at $14 billion, compared to $6.9 billion a year ago. Revenues for the first half were $23.2 billion, compared to $11.8 billion in 2021.

On Friday morning, PBF shares were trading at $33, below the all-time high in 2018 of $50.

  • The company reported second-quarter 2022 net income of $1.2 billion. Results also include a logistics company where PBF is positioned as its largest shareholder and now plans to buy out the remaining units. This compares to net income of $69.9 million for the second quarter of 2021.

Major oil companies and refiners like PBF say profits will be used to pay down debt and reward investors. The soaring profits have generated criticism from the Biden Administration and others.

Advertisement
  • Tom Nimbley, PBF Energy’s CEO, said, “PBF’s second quarter results reflect the impact of tight global supply and surging, post-pandemic demand. Our strong financial results are allowing us to accelerate the repayment of debt we incurred during the pandemic and continue actions to strengthen our balance sheet.” 

Nimbley added, “We operated well during the second quarter and completed the bulk of our 2022 planned turnaround activity in the first half of the year. We see demand remaining strong even in the face of economic uncertainty. Global product inventories remain low, and refineries are running at high utilization to keep pace with demand. We expect that with a solid operating performance, PBF will be able to generate incremental free cash flow that can be used to further strengthen our balance sheet and reward our investors.”

PBF continues to move forward on a renewable fuels production facility located at the Chalmette refinery near New Orleans. During the second quarter of 2022, it invested approximately $52 million  with the goal of being in production in the first half of 2023.

The company expects full-year 2022 refining capital expenditures in the $500 to $550 million range, which includes advanced purchases of material for future turnarounds – annual overhauls of refineries.

PBF got its start by acquiring the Delaware City refinery with the help of private equity funding and some state assistance. The site had been slated for demolition after operating difficulties bedeviled previous owner Valero. PBF assembled a team from previous refinery owner Premcor and reversed losses that had been running at $1 million a day under Valero.

Northern New Jersey-based PBF went on to buy smaller refineries (see production figures below) from major oil companies and now has half a dozen sites on both Coasts, the Midwest and Gulf Coast after majors shed their smaller plants.

Its biggest gamble may have come with the purchase of a southern California ExxonMobil refinery that had been the scene of a massive fire. To date, the company, despite some scrapes with regulators, has been successful in operating the site, which has pipelines that lead to a California oil field and to jets at Los Angeles International Airport.

PBF has faced a balancing act of navigating the ups and downs of oil prices while taking on debt to buy refineries and make upgrades without breaking the bank.

In 2014, it abandoned a $1 billion expansion of its Delaware City refinery and instead spent $100 million on a rail facility that brought in heavy Canadian oil that could be profitably refined at a Delaware site capable of handling various types of crude.

Expected throughput ranges (barrels per day)
Third Quarter 2022Full-year 2022
LowHighLowHigh
East Coast295,000315,000270,000290,000
Mid-continent160,000170,000150,000160,000
Gulf Coast180,000190,000175,000185,000
West Coast290,000310,000300,000320,000
Total925,000985,000895,000955,000

As expected, PBF Energy Inc. and PBF Logistics LP Thursday announced a definitive agreement and plan of merger calling for PBF Energy to acquire all of the units of PBF Logistics it does not already own directly or indirectly for a combination of PBF Energy Class A common stock and cash.

PBF Energy owns about 48% of the outstanding common units of PBF Logistics as of July 28, 2022.

PBF spun off logistics (pipelines and product storage sites) as a way to reward shareholders. The company, unlike Valero, has stayed away from setting up branded station convenience stores.

Advertisement
Advertisement