PBF Energy (PBF) Q2 2026 earnings call transcript

Thank you, Angeline. Good morning, and welcome to today's call. With you today are Matt Lucie, our president and CEO, Michael Cauci, our senior vice president, and head of refining, Joe Moreno, our CFO, and several other members of our management team. Copies of today's earnings release and our 10Q 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 expressing the companies 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. Consistent with our prior periods, we will discuss our results, excluding special items, which are described in today's press release. Also included in the press release is forward-looking guidance information. For any questions on these items, or other follow-up questions, please contact investor relations after the call. I'll now turn the call over to Matt Lucie.

Thanks, Colin. Good morning, everyone. And thank you for joining our call. We clearly have reached a transformative moment for PDF.

The ongoing disruptions in the Middle East and Eastern Europe have created one of, if not the largest dislocation the oil markets have ever seen.

None of us welcomes the circumstance behind it, but the effect on our industry is both dramatic and constructive. Indeed, the world is in desperate need of the products we produce.

Let me spend a few minutes on what we are saying. First, include then-refined products, because the story on each is a bit different and both matter to how we think about the quarters ahead.

With the backdrop of the ongoing Ukraine war, hostilities in the Middle East caused, initially, roughly 15 million barrels a day of crude and 5 million barrels a day of product to be effectively trapped inside the strait.

These are significant headline numbers, but we've seen the market exercise some flexibility on the crude side with alternative routing, crude supply coming from national strategic reserves, and some areas outside the US, reduce demand as a result of lower utilization.

Global refining utilization is down roughly 10% year on year. In the near term, crude flows are still searching for a new week delivery, and global pricing is doing the work of redirecting barrels along new routes.

Until crude re-establishes its historical trade patterns, we cannot predict exactly where flat price or differential land. What we can say with more confidence is that this environment favors refiners with crude slate flexibility and proximity to stable crude supply in America's.

Shorter voyages and quicker, more reliable deliveries are real advantages. PBS footprint is well positioned as we have not, nor do we expect crude availability to impact our operations.

Most importantly, on the product side, product inventories have been drawn down across the globe. Refining utilization outside the US has fallen.

US markets must incentivize products to stay home as products are being pulled into exports. US and West Coast markets are finding it harder to pull the imports they have historically relied on. The West Coast and East Coast are structurally short-refined capacity and depend on imports, often from left-stable sources to balance.

The temporary Jones Act waivers are helping in this regard. California alone imports on the order of 250,000 barrels a day of gasoline, close to a third of its demand, along with a meaningful volume of its jet fuel.

When the global supply times, those are precisely the markets that feel at first and are most exposed. It reinforces the point we have made for some time. US refining is critical infrastructure, and has rarely been more evident than it is today.

It will take time for trade parents to normalize, both during and after these conflicts. And we expect crude to find its footing sooner than products.

Prior to the disruption in the Middle East, there was a constructive setup, I'm sorry, prior to the disruption in the Middle East, there was a constructive setup for refining with tight refining balances and low product inventories worldwide.

With the ongoing conflicts, this situation has been magnified. Product inventories will be slow to rebuild, and the restocking that ultimately must occur should provide a favorable backdrop for refining margins over the quarters to come.

With the current environment, what the current environment has provided is the prospect for PVF to generate significant value for our investors.

In the second quarter, we reduced our net debt by over $1.4 billion. We ended the quarter with just under $900 million in cash, and I expect one July with approximately $1.5 billion in cash.

So to recap, we had a constructive marketplace prior to the Middle East disruptions with ample crude, tight refining balances, and low product inventories worldwide.

The disruptions around the world have resulted in over 5 million barrels of refining capacity offline, a portion of which this has offered physical damage, which could take significant time to repair.

When the disruption passes and the conflicts end, it will take an extended time for product inventories to normalize, thereby maintaining elvade margins for a time.

As we saw on the small sample size, immediately after the signing of the MOU, crude can and will normalize much quicker than products, as the dislocated crude will need to compete for market share.

This should result in a favorable crude environment. PBF is uniquely positioned to capitalize on opportunities presented by this extraordinary market.

We strengthened our balance sheet, we continue to lower our cost structure, and we are executing initiatives that improve reliability and efficiency.

The work is being done, and we expect it to translate into meaningful value for shareholders. And with that, I'll turn it over to Mike.

Thank you, Matt. Good morning, everyone. Currently, all of our refineries are operating well. In May, we were able to safely restart the fire-affected units at the Martinez Refinery, and have been producing our full products late since that time. Again, I thank our Martinez team and all of our partners for their efforts to restore Martinez to full operations.

While the restoration work was underway and the refinery was operating at reduced rates, the Martinez hydrocracker was doing the heavy lifting in terms of keeping the balance of the refinery operating, providing us with the ability to fulfill our commitments to deliver products to our customers.

With that said, we will be conducting the upcoming hydrocracker turnaround at Martinez beginning in the third quarter and finishing in October.

Staying on the West Coast in July, we reached an agreement with air products to repurchase two hydrogen plants servicing our torrent refinery. Air products has been and continues to be a valuable business partner for PBS. The hydrogen planted torrents are heavily integrated into the operation of the refinery, and we feel that owning and operating those assets will improve the overall reliability of torrents, as we will be able to closely manage operating details and coordinate maintenance and turnarounds with the rest of the refinery as a whole.

Outside of the West Coast, we contended with a few operational challenges during the quarter. In May, we had a loss of containment event at Chiamet that resulted in a pretreater and reformer being taken offline until repairs are complete later in June 3. There was no material reduction in throughput as a result of this event, and the refinery is able to run at planned rates while we complete the repairs.

The primary impact of the event is increased production of NASA and a slight reduction in our finished gasoline yield. We expect to have a relatively clean run for the remainder of the year at Chiamet, as we have shifted after careful evaluation and management of change, the scheduled fourth quarter crew unit and cochlear turnaround to 2027. In the mid-continent, we performed unplanned work related to Toledo's FCC during the second quarter, which was the driver of the lower than expected throughput.

However, we took the opportunity to perform some key maintenance during the outage, which enables us to safely push the planned fourth quarter FCC turnaround to the first half of 2027.

Our East Coast assets ran well in the second quarter, and we expect to have an uninterrupted run until we begin our Paul's Baro Crew Unit turnaround late in the fall.

We continued to implement the RBI program. Here are some examples of key accomplishments. We have implemented a circuit-wide energy efficiency program that resulted in a 20% reduction in purchased natural gas on a per barrel and price adjusted basis relative to the 2024 baseline.

Our turnaround performance, I've seen a marked improvement. Not only have we become more predictable, based on industry benchmarking, we are moving up among industry leaders in turnaround execution.

Our new strategic procurement organization is halfway through renegotiating or rebidding over 60 contracts with the focus on leveraging our spend nationally or regionally. We expect to see savings of about $60 million a year in goods and services, such as process chemicals, maintenance, and equipment rentals, among others.

RBI is a multi-year effort with periods of focus work in each of the refineries, followed by establishment of new practices to ensure the improvements are sustained.

The Refining Business Improvement Initiative is central to improvement PBS results, but it will not distract us from our obligation to operate in a safe, reliable, and environmentally responsible way every day.

With that, I'll turn the caller with the Joe Marino for our financial review.

Thanks, Mike. For the second quarter, excluding special items, we reported that just the net income, $6.22 per share, and adjusted either of $1.24 billion. Our discussion of second quarter results excludes the net effect of special items, including $23 million in incremental op-x related to the Martinez Refinery incident, a $250 million gain on insurance recovery, a $2 million charge related to the retainment of the $800 million senior notes due to 2028, and approximately $9 million of charges associated with the RBI initiative, as well as other items detailed in the reconciling table in today's press release.

PBS results for the quarter are primarily a reflection of the strong product market driven by tight supply and relatively firm demand. Globally, refineries that can run are running at high utilization rates, however, a significant portion of refining capacity remains offline or is running at a reduced rate due to complex or crude availability constraints.

The $250 million gain on insurance recoveries related to the Martinez fire is a result of the fifth, unallocated payment agreed to and received in the second quarter. This brings our total insurance recoveries to $1.25 billion net of our deductible and retention, including the amounts received in 2025.

Important to note, the bulk of the spending related to the Martinez rebuild is behind us. It's only some cleanup and demobilization items ahead. However, the claim is ongoing, and we expect to recover additional funds as we continue to work with our insurance providers towards finalization of the claim in the second half of 2025.

Shifting back to our normal quarterly results discussions, also included in our results, is net income of $27.5 million from our investment in SDR or approximately $49 million of EVA.

SDR produced an average of 15,100 barrels per day of renewable diesel in the second quarter. SDR's production was as expected and reflected reduced rates because of a catalyst change completed in April. Although it has only been a few months since the installation of the new catalyst, we are encouraged by improved performance we are seeing and expect to achieve a longer run time. On the market side, we are seeing robust margins for renewable diesel, which are being driven by globally high-density margins combined with elevated rent and pricing.

PDF cash from operations for the quarter was $1.6 billion, which includes a working capital benefit for approximately $130 million. The working capital benefits with expected in the second quarter and was driven by a reduction in above-average inventory levels from the first quarter, as well as benefits from our net payable edition in a higher price environment.

We are now at normalized inventory levels and the working capital headwind from the first quarter has reversed. Going forward, working capital fluctuations will depend hardly on movements and commodity prices and inventory levels that may vary through the operational needs.

Cash invested in a consolidate cap X for the second quarter was $189 million, which includes refining, corporate, and logistics. This amount excludes second quarter capitals of approximately $56 million, related to the Martinez rebuild.

Q2 capital expenditures are slightly below expectation as a result of our decision to shift the schedule of hydrocracker turnaround at Martinez from the end of the second quarter to the end of the third quarter. On that note, we reduced our total capital expenditure guidance for 2026 by approximately $75 million to $850 million at the midpoint of our revised guidance.

This is primarily a result of the decision to move the Q4 Toledo and shell net turnaround to 2027. We ended the quarter with $894 million in cash and approximately $855 million in net debt. At quarter end, our net debt to cap was 15%. During the second quarter, PBF reduced net debt by over 62% by fully paying down borrows on our asset-backed lending facility to refinanceing $802 million of senior notes due to 2028 using available cash and proceeds from the issuance of $500 million of senior notes due to 2034, an aggregate gross debt reduction of over $1 million.

As we mentioned a moment ago, subsequent to the end of the quarter, we entered into an agreement with our products to acquire two hydrogen plants at our Torrance refinery. This transaction will be financed with an amortizing seller's note. Upon closing of the transaction, this note will appear as incremental debt in our capital structure. The transaction is subject to regulatory review and customer enclosing conditions and is expected to be finalized in the third quarter.

As mentioned over the past several quarters, our capital allocation framework rests on three core elements. Invest in the business, invest in our balance sheet, and shareholder returns. We continue to invest in our assets from efficiency and reliability. We have made significant progress in just a short time with our balance sheets, but the work there is not done.

We operate in a typical business and our intention is to continue investing in our balance sheet to ensure we're able to definitely navigate the next cycle in our industry.

Through our deleveraging over the last several months, we believe we have delivered significant equity value to our investors. We're intent on maximizing value across the entire refining cycle. While returning capital remains an important pillar in our framework, we believe ensuring our refining assets remain competitive and maintaining a strong balance sheet enhances long-term shareholder returns by reducing risk and increasing strategic flexibility.

Operator, we've completed our opening remarks, and we'd be pleased to take any questions.

Thanks, Manav. And I agree with everything you commented on, and obviously every cycle is different. And so then you relate it back to mid cycle. But in this cycle, I see the floor has been risen unquestionably, and the consequence of all the damage. I think it could be a long time. It is almost unimaginable working in this industry, certainly in places like Russia where you're sort of under attack.

So it's impossible for us to predict exactly how long, but it certainly seems that the consequence of these conflicts is acute in the refining business. And I think it's going to take a considerable amount of time. I haven't quantified that exactly, but certainly you're well into 2027 before it's even possible to get inventories normalized under sort of normal economic conditions.

Tom, would you make any other?

Yeah, I mean, Madam Mayor, I think just in terms of adding that, I may think it would most goes back to sort of the prepared remarks, right? I mean, in terms of the preview that we saw when the MOU was signed in terms of, obviously there was a correction in crude, there was correction in margins, but quite quickly, Morgan's found a floor and started to move it back up just because it would get really back to the question over really as the refining capacity that's currently offline. So obviously when that comes back, I mean, I think it's certainly, we've seen it in terms of knowing that it is just about crude, that is normalization is sort of in the weeks to month timeframe.

And when it comes to products, that's certainly in the months to quarters. So I mean, just expanding upon that just a little bit, but you know, very consistent thoughts.

Yeah, look, I think you made a comment. It would certainly appear that the third quarter is stronger from a margin perspective than the second quarter. And we've been tracking a bit ahead. But that being said, we don't know what's gonna happen. And I think I've made this point historically, we don't like to openly speculate about money that we haven't earned yet, prospectively.

It looks very, very constructive. And indeed, I believe we will be able to get our balance sheet potentially to a place that it's never been. And that's where we're focused on at the moment.

Thank you so much and congrats on a great quarter. Thanks.

Sure, you know, one comment I would make is that the last couple months have been a bit more calm than the first couple months. That being said, there's obviously extraordinary markets with massive volatility. Tom, do you want to make a comment then, Paul?

Yeah, I mean, I think in terms of just examining the market, right? I mean, you know, number one, we have concerns about buying crude every day, even in a right-way market. You know, in terms of obviously the environment certainly has, you know, raised the sort of risk factor on, you know, procuring crude. But as we've gone through the cycles of this, right, you know, there's been something that we've yet to been able, we've yet to see a scenario where we've had to impact, you know, our refining operations materially due to a lack of a fails, right? So it's one of those things we constantly are evaluating it.

And certainly I think you can probably add that there's a little bit more of, you know, sort of upside skew and certainly on the diesel side of the equation. And obviously we're in the midst of hurricane season right now, which could have a, you know, potentially a dramatic effect upon both products and crude, right? I mean, if we go back to, you know, hard curve, hurricane, Harvey, right? It's quite easy, you know, quite easy to forget, right? Just the impact that that had on US crude exports and how much crude backed up into the mid-content and pushing inventories rebuilt at that time frame.

And then Paul, you know, you want to make a comment with regards to how everyone's hand in mouth and this environment.

Sure, the, you know, look, the market structure is telling you what everybody should be doing, because the back gradations that we see on products, inclusive of the back gradation we see on crude, everything is hand in mouth. We have dynamic product demands in the Gulf Coast across the docks, we're participating in that. We have export demand out of the East Coast, we're participating in that. We've seen most levels we've seen in many, many, many years.

So primary goal for our commercial team is to keep their refineries full on the inbound and make sure we're in the outbound every single day.

Yeah, Joe, this is Mike. So the short answer to your question is yes, as part of RBI, we've taken three or four prong approach to turnaround improvement and a piece of that is turnaround interval optimization. And so we're certainly looking at techniques such as risk-based inspection and other opportunities to kind of really set durations. But we're also optimizing that against capabilities of refineries in terms of the contractor manpower available at a given location.

The size of the turnaround, as you delay turnarounds, they tend to get bigger. So we're optimizing against those types of things. So in general, yes, interval optimization is a key piece of what we're doing. And I would say that the industry's been looking in that for the past several years. And we're approaching, I think, some limits in terms of that just based on capabilities of manpower.

Yeah, that's really included within our budget for turnaround safety and regulatory spend. So that's kind of, you know, there's a piece of that, roughly $500 million, that is discretionary growth. But we'd, you know, continue to evaluate that as the market changes and, while it's going to be looking for opportunities, always to increase reliability and efficiencies of our system.

I think the focus of the company is obviously safe, liable, responsible operations. We talk about that all the time, but we must be efficient as such where our program has been highlighted.

But then it's upon us, our job is not done, we must make improvements on our margin capture. And we're able to do that, you know, it doesn't always require a tremendous amount of capital, but that's just always evaluating your plan and making sure not only running efficiently from the cost side, but from the operation side and capturing all that margin.

So when you stack all these things in regards to, you know, positive markets, reduce cost structure, improving margin capture, reduce interest expense, really, really keeping the keel of PDF operating through all different cycles.

Yeah, I would also add, we consciously chose to look at our cost structure first, because we felt like that our base case was not optimized. And as you start getting to a point where you kind of see and achieve the efficiencies that you expected to get, you start to see open up new opportunities in terms of margin. So for instance, the relative to the comments we made in prepared remarks, getting that energy efficiency improvement now opens up different opportunities where you can take advantage of that. And it starts to identify constraints or remove constraints that you didn't see you had before and present opportunities to drive margin improvements. So I would expect to see us to drive in that direction.

In terms of Paul'sboro, and obviously we look at every turnaround individually, based on marks and considerations, but there are some constraints that we have in terms of equipment inspections and mechanical integrity deadlines that really first all of us have been able to move that. So that's gonna stay in place. In terms of idle units in Paul'sboro, we're always looking at ways to optimize that facility in conjunction with our Delaware City Refinery, but there are no short term plans to bring back any units at that point in time.

And in terms of the rest of the industry, it really depends on situational, how well the units were put away or put up, and the costs associated with bringing it back, but it would also take a really good understanding and a commitment of what the market's gonna do longer term because it does take an awful long time to restart idle units, especially once it's been down for a significant period of time.

Yeah, I think there's no question the duration of the current cycle we're in, I think could be an extended period of time. That being said, the duration when you're looking at bring on new equipment, generally seeds any one cycle.

And so that has been a bit more complicated.

We look at hedging every day, and it's a very reasonable question. And I will say, there are times where if you get carried away, you can cut off the tops, and it would be a very reasonable thing, three months ago, to say, let's hedge it all. And it would have been at a very, very attractive margin, and we would have gotten our face ripped off because it's out through it, and then some.

But look, we deliver the crack to our investors. Are there times around the edges, or where we want to tack downside risk? We certainly, we have a very, very robust risk management business, and I can ask Tom to comment as well. But we do participate in the forward markets, but we also want to deliver the crack to our investor.

Tom? Yeah, I mean, this certainly is a, you know, unique opportunities that are sort of being presented. I mean, right, when you look at the forward curves, I mean, you are looking at margins that are certainly well above mid cycle, you know, particularly when you look at this bullet, and you know, obviously another sort of, sort of tailwind behind that has been a, you know, a lot of the things, as you look at that, because certainly there is some elements of them when you're just examining sort of, you know, U. S. cracks, right, remember that obviously we still have a quite an elevated, you know, R. V. L. and that's certainly something that needs to be taken into contemplation as well.

Sure, sure. I, you know, I, here's my expectation. My expectation is I think there's gonna be one more payment. I think it's gonna be very similar to the last payment. And my hope would be that by the time we talk, you know, on our next earnings call, it'll be in-house.

And that will put a ball in the whole situation.

Okay, and the latter part first, there's nothing new there. But I must say, and again, some of the, you know, the crisis for California started well before disruptions in the world with the amount of refined, passive come up. We have had a much better and more collaborative process with the state, you know, in varying degrees between regulators and politicians and the folks in Sacramento.

But there's nothing to report there. In regards to California, broadly, in terms of the marketplace, you know, and we've talked a lot about this. Obviously, a significant amount of gasoline and jet has to be imported into the state. It has to attract that. There's real cost to get it there. Those real costs are coming on either, you know, historically from on a boat from very, very far away. If that's replaced in the future by a pipe that's inland, that will still have a significant cost.

So we've historically talked about, you know, 12 to 13, you know, $10 to $15 cost to import products into the state. It has to elevate to that level to attract those barrels.

And we think that's going to be predict, we think that's going to be really attractive for our business going forward.

But products are only half the sort of, by the way, so on that. If you look the last quarter, it's been less than that. And obviously, there's been Joe's act waivers. So that's how to alleviate, you know, these temporary waivers, and I expect they will be temporary during this Middle Eastern conflict.

You know, that's been able to sort of reduce some of the temperature, so that's been helpful. In regards to the crude side, look, we are getting, you know, at Torrance, we're increasing our domestic California crude runs, I'd say out of 25, 30,000 barrels a day. And remember, we have our own proprietary logistics system in California, and so we've seen volumes on our M75 line that we're closer to 60,000 barrels a day prior to some of the closures, now averaging about 90,000 barrels a day.

Importantly, we still have room on our M75 line. So we've seen production come online, which is more crude supply to the state, which has been helpful, certainly on differentials. And I think PDF is uniquely positioned with our M75 line that services are refinery. So, you know, you're sort of getting it on both ends, and we expect the marketplace to be constructive because they desperately need the products. You have to import almost a third of your gasoline.

It is a massive, massive lift. So that's sort of the marketplace, and obviously we highlight any legal developments that's always in the queue, and you can always see any updates there as well.

All right, well, this is good. It's the last question. For those that are not interested, you can go get your glass of water in the bathroom now because I can get on my soapbox on that one.

Tom, why don't you manage the first part in regards to how we procure the rinse? Yeah, I mean, on a daily basis, always remember, right, that SBR is producing D4, so we're taking those in.

And then we're just actively managing our position in the marketplace. There's certainly been some improvements and advancements sort of in the derivatives of rinse, but there's been a few things that we've been looking at in terms of that. But without getting into absolute specifics for us, it's certainly the acquisition and different things about rinse is sort of status quo. And I think it's really sort of the recent correction in rinse that presents a new opportunity because with the perception that there's gonna be some small refinery exemptions are going to come into the marketplace and that has knocked prices down by 10, 15%, even in the last two weeks.

And keep in mind also is that the balances were so constructive in terms of the draw on the rinse bank that it's certainly the advancements in the financial aspects. It's been a market that has really gotten itself a little bit crowded long in terms of where the spec community has come in acquiring rins in the marketplace. So that's I think is contributed also to the most recent sell off.

So at Tom's highlight itself, it's spot on. And so that's helpful, but let's put it in perspective. The RFS program is still imposing $14 a barrel of costs. And much of that is being borne by the consumer. And unfortunately still, there's still inequity in the program. And so with the winners and losers in that trade off, PBF is still bearing the significant cost as a result of that. And the fear is not talked about this before and my thinking has evolved a bit. And in some degree, it's worse because I've talked about how the program, what the volumes that the administration has put on, the volume breaks where it becomes insolvent. You don't have enough rins in the RIN bank to satisfy the program.

And therefore the only way to satisfy that because if you can't buy the RIN, you can't produce gasoline is to throw a supply. Obviously that would be a disaster in today's marketplace. But my thinking has evolved a bit on it as we sort of learn more is well, no, it's actually, there are significant bio-based barrels in the world that are being sent to Europe or other places. But the problem is if we need to meet these mandates over this year and next year, we have to attract those barrels out of Europe and other places.

But Europe also has mandates. So it's like a reverse vortex of racing to the top or escalating costs to get the program satisfied.

We continue to talk to people watching about it. It is the single easiest thing they can do to adjust the price gasoline today and we'll continue to have those conversations. And the reality is you can fix the RFS price without impacting ag volumes, where you don't have to lower corn consumption or soybean, by the way, soybean oil, there's more soybean oil going down to fuel than into food, which is sort of hard to wrap your mind around.

But you can adjust the RFS without and improve prices without impacting the farmers. With that, we'll leave that there.

Anything else?