PBF ENERGY INC. 2026 Q3 Earnings Call

Good morning and welcome to today's call. With me today are Matt Lucey, our President and CEO, Mike Bukowski, our Senior Vice President and Head of Refining, Joe Marino, 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 expressing 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. Consistent with our prior periods, we'll 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.

I'll now turn the call over to Matt Lucey.

Thanks, Colin. Good morning, everyone, and thanks for joining our call. Third quarter earnings speak for themselves. We intend to convert those earnings into lasting improvements in our business. The company reduced net debt by more than $1.2 billion during the quarter and by more than $2 billion this year. As Joe will detail, our balance sheet transformation has put the company on its strongest financial footing since our formation. Over the last seven years, markets have become increasingly volatile, with shorter cycles, as evidenced by the three once-in-a-generation events over that period. Prudence dictates a deeper balance sheet to navigate this new reality. The company's focus is to execute. Execute our base business and do so efficiently. Importantly, through our business improvement initiatives to improve the competitive positioning of each asset we own. Extract incremental profitability through all cycles, up or down.

We are investing our assets to improve utilization, reliability, and yields, which will translate into stronger through-the-cycle cash flow and make our system more resilient. By executing well on these priorities, we will maximize the resilience of our system, create greater long-term shareholder value, and increase our ability to return capital to shareholders. Turning to the market, the biggest disruptions to the oil market have materialized in the availability of refined products. The disruptions have coincided with what was an already structurally tight refining market. On the crude side, the market has adapted reasonably given the circumstances. Flows through the Strait of Hormuz have recovered to roughly three-quarters of pre-war levels, with some recent weekly reports higher. But product flows remain well below pre-war levels. Recently, the dramatic increase in freight rates has really put pressure on the Asian refiners.

Freight, coupled with rising natural gas costs overseas, is raising the cost to run international capacity. Headwinds that U.S. refiners are less exposed to due to our shorter transit times and abundant domestic supply of natural gas. Freight dynamics, paired with growing production of heavy crudes, has widened the light-heavy differentials. PBF's crude slate flexibility and close proximity production is a real tailwind going into the fourth quarter for our cost of crude. The freight realities raised the bar for delivery of imports needed in our product-short coastal markets. PBF sells the majority of our products domestically, thereby avoiding costly transits. The story on products remains a supply story. More than 5 million barrels a day of global capacity is offline, a portion of which with physical damage. With global inventories roughly 500 million barrels below pre-war levels, there is essentially zero cushion in the system.

Policy responses can be helpful on the margin. However, at the core, the world is simply short refined products. Benchmark cracks reflected the tightness. The New York Harbor 2-1-1 averaged nearly $65 a barrel in the third quarter, compared with about $26 a year ago. Nowhere are current product dynamics more clear than our coasts, which are structurally short refining capacity and dependent on imports. California alone imports roughly 250,000 barrels a day of gasoline, about 30% of its demand. The situation reinforces a point we have made for some time. U.S. refining is critical infrastructure. Looking ahead, demand has proven resilient, holding up well domestically. Peace may, and hopefully will, normalize trade flows, but it will not restore damaged capacity, rebuild depleted inventories, or reverse years of capacity rationalization. Crude normalization will happen much quicker than stabilization in the product markets.

Taken together, we believe that refining has entered a new higher cycle, characterized by higher volatility with a bias towards wider crude differentials. Given our high complex coastal refining system, PBF is well-positioned for this market environment. None of this changes what we can control. To be successful, enhance value for our investors, we must operate safely, reliably, and responsibly, and we must execute on our process improvement initiatives to maximize market capture. With that, I'll turn the call over to Mike.

Thank you, Matt. Good morning, everyone. In the third quarter, our throughput averaged approximately 924,000 barrels a day across the system, which is in line with our overall guidance for the quarter. On the West Coast, we began the Martinez hydrocracker turnaround in September and completed it in October as planned. Also in September, we closed the acquisition of the two hydrogen plants servicing our Torrance refinery from Air Products. Owning and operating those assets allows us to more closely integrate their operations, maintenance, and turnarounds with the refinery, which we expect will improve the overall reliability of Torrance. On the East Coast, the Paulsboro crude unit turnaround also commenced in September and was completed in October as planned. Both the Martinez and Paulsboro turnarounds were within budget and industry benchmark targets. With Paulsboro back online, we are well-positioned to supply our markets as temperatures drop in the northeast.

At Chalmette, the pretreater and reformer that were taken offline in May are back in service. Chalmette had no impact from Hurricane Isaias. With our turnarounds complete, we have a clear operational runway for the remainder of 2026. For the fourth quarter, we expect total throughput of 925,000 to 985,000 barrels per day. We continue to make progress on our refining business improvement program. RBI generated in excess of $230 million of run rate cost improvements that were included in our 2026 plans, and we expect that to grow to more than $350 million by year-end 2026. Some recent accomplishments. Our turnaround performance continues to improve, as demonstrated by the execution of the Martinez and Paulsboro turnarounds this quarter. Our RBI-driven 2026 capital reductions are tracking approximately $88 million versus our $70 million commitment, including approximately $54 million from turnarounds.

Natural gas intensity across our system is down approximately 11% year to date, and for instance, Toledo has improved its overall energy intensity by 10%-15%. Our strategic sourcing organization has identified approximately $55 million per year of savings across three waves of contract renewals. As Matt mentioned, investing in our assets is a key pillar of our strategy to enhance the long-term value of our system. We've identified a number of relatively small to mid-scale projects that will improve utilization, yields, and reduce costs, and we've already begun executing this plan. In the third quarter, we completed the first phase of a jet fuel project at Chalmette. By upgrading high sulfur diesel, we are now producing approximately 10,000 barrels per day of jet fuel, and in 2027, we plan to increase that capability to 20,000 barrels per day.

As a further example, we've identified a similar opportunity at Paulsboro included in our 2027 plans, where upgrading lower value intermediates will increase our gasoline yield and blending capability by about 10,000 barrels per day. To be clear, these are yield improvement projects, not capacity expansions. We are not pursuing high-cost mega projects, and we have no intention of investing in large capacity expansions. RBI is central to improving PBF's future performance, but it will not distract us from our obligation to operate in a safe, reliable, and environmentally responsible way every day. I'll now turn the call over to Joe Marino for our financial overview.

Thanks, Mike. For the third quarter, excluding special items, we reported adjusted net income of $12.78 per share and adjusted EBITDA of approximately $2.3 billion. Our discussion of third quarter results excludes the net effect of special items, which decreased net income by a net after-tax charge of $29 million or $0.24 per share. These primarily consisted of approximately $11 million of costs associated with the RBI initiative and $28 million pre-tax loss on extinguishment of debt related to the redemption of our 7 and 7/8% senior notes due 2030 and the write-off of a portion of deferred financing costs in connection with refinancing activities. PBF's results for the quarter are primarily a reflection of the strong product markets driven by tight supply and relatively firm demand. With our full system available this quarter, we were able to improve our capture in an elevated market environment.

On the Martinez insurance claim, total recoveries to date are $1.25 billion net of our deductibles and retention. As expected, we did not receive further payments in the third quarter, and we are working with our insurance group to finalize the claims process before year-end with a final payment expected in a similar range to the recent precedents. Also included in our results, the $62 million of equity income from our investment in SBR, or approximately $72 million of EBITDA, as the renewable business continues to benefit from strong margins and higher credit prices. SBR produced an average of approximately 19,200 barrels per day of renewable diesel in the third quarter at the upper end of our guidance range, and we expect fourth quarter production of 18,000 to 20,000 barrels per day.