PBF ENERGY : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the audited financial statements
of PBF Energy and PBF LLC included in the Annual Report on Form 10-K for the
year ended December 31, 2019 and the unaudited financial statements and related
notes included in this report. The following discussion contains
"forward-looking statements" that reflect our future plans, estimates, beliefs
and expected performance. Our actual results may differ materially from those
currently anticipated and expressed in such forward-looking statements as a
result of a number of factors. We caution that assumptions, expectations,
projections, intentions or beliefs about future events may, and often do, vary
from actual results and the differences can be material. Please see "Cautionary
Note Regarding Forward-Looking Statements."
    PBF Energy is the sole managing member of, and owner of an equity interest
representing approximately 99.2% of the outstanding economic interests in PBF
LLC as of June 30, 2020. PBF LLC is a holding company for the companies that
directly and indirectly own and operate our business. PBF Holding is a
wholly-owned subsidiary of PBF LLC and PBF Finance is a wholly-owned subsidiary
of PBF Holding. As of June 30, 2020, PBF LLC also holds a 48.0% limited partner
interest and a non-economic general partner interest in PBFX, a publicly-traded
MLP.
Unless the context indicates otherwise, the terms "we," "us," and "our" refer to
PBF Energy and its consolidated subsidiaries, including PBF LLC, PBF Holding and
its subsidiaries and PBFX and its subsidiaries. Discussions on areas that either
apply only to PBF Energy or PBF LLC are clearly noted in such sections.

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Overview

We are one of the largest independent petroleum refiners and suppliers of
unbranded transportation fuels, heating oil, petrochemical feedstocks,
lubricants and other petroleum products in the United States. We sell our
products throughout the Northeast, Midwest, Gulf Coast and West Coast of the
United States, as well as in other regions of the United States, Canada and
Mexico and are able to ship products to other international destinations. As of
June 30, 2020, we own and operate six domestic oil refineries and related assets
with a combined processing capacity, known as throughput, of approximately
1,050,000 barrels per day ("bpd"), and a weighted-average Nelson Complexity
Index of 12.8. We operate in two reportable business segments: Refining and
Logistics. Our six oil refineries are all engaged in the refining of crude oil
and other feedstocks into petroleum products, and are aggregated into the
Refining segment. PBFX operates certain logistics assets such as crude oil and
refined petroleum products terminals, pipelines, and storage facilities, which
are aggregated into the Logistics segment.
Our six refineries are located in Delaware City, Delaware, Paulsboro, New
Jersey, Toledo, Ohio, Chalmette, Louisiana, Torrance, California and Martinez,
California. Each refinery is briefly described in the table below:
                                                                    Throughput Capacity (in
Refinery           Region                Nelson Complexity Index    bpd)                    PADD     Crude Processed (1)       Source (1)
                                                                                                     light sweet through heavy
Delaware City      East Coast            11.3                       190,000                 1        sour                      water, rail
                                                                                                     light sweet through heavy
Paulsboro          East Coast            13.2                       180,000                 1        sour                      water
Toledo             Mid-Continent         9.2                        170,000                 2        light sweet               pipeline, truck, rail
                                                                                                     light sweet through heavy
Chalmette          Gulf Coast            12.7                       189,000                 3        sour                      water, pipeline
Torrance           West Coast            14.9                       155,000                 5        medium and heavy          pipeline, water, truck
Martinez           West Coast            16.1                       157,000                 5        medium and heavy          pipeline and water


________
(1) Reflects the typical crude and feedstocks and related sources utilized under
normal operating conditions and prevailing market environments.
As of June 30, 2020, PBF Energy owned 120,054,089 PBF LLC Series C Units and our
current and former executive officers and directors and certain employees and
others held 975,625 PBF LLC Series A Units (we refer to all of the holders of
the PBF LLC Series A Units as "the members of PBF LLC other than PBF Energy").
As a result, the holders of our issued and outstanding shares of our PBF Energy
Class A common stock have approximately 99.2% of the voting power in us, and the
members of PBF LLC other than PBF Energy through their holdings of Class B
common stock have approximately 0.8% of the voting power in us (99.0% and 1.0%
as of December 31, 2019, respectively).
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Business Developments
Recent significant business developments affecting us are discussed below.
COVID-19
The recent outbreak of the COVID-19 pandemic and certain developments in the
global oil markets continue to negatively impact worldwide economic and
commercial activity and financial markets, as well as global demand for
petroleum and petrochemical products. The COVID-19 pandemic and related
governmental responses have also resulted in significant business and
operational disruptions, including business and school closures, supply chain
disruptions, travel restrictions, stay-at-home orders and limitations on the
availability of workforces and has resulted in significantly lower demand for
refined petroleum products. We believe, but cannot guarantee, that demand for
refined petroleum products will ultimately rebound as governmental restrictions
are lifted. However, the ultimate significance of the COVID-19 pandemic on our
business will be dictated by its currently unknowable duration and the rate at
which people are willing and able to resume activities even after governmental
restrictions are lifted. In addition, recent global geopolitical and
macroeconomic events have further contributed to the overall volatility in crude
oil and refined product prices and may continue to do so in the future.
The price of refined products we sell and the crude oil we purchase impacts our
revenues, income from operations, net income and cash flows. In addition, a
decline in the market prices for products and feedstocks held in our inventories
below the carrying value of our inventory may result in the adjustment of the
value of our inventories to the lower market price and a corresponding loss on
the value of our inventories, and any such adjustment is likely to be material.
We are actively responding to the impacts from these matters on our business. In
late March and through early April 2020, we started reducing the amount of crude
oil processed at our refineries in response to the decreased demand for our
products and we temporarily idled various units at certain of our refineries to
optimize our production in light of prevailing market conditions. Currently, our
refineries are still operating at reduced throughput levels across our refining
system as demand for refined products continues to be lower than historical
norms due to the COVID-19 pandemic.
As previously announced, we have adjusted our operational plans to the evolving
market conditions and taken steps to lower our 2020 operating expenses budget
through significant reductions in discretionary activities and third party
services. These adjustments have resulted in a reduction in our 2020 operating
expense budget of approximately $140.0 million. In addition, we continue to
operate our refineries at reduced rates and expect near-term throughput to range
from 700,000 to 800,000 barrels across our refining system. As the market
conditions develop and the demand outlook becomes clearer, we will continue to
adjust our operations in response.
In addition to the steps above with respect to our operations, we also have
continued our focus on preserving liquidity and keeping our employees safe. We
previously disclosed several transactions and initiatives related to these areas
which included raising net proceeds of approximately $984.8 million in
conjunction with our May issuance of 9.25% senior secured notes due 2025 (the
"2025 Senior Secured Notes"), the sale of five hydrogen plants in April for
gross proceeds of $530.0 million, significant reductions of approximately $357.0
million in 2020 planned capital expenditures, minimizing corporate overhead
expenses primarily through salary reductions, the suspension of PBF Energy's
quarterly dividend and the establishment of a company wide COVID-19 response
team.
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We continue to evaluate various other liquidity and cash flow optimization
options in addition to safely and responsibly bringing back our workforce to the
refineries and corporate office locations. As part of these costs saving
initiatives, we reduced our workforce across our refineries in the second
quarter in response to current challenging business conditions. This reduction
resulted in a $12.9 million charge during the quarter. We have also continued to
utilize our COVID-19 response team to implement additional social distancing
measures across the workplace in addition to the continued enhancement of
personal protective equipment and the cleanliness of our facilities. Through the
guidance of our COVID-19 response team, we have started to bring back a portion
of our workforce to their primary locations on a phased in approach, and we will
continue to rely on our team and the evolution of the COVID-19 pandemic as we
evaluate the appropriate time and way in which we will phase in the return of
the rest of our workforce.
Many uncertainties remain with respect to the COVID-19 pandemic, including the
extent to which the COVID-19 pandemic will continue to impact our business and
operations, the effectiveness of the actions undertaken by national, regional,
state and local governments and health officials to contain the virus or treat
its effects, and how quickly and to what extent economic conditions improve and
normal business and operating conditions resume. We are unable to predict the
ultimate economic impacts from the COVID-19 pandemic, however, we have been and
will likely continue to be adversely impacted. There can be no guarantee that
measures taken to date to mitigate known impacts of the COVID-19 pandemic will
be effective.
Refer to "Liquidity" and "Part II - Other Information - Item 1A. Risk Factors"
for further information.

Factors Affecting Comparability Between Periods
Our results have been affected by the following events, the understanding of
which will aid in assessing the comparability of our period to period financial
performance and financial condition.
COVID-19
The impact of the unprecedented global health and economic crisis sparked by the
COVID-19 pandemic was amplified late in the quarter ended March 31, 2020 due to
movements made by the world's largest oil producers to increase market share.
This created simultaneous shocks in oil supply and demand resulting in an
economic challenge to our industry which has not occurred since our formation.
This combination has resulted in significant demand reduction for our refined
products and atypical volatility in oil commodity prices, which may continue for
the foreseeable future. Our results for the three and six months ended June 30,
2020 were impacted by the decreased demand for refined products and the
significant decline in the price of crude oil, both of which negatively impacted
our revenues, cost of products sold and operating income and lowered our
liquidity. Throughput rates across our refining system also decreased and we are
currently operating our refineries at reduced rates. Refer to "Item 1A. Risk
Factors" included in "Part II - Other Information" of this Form 10-Q for further
information.
Severance Costs
Following the onset of the COVID-19 pandemic, we have implemented a number of
cost reduction initiatives to strengthen our financial flexibility and
rationalize overhead expenses, including workforce reduction. During the three
months ended June 30, 2020, we reduced headcount across our refineries, which
resulted in approximately $12.9 million of severance related costs included in
General and administrative expenses. We have recorded this severance liability
within Accrued salaries and benefits representing the amount expected to be paid
for such termination costs.
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Sale of Hydrogen Plants
On April 17, 2020, we closed on the sale of five hydrogen plants to Air Products
and Chemicals, Inc. ("Air Products") in a sale-leaseback transaction for gross
cash proceeds of $530.0 million and recognized a gain of $471.1 million. In
connection with the sale, we entered into a transition services agreement
through which Air Products will exclusively supply hydrogen, steam, carbon
dioxide and other products (the "Products") to the Martinez, Torrance and
Delaware City refineries for a specified period (not expected to exceed 18
months) until the parties agree on a long-term supply agreement for the
Products. The transition services agreement also requires certain maintenance
and operating activities to be provided by PBF Holding, for which we will be
reimbursed, during the term of the agreement.
Debt and Credit Facilities
Senior Notes
On May 13, 2020, we issued $1.0 billion in aggregate principal amount of the
2025 Senior Secured Notes. The net proceeds from this offering were
approximately $984.8 million after deducting the initial purchasers' discount
and estimated offering expenses.
On January 24, 2020, we issued $1.0 billion in aggregate principal amount of
6.00% senior unsecured notes due 2028 (the "2028 Senior Notes"). The net
proceeds from this offering were approximately $987.0 million after deducting
the initial purchasers' discount and offering expenses. We used the proceeds
primarily to fully redeem our 7.00% senior notes due 2023 (the "2023 Senior
Notes") and to fund a portion of the cash consideration for the Martinez
Acquisition (as defined below).
On February 14, 2020, we exercised our rights under the indenture governing the
2023 Senior Notes to redeem all of the outstanding 2023 Senior Notes at a price
of 103.5% of the aggregate principal amount thereof plus accrued and unpaid
interest. The aggregate redemption price for all 2023 Senior Notes approximated
$517.5 million plus accrued and unpaid interest. The difference between the
carrying value of the 2023 Senior Notes on the date they were redeemed and the
amount for which they were redeemed was $22.2 million and has been classified as
Debt extinguishment costs in the Condensed Consolidated Statement of Operations
as of June 30, 2020.
Refer to "Note 7 - Debt" of our Notes to Condensed Consolidated Financial
Statements, for further information.
Revolving Credit Facility
During the six months ended June 30, 2020, we used advances under our Revolving
Credit Facility to fund a portion of the Martinez Acquisition (as defined below)
and for other general corporate purposes. We also made repayments of $300.0
million in the second quarter, resulting in outstanding borrowings under the
Revolving Credit Facility as of June 30, 2020 of $600.0 million. There were no
outstanding borrowings under the Revolving Credit Facility as of December 31,
2019.
Martinez Acquisition
On February 1, 2020, we acquired from Equilon Enterprises LLC d/b/a Shell Oil
Products US (the "Seller"), the Martinez refinery and related logistics assets
(collectively, the "Martinez Acquisition"), pursuant to a sale and purchase
agreement dated June 11, 2019 (the "Sale and Purchase Agreement"). The Martinez
refinery is located on an 860-acre site in the City of Martinez, 30 miles
northeast of San Francisco, California. The refinery is a high-conversion
157,000 bpd, dual-coking facility with a Nelson Complexity Index of 16.1, making
it one of the most complex refineries in the United States. The facility is
strategically positioned in Northern California and provides for operating and
commercial synergies with the Torrance refinery located in Southern California.
The Martinez Acquisition further increased our total throughput capacity to over
1,000,000 bpd.
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In addition to refining assets, the Martinez Acquisition includes a number of
high-quality onsite logistics assets including a deep-water marine facility,
product distribution terminals and refinery crude and product storage facilities
with approximately 8.8 million barrels of shell capacity.
The aggregate purchase price for the Martinez Acquisition was $1,253.4 million,
including final working capital of $216.1 million and the obligation to make
post-closing earn-out payments to the Seller based on certain earnings
thresholds of the Martinez refinery (as set forth in the Sale and Purchase
Agreement), for a period of up to four years following the closing date (the
"Martinez Contingent Consideration"). The transaction was financed through a
combination of cash on hand, including proceeds from the 2028 Senior Notes, and
borrowings under the Revolving Credit Facility.
Inventory Intermediation Agreements
On August 29, 2019, we and our subsidiaries, Delaware City Refining Company LLC
("DCR") and Paulsboro Refining Company LLC ("PRC"), entered into amended and
restated inventory intermediation agreements with J. Aron (as amended from time
to time, the "Inventory Intermediation Agreements"), pursuant to which certain
terms of the Inventory Intermediation Agreements were amended and restated,
including, among other things, the maturity date. The Inventory Intermediation
Agreement by and among J. Aron, PBF Holding and PRC was extended to December 31,
2021, which term may be further extended by mutual consent of the parties to
December 31, 2022 and the Inventory Intermediation Agreement by and among J.
Aron, PBF Holding and DCR was extended to June 30, 2021, which term may be
further extended by mutual consent of the parties to June 30, 2022.
Pursuant to each Inventory Intermediation Agreement, J. Aron continues to
purchase and hold title to the J. Aron Products, produced by the East Coast
Refineries, and delivered into our J. Aron Storage Tanks. Furthermore, J. Aron
agrees to sell the J. Aron Products back to the East Coast Refineries as the J.
Aron Products are discharged out of our J. Aron Storage Tanks. J. Aron has the
right to store the J. Aron Products purchased in tanks under the Inventory
Intermediation Agreements and will retain these storage rights for the term of
the agreements. PBF Holding continues to market and sell the J. Aron Products
independently to third parties.
PBFX Equity Offering
On April 24, 2019, PBFX entered into subscription agreements to sell an
aggregate of 6,585,500 common units to certain institutional investors in a
registered direct public offering (the "2019 Registered Direct Offering") for
gross proceeds of approximately $135.0 million. The 2019 Registered Direct
Offering closed on April 29, 2019.
PBFX Assets and Transactions
PBFX's assets consist of various logistics assets. Apart from business
associated with certain third-party acquisitions, PBFX's revenues are derived
from long-term, fee-based commercial agreements with subsidiaries of PBF
Holding, which include minimum volume commitments, for receiving, handling,
transferring and storing crude oil, refined products and natural gas. These
transactions are eliminated by PBF Energy and PBF LLC in consolidation.
Since the inception of PBFX in 2014, PBF LLC and PBFX have entered into a series
of drop-down transactions. Such transactions and third-party acquisitions made
by PBFX in the current or prior periods are discussed below.
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TVPC Acquisition
On April 24, 2019, PBFX entered into a contribution agreement with PBF LLC,
pursuant to which PBF LLC contributed to PBFX all of the issued and outstanding
limited liability company interests of TVP Holding Company LLC ("TVP Holding")
for total consideration of $200.0 million (the "TVPC Acquisition"). Prior to the
TVPC Acquisition, TVP Holding owned a 50% membership interest in Torrance Valley
Pipeline Company LLC ("TVPC"). Subsequent to the closing of the TVPC Acquisition
on May 31, 2019, PBFX owns 100% of the membership interests in TVPC. The
transaction was financed through a combination of proceeds from the 2019
Registered Direct Offering and borrowings under the PBFX five-year, $500.0
million amended and restated revolving credit facility (the "PBFX Revolving
Credit Facility").
PBFX IDR Restructuring
On February 28, 2019, PBFX closed on the transaction contemplated by the Equity
Restructuring Agreement with PBF LLC and PBF GP, pursuant to which PBFX's
incentive distribution rights (the "IDRs") held by PBF LLC were canceled and
converted into 10,000,000 newly issued PBFX common units (the "IDR
Restructuring"). Subsequent to the closing of the IDR Restructuring, no
distributions were made to PBF LLC with respect to the IDRs and the newly issued
PBFX common units are entitled to normal distributions by PBFX.

Results of Operations
The tables below reflect our consolidated financial and operating highlights for
the three and six months ended June 30, 2020 and 2019 (amounts in millions,
except per share data). Differences between the results of operations of PBF
Energy and PBF LLC primarily pertain to income taxes, interest expense and
noncontrolling interest as shown below. Earnings per share information applies
only to the financial results of PBF Energy. We operate in two reportable
business segments: Refining and Logistics. Our oil refineries, excluding the
assets owned by PBFX, are all engaged in the refining of crude oil and other
feedstocks into petroleum products, and are aggregated into the Refining
segment. PBFX is a publicly-traded MLP that operates certain logistics assets
such as crude oil and refined petroleum products terminals, pipelines and
storage facilities. PBFX's operations are aggregated into the Logistics segment.
We do not separately discuss our results by individual segments as, apart from
PBFX's third-party acquisitions, our Logistics segment did not have any
significant third-party revenues and a significant portion of its operating
results eliminate in consolidation.

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                                                                                                              Six Months Ended June
PBF Energy                                         Three Months Ended June 30,                                         30,
                                                     2020                  2019               2020                 2019
Revenues                                       $     2,515.8           $ 6,560.0          $  7,793.3          $   11,776.2

Cost and expenses:
Cost of products and other                           1,753.1             5,955.8             7,716.4              10,165.0
Operating expenses (excluding depreciation and
amortization expense as reflected below)               442.1               433.2               973.8                 912.2
Depreciation and amortization expense                  122.3               104.2               239.0                 207.2
Cost of sales                                        2,317.5             6,493.2             8,929.2              11,284.4
General and administrative expenses (excluding
depreciation and amortization expense as
reflected below)                                        57.9                53.6               140.4                 111.2
Depreciation and amortization expense                    2.8                 2.9                 5.7                   5.7
Change in fair value of contingent
consideration                                          (12.1)                  -               (64.9)                    -
(Gain) loss on sale of assets                         (471.1)                0.8              (471.1)                  0.8
Total cost and expenses                              1,895.0             6,550.5             8,539.3              11,402.1

Income (loss) from operations                          620.8                 9.5              (746.0)                374.1
Other income (expense):
Interest expense, net                                  (65.5)              (42.1)             (114.7)                (81.6)
Change in Tax Receivable Agreement liability               -                   -               (11.6)                    -
Change in fair value of catalyst obligations            (5.1)                0.5                 6.6                  (2.6)
Debt extinguishment costs                                  -                   -               (22.2)                    -
Other non-service components of net periodic
benefit cost                                             1.1                   -                 2.1                  (0.1)
Income (loss) before income taxes                      551.3               (32.1)             (885.8)                289.8
Income tax expense (benefit)                           138.3               (10.5)             (236.3)                 70.0
Net income (loss)                                      413.0               (21.6)             (649.5)                219.8
Less: net income attributable to
noncontrolling interests                                23.9                10.6                27.3                  22.8
Net income (loss) attributable to PBF Energy
Inc. stockholders                              $       389.1           $   (32.2)         $   (676.8)         $      197.0

Consolidated gross margin                      $       198.3           $    66.8          $ (1,135.9)         $      491.8

Gross refining margin (1)                      $       678.3           $   526.5          $    (95.1)         $    1,459.0

Net income (loss) available to Class A common
stock per share:
Basic                                          $        3.24           $   (0.27)         $    (5.66)         $       1.64
Diluted                                        $        3.23           $   (0.27)         $    (5.67)         $       1.63

(1) See Non-GAAP Financial Measures.

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                                                                                                             Six Months Ended June
PBF LLC                                            Three Months Ended June 30,                                        30,
                                                     2020                  2019               2020                2019
Revenues                                       $     2,515.8           $ 6,560.0          $ 7,793.3          $   11,776.2

Cost and expenses:
Cost of products and other                           1,753.1             5,955.8            7,716.4              10,165.0
Operating expenses (excluding depreciation and
amortization expense as reflected below)               442.1               433.2              973.8                 912.2
Depreciation and amortization expense                  122.3               104.2              239.0                 207.2
Cost of sales                                        2,317.5             6,493.2            8,929.2              11,284.4
General and administrative expenses (excluding
depreciation and amortization expense as
reflected below)                                        57.6                53.2              140.1                 110.5
Depreciation and amortization expense                    2.8                 2.9                5.7                   5.7
Change in fair value of contingent
consideration                                          (12.1)                  -              (64.9)                    -
(Gain) loss on sale of assets                         (471.1)                0.8             (471.1)                  0.8
Total cost and expenses                              1,894.7             6,550.1            8,539.0              11,401.4

Income (loss) from operations                          621.1                 9.9             (745.7)                374.8

Other income (expense):
Interest expense, net                                  (68.1)              (44.5)            (119.8)                (86.0)
Change in fair value of catalyst obligations            (5.1)                0.5                6.6                  (2.6)
Debt extinguishment costs                                  -                   -              (22.2)                    -
Other non-service components of net periodic
benefit cost                                             1.1                   -                2.1                  (0.1)
Income (loss) before income taxes                      549.0               (34.1)            (879.0)                286.1
Income tax (benefit) expense                            (4.4)                1.8                9.8                  (5.4)
Net income (loss)                                      553.4               (35.9)            (888.8)                291.5
Less: net income attributable to
noncontrolling interests                                19.5                11.1               37.5                  20.1
Net income (loss) attributable to PBF Energy
Company LLC                                    $       533.9           $   (47.0)         $  (926.3)         $      271.4




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                                                                                                         Six Months Ended June
Operating Highlights                            Three Months Ended June 30,                                       30,
                                                   2020                2019              2020                 2019
Key Operating Information
Production (bpd in thousands)                       676.0              854.2             770.1                796.7
Crude oil and feedstocks throughput (bpd in
thousands)                                          675.1              854.1             764.0                798.9
Total crude oil and feedstocks throughput
(millions of barrels)                                61.4               77.7             139.0                144.6
Consolidated gross margin per barrel of
throughput                                   $       3.23           $   0.85          $  (8.17)         $      3.40
Gross refining margin, excluding special
items, per barrel of throughput (1)          $       1.54           $   9.10          $   4.36          $      7.85
Refinery operating expense, per barrel of
throughput                                   $       6.90           $   

5.27 $ 6.70 $ 5.97

Crude and feedstocks (% of total throughput)
(2)
Heavy                                                  44   %             30  %             44  %                31     %
Medium                                                 31   %             28  %             26  %                30     %
Light                                                  13   %             26  %             17  %                25     %
Other feedstocks and blends                            12   %             16  %             13  %                14     %
Total throughput                                      100   %            100  %            100  %               100     %

Yield (% of total throughput)
Gasoline and gasoline blendstocks                      46   %             49  %             48  %                48     %
Distillates and distillate blendstocks                 32   %             31  %             32  %                32     %
Lubes                                                   1   %              1  %              1  %                 1     %
Chemicals                                               1   %              2  %              1  %                 2     %
Other                                                  20   %             17  %             19  %                17     %
Total yield                                           100   %            100  %            101  %               100     %






(1) See Non-GAAP Financial Measures.
(2) We define heavy crude oil as crude oil with American Petroleum Institute
("API") gravity less than 24 degrees. We define medium crude oil as crude oil
with API gravity between 24 and 35 degrees. We define light crude oil as crude
oil with API gravity higher than 35 degrees.
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The table below summarizes certain market indicators relating to our operating results as reported by Platts.

                                                                                                           Six Months Ended June
                                                    Three Months Ended June 30,                                     30,
                                                       2020                 2019             2020                2019
                                                                   (dollars per barrel, except as noted)
Dated Brent crude oil                            $       29.57           $ 68.96          $ 39.55          $    66.16
West Texas Intermediate (WTI) crude oil          $       27.96           $ 59.90          $ 36.69          $    57.42
Light Louisiana Sweet (LLS) crude oil            $       30.19           $ 67.04          $ 38.93          $    64.75
Alaska North Slope (ANS) crude oil               $       30.28           $ 68.29          $ 40.59          $    66.37
Crack Spreads
Dated Brent (NYH) 2-1-1                          $        9.66           $ 13.54          $  9.81          $    11.72
WTI (Chicago) 4-3-1                              $        5.25           $ 21.10          $  6.30          $    16.79
LLS (Gulf Coast) 2-1-1                           $        6.49           $ 12.65          $  8.44          $    11.29
ANS (West Coast-LA) 4-3-1                        $        9.18           $ 22.96          $ 11.26          $    18.33
ANS (West Coast-SF) 3-2-1                        $        8.76           $ 21.72          $  9.20          $    16.61
Crude Oil Differentials
Dated Brent (foreign) less WTI                   $        1.61           $  9.06          $  2.86          $     8.74
Dated Brent less Maya (heavy, sour)              $        5.34           $  7.27          $  7.01          $     5.69
Dated Brent less WTS (sour)                      $        1.42           $ 10.73          $  3.04          $    10.15
Dated Brent less ASCI (sour)                     $        0.35           $  3.96          $  2.30          $     3.17
WTI less WCS (heavy, sour)                       $        5.77           $ 12.53          $ 11.21          $    11.28
WTI less Bakken (light, sweet)                   $        3.03           $  1.06          $  3.25          $     0.41
WTI less Syncrude (light, sweet)                 $        1.22           $ (0.05)         $  1.37          $    (0.01)
WTI less LLS (light, sweet)                      $       (2.23)          $ (7.14)         $ (2.24)         $    (7.33)
WTI less ANS (light, sweet)                      $       (2.32)          $ (8.39)         $ (3.90)         $    (8.95)
Natural gas (dollars per MMBTU)                  $        1.75           $  

2.51 $ 1.81 $ 2.69

Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30,
2019
Overview- PBF Energy net income was $413.0 million for the three months ended
June 30, 2020 compared to net loss of $21.6 million for the three months ended
June 30, 2019. PBF LLC net income was $553.4 million for the three months ended
June 30, 2020 compared to net loss of $35.9 million for the three months ended
June 30, 2019. Net income attributable to PBF Energy was $389.1 million, or
$3.23 per diluted share, for the three months ended June 30, 2020 ($3.23 per
share on a fully-exchanged, fully-diluted basis based on adjusted
fully-converted net income, or $(3.19) per share on a fully-exchanged,
fully-diluted basis based on adjusted fully-converted net loss excluding special
items, as described below in Non-GAAP Financial Measures) compared to net loss
attributable to PBF Energy of $32.2 million, or $(0.27) per diluted share, for
the three months ended June 30, 2019 ($(0.27) per share on a fully-exchanged,
fully-diluted basis based on adjusted fully-converted net loss, or $0.83 per
share on a fully-exchanged, fully-diluted basis based on adjusted
fully-converted net income excluding special items, as described below in
Non-GAAP Financial Measures). The net income attributable to PBF Energy
represents PBF Energy's equity interest in PBF LLC's pre-tax income, less
applicable income tax expense. PBF Energy's weighted-average equity interest in
PBF LLC was 99.2% and 99.0% for the three months ended June 30, 2020 and 2019,
respectively.
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Our results for the three months ended June 30, 2020 were positively impacted by
special items consisting of a non-cash, pre-tax lower of cost or market ("LCM")
inventory adjustment of approximately $584.2 million, or $430.6 million net of
tax, the change in the fair value of the contingent consideration primarily
related to the Martinez Acquisition of $12.1 million, or $8.9 million net of tax
and the gain on the sale of hydrogen plants of $471.1 million, or $347.2 million
net of tax. These favorable impacts were offset by severance costs related to a
reduction in our workforce of $12.9 million, or $9.5 million net of tax. Our
results for the three months ended June 30, 2019 were negatively impacted by a
pre-tax LCM inventory adjustment special item of approximately $182.0 million,
or $133.8 million net of tax. The LCM inventory adjustments were recorded due to
movements in the price of crude oil and refined products in the periods
presented.
Excluding the impact of these special items, our results were negatively
impacted by the ongoing COVID-19 pandemic which has caused a significant decline
in the demand for our refined products and a decrease in the prices for crude
oil and refined products, both of which have negatively impacted our revenues,
cost of products sold and operating income. In addition, during the current
quarter we experienced unfavorable movements in certain crude differentials, and
overall lower throughput volumes and barrels sold across our refineries. All our
operating regions experienced lower refining margins for the three months ended
June 30, 2020 compared to the three months ended June 30, 2019. Additionally,
our results for the three months ended June 30, 2020 were negatively impacted by
higher general and administrative expenses associated with severance charges and
increased depreciation and amortization expense associated with the Martinez
Acquisition and our continued investment in our refining assets.
Revenues- Revenues totaled $2.5 billion for the three months ended June 30, 2020
compared to $6.6 billion for the three months ended June 30, 2019, a decrease of
approximately $4.1 billion, or 62.1%. Revenues per barrel were $35.77 and $74.24
for the three months ended June 30, 2020 and 2019, respectively, a decrease of
51.8% directly related to lower hydrocarbon commodity prices. For the three
months ended June 30, 2020, the total throughput rates at our East Coast,
Mid-Continent, Gulf Coast and West Coast refineries averaged approximately
242,300 bpd, 76,900 bpd, 132,300 bpd and 223,600 bpd, respectively. For the
three months ended June 30, 2019, the total throughput rates at our East Coast,
Mid-Continent, Gulf Coast and West Coast refineries averaged approximately
325,800 bpd, 163,200 bpd, 201,400 bpd and 163,700 bpd, respectively. For the
three months ended June 30, 2020, the total barrels sold at our East Coast,
Mid-Continent, Gulf Coast and West Coast refineries averaged approximately
277,900 bpd, 91,900 bpd, 156,200 bpd and 246,900 bpd, respectively. For the
three months ended June 30, 2019, the total barrels sold at our East Coast,
Mid-Continent, Gulf Coast and West Coast refineries averaged approximately
358,700 bpd, 171,800 bpd, 243,800 bpd and 196,800 bpd, respectively.
The throughput rates at the majority of our refineries were lower in the three
months ended June 30, 2020 compared to the same period in 2019. We operated our
refineries at reduced rates during the second quarter and, based on current
market conditions, we plan on continuing to operate our refineries at lower
utilization until such time that sustained product demand justifies higher
production. Our Martinez refinery was not acquired until the first quarter of
2020. Total refined product barrels sold were higher than throughput rates,
reflecting sales from inventory as well as sales and purchases of refined
products outside our refineries.
Consolidated Gross Margin- Consolidated gross margin totaled $198.3 million for
the three months ended June 30, 2020 compared to $66.8 million for the three
months ended June 30, 2019, an increase of approximately $131.5 million. Gross
refining margin (as described below in Non-GAAP Financial Measures) totaled
$678.3 million, or $11.05 per barrel of throughput for the three months ended
June 30, 2020 compared to $526.5 million, or $6.76 per barrel of throughput for
the three months ended June 30, 2019, an increase of approximately $151.8
million. Gross refining margin excluding special items totaled $94.1 million or
$1.54 per barrel of throughput for the three months ended June 30, 2020 compared
to $708.5 million or $9.10 per barrel of throughput for the three months ended
June 30, 2019, a decrease of $614.4 million.
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Consolidated gross margin and gross refining margin were positively impacted by
a non-cash LCM adjustment of approximately $584.2 million on a net basis,
resulting from the increase in crude oil and refined product prices from the
first quarter in 2020 to the end of the second quarter of 2020. Gross refining
margin excluding the impact of special items decreased due to unfavorable
movements in crude differentials and refining margins and decreased throughput
rates in the majority of our refineries. For the three months ended June 30,
2019, special items impacting our margin calculations included a non-cash LCM
inventory adjustment of approximately $182.0 million on a net basis, resulting
from a decrease in crude oil and refined product prices.
Additionally, our results continue to be impacted by significant costs to comply
with the Renewable Fuel Standard ("RFS"). Total RFS costs were $60.0 million for
the three months ended June 30, 2020 in comparison to $30.9 million for the
three months ended June 30, 2019.
Average industry margins and crude oil differentials were generally lower during
the three months ended June 30, 2020 in comparison to the same period in 2019,
primarily due to the extent of the impacts of the COVID-19 pandemic on regional
demand and commodity prices.
On the East Coast, the Dated Brent (NYH) 2-1-1 industry crack spread was
approximately $9.66 per barrel, or 28.7% lower, in the three months ended
June 30, 2020, as compared to $13.54 per barrel in the same period in 2019. Our
margins were negatively impacted from our refinery specific slate on the East
Coast by tightening in the Dated Brent/Maya differentials, which decreased by
$1.93 per barrel, offset by an increase in the WTI/Bakken differentials of $1.97
per barrel, in comparison to the same period in 2019. In addition, the WTI/WCS
differential decreased significantly to $5.77 per barrel in the three months
ended June 30, 2020 compared to $12.53 in the same period in 2019, which
unfavorably impacted the cost of heavy Canadian crude.
Across the Mid-Continent, the WTI (Chicago) 4-3-1 industry crack spread was
$5.25 per barrel, or 75.1% lower, in the three months ended June 30, 2020 as
compared to $21.10 per barrel in the same period in 2019. Our margins were
positively impacted from our refinery specific slate in the Mid-Continent by an
increasing WTI/Bakken differential, which averaged $3.03 per barrel in the three
months ended June 30, 2020, as compared to $1.06 per barrel in the same period
in 2019. Additionally, the WTI/Syncrude differential averaged a discount of
$1.22 per barrel during the three months ended June 30, 2020 as compared to a
premium of $0.05 per barrel in the same period of 2019.
On the Gulf Coast, the LLS (Gulf Coast) 2-1-1 industry crack spread was $6.49
per barrel, or 48.7% lower, in the three months ended June 30, 2020 as compared
to $12.65 per barrel in the same period in 2019. Margins on the Gulf Coast were
positively impacted from our refinery specific slate by an increasing WTI/LLS
differential, which averaged a premium of $2.23 per barrel during the three
months ended June 30, 2020 as compared to a premium of $7.14 per barrel in the
same period of 2019.
On the West Coast the ANS (West Coast) 4-3-1 industry crack spread was $9.18 per
barrel, or 60.0% lower, in the three months ended June 30, 2020 as compared to
$22.96 per barrel in the same period in 2019. Margins on the West Coast were
positively impacted from our refinery specific slate by a strengthening WTI/ANS
differential, which averaged a premium of $2.32 per barrel during the three
months ended June 30, 2020 as compared to a premium of $8.39 per barrel in the
same period of 2019.
Favorable movements in these benchmark crude differentials typically result in
lower crude costs and positively impact our earnings while reductions in these
benchmark crude differentials typically result in higher crude costs and
negatively impact our earnings.
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Operating Expenses- Operating expenses totaled $442.1 million for the three
months ended June 30, 2020 compared to $433.2 million for the three months ended
June 30, 2019, an increase of $8.9 million, or 2.1%. Of the total $442.1 million
of operating expenses for the three months ended June 30, 2020, $423.7 million,
or $6.90 per barrel of throughput, related to expenses incurred by the Refining
segment, while the remaining $18.4 million related to expenses incurred by the
Logistics segment ($409.7 million, or $5.27 per barrel of throughput, and $23.5
million of operating expenses for the three months ended June 30, 2019 related
to the Refining and Logistics segments, respectively). Increases in operating
expenses were mainly attributed to costs associated with the Martinez refinery
and related logistic assets which totaled approximately $98.7 million for the
three months ended June 30, 2020. Total operating expenses for the three months
ended June 30, 2020, excluding our Martinez refinery, decreased due to our cost
reduction initiatives taken to strengthen our financial flexibility and offset
the negative impact of COVID-19, such as significant reductions in discretionary
activities and third party services. Operating expenses related to our Logistics
segment decreased as a result of lower discretionary spending, including
maintenance and outside service costs, in response to the COVID-19 pandemic, as
well as lower utility expenses due to lower energy usage, offset by expenses
related to the recommencement of operations of certain assets.
General and Administrative Expenses- General and administrative expenses totaled
$57.9 million for the three months ended June 30, 2020 compared to $53.6 million
for the three months ended June 30, 2019, an increase of approximately $4.3
million or 8.0%. The increase in general and administrative expenses for the
three months ended June 30, 2020 in comparison to the three months ended
June 30, 2019 primarily related to headcount reduction severance costs across
the refineries and integration costs pertaining to the Martinez Acquisition.
These cost increases were offset by a reduction in overhead expenses through
salary reductions to a large portion of our workforce. Our general and
administrative expenses are comprised of personnel, facilities and other
infrastructure costs necessary to support our refineries and related logistics
assets.
Gain/Loss on Sale of Assets- There was a gain of $471.1 million for the three
months ended June 30, 2020 related to the sale of five hydrogen plants. There
was a loss of $0.8 million on the sale of assets for the three months ended
June 30, 2019 related to the sale of non-operating refinery assets.
Depreciation and Amortization Expense- Depreciation and amortization expense
totaled $125.1 million for the three months ended June 30, 2020 (including
$122.3 million recorded within Cost of sales) compared to $107.1 million for the
three months ended June 30, 2019 (including $104.2 million recorded within Cost
of sales), an increase of $18.0 million. The increase was a result of additional
depreciation expense associated with the assets acquired in the Martinez
Acquisition and a general increase in our fixed asset base due to capital
projects and turnarounds completed since the second quarter of 2019.
Change in Fair Value of Contingent Consideration- Change in the fair value of
contingent consideration was a gain of $12.1 million for the three months ended
June 30, 2020. This change primarily represents the decrease in the estimated
fair value of the total Martinez Contingent Consideration we expect to pay in
connection with our acquisition of the Martinez refinery. There were no such
costs in the same period of 2019.
Change in Fair Value of Catalyst Obligations- Change in the fair value of
catalyst obligations represented a loss of $5.1 million for the three months
ended June 30, 2020 compared to a gain of $0.5 million for the three months
ended June 30, 2019. These gains and losses relate to the change in value of the
precious metals underlying the sale and leaseback of our refineries' precious
metal catalysts, which we are obligated to repurchase at fair market value on
the lease termination dates.
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Interest Expense, net- PBF Energy interest expense totaled $65.5 million for the
three months ended June 30, 2020 compared to $42.1 million for the three months
ended June 30, 2019, an increase of approximately $23.4 million. This net
increase is mainly attributable to higher interest cost associated with the
issuance of the 2028 Senior Notes in February 2020, the 2025 Senior Secured
Notes in May 2020 and higher outstanding borrowings on our Revolving Credit
Facility. Interest expense includes interest on long-term debt including the
PBFX credit facilities, costs related to the sale and leaseback of our precious
metal catalysts, financing costs associated with the Inventory Intermediation
Agreements with J. Aron, letter of credit fees associated with the purchase of
certain crude oils and the amortization of deferred financing costs. PBF LLC
interest expense totaled $68.1 million and $44.5 million for the three months
ended June 30, 2020 and June 30, 2019, respectively (inclusive of $2.6 million
and $2.4 million, respectively, of incremental interest expense on the affiliate
note payable with PBF Energy that eliminates in consolidation at the PBF Energy
level).
Income Tax Expense- PBF LLC is organized as a limited liability company and PBFX
is an MLP, both of which are treated as "flow-through" entities for federal
income tax purposes and therefore are not subject to income tax. However, two
subsidiaries of Chalmette Refining, L.L.C. ("Chalmette Refining") and our
Canadian subsidiary are treated as C-Corporations for income tax purposes and
may incur income taxes with respect to their earnings, as applicable. The
members of PBF LLC are required to include their proportionate share of PBF
LLC's taxable income or loss, which includes PBF LLC's allocable share of PBFX's
pre-tax income or loss, on their respective tax returns. PBF LLC generally makes
distributions to its members, per the terms of PBF LLC's amended and restated
limited liability company agreement, related to such taxes on a pro-rata basis.
PBF Energy recognizes an income tax expense or benefit in our Condensed
Consolidated Financial Statements based on PBF Energy's allocable share of PBF
LLC's pre-tax income or loss, which was approximately 99.2% and 99.0%, on a
weighted-average basis for the three months ended June 30, 2020 and 2019,
respectively. PBF Energy's Condensed Consolidated Financial Statements do not
reflect any benefit or provision for income taxes on the pre-tax income or loss
attributable to the noncontrolling interests in PBF LLC or PBFX (although, as
described above, PBF LLC must make tax distributions to all its members on a
pro-rata basis). PBF Energy's effective tax rate, excluding the impact of
noncontrolling interests, for the three months ended June 30, 2020 and 2019 was
26.2% and 24.6%, respectively.
Noncontrolling Interest- PBF Energy is the sole managing member of, and has a
controlling interest in, PBF LLC. As the sole managing member of PBF LLC, PBF
Energy operates and controls all of the business and affairs of PBF LLC and its
subsidiaries. PBF Energy consolidates the financial results of PBF LLC and its
subsidiaries, including PBFX. With respect to the consolidation of PBF LLC, the
Company records a noncontrolling interest for the economic interest in PBF LLC
held by members other than PBF Energy, and with respect to the consolidation of
PBFX, the Company records a noncontrolling interest for the economic interests
in PBFX held by the public unitholders of PBFX, and with respect to the
consolidation of PBF Holding, the Company records a 20% noncontrolling interest
for the ownership interests in two subsidiaries of Chalmette Refining held by a
third party. The total noncontrolling interest on the Condensed Consolidated
Statements of Operations represents the portion of the Company's earnings or
loss attributable to the economic interests held by members of PBF LLC other
than PBF Energy, by the public common unitholders of PBFX and by the third-party
stockholders of certain of Chalmette Refining's subsidiaries. The total
noncontrolling interest on the Condensed Consolidated Balance Sheets represents
the portion of the Company's net assets attributable to the economic interests
held by the members of PBF LLC other than PBF Energy, by the public common
unitholders of PBFX and by the third-party stockholders of the two Chalmette
Refining subsidiaries. PBF Energy's weighted-average equity noncontrolling
interest ownership percentage in PBF LLC for the three months ended June 30,
2020 and 2019 was approximately 0.8% and 1.0%, respectively. The carrying amount
of the noncontrolling interest on our Condensed Consolidated Balance Sheets
attributable to the noncontrolling interest is not equal to the noncontrolling
interest ownership percentage due to the effect of income taxes and related
agreements that pertain solely to PBF Energy.
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Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019
Overview- PBF Energy net loss was $649.5 million for the six months ended
June 30, 2020 compared to net income of $219.8 million for the six months ended
June 30, 2019. PBF LLC net loss was $888.8 million for the six months ended
June 30, 2020 compared to net income of $291.5 million for the six months ended
June 30, 2019. Net loss attributable to PBF Energy stockholders was $676.8
million, or $(5.67) per diluted share, for the six months ended June 30, 2020
($(5.67) per share on a fully-exchanged, fully-diluted basis based on adjusted
fully-converted net loss, or $(4.38) per share on a fully-exchanged,
fully-diluted basis based on adjusted fully-converted net loss excluding special
items, as described below in Non-GAAP Financial Measures) compared to net income
attributable to PBF Energy stockholders of $197.0 million, or $1.63 per diluted
share, for the six months ended June 30, 2019 ($1.63 per share on a
fully-exchanged, fully-diluted basis based on adjusted fully-converted net
income, or $(0.33) per share on a fully-exchanged, fully-diluted basis based on
adjusted fully-converted net loss excluding special items, as described below in
Non-GAAP Financial Measures). The net loss attributable to PBF Energy
stockholders represents PBF Energy's equity interest in PBF LLC's pre-tax loss,
less applicable income tax expense. PBF Energy's weighted-average equity
interest in PBF LLC was 99.1% and 99.0% for the six months ended June 30, 2020
and 2019, respectively.
Our results for the six months ended June 30, 2020 were negatively impacted by
special items consisting of a non-cash, pre-tax LCM inventory adjustment of
approximately $701.4 million, or $516.9 million net of tax, a pre-tax change in
the Tax Receivable Agreement liability (as defined in "Note 9 - Commitments and
Contingencies" of our Notes to Condensed Consolidated Financial Statements) of
$11.6 million, or $8.5 million net of tax and pre-tax, debt extinguishment costs
associated with the early redemption of our 2023 Senior Notes of $22.2 million,
or $16.4 million net of tax and severance costs related to reductions in
workforce of $12.9 million, or $9.5 million net of tax. These unfavorable
impacts were partially offset by the gain on the sale of hydrogen plants of
$471.1 million, or $347.2 million net of tax and the change in the fair value of
the contingent consideration primarily related to the Martinez Acquisition of
$64.9 million, or $47.8 million net of tax. Our results for the six months ended
June 30, 2019 were positively impacted by a non-cash pre-tax LCM inventory
adjustment of approximately $324.0 million, or $238.3 million net of tax. The
LCM inventory adjustments were recorded due to movements in the price of crude
oil and refined products in the periods presented.
Excluding the impact of these special items, our results were negatively
impacted by the ongoing COVID-19 pandemic which has caused a significant decline
in the demand for our refined products and a decrease in the prices for crude
oil and refined products, both of which have negatively impacted our revenues,
cost of products sold and operating income. In addition, during the six months
ended June 30, 2020 we experienced unfavorable movements in certain crude
differentials and overall lower throughput volumes and barrels sold across our
refineries, as well as lower refining margins. Refining margins for the six
months ended June 30, 2020 compared to the six months ended June 30, 2019 were
mixed with stronger refining margins on the East Coast and Gulf Coast offset by
weaker refining margins in the Mid-Continent and West Coast. Our results for the
six months ended June 30, 2020 were negatively impacted by higher general and
administrative expenses associated with severance charges and integration costs
associated with the Martinez Acquisition and increased depreciation and
amortization expense associated with the Martinez Acquisition and our continued
investment in our refining assets.
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Revenues- Revenues totaled $7.8 billion for the six months ended June 30, 2020
compared to $11.8 billion for the six months ended June 30, 2019, a decrease of
approximately $4.0 billion, or 33.8%. Revenues per barrel were $48.25 and $70.45
for the six months ended June 30, 2020 and 2019, respectively, a decrease of
31.5% directly related to lower hydrocarbon commodity prices. For the six months
ended June 30, 2020, the total throughput rates at our East Coast,
Mid-Continent, Gulf Coast and West Coast refineries averaged approximately
285,800 bpd, 83,500 bpd, 153,400 bpd and 241,300 bpd, respectively. For the six
months ended June 30, 2019, the total throughput rates at our East Coast,
Mid-Continent, Gulf Coast and West Coast refineries averaged approximately
315,500 bpd, 155,600 bpd, 183,100 bpd and 144,700 bpd, respectively. For six
months ended June 30, 2020, the total barrels sold at our East Coast,
Mid-Continent, Gulf Coast and West Coast refineries averaged approximately
321,600 bpd, 111,600 bpd, 185,000 bpd and 269,200 bpd, respectively. For the six
months ended June 30, 2019, the total barrels sold at our East Coast,
Mid-Continent, Gulf Coast and West Coast refineries averaged approximately
353,900 bpd, 164,900 bpd, 229,800 bpd and 174,900 bpd, respectively.
The throughput rates at the majority of our refineries were lower in the six
months ended June 30, 2020 compared to the same period in 2019. We operated our
refineries at reduced rates beginning in March, and, based on current market
conditions, we plan on continuing to operate our refineries at lower utilization
until such time that sustained product demand justifies higher production. Our
Martinez refinery was not acquired until the first quarter of 2020. Total
refined product barrels sold were higher than throughput rates, reflecting sales
from inventory as well as sales and purchases of refined products outside our
refineries.
Consolidated Gross Margin- Consolidated gross margin totaled $(1,135.9) million
for the six months ended June 30, 2020, compared to $491.8 million for the six
months ended June 30, 2019, a decrease of approximately $1,627.7 million. Gross
refining margin (as described below in Non-GAAP Financial Measures) totaled
$(95.1) million, or $(0.68) per barrel of throughput for the six months ended
June 30, 2020 compared to $1,459.0 million, or $10.08 per barrel of throughput
for the six months ended June 30, 2019, a decrease of approximately $1,554.1
million. Gross refining margin excluding special items totaled $606.3 million or
$4.36 per barrel of throughput for the six months ended June 30, 2020 compared
to $1,135.0 million or $7.85 per barrel of throughput for the six months ended
June 30, 2019, a decrease of $528.7 million.
Consolidated gross margin and gross refining margin were negatively impacted by
a non-cash LCM adjustment of approximately $701.4 million on a net basis
resulting from the decrease in crude oil and refined product prices from the
year ended 2019 to the end of the second quarter of 2020. Gross refining margin
excluding the impact of special items decreased due to unfavorable movements in
certain crude differentials, an overall decrease in throughput rates and lower
refining margins in our Mid-Continent and West Coast refineries. The decrease
was partially offset by stronger margins in the East Coast and Gulf Coast
refineries due to improved crude differentials and 2019 planned and unplanned
downtime at our Delaware City refinery. For the six months ended June 30, 2019,
special items impacting our margin calculations included a non-cash LCM
inventory adjustment of approximately $324.0 million on a net basis, resulting
from an increase in crude oil and refined product prices.
Additionally, our results continue to be impacted by significant costs to comply
with the RFS. Total RFS costs were $96.8 million for the six months ended
June 30, 2020 in comparison to $60.4 million for the six months ended June 30,
2019.
Average industry margins were mixed during the six months ended June 30, 2020 in
comparison to the same period in 2019, primarily due to varying timing and
extent of the impacts of the COVID-19 pandemic on regional demand and commodity
prices in the first half of 2020 and 2019 planned turnarounds, all of which were
completed in the first half of the prior year.
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On the East Coast, the Dated Brent (NYH) 2-1-1 industry crack spread was
approximately $9.81 per barrel, or 16.3% lower, in the six months ended June 30,
2020, as compared to $11.72 per barrel in the same period in 2019. Our margins
were positively impacted from our refinery specific slate on the East Coast by
stronger Dated Brent/Maya and WTI/Bakken differentials, which increased by
$1.32 per barrel and $2.84 per barrel, respectively, in comparison to the same
period in 2019. The WTI/WCS differential slightly decreased to $11.21 per barrel
in 2020 compared to $11.28 in 2019, which unfavorably impacted our cost of heavy
Canadian crude.
Across the Mid-Continent, the WTI (Chicago) 4-3-1 industry crack spread
was $6.30 per barrel, or 62.5% lower, in the six months ended June 30, 2020 as
compared to $16.79 per barrel in the same period in 2019. Our margins were
positively impacted from our refinery specific slate in the Mid-Continent by an
increasing WTI/Bakken differential, which averaged a discount of $3.25 per
barrel in the six months ended June 30, 2020, as compared to a discount of $0.41
per barrel in the same period in 2019. Additionally, the WTI/Syncrude
differential averaged a discount of $1.37 per barrel during the six months ended
June 30, 2020 as compared to a premium of $0.01 per barrel in the same period of
2019.
On the Gulf Coast, the LLS (Gulf Coast) 2-1-1 industry crack spread was $8.44
per barrel, or 25.2% lower, in the six months ended June 30, 2020 as compared to
$11.29 per barrel in the same period in 2019. Margins on the Gulf Coast were
positively impacted from our refinery specific slate by a strengthening WTI/LLS
differential, which averaged a premium of $2.24 per barrel during the six months
ended June 30, 2020 as compared to a premium of $7.33 per barrel in the same
period of 2019.
On the West Coast, the ANS (West Coast) 4-3-1 industry crack spread was $11.26
per barrel, or 38.6% lower, in the six months ended June 30, 2020 as compared to
$18.33 per barrel in the same period in 2019. Additional, margins on the West
Coast were positively impacted from our refinery specific slate by a
strengthening WTI/ANS differential, which averaged a premium of $3.90 per barrel
during the six months ended June 30, 2020 as compared to a premium of $8.95 per
barrel in the same period of 2019.
Favorable movements in these benchmark crude differentials typically result in
lower crude costs and positively impact our earnings while reductions in these
benchmark crude differentials typically result in higher crude costs and
negatively impact our earnings.
Operating Expenses- Operating expenses totaled $973.8 million for the six months
ended June 30, 2020 compared to $912.2 million for the six months ended June 30,
2019, an increase of approximately $61.6 million, or 6.8%. Of the total $973.8
million of operating expenses for the six months ended June 30, 2020, $931.2
million or $6.70 per barrel of throughput, related to expenses incurred by the
Refining segment, while the remaining $42.6 million related to expenses incurred
by the Logistics segment ($863.1 million or $5.97 per barrel of throughput, and
$49.1 million of operating expenses for the six months ended June 30, 2019
related to the Refining and Logistics segments, respectively). Increases in
operating expenses were mainly attributed to costs associated with the Martinez
refinery and related logistic assets which totaled approximately $168.2 million
for the six months ended June 30, 2020. Total operating expenses for the six
months ended June 30, 2020, excluding our Martinez refinery, decreased due to
our cost reduction initiatives taken to strengthen our financial flexibility and
offset the negative impact of COVID-19, such as significant reductions in
discretionary activities and third party services. Operating expenses related to
our Logistics segment decreased as a result of lower discretionary spending,
including maintenance and outside service costs, in response to the COVID-19
pandemic, as well as lower utility expenses due to lower energy usage, offset by
expenses related to the recommencement of operations of certain assets.
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General and Administrative Expenses- General and administrative expenses totaled
$140.4 million for the six months ended June 30, 2020 compared to $111.2 million
for the six months ended June 30, 2019, an increase of approximately $29.2
million or 26.3%. The increase in general and administrative expenses for the
six months ended June 30, 2020 in comparison to the six months ended June 30,
2019 primarily related to headcount reduction severance costs across the
refineries as well as integration costs pertaining to the Martinez Acquisition.
These costs increases were offset by a reduction in overhead expenses through
salary reductions to a large portion of our workforce. Our general and
administrative expenses are comprised of personnel, facilities and other
infrastructure costs necessary to support our refineries and related logistics
assets.
Gain/Loss on Sale of Assets- There was a gain of $471.1 million for the six
months ended June 30, 2020 related to the sale of five hydrogen plants. There
was a loss of $0.8 million on the sale of assets for the six months ended
June 30, 2019 related to the sale of non-operating refinery assets.
Depreciation and Amortization Expense- Depreciation and amortization expense
totaled $244.7 million for the six months ended June 30, 2020 (including $239.0
million recorded within Cost of sales) compared to $212.9 million for the six
months ended June 30, 2019 (including $207.2 million recorded within Cost of
sales), an increase of approximately $31.8 million. The increase was a result of
additional depreciation expense associated with the assets acquired in the
Martinez Acquisition and a general increase in our fixed asset base due to
capital projects and turnarounds completed since the second quarter of 2019.
Change in Fair Value of Contingent Consideration- Change in the fair value of
contingent consideration was a gain of $64.9 million for the six months ended
June 30, 2020. This change primarily represents the decrease in the estimated
fair value of the total Martinez Contingent Consideration we expect to pay in
connection with our acquisition of the Martinez refinery. There were no such
costs in the same period of 2019.
Change in Tax Receivable Agreement Liability- Change in Tax Receivable Agreement
liability for the six months ended June 30, 2020 represented a loss of $11.6
million. There was no change in the Tax Receivable Agreement liability for
the six months ended June 30, 2019.
Change in Fair Value of Catalyst Obligations- Change in the fair value of
catalyst obligations represented a gain of $6.6 million for the six months ended
June 30, 2020 compared to a loss of $2.6 million for the six months ended
June 30, 2019. These gains and losses relate to the change in value of the
precious metals underlying the sale and leaseback of our refineries' precious
metal catalysts, which we are obligated to repurchase at fair market value on
the lease termination dates.
Debt Extinguishment Costs- Debt extinguishment costs of $22.2 million incurred
in the six months ended June 30, 2020 relate to early redemption of our 2023
Senior Notes. There were no such costs in the same period of 2019.
Interest Expense, net- PBF Energy interest expense totaled $114.7 million for
the six months ended June 30, 2020 compared to $81.6 million for the six months
ended June 30, 2019, an increase of approximately $33.1 million. This net
increase is mainly attributable to higher interest cost associated with the
issuance of the 2028 Senior Notes in February 2020, the issuance of the 2025
Senior Secured Notes in May 2020 and higher outstanding borrowings on our
Revolving Credit Facility. Interest expense includes interest on long-term debt
including the PBFX credit facilities, costs related to the sale and leaseback of
our precious metal catalysts, financing costs associated with the Inventory
Intermediation Agreements with J. Aron, letter of credit fees associated with
the purchase of certain crude oils and the amortization of deferred financing
costs. PBF LLC interest expense totaled $119.8 million and $86.0 million for the
six months ended June 30, 2020 and June 30, 2019, respectively (inclusive of
$5.1 million and $4.4 million, respectively, of incremental interest expense on
the affiliate note payable with PBF Energy that eliminates in consolidation at
the PBF Energy level).
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Income Tax Expense- PBF LLC is organized as a limited liability company and PBFX
is an MLP, both of which are treated as "flow-through" entities for federal
income tax purposes and therefore are not subject to income tax. However, two
subsidiaries of Chalmette Refining and our Canadian subsidiary are treated as
C-Corporations for income tax purposes and may incur income taxes with respect
to their earnings, as applicable. The members of PBF LLC are required to include
their proportionate share of PBF LLC's taxable income or loss, which includes
PBF LLC's allocable share of PBFX's pre-tax income or loss, on their respective
tax returns. PBF LLC generally makes distributions to its members, per the terms
of PBF LLC's amended and restated limited liability company agreement, related
to such taxes on a pro-rata basis. PBF Energy recognizes an income tax expense
or benefit in our Condensed Consolidated Financial Statements based on PBF
Energy's allocable share of PBF LLC's pre-tax income or loss, which was
approximately 99.1% and 99.0%, on a weighted-average basis for the six months
ended June 30, 2020 and 2019, respectively. PBF Energy's Condensed Consolidated
Financial Statements do not reflect any benefit or provision for income taxes on
the pre-tax income or loss attributable to the noncontrolling interests in PBF
LLC or PBFX (although, as described above, PBF LLC must make tax distributions
to all its members on a pro-rata basis). PBF Energy's effective tax rate,
excluding the impact of noncontrolling interests, for the six months ended
June 30, 2020 and 2019 was 25.9% and 26.2%, respectively.
Noncontrolling Interest- PBF Energy is the sole managing member of, and has a
controlling interest in, PBF LLC. As the sole managing member of PBF LLC, PBF
Energy operates and controls all of the business and affairs of PBF LLC and its
subsidiaries. PBF Energy consolidates the financial results of PBF LLC and its
subsidiaries, including PBFX. With respect to the consolidation of PBF LLC, the
Company records a noncontrolling interest for the economic interest in PBF LLC
held by members other than PBF Energy, and with respect to the consolidation of
PBFX, the Company records a noncontrolling interest for the economic interests
in PBFX held by the public unitholders of PBFX, and with respect to the
consolidation of PBF Holding, the Company records a 20% noncontrolling interest
for the ownership interests in two subsidiaries of Chalmette Refining held by a
third party. The total noncontrolling interest on the Condensed Consolidated
Statements of Operations represents the portion of the Company's earnings or
loss attributable to the economic interests held by members of PBF LLC other
than PBF Energy, by the public common unitholders of PBFX and by the third-party
stockholders of certain of Chalmette Refining's subsidiaries. The total
noncontrolling interest on the Condensed Consolidated Balance Sheets represents
the portion of the Company's net assets attributable to the economic interests
held by the members of PBF LLC other than PBF Energy, by the public common
unitholders of PBFX and by the third-party stockholders of the two Chalmette
Refining subsidiaries. PBF Energy's weighted-average equity noncontrolling
interest ownership percentage in PBF LLC for the six months ended June 30, 2020
and 2019 was approximately 0.9% and 1.0%, respectively. The carrying amount of
the noncontrolling interest on our Condensed Consolidated Balance Sheets
attributable to the noncontrolling interest is not equal to the noncontrolling
interest ownership percentage due to the effect of income taxes and related
agreements that pertain solely to PBF Energy.
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Non-GAAP Financial Measures
Management uses certain financial measures to evaluate our operating performance
that are calculated and presented on the basis of methodologies other than in
accordance with GAAP ("Non-GAAP"). These measures should not be considered a
substitute for, or superior to, measures of financial performance prepared in
accordance with accounting principles generally accepted in the United States of
America ("GAAP"), and our calculations thereof may not be comparable to
similarly entitled measures reported by other companies. Such Non-GAAP financial
measures are presented only in the context of PBF Energy's results and are not
presented or discussed in respect to PBF LLC.
Special Items
The Non-GAAP measures presented include Adjusted Fully-Converted Net Income
(Loss) excluding special items, EBITDA excluding special items and gross
refining margin excluding special items. Special items for the periods presented
relate to LCM inventory adjustments, changes in the Tax Receivable Agreement
liability, debt extinguishment costs, changes in the fair value of contingent
consideration, gain on sale of hydrogen plants, and severance costs related to
reductions in workforce. See "Notes to Non-GAAP Financial Measures" below for
more details on all special items disclosed. Although we believe that Non-GAAP
financial measures, excluding the impact of special items, provide useful
supplemental information to investors regarding the results and performance of
our business and allow for helpful period-over-period comparisons, such Non-GAAP
measures should only be considered as a supplement to, and not as a substitute
for, or superior to, the financial measures prepared in accordance with GAAP.
Adjusted Fully-Converted Net Income (Loss) and Adjusted Fully-Converted Net
Income (Loss) Excluding Special Items
PBF Energy utilizes results presented on an Adjusted Fully-Converted basis that
reflects an assumed exchange of all PBF LLC Series A Units for shares of PBF
Energy Class A common stock. In addition, we present results on an Adjusted
Fully-Converted basis excluding special items as described above. We believe
that these Adjusted Fully-Converted measures, when presented in conjunction with
comparable GAAP measures, are useful to investors to compare PBF Energy results
across different periods and to facilitate an understanding of our operating
results. Neither Adjusted Fully-Converted Net Income (Loss) nor Adjusted
Fully-Converted Net Income (Loss) excluding special items should be considered
an alternative to net income presented in accordance with GAAP. Adjusted
Fully-Converted Net Income (Loss) and Adjusted Fully-Converted Net Income (Loss)
excluding special items presented by other companies may not be comparable to
our presentation, since each company may define these terms differently. The
differences between Adjusted Fully-Converted and GAAP results are as follows:
1. Assumed exchange of all PBF LLC Series A Units for shares of PBF Energy Class
A common stock. As a result of the assumed exchange of all PBF LLC Series A
Units, the noncontrolling interest related to these units is converted to
controlling interest. Management believes that it is useful to provide the
per-share effect associated with the assumed exchange of all PBF LLC Series A
Units.
2. Income Taxes. Prior to PBF Energy's initial public offering ("IPO"), PBF
Energy was organized as a limited liability company treated as a "flow-through"
entity for income tax purposes, and even after PBF Energy's IPO, not all of its
earnings are subject to corporate-level income taxes. Adjustments have been made
to the Adjusted Fully-Converted tax provisions and earnings to assume that PBF
Energy had adopted its post-IPO corporate tax structure for all periods
presented and is taxed as a C-corporation in the U.S. at the prevailing
corporate rates. These assumptions are consistent with the assumption in clause
1 above that all PBF LLC Series A Units are exchanged for shares of PBF Energy
Class A common stock, as the assumed exchange would change the amount of PBF
Energy's earnings that are subject to corporate income tax.
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The following table reconciles PBF Energy's Adjusted Fully-Converted results
with its results presented in accordance with GAAP for the three and six months
ended June 30, 2020 and 2019 (in millions, except share and per share amounts):

                                                          Three Months Ended June 30,                                      Six Months Ended June 30,
                                                          2020                    2019                   2020                     2019
Net income (loss) attributable to PBF Energy Inc.
stockholders                                       $        389.1

$ (32.2) $ (676.8) $ 197.0 Less: Income allocated to participating securities

              -                     0.1                    0.1                      0.2
Income (loss) available to PBF Energy Inc.
stockholders - basic                                        389.1                   (32.3)                (676.9)                   196.8
Add: Net income (loss) attributable to
noncontrolling interest (1)                                   4.5                    (0.5)                 (10.1)                     2.7
Less: Income tax (expense) benefit (2)                       (1.2)                    0.1                    2.7                     (0.7)

Adjusted fully-converted net income (loss) $ 392.4 $ (32.7) $ (684.3) $ 198.8 Special Items: (3) Add: Non-cash LCM inventory adjustment

                     (584.2)                  182.0                  701.4                   (324.0)
Add: Change in Tax Receivable Agreement liability               -                       -                   11.6                        -
Add: Debt extinguishment costs                                  -                       -                   22.2                        -
Add: Change in fair value of contingent
consideration                                               (12.1)                      -                  (64.9)                       -
Add: Gain on sale of hydrogen plants                       (471.1)                      -                 (471.1)                       -
Add: Severance costs                                         12.9                       -                   12.9                        -
Add: Recomputed income taxes on special items               277.3                   (48.2)                 (55.8)                    85.7
Adjusted fully-converted net income (loss)
excluding special items                            $       (384.8)

$ 101.1 $ (528.0) $ (39.5)

Weighted-average shares outstanding of PBF Energy
Inc.                                                  120,010,882             119,181,845            119,499,392              119,885,386
Conversion of PBF LLC Series A Units (4)                1,017,620               1,206,325              1,113,209                1,206,325
Common stock equivalents (5)                              400,398               1,501,569                      -                  928,733
Fully-converted shares outstanding-diluted            121,428,900             121,889,739            120,612,601              122,020,444

Diluted net income (loss) per share                $         3.23           $       (0.27)         $       (5.67)         $          1.63
Adjusted fully-converted net income (loss) per
fully exchanged, fully diluted shares outstanding
(5)                                                $         3.23           

$ (0.27) $ (5.67) $ 1.63 Adjusted fully-converted net income (loss) excluding special items per fully exchanged, fully diluted shares outstanding (3) (5)

$        (3.19)

$ 0.83 $ (4.38) $ (0.33)

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See Notes to Non-GAAP Financial Measures.

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Gross Refining Margin and Gross Refining Margin Excluding Special Items
Gross refining margin is defined as consolidated gross margin excluding refinery
depreciation, refinery operating expense, and gross margin of PBFX. We believe
both gross refining margin and gross refining margin excluding special items are
important measures of operating performance and provide useful information to
investors because they are helpful metric comparisons to the industry refining
margin benchmarks, as the refining margin benchmarks do not include a charge for
refinery operating expenses and depreciation. In order to assess our operating
performance, we compare our gross refining margin (revenues less cost of
products and other) to industry refining margin benchmarks and crude oil prices
as defined in the table below.
Neither gross refining margin nor gross refining margin excluding special items
should be considered an alternative to consolidated gross margin, income from
operations, net cash flows from operating activities or any other measure of
financial performance or liquidity presented in accordance with GAAP. Gross
refining margin and gross refining margin excluding special items presented by
other companies may not be comparable to our presentation, since each company
may define these terms differently.
The following table presents our GAAP calculation of gross margin and a
reconciliation of gross refining margin to the most directly comparable GAAP
financial measure, consolidated gross margin, on a historical basis, as
applicable, for each of the periods indicated (in millions, except per barrel
amounts):
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