PBF LOGISTICS LP You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Form 10-Q. The following information and such unaudited condensed consolidated financial statements should also be read in conjunction with the audited consolidated financial statements and related notes, together with our discussion and analysis of financial condition and results of operations in our 2020 Form 10-K. This discussion contains forward-looking statements that are based on management's current expectations, estimates and projections about our business and operations. The cautionary statements made in this Form 10-Q should be read as applying to all related forward-looking statements wherever they appear in this Form 10-Q. 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. You should read "Risk Factors" in our 2020 Form 10-K and "Cautionary Note Regarding Forward-Looking Statements" in this Form 10-Q. In this Item 2, all references to "we," "us," "our," the "Partnership," "PBFX" or similar terms for periods prior to the effective dates of each of the Acquisitions from PBF (as defined below) refer to the Predecessor. For periods subsequent to the effective dates of each of the Acquisitions from PBF, these terms refer to the Partnership and its subsidiaries.
Overview
We are a fee-based, growth-oriented,
Our business includes the assets, liabilities and results of operations of
certain crude oil, refined products, natural gas and intermediates terminaling,
pipeline, storage and processing assets, including those previously operated and
owned by
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Business Developments
COVID-19
The outbreak of the COVID-19 pandemic continues 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 resulting
governmental and consumer 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. Such impacts have resulted in revenue declines
due to lower demand and throughput volumes across certain of our facilities,
which may continue to affect our business for the foreseeable future. In
response to the COVID-19 pandemic, we have taken and are continuing to take
steps to mitigate potential adverse impacts on our business and operations by
limiting capital expenditures, reducing discretionary activities and third-party
services and lowering our quarterly distribution to our minimum quarterly
distribution of
The full extent to which the COVID-19 pandemic impacts our business and
operations, or that of PBF Energy, is unknown and will depend on the severity,
location and duration of the effects and spread of COVID-19, the effectiveness
of the vaccine programs and the other actions undertaken by national, regional
and local governments and health officials to contain the virus or treat its
effects (including the ultimate efficacy of vaccine programs on new variants of
the virus), related consumer responses and how quickly and to what extent
economic conditions improve and normal business and operating conditions resume.
As certain restrictions are lifted in various geographical locations throughout
the
Principles of Combination and Consolidation and Basis of Presentation
In general, our Predecessor did not historically operate its assets for the
purpose of generating revenue independent of other PBF Energy businesses that we
support. In connection with, and subsequent to, our initial public offering
("IPO"), we have acquired certain assets from
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Agreements with PBF Energy Entities
Commercial Agreements
We currently derive a majority of our revenue from long-term, fee-based
agreements with
Refer to our 2020 Form 10-K and Note 10 "Related Party Transactions" of the
Notes to Condensed Consolidated Financial Statements included in "Item 1.
Financial Statements" in this Form 10-Q for a more complete description of our
commercial agreements with
Other Agreements
In addition to the commercial agreements described above, we entered into an
omnibus agreement with PBF GP,
We have also entered into an operation and management services and secondment
agreement with
Refer to our 2020 Form 10-K for a more complete description of the Omnibus Agreement and the Services Agreement.
Factors Affecting the Comparability of Our Financial Results
Our results of operations may not be comparable to our historical results of operations due to certain debt transactions and our annual inflation adjustment to our commercial agreements.
Furthermore, our results of operations may not be comparable to our historical
results of operations due to the termination of the CPI Processing Agreement (as
defined below). In connection with the Partnership's acquisition of
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Other Factors That Will Significantly Affect Our Results
Supply and Demand for Crude Oil,
Factors driving the prices of petroleum-based commodities include supply and
demand for crude oil, gasoline and other refined products. Supply and demand for
these products depend on numerous factors outside of our control, including
changes in domestic and foreign economies, weather conditions, domestic and
foreign political affairs, production levels, logistics constraints,
availability of imports, marketing of competitive fuels, crude oil price
differentials and government regulation. The impact of the unprecedented global
health and economic crisis sparked by the COVID-19 pandemic was amplified late
in the first quarter of 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. These factors have resulted in significant
demand destruction for refined petroleum products and atypical volatility in oil
commodity prices, which may continue for the foreseeable future. Although the
effects may be mitigated by MVC provisions in certain of our commercial
contracts, this overall demand destruction and market environment could lead to
lower storage or throughput volumes processed at our assets, which could
negatively impact our results of operations and cash flows. While it is
impossible to estimate the duration or complete financial impact of the COVID-19
pandemic, a significant portion of the negative impacts and risk to us may be
mitigated through our MVCs within the commercial agreements with
Acquisition and Organic Growth Opportunities. We may acquire additional
logistics assets from PBF Energy or third parties. Under our Omnibus Agreement,
subject to certain exceptions, we have a right of first offer on certain
logistics assets owned by PBF Energy to the extent PBF Energy decides to sell,
transfer or otherwise dispose of any of those assets. We also have a right of
first offer to acquire additional logistics assets that PBF Energy may construct
or acquire in the future. Our commercial agreements provide us with options to
purchase certain assets at
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Third-Party Business. As of
How We Evaluate Our Operations
Our management uses a variety of financial and operating metrics to analyze our business and segment performance. These metrics are significant factors in assessing our operating results and profitability and include, but are not limited to, volumes, including terminal and pipeline throughput and storage capacity; operating and maintenance expenses; and EBITDA, EBITDA attributable to PBFX, Adjusted EBITDA and distributable cash flow. We define EBITDA, EBITDA attributable to PBFX, Adjusted EBITDA and distributable cash flow below.
Volumes. The amount of revenue we generate primarily depends on the volumes of crude oil, refined products and natural gas that we throughput at our terminaling and pipeline operations and our available and utilized storage capacity. These volumes are primarily affected by the supply of and demand for crude oil, refined products and natural gas in the markets served directly or indirectly by our assets. Although PBF Energy has committed to minimum volumes under certain commercial agreements, our results of operations will be impacted by: •PBF Energy's utilization of our assets in excess of MVCs; •our ability to identify and execute accretive acquisitions and organic expansion projects and capture incremental PBF Energy or third-party volumes; and •our ability to increase throughput or storage volumes at our facilities and provide additional ancillary services at those terminals and pipelines.
Operating and Maintenance Expenses. Our management seeks to maximize the profitability of our operations by effectively managing operating and maintenance expenses. These expenses are comprised primarily of labor and outside contractor costs, utilities, insurance premiums, repairs and maintenance charges and related property taxes. These expenses generally remain relatively stable across broad ranges of throughput volumes but can fluctuate from period to period depending on the mix of activities performed during that period and the timing of these expenses. We will seek to manage our maintenance expenditures on our assets by scheduling maintenance over time to avoid significant variability in our maintenance expenditures and to minimize their impact on our cash flow.
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EBITDA, EBITDA Attributable to PBFX, Adjusted EBITDA and Distributable Cash
Flow. We define EBITDA as net income (loss) before net interest expense
(including amortization of loan fees and debt premium and accretion on
discounted liabilities), income tax expense, depreciation, amortization,
impairment expense and change in contingent consideration. We define EBITDA
attributable to PBFX as net income (loss) attributable to PBFX before net
interest expense (including amortization of loan fees and debt premium and
accretion on discounted liabilities), income tax expense, depreciation,
amortization, impairment expense and change in contingent consideration
attributable to PBFX, which excludes the results of Acquisitions from PBF prior
to the effective dates of such transactions and earnings attributable to the CPI
earn-out (the portion of earnings associated with an earn-out provision related
to the purchase of CPI). We define Adjusted EBITDA as EBITDA attributable to
PBFX excluding acquisition and transaction costs, non-cash unit-based
compensation expense and items that meet the conditions of unusual, infrequent
and/or non-recurring charges. We define distributable cash flow as EBITDA
attributable to PBFX plus non-cash unit-based compensation expense, less cash
interest, maintenance capital expenditures attributable to PBFX and income
taxes. Distributable cash flow will not reflect changes in working capital
balances. EBITDA, EBITDA attributable to PBFX, Adjusted EBITDA and distributable
cash flow are not presentations made in accordance with
EBITDA, EBITDA attributable to PBFX, Adjusted EBITDA and distributable cash flow are non-GAAP supplemental financial measures that management and external users of our condensed consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess: •our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of EBITDA, financing methods; •the ability of our assets to generate sufficient cash flow to make distributions to our unitholders; •our ability to incur and service debt and fund capital expenditures; and •the viability of acquisitions and other capital expenditure projects and the economic returns on various investment opportunities.
We believe that the presentation of EBITDA, EBITDA attributable to PBFX and Adjusted EBITDA provides useful information to investors in assessing our financial condition and results of operations and assists in evaluating our ongoing operating performance for current and comparative periods. We believe that the presentation of distributable cash flow provides useful information to investors as it is a widely accepted financial indicator used by investors to compare partnership performance and provides investors with another perspective of the operating performance of our assets and the cash our business is generating. EBITDA, EBITDA attributable to PBFX, Adjusted EBITDA and distributable cash flow should not be considered alternatives to net income, income from operations, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. EBITDA, EBITDA attributable to PBFX, Adjusted EBITDA and distributable cash flow have important limitations as analytical tools because they exclude some, but not all, items that affect net income and net cash provided by operating activities. Additionally, because EBITDA, EBITDA attributable to PBFX, Adjusted EBITDA and distributable cash flow may be defined differently by other companies in our industry, our definitions of such measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. EBITDA, EBITDA attributable to PBFX, Adjusted EBITDA and distributable cash flow are reconciled to net income and net cash provided by operating activities in "Results of Operations" below.
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Results of Operations
A discussion and analysis of the factors contributing to our results of operations are presented below. The financial statements, together with the following information, are intended to provide investors with a reasonable basis for assessing our historical operations but should not serve as the only criteria for predicting our future performance.
Combined Overview. The following tables summarize our results of operations and
financial data for the three and six months ended
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