Prepared remarks
Good day, everyone, and welcome to the PBF Energy Second Quarter 2026 Earnings Conference Call and Webcast. The conference is being recorded. It is now my pleasure to turn the floor over to Colin Murray of Investor Relations. Sir, you may begin.
Thank you, Angeline. Good morning, and welcome to today's call. With me today are Matt Lucey, our President and CEO; Mike Bukowski, our Senior Vice President and Head of Refining; Joe Marino, our CFO; and several other members of our management team. Copies of today's earnings release and our 10-Q filing, including supplemental information, are available on our website. Before getting started, I'd like to direct your attention to the safe harbor statement contained in today's press release. Statements expressing the company's or management's expectations or predictions of the future are forward-looking statements intended to be covered by the safe harbor provisions under federal securities laws. Consistent with our prior periods, we will discuss our results excluding special items, which are described in today's press release. Also included in the press release is forward-looking guidance information. For any questions on these items or other follow-up questions, please contact Investor Relations after the call. I'll now turn the call over to Matt Lucey.
Thanks, Colin. Good morning, everyone, and thank you for joining our call. We clearly have reached a transformative moment for PBF. The ongoing disruptions in the Middle East and Eastern Europe have created one of, if not, the largest dislocations the oil markets have ever seen. None of us welcomes the circumstance behind it, but the effect on our industry is both dramatic and constructive. Indeed, the world is in desperate need of the products we produce. Let me spend a few minutes on what we are seeing, first in crude, then in refined products, because the story on each is a bit different and both matter to how we think about the quarters ahead. With the backdrop of the ongoing Ukraine war, hostilities in the Middle East caused initially roughly 15 million barrels a day of crude and 5 million barrels a day of product to be effectively trapped inside the strait. These are significant headline numbers, but we've seen the market exercise some flexibility on the crude side with alternative routing, crude supply coming from national strategic reserves and in some areas outside the U.S., reduced demand as a result of lower utilization. Global refining utilization is down roughly 10% year-on-year. In the near term, crude flows are still searching for a new equilibrium, and global pricing is doing the work of redirecting barrels along new routes. Until crude reestablishes its historical trade patterns, we cannot predict exactly where a flat price or differentials land. What we can say with more confidence is that this environment favors refiners with crude slate flexibility and proximity to stable crude supply in the Americas. Shorter voyages and quicker, more reliable deliveries are real advantages. PBF's footprint is well positioned as we have not nor do we expect crude availability to impact our operations. Most importantly, on the product side, product inventories have been drawn down across the globe. Refining utilization outside the U.S. has fallen. U.S. markets must incentivize products to stay home as products are being pulled into exports. U.S. and West Coast markets are finding it harder to pull the imports they have historically relied on. The West Coast and East Coast are structurally short refining capacity and depend on imports, often from less stable sources to balance. The temporary Jones Act waivers are helping in this regard. California alone imports on the order of 250,000 barrels a day of gasoline, close to one-third of its demand, along with a meaningful volume of its jet fuel. When the global supply tightens, those are precisely the markets that feel it first and are most exposed. It reinforces the point we have made for some time. U.S. refining is critical infrastructure and has rarely been more evident than it is today. It will take time for trade patterns to normalize, both during and after these conflicts, and we expect crude to find its footing sooner than products. Prior to the disruption in the Middle East, there was a constructive setup for refining with tight refining balances and low product inventories worldwide. With the ongoing conflicts, this situation has been magnified. Product inventories will be slow to rebuild and the restocking that ultimately must occur should provide a favorable backdrop for refining margins over the quarters to come. What the current environment has provided is the prospect for PBF to generate significant value for our investors. In the second quarter, we reduced our net debt by over $1.4 billion. We ended the quarter with just under $900 million in cash, and I expect we'll end July with approximately $1.5 billion in cash. So to recap, we had a constructive marketplace prior to the Middle East disruptions with ample crude, tight refining balances and low product inventories worldwide. The disruptions around the world have resulted in over 5 million barrels of refining capacity offline, a portion of which has suffered physical damage, which could take significant time to repair. When the disruption passes and the conflicts end, it will take an extended time for product inventories to normalize, thereby maintaining elevated margins for a time. As we saw in a small sample size immediately after the signing of the Memorandum of Understanding, crude can and will normalize much quicker than products as the dislocated crude will need to compete for market share. This should result in a favorable crude environment. PBF is uniquely positioned to capitalize on the opportunities presented by this extraordinary market. We've strengthened our balance sheet. We continue to lower our cost structure, and we are executing initiatives that improve reliability and efficiency. The work is being done, and we expect it to translate into meaningful value for shareholders.
Thank you, Matt. Good morning, everyone. Currently, all of our refineries are operating well. In May, we were able to safely restart the fire-affected units at the Martinez refinery and have been producing our full product slate since that time. I thank our Martinez team and all of our partners for their efforts to restore Martinez to full operations. While the restoration work was underway and the refinery was operating at reduced rates, the Martinez hydrocracker was doing the heavy lifting in terms of keeping the balance of the refinery operating, providing us with the ability to fulfill our commitments to deliver products to our customers. With that said, we will be conducting the upcoming hydrocracker turnaround at Martinez beginning in the third quarter and finishing in October. Staying on the West Coast, in July, we reached an agreement with Air Products to repurchase two hydrogen plants servicing our Torrance refinery. Air Products has been and continues to be a valuable business partner for PBF. The hydrogen plants in Torrance are heavily integrated into the operation of the refinery, and we feel that owning and operating those assets will improve the overall reliability of Torrance as we will be able to closely manage operating details and coordinate maintenance and turnarounds with the rest of the refinery as a whole. Outside of the West Coast, we contended with a few operational challenges during the quarter. In May, we had a loss of containment event at Chalmette that resulted in a pre-treater and reformer being taken offline until repairs are complete later in Q3. There was no material reduction in throughput as a result of this event and the refinery is able to run at planned rates while we complete the repairs. The primary impact of the event is increased production of naphtha and a slight reduction in our finished gasoline yield. We expect to have a relatively clean run for the remainder of the year at Chalmette as we have shifted after careful evaluation and management of change the scheduled fourth quarter crude unit and coker turnaround to 2027. In the Mid-continent, we performed unplanned work related to Toledo's FCC during the second quarter, which was the driver of the lower-than-expected throughput. However, we took the opportunity to perform some key maintenance during the outage, which enables us to safely push the planned fourth quarter FCC turnaround to the first half of 2027. Our East Coast assets ran well in the second quarter, and we expect to have an uninterrupted run until we begin our Paulsboro crude unit turnaround late in the fall. We continue to implement the Refining Business Improvement program. Here are some examples of key accomplishments. We have implemented a circuit-wide energy efficiency program that resulted in a 20% reduction in purchased natural gas on a per barrel and price-adjusted basis relative to the 2024 baseline. Our turnaround performance has seen a marked improvement. Not only have we become more predictable, based on industry benchmarking, we are moving up among industry leaders in turnaround execution. Our new strategic procurement organization is halfway through renegotiating or rebidding over 60 contracts with a focus on leveraging our spend nationally or regionally; we expect to see savings of about $60 million a year in goods and services such as process chemicals, maintenance and equipment rentals, among others. RBI is a multiyear effort with periods of focused work in each of the refineries, followed by establishment of new practices to ensure the improvements are sustained. The refining business improvement initiative is essential to improving PBF's results, but it will not distract us from our obligation to operate in a safe, reliable and environmentally responsible way every day.
Thanks, Mike. For the second quarter, excluding special items, we reported adjusted net income of $6.22 per share and adjusted EBITDA of $1.24 billion. Our discussion of second quarter results excludes the net effect of special items, including $23 million in incremental operating expense related to the Martinez refinery incident, a $250 million gain on insurance recoveries, a $2 million charge related to the repayment of the $800 million senior notes due 2028 and approximately $9 million of charges associated with the RBI initiative, as well as other items detailed in the reconciling tables in today's press release. PBF's results for the quarter are primarily a reflection of the strong product markets driven by tight supply and relatively firm demand. Globally, refineries that can run are running at high utilization rates. However, a significant portion of refining capacity remains offline or is running at reduced rates due to conflicts or crude availability constraints. The $250 million gain on insurance recoveries related to the Martinez fire is a result of the fifth unallocated payment agreed to and received in the second quarter. This brings our total insurance recoveries to $1.25 billion, net of our deductibles and retention, including the amounts received in 2025. Important to note, the bulk of the spending related to the Martinez rebuild is behind us with only some cleanup and demobilization items ahead. However, the claim is ongoing, and we expect to recover additional funds as we continue to work with our insurance providers towards finalization of the claim in the second half of 2026. Shifting back to our normal quarterly results discussion. Also included in our results is net income of $27.5 million from our investment in SBR or approximately $40 million of EBITDA. SBR produced an average of 15,100 barrels per day of renewable diesel in the second quarter. SBR's production was as expected and reflected reduced rates because of the catalyst change completed in April. Although it has only been a few months since the installation of the new catalyst, we are encouraged by the improved performance we are seeing and expect to achieve a longer run time. On the market side, we are seeing robust margins for renewable diesel, which are being driven by globally high distillate margins combined with elevated RINs pricing. PBF's cash from operations for the quarter was $1.6 billion, which includes a working capital benefit of approximately $430 million. The working capital benefit was expected in the second quarter and was driven by a reduction in above-average inventory levels from the first quarter as well as benefits from our net payable position in a higher price environment. We are now at normalized inventory levels and the working capital headwind from the first quarter has reversed. Going forward, working capital fluctuations will depend largely on movements in commodity prices and inventory levels that may vary due to operational needs. Cash invested in consolidated capital expenditures for the second quarter was $189 million, which includes refining, corporate and logistics. This amount excludes second quarter capital of approximately $56 million related to the Martinez rebuild. Second quarter capital expenditures are slightly below expectations as a result of our decision to shift the scheduled hydrocracker turnaround at Martinez from the end of the second quarter to the end of the third quarter. On that note, we reduced our total capital expenditure guidance for 2026 by approximately $75 million to $850 million at the midpoint of our revised guidance. This is primarily a result of the decision to move the fourth quarter Toledo and Chalmette turnarounds to 2027. We ended the quarter with $894 million in cash and approximately $855 million in net debt. At quarter end, our net debt to capital was 15%. During the second quarter, PBF reduced net debt by over 62% by fully paying down borrowings on our asset-backed lending facility and refinancing $802 million of senior notes due 2028 using available cash and proceeds from the issuance of $500 million of senior notes due 2034, an aggregate gross debt reduction of over $1 billion. As we mentioned a moment ago, subsequent to the end of the quarter, we entered into an agreement with Air Products to acquire two hydrogen plants at our Torrance refinery. This transaction will be financed with an amortizing seller's note. Upon closing of the transaction, this note will appear as incremental debt in our capital structure. The transaction is subject to regulatory review and customary closing conditions and is expected to be finalized in the third quarter. As mentioned over the past several quarters, our capital allocation framework rests on three core elements: invest in the business, invest in our balance sheet and shareholder returns. We continue to invest in our assets to improve efficiency and reliability. We have made significant progress in just a short time with our balance sheet, but the work there is not done. We operate in a cyclical business, and our intention is to continue investing in our balance sheet to ensure we are able to adeptly navigate the next cycle in our industry. Through our deleveraging over the last several months, we believe we have delivered significant equity value to our investors. We're intent on maximizing value across the entire refining cycle. While returning capital remains an important pillar in our framework, we believe ensuring our refining assets remain competitive and maintaining a strong balance sheet enhances long-term shareholder returns by reducing risk and increasing strategic flexibility. Operator, we've completed our opening remarks, and we'd be pleased to take any questions.
Questions and answers
The first question comes from Manav Gupta with UBS.
Matt, Joe, congrats to the entire team, a very strong quarter. And the way things are going, probably third quarter would be a replica of second quarter, if not better. My first question to you was, you talked about refining taking a lot longer to normalize. As you mentioned, over 5 million barrels of capacity has been offline for a sustained time. We don't know when this reopens, but there is a possibility that global product inventories would have depleted significantly before things start to normalize. So one, I wanted to understand from you the time frame of the normalization. But the bigger question I'm trying to ask is, there are refineries that have been damaged, there are refineries that have been damaged in Russia by Ukraine. Even when flows fully normalize, do you see a scenario where the mid-cycle has moved up because the global supply routes have been impacted, global supply has been impacted? So if you could talk about some of those dynamics, I would be very grateful.
Thanks, Manav. And I agree with everything you commented on. And obviously, every cycle is different. And so then you relate it back to mid-cycle. But in this cycle, I see the floor has been risen unquestionably and the consequence of all the damage, I think, it could be a long time. It is almost unimaginable working in this industry, certainly in places like Russia where you're sort of under attack. So it's impossible for us to predict exactly how long, but it certainly seems that the consequence of these conflicts is acute in the refining business. And I think it's going to take a considerable amount of time. I haven't quantified that exactly. But certainly, you're well into 2027 before it's even possible to get inventories normalized under sort of normal economic conditions. Tom, would you add anything?
Yes. I mean, just in terms of adding to that, it goes back to the prepared remarks. When the Memorandum of Understanding was signed, there was an initial correction in crude and margins, but quite quickly margins found a floor and started to move back up. Regarding normalization, crude normalization tends to be in the weeks to months' timeframe, but products normalization is certainly months to quarters. So our view is consistent: crude will normalize faster, products will take longer to rebuild inventories, and the refining balance will remain tight for an extended period.
Perfect. My second question is your net debt-to-cap ratio excluding special items was 36% in Q1. You dropped it to 15% in Q2. You talked a little bit about the cash generation in July. You would be in a net cash position by the end of third quarter if not the fourth quarter. So I'm just trying to understand how much cash would you like to build on the balance sheet, and when would you say this is too much cash and you should consider buybacks or other shareholder returns? So if you could talk a bit about shareholder returns once you have gotten to your net cash position?
Yes. I think you made a comment. It would certainly appear that the third quarter is stronger from a margin perspective than the second quarter, and we've been tracking a bit ahead. That being said, we don't know what's going to happen. And I think I've made this point historically, we don't like to openly speculate about money that we haven't earned yet. Prospectively, it looks very, very constructive. And indeed, I believe we will be able to get our balance sheet potentially to a place that it's never been, and that's where we're focused on at the moment.
The next question comes from Joe Laetsch with Morgan Stanley.
So I wanted to go back to the refining macro. Just building on your opening comments. Could you just talk a bit more about how the commercial organization is navigating the disruption? And then could you also just talk about what you're seeing from a physical, financial market perspective, freight rate impact and maybe where you're seeing some of the biggest dislocations currently?
Sure. One comment I would make is that the last couple of months have been a bit more calm than the first couple of months. That being said, there are obviously extraordinary markets with massive volatility. Tom, do you want to make a comment, then Paul?
When examining the market, we have concerns about buying crude every day, even in a right-way market. The environment has raised the risk factor on procuring crude. As we've gone through these cycles, we have not yet seen a scenario where we've had to materially impact our refining operations due to lack of availability. We constantly evaluate this. There is a bit more upside skew, particularly on diesel. Also, we are in the midst of hurricane season, which could have a dramatic effect upon both products and crude. If we look back to Hurricane Harvey, it's clear how much impact such events can have on U.S. crude exports and inventory builds.
The market structure is telling you what everyone should be doing. The backwardations we see on products, including crude backwardation, indicate everything is hand to mouth. We have dynamic product demands in the Gulf Coast across the docks and export demand out of the East Coast, and we're participating in all of that. Inventories across the PADDS are at the lowest levels we've seen in many years. The primary goal for our commercial team is to keep the refineries full on the inbound and make sure we're empty on the outbound every single day.
That's helpful. And then I wanted to just talk a little bit about your comments around delaying some turnarounds to 2027. So it sounds like you're able to get in and assess Toledo during some unplanned downtime last quarter. Maybe more broadly, are you seeing longer durations between turnaround intervals? And given how fast the data, technology and monitoring landscape is evolving, is there any change to how you're thinking about planning turnarounds going forward?
Joe, the short answer is yes. As part of RBI, we've taken a multi-pronged approach to turnaround improvement and a piece of that is turnaround interval optimization. We're looking at techniques such as risk-based inspection and other opportunities to set durations. We're also optimizing against the capabilities of refineries in terms of contractor manpower available at a given location and the size of the turnaround. As you delay turnarounds, they tend to get bigger, so we're optimizing against those types of things. Interval optimization is a key piece of what we're doing. The industry has been looking at this for the past several years, and we are approaching some limits based on contractor manpower availability.
The next question comes from Phillip Jungwirth with BMO Capital Markets.
PBF had initially budgeted $235 million to $250 million of capital projects for 2026. I was hoping you could remind us the nature of these. And more importantly, is this an area where you could see more investment in the future given the stronger margin environment for refining, which we think should last for some time?
Yes, that budget is really included within our allocations for turnarounds, safety and regulatory spend. Of that amount, roughly $50 million to $100 million is discretionary growth, and we will continue to evaluate additional investment as the market changes. We will always look for opportunities to increase reliability and efficiencies across our system.
The focus of the company remains safe, reliable and responsible operations while being efficient. RBI has been highlighted, but our job is not done. We must continue to improve margin capture, which does not always require a tremendous amount of capital. By improving operations, reducing cost structure and improving margin capture, we deepen PBF's capabilities to operate through cycles.
We consciously chose to look at our cost structure first because we felt our base case was not optimized. As we achieve efficiencies, new opportunities open up for margin capture. For instance, energy efficiency improvements remove constraints and present opportunities to drive margin improvement. I would expect us to continue driving in that direction.
Okay. Great. And then any reason the Paulsboro crude unit turnaround can't also be pushed? And for PBF, is there any ability or consideration to bring back idled units here, FCC, alkylation unit, delayed coker? Or more broadly, do you think there's much opportunity for the industry to really bring back shuttered or mothballed refining capacity?
Regarding Paulsboro, we look at every turnaround individually based on market considerations, but there are constraints in terms of equipment inspections and mechanical integrity deadlines that forestall us from moving that turnaround. So that one will stay in place. In terms of idled units at Paulsboro, we're always looking at ways to optimize that facility in conjunction with our Delaware City refinery, but there are no short-term plans to bring back any units at this time. For the broader industry, it depends on how well units were mothballed and the costs associated with bringing them back. It requires a firm and long-term market commitment, because it takes a long time to restart idle units, especially ones that have been down for a significant period.
There is no question that the duration of the current cycle could be extended. That said, bringing on new equipment or restarting idled units generally exceeds the timescale of any one cycle, so the decision is more complicated.
The next question comes from Doug Leggate with Wolfe Research.
It must be very gratifying to you to have all your facilities running in these times. So congratulations on getting everything up. You have a bit of a unique situation insofar as your market cap is a little under $7 billion. You're probably headed towards, if our numbers are anywhere close to being right, to wiping out your net debt on a net basis potentially in the next quarter or two, which then puts you in a position where the level of cash flow you're generating, albeit you could argue peak margins, could allow you to take out a lot of your stock. My question is, we don't know how long this is going to last. Why wouldn't you consider hedging?
We look at hedging every day, and it's a very reasonable question. There are times where if you get carried away, you can cut off the upside. Three months ago, it could have looked reasonable to hedge everything, and that would have been a poor decision if prices power through. We do protect downside risk in certain circumstances. We have a very robust risk management function and participate in forward markets, but we also want to deliver the crack to our investors. Tom, would you comment further?
Doug, there are unique opportunities being presented in the current forward curves, with margins well above mid-cycle, particularly on distillate. There has also been a reasonable correction in RINs prices recently, which affects U.S. cracks because of the elevated RVO. We take all of these factors into consideration when managing our exposure in the forward markets.
I understand that. I thought, given the scale of your business and your beta, you're in a bit of a unique situation. Can you frame for us at least the magnitude of what you think that remaining insurance income could be or the cash flow order of magnitude without being too precise?
Sure. My expectation is there's going to be one more payment, and I think it's going to be very similar to the last payment. My hope would be that by the time we talk on our next earnings call, it will be in-house, which would put a bow on the whole situation.
The final question comes from Alexa Brenner with Goldman Sachs.
We wanted to ask on the West Coast. Your margins there were particularly strong this quarter. Can you just talk about some of the regional dynamics and product pricing trends? And then at Martinez, now that the facility has transitioned back to full operations, any update on the current status of some of the ongoing agency investigations and any outlook there? We appreciate that. And then just a follow-up: can you just talk about how you're managing your RINs purchasing strategy? Do you expect any regulatory relief or structural changes in the market there?
On the Martinez investigations, there is nothing new to report. We've had a collaborative process with the state on various elements, but no specific updates at this time. Regarding California broadly, the marketplace dynamics are clear: a significant amount of gasoline and jet must be imported into the state, and it has to attract that supply. There is a real cost to getting product there. Historically, importing by vessel from far away has had a significant incremental cost, and even if product in the future arrives by pipeline, there will still be a substantial cost. Historically, we've discussed a $10 to $15 per barrel incremental cost to import product into the state, and it needs to reach those levels to attract barrels. We expect the market to be constructive for our business because California desperately needs product; the state imports almost one-third of its gasoline. Jones Act waivers have temporarily alleviated some of the pressure, and I expect those waivers to be temporary during the current Middle East conflict. On the crude side, at Torrance, we're increasing our domestic California crude runs by roughly 25,000 to 30,000 barrels a day. We have our own proprietary logistics system in California. We've seen volumes on our M70 pipeline that were closer to 60,000 barrels a day prior to some closures, now averaging about 90,000 barrels a day. Importantly, we still have room on our M70 pipeline, and we've seen production come online, which is more crude supply into the state and has been helpful on differentials. PBF is uniquely positioned with our M70 pipeline that services our refinery, so we're benefiting on both crude and product sides. As for legal developments, we will highlight them as they occur and provide updates as appropriate.
On RINs procurement, remember that SBR produces D4, which we take in and use. We actively manage our RINs position in the marketplace. There have been improvements in RIN derivatives and we evaluate those options. Recently, RIN prices have corrected, in part due to perceptions of small refinery exemptions entering the marketplace, which has lowered prices by roughly 10% to 15% in the last two weeks. Another factor is that the RINs market had become crowded with speculative long positions in recent periods, which contributed to the recent sell-off.
Tom highlighted the recent sell-off, which is accurate. To put it in perspective, the Renewable Fuel Standard program still imposes roughly $14 per barrel of cost, and much of that is borne by the consumer. PBF continues to bear a significant portion of that cost. My concern is that with the volumes the administration has put on the RFS, the program can become strained if there are not enough RINs in the RIN bank to meet the mandate. If RIN supply is insufficient, the only way to satisfy the program would be to throttle supply, which would be disastrous in today's market. Additionally, while there are significant bio-based barrels in the world being sent to Europe and other regions, if the U.S. needs to attract those barrels to meet U.S. mandates, it creates a competitive, escalating cost dynamic with other markets that also have mandates. We continue to engage with policymakers in Washington about this. It is one of the most direct levers to influence gasoline prices today, and adjustments could be made without reducing agricultural output or impacting farmers. For example, soybean oil currently has substantial volumes going into fuel rather than food. You can adjust the RFS policy to improve prices without harming farmers. We'll continue those conversations. With that, that concludes the questions for today. We appreciate everyone's participation. It truly is an extraordinary moment for our company, and we greatly look forward to talking to you again at the end of the third quarter. Thanks.