PBF Energy Inc. (PBF) Q3 2021 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the PBF Energy Third Quarter 2021 Earnings Conference Call and Webcast. At this time, all participants have been placed in a listen-only mode, and the floor will be opened for your questions following management’s prepared remarks. [Operator Instructions] Please note, this conference is being recorded. At this time, it is now my pleasure to turn the floor over to Colin Murray of Investor Relations. Sir, you may now begin.

Thank you, Rob. Good morning, and welcome to today's call. With me today are Tom Nimbley, our CEO; Matt Lucey, our President; Erik Young, our CFO; Tom O'Connor, our Senior Vice President of Commercial; and several other members of our management team. A copy 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. In summary, it outlines that statements contained in the press release and on this call that express 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. There are many factors that could cause actual results to differ from our expectations, including those we described in our filings with the SEC. Consistent with our prior periods, we will discuss results today, excluding special items. In today's press release, we describe the non-cash special items included in our third quarter 2021 results. The cumulative impact of the special items increased net income by an after-tax benefit of $45 million, or approximately $0.37 per share. As noted in our press release, we'll be using certain non-GAAP measures, while describing PBF's operating performance and financial results. For reconciliations of non-GAAP measures to the appropriate GAAP figure, please refer to the supplemental tables provided in today's press release. I'll now turn the call over to Tom Nimbley.

Thanks, Colin. Good morning, everyone, and thank you for joining our call today. We are pleased to report positive quarterly net income for the first time since the onset of the pandemic. Reaching this point took longer than anticipated, yet it is indicative of the continuing global recovery from the grip of the pandemic. Demand has improved for our products, as economic activity increased, and more people resumed their pre-pandemic routines. Gasoline demand has been robust and is currently at pre-pandemic levels, while distillate demand is beyond 2019 levels. We are seeing improvements in all our regions and expect to see strong demand persisting, as more people return to their offices, get on planes for both leisure and business, and we move beyond the impacts of the current COVID variant. Increases in demand, coupled with clean product inventories that are at or below the five-year levels, should be supportive of above mid-cycle margins in the near term. Additionally, we are seeing incremental crude oil production coming from some of the world's largest producers, which modestly widened medium and heavy sour crude differentials during the third quarter. We expect this production trend will continue, because global markets are calling for increasing supply. Given our exposure to heavier and sour barrels, we expect widening differentials to provide an incremental benefit to the strong underlying demand. Heading into year-end, rising natural gas prices have been gaining a fair amount of attention. In refining, natural gas is an important input in terms of both refining processes and operating expenses. For PBF, approximately 15% to 20% of our operating expenses are related to natural gas in terms of direct use and energy consumption. We do expect to see elevated costs relative to natural gas, but we also expect these costs to be somewhat offset through clean product margin support for liquid fuels, primarily distillate, as power providers and other end users elect to switch from gas to liquid fuels. Our belief is that domestic refiners, especially in the Atlantic Basin are at a competitive advantage, because higher costs associated with natural gas increases, increase the advantage on a relative basis versus our international competitors. Demand remains the key driver. We expect that demand in 2022 will continue its strong recovery and certainly exceed 2021. With that, I will turn the call over to Matt.

Thanks, Tom. As Tom mentioned, we are pleased with the current market conditions, as they are certainly trending in the right direction. Our assets operated reasonably well during the quarter, while navigating some challenges, not the least of which was Hurricane Ida on the Gulf Coast. We have a well-tested hurricane preparedness plan, and the team in Chalmette closely monitor the storm's development and executed the plan flawlessly. We safely brought the refinery down in advance of the storm as its path changed and the storm's intensity increased. As a result, the refinery experienced very little damage, and we are able to quickly resume operations after power was restored to the plant. We are very proud of the way our Chalmette team performed even as many employees were dealing with their own storm related hardships. In Toledo, during the quarter, we had some power issues that resulted in minor mechanical issues with the FCC and a few other supporting units that were resolved within the quarter. On the West Coast, we executed a major turnaround at Torrance, completing work on the hydrocracker, alkylation unit and jet hydrotreater, as well as a few other ancillary units. We returned to normal operations in Torrance in late August, August 22 to be precise. Looking ahead to the fourth quarter, our throughput guidance is included in today's press release, including the impact of plant turnaround work on the East Coast and at Martinez. In Martinez, we are planning to install new reactors for the cat feed hydrotreater, which we mentioned on our last call. As part of our ongoing strategic review and future path of the company, earlier this year we announced a potential renewable diesel project located adjacent to the Chalmette refinery that we are continuing to pursue. The project will seek to maximize the benefits of Chalmette's strategic location on the Gulf Coast with its excellent access to water, rail and truck logistics, as well as our synergistic California logistics footprint. In early August, we partnered with Honeywell UOP in anticipation of using their proprietary single-stage, ecofining technology for our potential project. To date, we have committed the funds needed to fully develop engineering for the project, secure the necessary permits and reserve longer lead items. We are progressing discussions with partners to develop a projected market leading 20,000 barrel a day renewable diesel production facility at Chalmette. Costs related to the RFS program continue to be one of the industry's largest headwinds and are driving costs higher for every consumer at the pump. Market rumors indicate the administration and the EPA are well aware of the problems that are with the RFS and the attendant harm they are causing the independent refining sector and, importantly, the American consumers. I am hopeful we will see action by the current administration that will enable us to have a workable program in the very near future, which will allow us to avoid a major crisis. Now I'll turn it over to Erik, which will go over the financials.

Thanks, Matt. Our positive third quarter financial results reflect the continuing market improvement driven by the pandemic recovery as we were able to generate free cash flow in excess of our fixed costs, namely CapEx and interest. This was a critical step for us as we are now able to focus on a deleveraging strategy that required an improving market backdrop, coupled with a more streamlined cost structure at PBF. In conjunction with this process, today, we announced two key financial achievements with the multiyear extension of our inventory intermediation facility and a 13% reduction in our outstanding unsecured debt. In addition to inventory held at our East Coast assets, the inventory intermediation agreement now provides us the flexibility to include inventory at the Chalmette refinery, which could decrease our working capital needs and provide additional liquidity. We reduced our unsecured debt through the repurchase of 229 million of PBF Holding senior notes for approximately $147 million of cash, representing a weighted average price of $0.64 on the dollar. When combined with the $75 million of debt paydown at PBF Logistics, the consolidated debt for PBF Energy Inc. has been reduced by over $300 million this year. Moving on to the third quarter results. Today, we reported adjusted net income of $0.12 per share and adjusted EBITDA of approximately $226 million. Consistent with previous 2021 quarterly results, these figures include approximately $77 million of net non-cash mark-to-market expense related to our West Coast environmental credits and $73 million of net RIN expense. We continue to fully expense and accrue our full 2020 and 2021 obligations for renewable credits. Consolidated CapEx for the quarter was approximately $87 million, which includes $84 million for refining and corporate CapEx and $3 million for PBF Logistics. Consistent with prior guidance, we expect full year CapEx to be in the $400 million to $450 million range. This includes amounts for our scheduled fourth quarter turnarounds, plus our continued investment in the development of the RD project. As a result of our improved earnings profile, our liquidity position remains consistent with more than $2.6 billion of total liquidity, including approximately $1.4 billion of cash and in excess of $1.2 billion of borrowing availability at the end of the quarter. And looking at the accrued expense footnote in the 10-Q filed this morning, PBF reported accrued renewable energy credit and emissions obligations of approximately $1.3 billion. This figure includes approximately $600 million related to our current and future California environmental credit obligations and roughly $700 million related to our consolidated 2020 and 2021 RIN compliance years. In the fourth quarter, we expect to use approximately $185 million of cash to settle our fixed price purchase commitments for RINs. These purchases should satisfy our 2020 obligation, plus a portion of our 2021 program. This month, we fulfilled our $250 million AB32 repurchase obligation for calendar years 2018 through 2020. This will satisfy more than $360 million of the California-related balance sheet accrual. As a reminder, California's cap and trade program is a multiyear scheme that provides significant flexibility in the management of obligations on an annual basis. Going forward, our focus remains on operating safely, improving the cash generation of our assets and continuing to restore the strength of our balance sheet. Operator, we've completed our opening remarks, and we'd be pleased to take any questions.

Thank you. [Operator Instructions] And our first question is from the line of Carly Davenport with Goldman Sachs. Please proceed with your question.

Hi, good morning. Thanks so much for taking the questions. The first one was just around volumes. It's great to see the utilization rates ticking back up here with strong guidance for 4Q. So can you just talk a bit about what's giving you confidence to run at these type of levels? Is it demand? Is it inventory levels? Just any color on kind of moving pieces there would be helpful.

The short answer is yes, but the main driver is demand. If you look at the demand numbers, as I said in the comments, gasoline has returned to pre-pandemic levels. Distillate is in excess of pre-pandemic levels. Jet is still lagging, although we are pleased that the administration has announced that they will lift the travel bans, international flights into the United States for fully vaccinated people effective, I believe, it is November 8. And so we would expect to see an uptick in international travel demand, particularly from Europe, people coming in for the holidays and more importantly, perhaps, the opening up of the Asia to the West Coast routes, which would increase demand in Bradley Airport terminal and LAX. So demand is the key driver. At the same time, as I said, inventories are tight in the Atlantic Basin. There's no question about it. 9%, 10% below the five-year average on distillate, 3% to 4% below the 10-year -- five-year average on gasoline. You put that in context with that type of a demand recovery with those type of inventories and overlay the fact that compared to 2019, it's more than one million barrels of refining capacity that has come off the line in North America. And that's what's going to we think. And we think those trends will continue in terms of demand in 2022, and that's what gives us the confidence in why we believe utilization. And in fact, cracks will remain supportive.

That's great. Thanks for the color there. And then the follow-up was just around leverage. Debt reduction surprised us to the upside this quarter. So, when you think about where the macro environment stands and where RINs prices currently are, how do you see capacity over the next couple of quarters to continue to drive debt reduction? And is there a specific target, whether that's on a net debt-to-EBITDA or debt-to-cap basis that you're moving towards?

I would say, overall, our target is lower. That's a very generic statement. But our plan is to continue to de-lever this business. Clearly, the pandemic, I think I've mentioned this multiple times, the pandemic wreaked havoc on this industry. I believe the independent refining sector took on more than $15 billion of incremental net debt. And all of us are in the same position that we are all starting to de-lever from this point forward as we continue to generate positive cash flow from the business. But in order to do that, we needed, to Tom's point, we needed to see demand increase, and we have seen that. I think as we look ahead through the fourth quarter and into 2022, we are seeing a very rosy picture compared to the bleakness that we saw at the low point in Q2 of 2020. So, for us, I don't think we want to start laying out targets because we have a lot of different things to do. And we have, quite frankly, a lot of different levers that we can pull along the way. The two key milestones that we hit during the quarter and then subsequently here over the past week in terms of the -- getting the inventory intermediation deal completed as well as buying back debt below $0.65 on the dollar, that's a nice first step for us.

Appreciate the time.

The next question is from the line of Doug Leggate with Bank of America. Please proceed with your question.

Hey good morning guys. Tom, I wonder if I could just pick your brain a little bit on your comments on jet fuel. Obviously, distillate is -- demand has been extremely robust. As you pointed out, inventories on both sides of the Atlantic were quite low. But it's also been benefiting, we understand, from jet blending. So, assuming jet demand does recover. How do you see the knock-on effects, if you like, across the complex as it relates to distillate specifically? I got a follow-up specific to PBF, please.

That's an excellent question, Doug. The fact is, obviously, when we were in the second quarter, the depths of the pandemic, we were having to take jet and put it in into the distillate pool just to find a home to try to clear the barrel. And even with that, we had to cut at runs because we didn't have enough room to clear the jet barrel. That effectively begins to unwind. It's not completely there, but I will say this, it is there in places like Toledo, whether it's regional, it's stronger jet demand that's come back higher than the coastal demand has come back. So, we are actually -- have taken pretty much all of the jet out of the hydrocracker in Toledo. And we're making jet fuel -- and actually, that reduces some distillate, which lends strength to the distillate pool going forward. But what it all comes down to, the overall volume of barrels, some clean product barrels demand is continuing to increase, and that will support increased utilization and, in fact, will allow us to optimize the refineries. They weren't built to be run in a manner that we were running them in the depths of the pandemic. We were effectively running them in a substandard manner because we had no choice. That is being reversed.

I appreciate that. I mean it's obviously -- I think it's one of the overlook issues in terms of your leverage to how that can play out. I guess my follow-up is probably -- it's really more of a balance sheet question. I mean, clearly, the possibility of transferring value from debt to equity is probably one of the biggest catalyst, if you like, to drive a recovery in your share price. I'm just wondering, beyond just the recovery in cash flow you're seeing, what are the other options that you may or may not consider to accelerate that move? For example, are there any additional drop-down opportunities? Is there something on the credit lines that you highlighted again this morning that could allow you to take capital, I guess, or debt from PBFX back to PBF. I'm just wondering and maybe even to the point where if you look at the share price, you're still $5 or $6 off to kind of average level pre-pandemic. Would you ever consider equity as an opportunity to accelerate your balance sheet recoveries as well? And I will be there. Thanks

I think at this point, Doug, our key focus was transitioning from losing money to breaking even, to making money, to generating positive free cash flow in excess of our fixed cost. And we did that for the first time in an awfully long time this quarter. From here, there are potential for some noncore asset sales that could come to fruition over the next four to six quarters. We did -- I think we've demonstrated that we can access markets by extending this multiyear inventory intermediation facility. There is obviously some pending news that we would expect coming from D.C. that we think is quite important for our business that will relieve some of the overhang. I'm assuming we're going to get some RIN-related questions this morning. And quite frankly, I don't think we're prepared to outline a strategy until we have more clarity on some of the more macro points that are, quite frankly, the most important thing that we're dealing with at this point. We feel more than comfortable with $2.6 billion of liquidity at this point. And again, we have seen the business pivot, which is the most important thing. Our businesses, our assets are continuing to generate free cash flow. And 2022 is shaping up to be consistently or significantly better than 2021 based on what we see with the forward track. But we've got to get to 2022 before we can capture any of that. So I don't think that this morning, we're going to outline any multiyear plan, and this is how things are going to step down other than the step down has already occurred. And so from here, it's just going to be a continued grind higher with the business. And we felt all along that we needed to get to this point before we could start to maneuver. We did everything that we felt we needed to do in 2020. And our team has really responded across the company from here. We need continued demand worldwide to help pull all of the independent refiners as well as the integrated out of this thing. And from here, with that incremental free cash flow, that will open up a lot of different avenues for us on a go-forward basis into 2022.

I appreciate the answer, guys. I'm going to leave someone else to ask the detailed RIN questions, but I would like to make a comment. You guys have been extremely vocal, extremely candid about the absurdity of this issue. So I commend you guys for staying in front of this and hopefully they're listening, and I'll let someone else into the details, but good work with that. Thanks

Thank you, Doug

The next question is coming from the line of Connor Lynagh with Morgan Stanley. Please state your question.

Yes. Thanks. A couple of TFs there, so why don't we just go ahead and talk about RINs. So just curious where your head is at on the program right now. There's obviously been some leaked reports about what the RVO might look like. So just curious, how you're thinking about managing it and how investors should think about the cash flow impacts as we move into 2022.

How do we think about the program? We think about the program the same way we thought about it for the last 10 years. It's maybe the single most broken program in all federal government, which is no small feat. Federal government does not live up to its statute that it created for itself with impunity. And so it's disgraceful the way it's been mismanaged. With that being said, we think it's on the cusp of the RVO coming out. We greatly look forward to that. And hopefully, it was meant to be a couple of weeks ago. Hopefully, it will be within the next couple of weeks. But at the end of the day, the program is -- as we described previously, the program is so broken that if it goes unchecked, you'll actually run out of RINs in the not-too-distant future. And therefore, you're going to curtail gasoline. And I don't know if there's a politician in the world that would want to face those consequences. So we have high conviction. It's ultimately going to get fixed. It should have been fixed already. And hopefully, it will be fixed very soon.

Got it. And just thinking through you guys have obviously been relatively tactical in terms of how you've managed, whether or not you're actually purchasing RINs or not. So I guess the question is, is your view that right now prices are still a bit elevated because of the sort of uncertainty premium, if you will? Are you avoiding purchasing? And should we expect sort of a deferred cash outflow in 2022, or what's sort of the big swing factors we should consider relative to that?

Just in regards to the lack of information, there's no question that's impacting the price of RINs. We've seen, as the press reports you alluded to came out, RINs prices dropped precipitously and then no actions taken, and they rise precipitously. It's inexcusable and bureaucrats sort of mindlessly go to lunch and get on with their lives, while it's impacting and threatening jobs and impacting everyone that is -- goes to the gas station every day. So hopefully, we'll have that rectified soon. And obviously, information will help markets determine what the right price of these things are. At the end of the day, RINs can't be scarce. It's a government-created commodity. And if you create scarcity, they will only go in one direction, and that wasn't the intent of the program. So I think that can get rectified, and then there'll be price action accordingly. In regards to the cash flow, I'll leave it to Erik.

So I think, Connor, we laid out at the end of June time frame that we had about $300 million left to spend through the second half of the year. During the quarter, we invested roughly $100 million of cash in purchasing RINs. We have continued to be active in that market. I think I outlined in my comments that we have roughly $185 million left to spend. There is about $15 million left that will then probably dribble into the early part of 2022 to purchase some of these credits. And just as a reminder for folks that are listening, all of these are firm fixed-price commitment. So these are transactions that we have entered into previously at a variety of different prices. And then what ultimately hits our P&L is a mark-to-market adjustment for those credits where we are short. So the $73 million of net RIN expense is net of our firm price commitments as well as all of the mark-to-market adjustments related to 2020 plus 2021. So said a different way, while RIN prices dropped from June 30 through September 30, the benefits of our procurement program have also been rippling through our P&L during the third quarter.

That’s helpful. I’ll turn it back.

Thank you. Our next question is from the line of Theresa Chen with Barclays. Please proceed with your question.

Good morning. So I wanted to kind of switch gears and talk about on the crude side because, clearly, in the Mid-Con, we're seeing strong demand and the jet situation seems much better than Coastal. So all things on that front look good. But clearly, we're seeing some volatility on the feedstock side. And I was wondering if you could just talk about your expectation for Cushing inventories and what it will take to get WTI differentials and become to spread in general to normalize from here?

Yes. I'm going to ask Tom O'Connor to talk about all things crude-related.

Yes. Theresa, I mean, as we looking at it right now, I mean, clearly Cushing inventories have drawn down significantly over the past month or so. I mean there's several factors that have been playing into that. Certainly, Line three expansion playing a role, disruptions in the -- towards the end of the summer in Canadian light production. And ultimately, that improving demand and margin environment that you alluded to, Capline reversal, future to come as well. But ultimately, Cushing is destocked and is now -- has gone from a discount market to a premium market to grades that make a very important impact on it. And we certainly would expect to see, in the coming months, to see some adjustments to those flows where there has been -- going back into the prior trade months that there was incentives to evacuate Cushing that we're now going to be going to a point where there is going to be a mitigation of the draws, and we could get to the sort of seasonal modest builds.

Understood. And on your logistics strategy, in light of one of your competitors announcing the roll-up of their MLP, can you tell us how you view the long-term outlook for the logistics segment? And had a simplification of your corporate structure also makes sense from here given the changes in the MLP capital markets over the past years?

I think we've clearly been monitoring what's going on in the MLP space. As we sit here today, I guess there's two fewer MLPs or will be shortly than there were at the end of last week with Oasis and PSXP going away. For us, PBF Logistics provided an alternative source of capital and a lower cost of capital historically. Obviously, that has moved the other direction. But I think we're very consistent in our message that the vast bulk of the assets that exists at PBF Logistics are extremely critical to the day-to-day operations for our refining company. So the two companies are inexplicably linked. And I think for us -- I know there was an earlier question about what are potential options going forward. I think we've seen a material increase in the overall equity value of the MLP, since the second quarter of 2020. And as we continue to look forward, PBF Logistics may play a significant role in our growth, depending on how MLPs are treated going forward. I think for us, at this point, it is still an option that we would like to keep open. PBF Logistics, yet again, is going to distribute $0.30 per quarter. And so for us, this is cash that is being recycled back to the parent company as well. And I think this is one -- we mentioned levers, and we will continue to mention levers. This is going to be one of those potential levers that, we will need to evaluate on a go-forward basis.

Thank you.

Our next question is from the line of Phil Gresh with JPMorgan. Please proceed with your question.

Hey. Good morning. Erik, just a couple of quick follow-ups on some of the quarterly and cash flow items that you talked about, within the $73 million of net RIN expense, did you say what the mark-to-market impact was? I apologize, if I missed that.

I did not, because I think what we are trying to do is to make sure that folks understand, there are really two components of, obviously, based on the level of throughput that we had during the third quarter, $73 million of RIN expense is a very low number based on where market prices were. And so when we think through, there are two things occurring in the income statement. One is a true mark-to-market based on our short. And the other is we are expensing RINs that were previously procured at lower prices than market. This is something that is -- it's just the way that the accounting works for us. We've talked about our procurement strategies. We're not going to get into a lot of details around, what we do with RINs. But ultimately, we feel like we've been navigating the program as best we can, given all of the challenges. I think to put it in context, there's probably close to $100 million worth of mark-to-market adjustments based on our short.

Right, okay. No, that makes sense.

And I think, Phil, it's also important to note, offsetting that $100 million benefit, right, that rippled through the income statement, there was an offset to that, right? There's a $77 million mark-to-market expense that is dedicated to the West Coast. So it's worth a little less than $2.50 a barrel that hit the West Coast P&L, during the third quarter, associated with the remark of these AB32 credits. And again, this is the way the accounting works. We essentially pre-bought these credits that ultimately are worth significantly more today, but our purchase price was lower, and therefore, we had to take an expense. So the offset to that $100 million is about $77 million.

Okay. I did have a follow-up on the West Coast actually. I wasn't sure if they go through the gross margin or the OpEx, because I was just curious how you're thinking about the West Coast OpEx right now. I know you've had certain goals out there in the past where you'd like to get that to. So I just want to get a refresh on your thinking.

It would roll through the gross margin. So you'd see about $2.40 a barrel. So it should be roughly -- if we're looking at the tear sheets, roughly $10.46 would be the pro forma gross margin, and one thing to note on that we did have a fairly major turnaround at Torrance.

Now specific to -- if you were talking about progress on operating costs on the West Coast, obviously, we did have the turnaround in Torrance through [Indiscernible]. But we continue to make a reasonably steady progress, particularly at Martinez in getting our fixed costs down. Obviously, as natural gas prices come up, West Coast is a big consumer of natural gas, so that will impact our cost. But in terms of the number of people, number of contractors, other steps in the fixed cost area, I'm very pleased with the progress that we're making out there.

And my last question, Erik. Just on the fourth quarter cash outflows that you talked about, there have been past quarters where you've talked about outflows and then they end up being some offsetting inflows. So is there a way to think about that for the fourth quarter or just how you're aiming for ending cash balance? Is there any additional color just to help us bridge the different moving pieces?

The two discrete pieces that I would note in terms of outflows would be the $250 million that is out the door, right? So that's $250 million in cash for the AB32, credit repurchases that offsets more than $360 million of the balance sheet accrual. Then we have $185 million of RIN-related cash that will leave the system this quarter. Both of those -- clearly, we really don't know where the hydrocarbon price will go. But what we can point to is, we will continue to meet year-end inventory targets that are lower than where we are today. That should be an offset, as we continue to reduce inventory and generate cash to offset that. Hard to pinpoint an exact number for us. I think, quite frankly, our view is where we are in terms of liquidity, ample liquidity, if the cash balance goes down, the cash balance goes down. It's the same as we expect our inventory balance to go down through the end of the year. I think right now, our focus is just continuing to see progress with our business.

Okay. Thank you.

Our next question is from the line of Matthew Blair with Tudor, Pickering, Holt. Please proceed with your question.

Hey, good morning. Thanks for taking my questions here. Congrats on the free cash flow progress in the quarter. Erik, I think you had a comment earlier that the forward curve for 2022 looks really good, and we definitely agree. I know it's not your normal practice, but is there any thought to potentially locking in some of this 2022 product futures curve, just given your debt load?

We probably cannot comment in terms of what our derivative strategy is longer term. What we have said historically is, we don't carry massive derivatives positions. But at this point, I think we're continuing to capture as much of the crack as we possibly can.

Got it. And then it looks like your share of medium and heavy crudes rose a little bit quarter-over-quarter. Is this just kind of a normal volatility, just from quarter-to-quarter, or is there a specific push to run more sour barrels given the widening dips?

Well, clearly, that's what we're looking for. And our expectation is that, as OPEC+ continues to add notionally 400,000 barrels a day of crude that the world needs, we need this crude to meet the demand. And again, it all goes back to demand. But the incremental barrel of crude is a medium and sour. And we have seen, and Tom mentioned it, I'll ask him to make some further comments on your question, but we have seen some incremental widening of the light heavy or sweet sour. There is -- Maya has been running about $7 under Brent. And as that happens, then, of course, but right now, we actually have reasonable coking economics. If you take a look at the clean dirty spread in New York harbor, it's over $32. Now that is inflated because, in the diesel side of it, the RIN price is in there. So we have more work to do on it, but it's certainly moving in the right direction. Tom, what would you add?

Yes. I mean, I would add, I would certainly expect that trend to remain in place. But I mean I think the one thing that we are looking today, which has probably been different than anything that we've discussed on our call, certainly in recent history, is really -- this expands in crude differentials is really being driven more by light sweet strength than it is being driven by heavy weakness. There's a lot of factors in terms of that play, in terms of capital discipline, particularly in Shale. But we're also seeing some mitigants at that point which are taking place in terms of potentially some constraints in European refining with very, very expensive natural gas and, therefore, expensive hydrogen, which is leading towards a shifting of the slate in Europe, which is -- could ultimately end up pushing a few more barrels back into the Atlantic Basin.

Thanks for all the color.

Thank you. Our final question is coming from the line of Karl Blunden with Goldman Sachs. Please proceed with your question.

Hi. Good morning. Thanks for the time. A lot of good disclosure here on the balance sheet and what you've been doing with the bonds. I was wondering if you could comment on your thoughts around liquidity and the ideal liquidity level you'd like to maintain as you go into the next couple of quarters. Visibility, I think, is improving into demand. You took on more liquidity with the secured bonds last year in a time of uncertainty. And I'm now starting to use some of that liquidity right to take out notional debt. Is that something that you could continue doing? How do you think about the trade-off there between liquidity and debt take out?

Again, I think we will continue to focus on delevering the business. We've tried to outline historically, and I think it's all in our public disclosure where we were in terms of historical liquidity. But if we go pre-pandemic, right, we don't need $2.6 billion of liquidity to operate the business. While there are days where there are large cash flows that ultimately run through our accounts when we're paying large cargo bills, for example, from a day-to-day liquidity standpoint, we can operate the business easily sub $900 million of liquidity. And so we're carrying around a lot of excess liquidity. And I think we've always said since the time that we issued the $1 billion secured note issuance in May of 2020, that this was an insurance policy. We want to maintain that insurance policy until we feel like we see enough positive momentum where our businesses are able to ultimately generate sufficient free cash flow to more than cover CapEx and interest. And obviously, over time, we have already seen, right with the debt repurchases, that's going to be a reduction of $14 million a year -- more than $14 million a year in interest expense. We should continue to not only see the benefits from the business improving, generating free cash flow, delevering the business, reducing our overall P&L hit from the interest side of things. And from a liquidity standpoint, easily less than $900 million, that's a longer-term target. I don't think as we sit here today, to Tom's point on the front end, we're just coming out of Delta variant here, and we're seeing some really positive momentum. But I don't think we want to start putting in front of people a one and two quarter level guidance around where we're going to be from a liquidity standpoint other than to say that the team at PBF has been -- we have been extremely vocal that we have more than ample liquidity. And at the appropriate time, we will start to reduce liquidity, and we will provide color as to why we are reducing liquidity because it will more than likely be used to then start or accelerate the deleveraging process.

That all makes sense. I guess just one follow-up on RINs. When you think about the exposure at this point being fixed or locked in versus floating, is that something that you can comment on what the balance is?

Yes. So of the $700 million that exists on the balance sheet today, there's a little north of $200 million that's fixed. The -- all of the remainder is floating rate exposure, right? So we've got $185 million that we will spend through the remainder of 2021. And at this point, it appears there's about $15-ish million that will dribble into the early part of 2022.

If I could squeeze one more in. Is it too early now to start thinking about, talking about the PBFX bonds and those would come current mid-2022 and what your strategy would be around that? Maybe it's a bit early, but interested in your thoughts there.

It's probably a little too early. There's clearly -- I think, again, we just go back to there's some really big news coming out from the EPA. Clearly, those bonds, they've been callable for a while now. They're trading below par. And I think from our perspective, we would like to get some clarity on what this administration and the EPA is going to do in terms of RVO for 2021 and give us some guidance for 2022. That's an important factor for us as we evaluate the overall capital stack. We feel like we've got plenty of time here to deal with debt maturities. And I think, again, we took the first step with this inventory intermediation agreement and pushing that out by multiple years. So I think we -- that is, again, a start of some positive momentum in terms of getting everything reloaded.

Thanks, Erik. Appreciate all the time.

Thank you. We have reached the end of the question-and-answer session. I will now turn the call over to Tom Nimbley for closing remarks.

Well, thank you, everyone for attending today's call. We certainly look forward to hearing -- talking with you again after the fourth quarter -- at the fourth quarter call. In the interim, PBF would like to wish you all a very safe, healthy and enjoyable holiday season. Hopefully, it will be much improved over what we lived with last year. Have a great day.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.