PBF Energy Inc. (PBF) Q1 2022 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the PBF Energy First Quarter 2022 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 that this conference is being recorded. It's now my pleasure to turn the floor over to Colin Murray of Investor Relations. Thank you. You may begin.

Thank you, Melissa. Good morning, and welcome to today's call. With me today are Tom Nimbley our CEO; Matt Lucey our President; Erik Young 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 in our press release and those made 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 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'll discuss our results today excluding special items. In today's press release we describe the non-cash special items included in our quarterly results. The cumulative impact of these special items decreased net income by an after-tax amount of $64.4 million or $0.53 per share. There are a number of other notable items included in our results that Erik will highlight in his remarks. For reconciliations of any non-GAAP measures mentioned on today's call, 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. Before commenting on PBF results and the macro environment in general, I would like to comment on current events. The war in Ukraine has caused shock waves across the world. However, any impact outside the borders of Ukraine pale in comparison to what is being endured by the Ukrainian people. Our thoughts and prayers go out to those who are suffering and we hope to see the conflict end soon. Prior to the events in Ukraine, global oil markets were delicately balanced. Crude supplies were tight, but meeting demand, while product supplies and refining capacity was struggling to keep up with post-COVID demand strength. We are seeing volatility in global crude markets driven by supply concerns. Trade flows have shifted in response to sanctions, but the crude markets remain adequately supplied despite increasing demand for incrementally more crude. Strength in global product prices is being driven by a combination of increased demand and low product inventories. Global refining capacity is more than four million barrels lower today than in 2019. Even with relatively high utilization, current refining capacity can barely keep up with demand and is incapable of concurrently increasing global product inventories. US refining utilization is operating at near capacity as we are about to enter the traditionally peak summer demand period. For the first quarter, PBF reported earnings per share of $0.35 and adjusted net income of $43.3 million. To put this in context, the first quarter is generally a seasonally low point for demand and high point for industry maintenance. Through this, PBF generated positive earnings. Our valued employees are working tirelessly to keep our assets running safely and reliably. We completed a significant amount of maintenance in the first quarter as we get the bulk of our planned turnarounds behind us in the first half of 2022 our assets are well positioned to benefit from the favorable market conditions we are seeing. With that I will now turn the call over to Matt.

Thanks, Tom. As Tom mentioned, PBF is off to a solid start. During the quarter we completed more than one-third of our planned turnaround activity for the year. On the East Coast, we completed work on the Del City reformer and other secondary units, which began in March and concluded in April. At Chalmette, we completed a major turnaround of the reformer and air mags complex. And on the West Coast, we completed turnarounds at Martinez on the distillate hydrotreater and hydrocracker, while Torrance finished planned work on one of our hydrotreater trains. Torrance had some unplanned downtime in March related to a utility power disruption and while that disruption was costly it is behind us. Looking ahead to the second quarter, our capital expenditure and throughput guidance is presented in today's press release. We completed the work at Delaware this month and have planned work at Torrance in June. In addition to our refining CapEx, we continue to invest and progress our renewable diesel project in Chalmette. We anticipate start-up with full pretreatment capabilities in the first half of next year. Importantly, the project is on time and on budget. We believe our 20,000 barrel a day facility is a top-tier project with regards to capital costs, operating costs, geographic flexibility, feed and product optionality and time to market. In parallel, with the project development, we continue to evaluate a number of different financing alternatives across the capital structure. We are working with financial advisers and are very encouraged by the interest expressed by potential counterparties. Before I turn the call over to Erik, I feel like I must comment on the RFS, as it is unquestionably driving costs higher at the pump for every consumer in the country. The administration has been hearing from a lot of stakeholders on the pain consumers are feeling at the gas pumps, as well as problems with the inflated 2022 conventional biofuel requirement the EPA proposed. We are hopeful there will be a pathway to a more sensible and workable program with the final rule. Importantly, the program's unintended consequences on the price of food will certainly become more severe, if not addressed. We hope to hear something further in early June, as the courts have mandated that a decision must be made. Like you, we are waiting to see if the Biden administration will take this opportunity to lower fuel costs, as motorist are taking to the road. And with that, I'll turn it over to Erik.

Thank you, Matt. Our first quarter financial results reflect strong product demand as world economies continue rebounding from the pandemic. Today, we reported our fourth consecutive quarter of profitability, with adjusted net income of $0.35 per share and adjusted EBITDA of approximately $271 million. This brings our trailing 12-month adjusted EBITDA to over $930 million. Our first quarter adjusted EBITDA includes a non-cash benefit of approximately $24 million, driven by changing market prices and the management of our California environmental credit obligations. To that end, our $1.1 billion environmental credit accrued expense consists of approximately $500 million related to our California obligations and roughly $600 million related to RINs. As a reminder, California AB 32 Cap-and-Trade program settlements span several years. Of the RIN accrual at the end of Q1 approximately one-third are fixed price purchase commitments that will settle this year and the remainder are subject to mark-to-market adjustments. We remain an active participant in the RIN market and look forward to clarity on the program. Consolidated CapEx for the quarter was approximately $225 million, which includes roughly $185 million for refining and corporate CapEx, approximately $40 million related to continued development of the RD facility and roughly $1 million for PBF Logistics. Our first half refining and corporate CapEx should be approximately $325 million to $350 million, including $225 million to $250 million of turnaround expenditures. For the second half of 2022, we expect total refining and corporate CapEx to be roughly $200 million. This reflects a return to our normalized pre-pandemic turnaround schedule. Primarily as a result of the rising price environment for hydrocarbons during the quarter, our liquidity position strengthened to a robust level of more than $2.6 billion, including approximately $1.4 billion of cash and in excess of $1.2 billion of borrowing availability at quarter end. Since the end of 2020, we have reduced our long-term debt by approximately $390 million, including $55 million in 2022. In addition to $25 million of repayments on the PBF Logistics revolver, we opportunistically repurchased $30 million of unsecured bonds at PBF Energy this year. Pro forma for this debt reduction, our consolidated net leverage on a trailing 12-month basis is inside 3 times. The official process to amend and extend our asset-backed credit facility at PBF Holding commenced during the first quarter. We are pleased to report that things are proceeding as planned and we anticipate a successful closing during this quarter. We expect this positive momentum to carry forward into the PBF Logistics refinancing efforts, for both the revolver and the term debt. Refinancing of both facilities should close over the next few months. Once these initiatives are complete, we can then address the 2025 debt maturities at PBF. Given the strong product fundamentals and current outlook for our business, our goals are achievable only if we continue focusing on safe and reliable operations, cost control and free cash flow. Operator, we've completed our opening remarks and we'd be pleased to take any questions.

Thank you. In a moment, we’ll open the call to questions. The company requests that all caller limit each turn to one question and one follow-up. You may rejoin the queue with additional questions. [Operator Instructions] Our first question comes from the line of Roger Read with Wells Fargo. Please proceed with your question.

Yes. Thank you. Good morning. Certainly an interesting time to be in refining, but I guess we could say that for the last two years. Curious, given your position on the East Coast and where we seem to see some of the greatest tightness for products, I mean it seems very important given that's kind of where we price everything on the wholesale market. As you look at it and I want to get past any maintenance issues at Delaware, but how do you see that market getting supplied? Is what we're seeing a lack of imports coming from across the Atlantic? Is it lack of stuff coming up the Colonial Pipeline? I'm just kind of curious, how you see the market ultimately achieving something akin to balance.

It's a great question, Roger. And a short answer, but I won't be short, I assure you is all of the above and more, all of what you said and more. We obviously have had reasonable recovery in demand of products not at pre-pandemic levels yet, but certainly stronger than they've been. Jet fuel has increased in demand. We have capacity rationalization that has taken place in PADD 1. When you go back and you realize that PES is no longer operating come by chance is not operating as a refiner. And the other thing is very strong changes in the import-export balances. We've had a couple of weeks here with Line 2. Colonial pipeline Line two has not been allocated. It traditionally is always allocated and that is of course the distillate line that comes up from the Gulf Coast to Linden, New Jersey. And the reason for that is because the United States has become the marginal supplier of an export barrel in the wake of cutbacks in Russian production and the inability of Russia to supply markets in the US. And in Latin America, on the margin, the United States is now supplying the distillate exports particularly ULSD, net exports out of the Gulf Coast and the country have been very high. So the reality is when you put all that together, we've seen an interesting situation here where in the last several weeks on the EIAs, we've had okay demand, but not as strong as last year; high-capacity utilization in the US running in the low 90s. And at the same time even with that -- because of that, we've actually had draws in clean products particularly distillate. And in PADD 1, as you are well aware, we are very, very tight, very, very low on distillates versus the five-year average.

Yes. It's really quite something to watch. Okay. Well, I guess my second question since the other super-tight market seems to be the West Coast, obviously detail the issues in Q1. I was just curious, as you look at that market with the planned work at Torrance in June, seems to be balancing out a little bit better on gasoline there. But is it the same situation on the tightness in distillate is what's driving the West Coast, or is it an improvement in demand? Just curious what you see there.

We're seeing demand hold up on the West Coast relatively strong. Distillate, yet has recovered. One big thing that we're seeing is the traditional imports from Asia of jet fuel into the West Coast had slowed down significantly. That in combination with there has been a fair amount of downtime. We had some in the first quarter that Matt referenced and we do have some planned in June. But there are other refiners Chevron Richmond has I think scheduled a crude turnaround in June as well. And again, the West Coast has not been without rationalization. The Rodeo refinery is converted partly already to renewable diesel. And of course the Marathon Avon refinery has been isolated. So, it's kind of the same story. It's reasonably good demand, less refining capacity coming in with tight inventories and in fact less imports into the West Coast.

All right. I appreciate it. Thank you.

Thank you.

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

Good morning. Tom, I wanted to ask you a follow-up on the East Coast. Given the tightness and the robust outlook there for product balances, how hard would it be for you to bring up your previously idle clean product capacity?

Very good, Theresa. While we did start up two of the units that we had idled during the pandemic in our Paulsboro refinery and that would be the reformer which obviously makes gasoline, high-octane gasoline. And one thing everybody should look at is we've seen a pronounced increase in the spread between premium BOB and RBOB. So we brought up the reformer and we brought up the distillate hydrotreater, which produces ULSD. And obviously that was a good decision given where we are. The remaining units though we will likely -- we certainly will continue to look at it, but we'll keep down. And the major reason for that is what we've shut down is a cat cracker which is north of 50,000 barrels a day in FCC; and a crude unit which is 60,000 barrels a day. And if we started the cat cracker up and even if we started the crude unit up we would be short feedstocks for the cat cracker. And one of the things that, I think you're all aware of what we're looking at is going forward, while we this is a terrific environment in many ways, but except for the Ukrainian people. The fact is because of the problems with Russia and their exports we're likely going to get some tightness in secondary feeds as we go forward i.e. VGOs fuel oils that would normally feed to cat cracker. So the fact is we've started up what we can start up. And if we started up the other units, we couldn't run on that capacity.

Got it. That's great color. And Erik, just on capital allocation. How should we think about the path of deleveraging? And is there any appetite to further equitize your balance sheet from here?

I think at this point our focus today is really on getting these refinancings done at PBF and PBF Logistics. Once those are done we believe that will remove at least some of the overhang that we see on the bond complex. The unsecured bonds should trade up there probably a weighted average circa 90 today. And then from there we can address the 2025 maturities. I think right now we're looking at a forward curve that is extremely attractive and that's why we're continuing just to focus on safe and reliable operations. We've spent a significant amount of CapEx in the first quarter right? That's starting to kind of trickle down through the remainder of the year with only $200 million in the back half of the year. So we've got a pretty clean runway across the board. I don't think at this point, there's really much to say in terms of equity. We're really focusing on what we can capture near term.

Thank you.

Thank you. Our next question comes from the line of Doug Leggate with Bank of America. Please proceed with your question.

Hey, good morning, guys. This is Kalei standing in for Doug. My first question concerns your cash flow capacity in this environment. So cracks today obviously are unprecedented. So modeling capture will have its challenges, but I'm hoping that you can help us calibrate. So my question is how much cash flow did you generate in the month of March? What does April look like? And if you ran today's cracks how much could you delever this year?

Kalei, I think it's going to be very difficult for us to comment on specific monthly performance. What we can say is that, it's relatively easy to look at how much the market improved from the end of last year through March. And so the trajectory was clearly that significant amount of profitability was generated towards the back half of the first quarter. Clearly that trajectory has continued as we look forward. A couple of things in terms of cash flow. We did build inventory during the quarter. So look we filed our Q this morning looking at the balance sheet and cash flow statement. You can ultimately see we've got about just shy of $400 million worth of – essentially a use of capital during the quarter. We expect that a significant portion of that will come back to us throughout the second quarter as we work those inventories down. The bulk of those inventories were built as a result of the heavy maintenance activity that we experienced along with the unplanned downtime out on the West Coast. So for us I think we're really probably more bottoms up in terms of what costs do we need to cover. And as we look forward into the second quarter, we've got between call it $150 million and $165 million worth of CapEx to cover. We do have interest payments to make. And ultimately we should see – we cannot control the hydrocarbon price, but we ultimately should see some benefit from working capital as we lower our inventory levels through the second quarter.

Thanks Erik. I know that's not easy. So I appreciate you giving it a shot. The follow-up question is, just on diesel time spreads. So obviously the curve today is steeply backward dated. Can you talk about any challenges in capturing those margins?

Tom, do you want to take that?

Yeah. I think in terms of that question, I think it's a broader theme across the entire marketplace. I mean, between what we're – dating back to when the disruptions were taking place in the market would initially look like a crude problem has turned into being through a combination of the adjustment of trade flows on the release of strategic stocks that's put the crude market back into better balance. And the product market is certainly telling you to shorten your supply line – or your distribution excuse me in terms of moving that product out as swiftly as you can in selling it in the local markets.

Perfect. And if I could sneak just one last one in there just one – just a housekeeping question. So the 10-K – or the 10-Q shows that the value of your RIN obligation is increasing in a rather flat RIN price environment. So the question is did you cover your cash obligations in 1Q?

We did cover our cash obligations in 1Q. I think we're sitting here managing what is essentially a three-year program at this point. That's why the pending news that we expect to come towards the back end of this quarter should ultimately help us understand exactly what we need to do. I think we tried to provide in our commentary of the roughly $600 million of RIN-accrued expense that's carried on the balance sheet today that ultimately roughly a-third of that should be covered with firm fixed price commitments. Just to give a bit more color on that we do expect about 50% to 60% of that 1/3 should be covered throughout the second quarter of this year.

Perfect. Thank you, guys.

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

Yeah. Hey. Good morning. Erik first question for you, just a bit of a follow-up on the leverage knowing that the refinancing and debt pay-down timing that you laid out there can you kind of contrast that to where you ultimately want the leverage ratio to get to? I think in the past you've targeted under, 40% net debt to cap if I'm remembering that correctly, but if you could just refresh us where you'd like that to get to kind of feel comfortable that you've achieved your leverage targets.

Yeah. That is a long-term being under net debt to cap of 40%. I think if we were using kind of rating agency-driven metrics from a net debt-to-EBITDA standpoint it's probably somewhere under, 2.5 times. I think one important note on that is, on a trailing 12-month basis we've got adjusted EBITDA of $950 million. It's probably slightly north of that, once we account for all the adjustments related to mark-to-market RIN in AB 32/LCFS noise. The cap can significantly accelerate with the type of forward curve that's presenting itself today. Said a different way our business right we've talked about getting back to a mid-cycle number. You assume our consolidated EBITDA should be between $1 billion and $1.5 billion in a mid-cycle environment we are tracking very well towards that path.

Right understood. And then my follow-up question would just be around the operating cost in the first quarter knowing it was a heavy turnaround period winter seasonality unplanned factors and other things. Would you say there are, any kind of onetime factors that led to a bit more elevated OpEx, or just in general how should we think about OpEx for the rest of the year?

I'll take a shot at it Phil. One thing that is a factor for the first quarter and even now it's a tale of two stories here, we did have elevated natural gas pricing in the U.S. and particularly on the West Coast. And obviously that impacts our operating cost. And frankly we still are -- we're up in the -- no longer in the $3 million to $4 million per million BTUs. I say it's just tale of two stories, because while we are seeing slightly elevated natural gas costs that are impacting our operating cost obviously, we are strategically advantaged significantly advantaged versus refiners in Europe and Asia who are seeing -- and you know very well. So it's dramatically higher natural cost prices in the first quarter and the end of last year, as inventories were tight. They have compressed, but still if we have $6 gas and parts of the rest of the world have $25, $30 per million BTU in gas that's a longer-term strategic advantage for us. Other than the natural gas cost impact which was not insignificant in the first quarter, the rest of it was really due to downtime and some throughput reductions particularly the power failure at Torrance which impacted the per-barrel cost.

So to think on a go-forward $6.50 to $7 is a more reasonable per-barrel number with the higher throughput you're going to have or...

Yeah I think so. In that range certainly and as I said that is a competitive advantage for U.S. refiner right now. And it's part of the reason back to I think Roger's question we are the exporter of record if you will to supply parts to the world right now.

Excellent.

Thank you. Our next question comes from the line of Carly Davenport with Goldman Sachs. Please proceed with your question.

Hey. Good morning. Thanks for taking my questions. Just wanted to start on the macro side on your views on gasoline versus diesel, obviously diesel margins have been extremely robust quarter-to-date, but I wanted to get your thoughts around any potential ARB between gasoline and diesel margins as we move into summer driving season and contemplating any potential demand destruction on the gasoline side as well.

Very good question, I think this is fascinating time. And we've been doing this for a long time. But let me just start by saying, any refiner who knows anything about this business and most of them do, is doing everything in their power to turn every drop of gasoline into a gallon of jet fuel or diesel, because of the current marketplace. So the reality is that would result in probably some decrease in gasoline as long as this market holds in the structure, its got right now. You have some other things going on. We have entered into driving season. Obviously, we'll see how demand holds up. But I think the people in the United States and the rest of the world are going to try to see if they can get back to this normal life they can. And at least for a period of time we'll probably have some pent-up demand. And as you're aware we are now going into the low RVP season, so the butanes and et cetera, are coming out of gasoline, which will decrease gasoline yield. So I think we're in a situation where we're going to have to watch everything. What we're going to see is, well, if gasoline does get tight then what's going to happen is gasoline is going to obviously respond. And then in fact we might reverse them off, especially if this one comes off. And we would start -- because right now as I said, everybody is going to do everything they can to make distillate and jet fuel. If the ARB closes in if you will or the product price is narrower then that shift will happen and you'll start unmaking distillate and making gasoline. And over the course of time, it's all going to come back to the fact that in total we have very tight clean product inventories. And that should bode well at least in the short-term for a continuation of the favorable market environment we have.

Great. That's helpful. Thank you. And then the follow-up was just kind of around the Mid-Continent Syncrude, where you've continued to see Syncrude trading at a premium to WTI. It seems like there are a number of factors likely contributing to that dynamic. But just curious how you see those spreads kind of evolving as we move through the year and if that has any impact on the type of crude that you're sourcing at Toledo.

The second part of the question, do you want to take that? Go ahead.

I mean, in terms of the other -- the prompt end of the market, I mean, there's certainly been some maintenance up there. We just contributed to the strength in the marketplace. I mean, I think in a longer-term perspective, I mean, our slate that we run in Toledo in terms of coming from the north is it's got some optionality between what we were doing in the synthetic side versus sweet, but it doesn't -- I wouldn't expect any material changes in that aspect. And going forward in terms of increased production, et cetera, there certainly are plenty of incentives in terms of what the forward curve is telling you for increased production.

Thank you.

Thank you. Our next question comes from the line of Paul Sankey with Sankey Research. Please proceed with your question.

Good morning all. Guys the on market seems to like your utilization outlook. Can you frame any risks around that? You mentioned that you might be pushing more stuff through if you had more VGO. Is there some alternatives? And I assume everything is running well now? Thanks.

Yes. Well, we've gotten past the maintenance that we had and we've gotten past the unscheduled downtime that we had at Torrance. So we're certainly seeing our system run better right now than it ran in the first quarter. And hopefully that's the job that we have to do. The whole key to this thing as we've talked for years, Paul, is safe, reliable, environmentally responsible operations. And it's never -- it's always important. But we have the margin environment we have and we benefit from -- associated with that. In terms of some challenges, yes, I think the real one that we're looking at is right now particularly for PBF, because of the downtimes and turnarounds that we had in the first quarter, as Erik said we built the inventory and we built inventory in secondary feedstocks. So for the short-term and it is the short-term, we will not have to slack units, because we will be drawing that inventory down. But because particularly Russia and this is a significant item the constraints on Russia, while they may be selling a fair amount of their crude and they haven't seen the cuts as deep as perhaps people envision on the crude, the fact is they are having to cut their refining production, because they're running out of room to store products, because the product side is working. And that means that when they got crude, they no longer are exporting not only clean products and they can't export VGOs and they can't export fuel oil stocks that the world and the United States and PBF were buying in order to keep our -- the cat crackers and hydrocrackers full. And if that continues we're going to -- certainly sourcing different. We've gone to Latin America where we've been able to get fuel oil from Latin America and we've been able to find some other feedstocks. But it gets back to the prior question. There's going to be a time where if you don't have enough secondary feedstocks to fill all your cracking units hydrocrackers, cat crackers then you're going to wind up looking at well what's the diesel crack, what's the gasoline crack. And maybe at some point if the gasoline is higher -- much higher than gas diesel, what we're going to crack heating oil and turn it into gasoline. So we've got a number of knobs to turn, but it is clearly going to be a limiting factor as we go forward, especially, as I don't see an end to this situation for some period of time in Russia.

Got you. And then the kind of continuation of that would be obviously someone used the word biblical to describe current margin environment. Is there anything in the capture that you would highlight in terms of whether or not it's -- the headline margins are representative? And one of the obvious things is the coal products stuff that's not in the headline margins, I think, is also pricing very strong right? So I assume that you're essentially capturing this environment?

Well, there'll be some -- there's clearly some discount. I would say that right now you still have the light ends propanes they're strong, but there's still a pretty significant discount to the price of crude. But to your point, it is not the same market that we would traditionally see, because commodities are tight. We are -- coke. The price of coke is much higher relative to the price of crude than it historically has been. And the demand for coke remains pretty high. So, we're not seeing the discount. Certainly we're not seeing the percentage discount on the coal products that we historically, see because there's additional strength in those markets as well.

Got it. Thanks a lot.

Thank you. Our next question comes from the line of Paul Cheng with Scotiabank. Please proceed with your question.

Hey, guys. Good morning.

Good morning, Paul.

Maybe the first one is for Erik. Just want to confirm you say the second half the CapEx is projected at $200 million but there's no major turnaround. So can you -- I mean how much of the $200 million is related to the RD project? And how much is related to your normal operation in the Refining and Logistics? And on a normalized basis if we look forward, what does the annual CapEx should look like, excluding the renewable business? Thanks for the question.

The numbers that we laid out in our prepared comments exclude renewable diesel. So, when we talk for the full year 2022 $525 million to $550 million that range that is for -- again, our annual maintenance CapEx has averaged between $150 million and $200 million a year, regardless of whether it's pre, during or post pandemic. We anticipate that will continue to come on. So when we think through the turnaround cycle and we're back to a regular way turnaround, the safe assumption for this year is we're going to be spending $325 million to $350 million on turnarounds. About a third of it was flushed during the first quarter. Another a third more or less will go through during the second quarter. And the back half of the year has roughly $100 million related to or pertaining to turnaround-related activity at various different plants. On a go-forward basis, we anticipate we will be investing between $500 million and $600 million a year in CapEx. The biggest swing factor will be timing of turnarounds. So there may be some years where our turnaround expense is on the low end at $300 million and there could be other years where it's closer to $400 million or $450 million. It's going to be a little bit lumpy just depending on this three to five-year cycle depending on what we're doing with the major moneymaking units.

Erik, how much you spent -- you're going to spend in the renewable diesel projects in the second half?

The back half of this year -- the second half of this year, we anticipate having a partner that will cover a significant portion of that CapEx. As a reminder, it's a $600 million CapEx requirement. We have invested through the end of last year plus during the first quarter about 15% of it. So, we've incubated about 15% or $90 million worth of cash invested in that project. We believe there will probably be anywhere from another 15% to 20% during the course of the second quarter. Some of that may spill into the third quarter. I think our goal is to try to have a more fulsome update on renewable diesel the middle part of this summer which will basically be one year prior to what we anticipate as a start-up of that project.

I see. The second question I want to go back into the idea of equity reinsurance. I understand what you guys, was trying to focusing your effort in the refinancing and all that. But when we look at last time you used your equity -- secondary equity is probably around this time and that as an instrument. Does it make sense to take opportunity of a really strong appetite and strong share performance that -- to get some equity so that -- I mean, as I say, as an insurance policy?

Again, I think our message Paul is that we're extremely focused on getting these successful refinancings closed. That is a very big first step for us then we can address the 2025 maturities. There really is not much to say in terms of equity other than we feel like we've been extremely responsible with the timing around previous equity raises to make sure that ultimately we prepared this business for the long run. We've just come out of the most significant demand disruption event this industry has ever experienced and we made it through by making all of the right decisions. We anticipate continuing to do that on a go-forward basis.

Okay, great. Can I sneak in one final question?

Sure.

It's on the global light/heavy oil potential, has been quite narrow over the recent time at least in the last say four or five weeks. Just curious there how you guys see that's going to evolve.

Tom, do you want to handle that?

I mean, obviously, a very tricky market to try to get into, a whole lot of nuances around basis trading when we're in effectively one of the most volatile and unprecedented trading environment we've seen. I think the simple answer in the short-term is that basically a crude barrel is a wet barrel that is going to be consumed and run in its particular refinery. And then on a go-forward basis, I think it's really kind of getting through what the disruption looks like from a longer-term perspective and in terms of Russian crude production. And it's probably a little bit premature at this point to have a longer-term discussion on crude diffs just with every uncertainty in the environment that we're in today.

Nice. Thank you.

Thank you. Our next question comes from the line of Manav Gupta with Credit Suisse. Please proceed with your question.

Hey, Erik, we know behind the scenes you have been working very hard on the potential of a deal and a partner from the renewable diesel side. I just wanted to understand what would be your personal or company preference here? Because there are two kinds of deals out there Callum at Oaktree where the financial partner comes in but you retain the entire control and whether you should prefer equity or whatever. And the other part is then MPC-Neste deal where a financial but an operating partner comes in brings in a lot of expertise, feedstock and everything. But in the end you do lose 50% of your capacity. Both deals have different kinds of advantages pros and cons. And given that you have been working on this for some time what would be your preference between those two kind of deals?

Manav it's Matt. It's too early to tell what we're trying to do and we're doing it methodically and we're doing it thoroughly is evaluating all of our alternatives. And we feel like we have access to all different types of financing alternatives and partner structures and potential partners. And so we're going to make that evaluation and determine what's best. I can tell you that interest has been robust on the -- with interested parties. And so we're excited about that. And we've had a lot of collaboration from the marketplace in regards to what our view has been in terms of the advantages of our facility. And so we're going to continue to evaluate it and we'll make the best decision we possibly can. But at the moment we are committed to bringing in a partner on it. And I expect that will happen over the next couple of quarters.

Perfect Matt. And I think in the beginning you mentioned that there was some unplanned downtime at Torrance. If you could help us quantify the opportunity cost of that, so we can understand what would the West Coast results been had that downtime not happened. If you could help a little over there?

Yeah. So if you look at the West Coast there was a little bit of an LPO at Martinez. They're a little bit slow coming up from their turnaround. And we would characterize it as between $50 million and $60 million on the West Coast of missed opportunity.

Perfect. Thank you so much Matt.

Thank you. Our next question comes from the line of Matthew Blair with Tudor Pickering Holt. Please proceed with your question.

Hey, good morning. Thanks for taking my questions here. Your distillate yield of 34% in Q1 was the highest number in several years. Is that where things max out, or are there any other levers you can pull here? And then of that 34%, can you help us understand your jet exposure within that?

34 -- the distillate yield is -- as I said, anybody who's trying to figure out -- not trying to figure out how to turn gasoline into jet fuel and distillate is not doing their job. I'm very pleased with the steps that our organization has taken. I'll give you an example of one at our Martinez refinery. We said we had scheduled downtime and one of the units that was shut down -- in the past, Martinez would not be able to produce any diesel. But the organization figured out a way to wire up some other things and do what refiners do. And we were -- for the first time in Martinez's history during the first quarter we were able to make some distillate when in the past that -- we haven't been able to do so. But we're pretty much pushing every button we've got. Obviously 34% is a good number in this market. If we can do more we'll do more, but I'm very pleased with the way the organization has responded. The jet component of that is -- again, we are making more jet fuel than we've ever made. I don't have the percentage off the top of my head as we de-convert everything or convert everything that you can in a crude unit or a cat cracker or a hydrocracker to the premium products. So very pleased with how the organization responded there.

Great. And then Erik I think you referenced the strength in the futures curve here on the product side. Have you put on any product crack spread hedges? And if so could you share any details around that?

I don't think we have anything to share in terms of forward derivative contracts. We've ultimately been running the same derivative program for multiple years here where we're basically hedging against our baseline. So we haven't taken any type of incremental risk there.

Great. Thank you.

Thank you. Our next question comes from the line of Daniel Kutz with Morgan Stanley. Please proceed with your question.

Hey, thanks. Good morning. So I wanted to start off with just kind of a broad question here I guess given that we're in the global refining complexes that conditions are so tight, margins are extremely strong. I just wanted to get you guys take broadly on, kind of what's the risk to the downside for refining margins. What's kind of the path to crack settling back down? Is it -- does the government step in to support the consumer? Does demand destruction kick in but maybe it takes longer? Maybe it's not a near-term thing, the supply come back just wondering your broad thoughts on that topic.

I'm just going to interject one thing at the front end, because you said as the government can kick in to lower the price for consumer. Please do not lose sight of the easiest way for the government to step in and lower the price for the consumer, is do the right thing with the RVO. We say it and we say it again. And I think Pelosi and Schumer were meeting yesterday on ways that they can increase the microscope, with the FTC to see if there's price gouging. There's virtually no price that we are a price setter on. But absolutely the easiest thing the government can do, is to adjust the RVO which is now adding somewhere between $0.20 and $0.30 a gallon to the price of gasoline. So I say that front and then I'll turn the rest over to Tom.

Yes. Two sides slides on your question. It's a very good question. First of all, I would say that, of the things that are in our market today that are creating the tightness and the favorable market conditions going forward I think there's two of those pillars if you will that are likely going to continue and that is the natural gas pricing advantage that we have in the United States. And then the second, maybe it's the first is the longer-term impacts of what Russia has done. And that capacity is probably -- refining capacity and export capability may be lost for a significant period of time as this consequences to their action. Now on the other side of your question, what is the big threat? Well the biggest threat to me is that there's an escalation of the Ukraine/Russia situation and that I don't want to say it gets out of control. But certainly the longer it goes and more it escalates the more problematic it is going to be for the people in Ukraine and also potentially for other parts of the world. After that inflation. There's clearly -- the White House and the administration is pounding to tell that on the price of gasoline at the pump. Inflation, food inflation other things all commodities metals et cetera, obviously you're all well aware of that. In fact we're seeing that. So if it's going to be a certain extent if the Fed can navigate this in a reasonable way, then we won't have an impact -- a significant impact from that. But if it can't then you get back to where we were in the late '70s. That would probably lead to demand destruction because of -- people don't have as much free cash to be spending and they'll be cutting back over the place. So I would say i.e. it's the Russian conflict; it's inflation in general. And those -- both of those things could lead to a recession and that would be the thing that I do worry about. I don't think it's going to happen myself but that's beyond our control and that could result in a pretty significant impact to the economies of the world.

That's great color. Thanks a lot, guys. And just a quick unrelated follow-up. Erik I think in the past that you kind of shared what the credit facility availability was as of the earnings call as kind of as of today. I was wondering, if you could share that number. And if not no worries. I know you kind of gave a bunch of color on an earlier question that could kind of help us triangulate but just wanted to ask if you had that number that you can share.

Yes. So at the end of the quarter we had about $2.6 billion -- north of $2.6 billion of liquidity. The -- just a quick math is more than $1.2 billion available under the credit facility and roughly $1.4 billion of cash.

Got it. I was asking if you had that number as of today.

The borrowing base has continued to increase in terms of where prices have gone. So it's flat to where we were at the end of the quarter.

Got it. Thanks a lot guys.

Thank you. Our next question comes from the line of Karl Blunden with Goldman Sachs. Please proceed with your question

Hi, good morning. You've been carrying a lot of liquidity and I think at times you've described it as excess liquidity or an insurance policy. We're starting to get a bit more visibility into the market but still volatile. At what point, do you think that it would be appropriate to start reducing that excess liquidity? And what's the right level for the business to get to?

Pre-pandemic we saw liquidity bounce anywhere from $750 million to $1.5 billion. And so that's probably a reasonable number for us long term. The excess cash that we are carrying around, our belief is once we get through our refinancing efforts that ultimately we'll have cash that's available to continue to delever. It's already delevered on a net basis. We believe that the market will need to see action around what that cash is used for. I think we've been vocal that we have some very expensive secured bonds that are on our balance sheet. That's one potential avenue that we have in terms of delevering on a go-forward. We also do have balance on our ABL that we're carrying. So I think across the board it is using a portion of that cash to then delever the business going forward.

That makes sense. Thanks, Erik. And then just with – we spoke a bit earlier on the call about the Chalmette renewable fuels project and different options you have available to yourselves. Are you at a point here where you'd be comfortable taking on most of the financing yourself, or are all the options that you're considering going to provide the material financial support from the partners you're looking at?

At this point we're committed to finding a partner that we think is most attractive. So we're going down that path. Obviously, everything is fluid in today's market. But at the moment we're going down the path. And like I said earlier there's been robust interest from marketplace. So we'll continue to evaluate it but we're committed to the path we're on.

Thanks very much.

Thank you. Our final question this morning comes from the line of Jason Gabelman with Cowen. Please proceed with your question.

Hey, good morning. Thanks for taking my questions. I had two. The first I wanted to follow up on your answer on risks to the refining margin. Staying strong I mean you kind of mentioned a recession being the biggest risk which is more of a tail risk. But I guess my question is in – within kind of a more normalized global environment. Do you see a path forward to refining cracks eventually normalizing, or do you just expect them to remain at very excessive levels further beyond just the immediate future? And if not what's kind of the path forward to getting to a normal absent a recession? And then I have a follow-up. Thanks.

Okay. First of all I do not have question-like abilities to be able to project what the prices are going to be in the future but the – I will make a couple of comments on your question. I do think there are structural changes right now that are underway that are more – I don't want to say permanent in nature but they're going to have a longer playing field and I referenced those. The advantage for US refiners or any refinery who has got access to a relatively cheaper natural gas is going to be a structural advantage and there will be a disadvantage for refiners in Europe and Asia who have – don't have that. In fact they have to spend a lot more to buy natural gas whether it be to power up their plants or to supply hydrogen in hydrogen plants. And in fact that may result in reduced capacity utilization in those areas. And the other one is the longer-term impacts. I don't know what longer term is but is it two, three, four years of what the outcome ultimate outcome of the Russian-Ukraine invasion is in terms of particularly Russia's ability to continue to be the power that they have been in the energy markets And so there's a case that says that, there could be tailwinds that will exist for some period of time that a structural nature that will make a difference. That being said, obviously we have a very favorable market environment right now. And trees don't grow to the sun. So if there's some chance I would expect there'll be some normalization. But at what level? [indiscernible].

Great. Thanks. I appreciate that additional color. And then second just on the renewable diesel project. Since we're a year out I was wondering if you have a sense of what the feedstock slate for that project will be, especially given the feedstock market getting seemingly tighter by the day. Do you have good visibility in terms of the feedstock that you'll be able to access for the renewable diesel project? Thanks.

Our visibility is really focused on maintaining full optionality and that's why the plant will come on with a full pretreatment capability. Predicting what feedstocks will be in a year's time is probably a fool's errand but we're going to make sure that we have maximum flexibility to process whatever is most economic at any given time. And I'd also comment that Tom's commentary around natural gas in Europe that will also be a big boost for renewable diesel production in the US. So I think we'll be structurally advantaged for some time. And in regards to specific feedstocks I can't tell you but what I'll tell you is we'll be able to process anything that is available. And so we'll be committed to running the cheapest feedstocks we can possibly run or the most economic ones.

Got it. Thanks for your answers.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the floor back to Mr. Nimbley for any closing comments.

Well, thank you very much for your participation in the call. We are certainly in interesting times. So we will do our best to do – make the right decisions during this period of time and beyond. And we look forward to our next call in the end of the second quarter – after the second quarter. Thank you very much.

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