PBF Energy Inc (PBF) 2015 Q3 法說會逐字稿

Good day, everyone. And welcome to the PBF Energy third quarter 2015 earnings conference call and webcast. (Operator Instructions). It is now my pleasure to turn the floor over to Collin Murray, Investor Relations. Sir, you may begin.

Thank you, Steve. Good morning and welcome to our third quarter earnings call. With me today are Tom O'Malley our executive Chairman, Tom Nimbley our CEO, Erik Young our CFO and several other members of our management team.

A copy of today's earnings release including supplemental financial and operating information is available on our website. Before getting started, I'd like to direct your attention to the forward-looking statements disclaimer 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.

As also noted in our press release, we will be using several non-GAAP measures while describing PBF's operating performance and financial results as we believe these metrics are useful but they are non-GAAP measures and should be taken as such. It is important to note that we will emphasize adjusted fully converted earnings information and results excluding special items. Our GAAP net income or GAAP EPS figures reflect the percentage interest in PBF Energy Company LLC owned by PBF Energy Inc. which averaged approximately 94% during the third quarter.

We think adjusted fully converted net income and EPS are meaningful metrics to you because they present 100% of the operations on an after tax basis. Before Erik discusses our results, I'd like to take a moment to review the non-cash lower cost of market or LCM inventory adjustment that we recognized in the quarter.

As mentioned on our previous calls, we assess our inventory for the potential of an LCM adjustment on a quarterly basis. In future movements, up or down, of hydrocarbon prices could have a non-cash positive or negative impact to our reported earnings. During the third quarter of 2015 average hydrocarbon prices decreased, and for PBF, this generated a $124.6 million after tax non-cash inventory charge.

For the purpose of today's call, the comments we make in regard to our results will exclude the impact of the non-cash LCM inventory adjustment. I will now turn the call over to Erik.

Thank you, Collin. Today we reported third quarter operating income of $298.4 million and adjusted fully converted net income for the third quarter of $169.4 million or $1.85 per share on a fully exchanged, fully diluted basis. This compares to operating income of $284.1 million and adjusted fully converted net income of $155.6 million or $1.60 per share for the third quarter of 2014.

Adjusted EBITDA for the quarter was $347.6 million as compared to adjusted EBITDA of $351.6 million for the year ago quarter. For the third quarter, G&A expenses were $53.3 million, as compared to $34.3 million a year ago. The increase is largely attributable to higher employee expenses and additional acquisition-related costs, including staff augmentation.

Depreciation and amortization expense was $48.1 million versus $68 million in 2014, which included the one time $28.5 million charge related to the abandoned hydrocracker project at Delaware City. Third quarter interest expense was $28 million compared to $24.4 million last year. PBF's effective tax rate for the quarter was approximately 21%, which included a one-time true-up for the year end 2014 tax provision.

Our year-to-date effective tax rate is approximately 36% and for modeling purposes you should continue to assume a normalized rate of 40%. PBF ended the quarter with liquidity of approximately $1.2 billion. Our consolidated cash balance was approximately $707.1 million, including marketable securities, and our net debt to cap ratio was 26%.

For the quarter, refining and corporate CapEx was approximately $53.4 million, which excludes railcar purchases and sales. For fourth quarter modeling purposes, we expect refinery throughput volumes for the Mid-Continent to average between 150,000 and 160,000 barrels per day and the East Coast should average between 320,000 and 340,000 barrels per day. We expect our operating costs for the year to range between $4.75 per barrel and $5.00 per barrel.

G&A expenses should be in the $155 million to $175 million range, which includes incremental costs related to our acquisitions and employee incentive compensation. Depreciation and amortization should be in the $190 million to $200 million range and interest expense should be approximately $105 million to $115 million for the year. We continue to expect CapEx, including maintenance and turnarounds, but net of railcar purchases, to be approximately $200 million excluding Chalmette.

We're still in the process of finalizing our 2016 budget, but have turn around scheduled for Delaware City's fluid coker in the spring and for the Paulsboro FCC in the fall of next year. We expect turn around activity at our other plants to be relatively light in 2016 and will continue to provide updates as we move into next year. Our board has approved a quarterly dividend of $0.30 per share, payable on November 24th, to shareholders of record as of November 9, 2015.

Before turning the call over to Tom Nimbley, I'd like to comment on a couple of other notable items. First, regarding Chalmette, we are in the final stages and expect the transaction to close on November first. We are looking forward to welcoming the Chalmette employees to the PBF team and are excited to enter the Gulf Coast market.

We will use our existing liquidity to fund the $322 million purchase price and approximately $125 million to $150 million in net working capital for Chalmette. Hydrocarbon prices have declined since we announced the transaction and we will be saving approximately $75 million of inventory-related costs versus our acquisition model.

As we look ahead to the Torrance closing, I think it's important to comment on our successful equity offering that we completed earlier this month. PBF Energy raised approximately $344 million in net proceeds from a sale of 11.5 million shares. This has increased our current liquidity to approximately $1.5 billion and represents a significant component of the capital required to fund our growth plan.

Also of note today, PBF Logistics announced the distribution increase to $0.39 per unit. As a reminder, PBF Energy owns 53.7% of the units of PBF Logistics and 100% of the general partner and incentive distribution rights. We are now benefiting from participation in the second level of the IDR splits.

I'm now going to turn the call over to Tom Nimbley for his comments.

Thank you, Erik, and good morning, everybody.

Toledo and the East Coast combined to deliver another positive quarter for the company. Cracks on the East Coast and Toledo were strong throughout the quarter. Flat prices of crude decreased, which benefited the bottom of the barrel economics, and crude differentials widened versus the prior quarter.

During the quarter total throughput for our overall system was about 475,000 barrels a day. For the quarter operating cost, on the system-wide basis, averaged $4.57 a barely, $4.19 a barely in Toledo, and $4.79 a barrel on the East Coast. The East Coast operating expenses were higher than planned as a result of the lower throughput and increased expenses associated with the SEC outage at Delaware City, and the planned maintenance crude unit that was originally planned for the fourth quarter, but was advanced into the third quarter when the SEC was shut down.

In the third quarter Toledo had its best operating quarter ever. Toledo's record throughput for the quarter resulted in a 10% to 20% yield increase for our high value products versus previous levels and the refinery realized a gross margin of $16.44 per barrel.

Toledo's performance during the quarter is reflective of the major SEC overhaul undertaken last year, and the improvements that were installed at that time. We were able to operate the plant safely and reliably during the quarter, which allowed us to benefit from the strong market conditions that existed. We expect the improvements to continue as the work for the previously-announced chemicals expansion in Toledo was completed in the third quarter and we expect that to improve margins by approximately $15 million to $20 million on an annualized basis.

The refining margin for the East Coast system was $10.98 per barrel as the East Coast benefited from strong cracks as well as favorable pricing for certain individual products such as premium gasoline and asphalt. Asphalt pricing was favorable due to the lower flat price environment, which also helped spur increased demand. Octane values were extremely strong in the third quarter, as demand for high octane gasoline increased with the lower flat price and the industry struggled to absorb increasing amounts of low octane, straight run gasoline that is being produced with the increased runs of light sweet domestic crudes.

In addition to favorable product differentials, we experienced a beneficial widening of certain water born crew differentials such as the Brent-ASCI differential which improved $2.42 per barrel versus the prior quarter. Similar to the second quarter, rail differentials remained uneconomic and our rail delivered crude volumes were significantly reduced.

Our East Coast results for the quarter and for the year-to-date demonstrate that the East Coast system is not dependent on any particular crude for profitability. The rail infrastructure of PBF Logistics is strategically important to PBF because it is our main access point to North American crude oil. Coupled with water born access, we expect that both avenues will lead to profitability for our system at different times depending upon market conditions.

It is critical for PBF to have this flexibility. We are generally pleased with the overall performance of our system this quarter and continue to work on enhancing our profitability both organically and through acquisitions. We are working on a number of smaller projects and continue to advance the permitted hydrogen plant project at our Delaware City refinery, we continue to expect that this project will be in service towards the latter half of 2017 and when complete, should add approximately $80 million to $100 million of incremental margin to the East Coast system. Turning to our acquisitions, as Erik mentioned, we expect to close Chalmette on November first and we expect Chalmette to be a contributor to our earnings in the fourth quarter. On our previous calls, when we've discussed the Chalmette acquisition and its potential, we have highlighted several areas where we expect to make margin improvements. These improvements will not occur on day one, but they'll be stepped into overtime and we expect to begin seeing results from our efforts late in the fourth quarter and first quarter of 2016.

As we become more familiar with the asset, we will continue our evaluation of additional opportunities to improve margins, including the potential of restarting the hydrocracker that shut down in 2010 and a reformer that is currently idle. The Torrance acquisition is a little further out and we are currently targeting a second quarter 2016 close. As we mentioned before, the acquisition will only close once ExxonMobil has proven the refinery to be fully operational. Let me very clear on this point.

PBF will not close on Torrance if we have any doubt about the refinery's operational status. Pro forma for both acquisitions, after pro forma for both acquisitions PBF will be the fourth largest independent refiner in North America with a presence in all of the U.S. coastal markets and the robust Mid-Continent market. We will have increased our refining capacity by over 60%, and diversified our earnings base by adding the pad three and pad five markets to our footprint.

I would like to now turn the call over to our Executive Chairman, Tom O'Malley.

Thank you very much, Tom. I'll be very brief. This is probably the first time in quite some time that I can say really good job, well done. We did have the one upset at the Delaware City refinery, but generally we ran extremely well and we are realizing the benefits of changes that we've made.

Looking forward, certainly for me, I've always been growth oriented. I continue to be. And the acquisition of the Chalmette refinery within a few days should be a real stride forward, and then we follow with Torrance in California, a market that we know very, very well. I don't think we're going to see a lot of other acquisitions over the next six months on our part.

We're going to be very busy with these two acquisitions. And we're going to focus not just on acquiring and operating these refineries at a safe and reliable way, but also on making sure we have the balance sheet in good order. Thus I don't think there's going to be any share repurchase over the coming year. We're going to focus on growing the earnings in the company from these acquisitions.

On that note, we'd be pleased to take whatever questions you have.

(Operator Instructions). Our first question is from Roger Read from Wells Fargo. Your line is open.

Hi, good morning.

Good morning.

And congratulations on the quarter. A good solid quarter. Can you give us a little more clarity maybe as we look at the East Coast in terms of the amount of high octane gasoline you made, kind of what your yield is to maybe a broader East Coast, kind of help us quantify the positives of that, especially since it looks like in the summer of 2016 we're going to have a similar situation?

Tom?

Yes, we've seen about a 10% increase in actual sales of premium gasoline. In addition, out of our East Coast system, we sell [refamade], high octane refamade, a very high octane, which either goes into the chemicals market or goes into third party people who are buying it to blend their gasoline, so we've seen an uptick in premium demand. That was coupled, however, with a very large increase in the third quarter particularly, in the spread between RBOB and PBOB, you can look at it in the market. It was very high.

It's actually still about $5.00 a barely and that's come off significantly from where it was in the third quarter. And just in context, year-to-date, the spread between New York RBOB and PBOB is about $10.00, which is, as you know, a rather extraordinary spread for octane, and as I said, it's a combination. It is difficult to absorb some of these increased volumes of light straight one that are coming out of the share revolution, if you will, because they're relatively low in octane.

And is there, this is just a follow-up to that, is there anything that you would expect PBF will be able to do over the next several quarters leading into the summer of 2016 to do anything to increase your octane or capability of making October tainted or acquiring it?

Actually, very good question. I alluded to the fact there was a reformer shut down in Chalmette, it was shut down, along with a hydrocracker and a small coker, back several years ago, and what the joint venture referred to as the new business model. We are looking at those units to see how we can capitalize them. But imagine, I would say one other thing, Roger.

The whole industry is also dealing with Tier 3, and the way you pretty much comply with Tier 3 gasoline is, you remove the sulfur by increasing the severity on your hydrotreating operations, which does get the sulfur out but also destroys octane. So one of the things we're going to be looking at and focus really on, we'll do some on the East Coast because we have some spare capacity but Chalmette, we're looking at that reformer as a way of buying that or running some of the light crudes we might be running at Chalmette and increasing the amount of refamade production that we have out of that facility.

Okay. Well, that's very help helpful. Thank you.

Our next question is from he have and Evan Calio from Morgan Stanley. Your line is open.

Good morning, guys. I know you have a transition team in place in Chalmette and closing here kind of very shortly. Can you comment on your confidence in the achieve ability of your optimized guidance on the July margin assumptions given recent learnings? Any up sides or downsides you can talk about from what you've learned on site since the last call.

Tom?

Yes, we've continued to get more and more information, more access, and we continue to be generally optimistic, more optimistic that the numbers that we've drawn out are achievable and there's a chance that we could exceed them.

The condition of some of the idled equipment, now, we're not completely in it but at least from the reports that we've had access to, they have been well protected, they're under a nitrogen blanket so we don't think there's going to be a real problem, huge problems, anyway, in starting them up if indeed we think they're economic, and I will tell you, we were pretty sure we're going to be able to utilize some of that equipment.

As regards the base operation, Chalmette has had a good year, and they better have had a good year because if you can't make money with the market that we've had in this year, there's some issues. But as we take it over, we do believe, and we've already started taking steps on the product side to change where we're selling some of the products that are coming out of there, out of that place, and also the dispositions on that.

And, frankly, starting to change the crude slate around. One of the things that we thought would be of benefit is that Chalmette was obviously being run in certain ways as integrated into the ExxonMobil Gulf Coast system. We're going to shift the crew slate around, there's obviously pretty good differentials that exist between Mars and LLS or HLS and Mars and we believe that is going to work. Certainly in this market, low flat price and wide spreads to our advantage.

Maybe a follow-up to that and your prior comments on how long it takes to achieve your optimized state. I know you had an acquisition case and a PBF optimized which had about $100 million of delta, I mean, can you talk about what, maybe in the buckets that you talked about, like crude sourcing and yield and optimization, I mean, can you talk about, you know, what phase in faster and what takes longer and any kind of scoping on time so we can kind of understand that?

Yes. I think obviously, if you look at what we've said in the past, we talked along the lines of $55 million to $70 million of EBITDA improvement on an annualized basis from the combination of optimizations, changes, improvements on the crude and product side. We believe that will come faster. And it really will come faster because of what I said, the market is our friend right now.

If it turns, then we would have to deal with it. But certainly some of the things that we were forecasting and thought would be opportunities for us are coming to fruition. We will be running more medium sours and we will be making some crude substitutions. We will be looking to do something different with the bottom of the barrel, maybe even integrate that into our East Coast system, and maybe perhaps make more asphalt, things of that nature that would contribute to that.

The other optimizations, in terms of how we treat yields and maybe reduce operating cost or get into some new products, that's going to be kind of mid range, you know, we frankly have to get in there. And then obviously coming behind on the back end of it will be the benefits associated with the idled equipment because, frankly, we really can't ascertain that until we open up this equipment and verify that it indeed is not going to be, there won't be minimal issues with starting it up.

That's good. That's good. Maybe shifting gears on Torrance, I mean, is there any, you know, since the last call, I mean, is there any update that you have on the ESP process and kind of still on track? I know you're not assuming control until its fully operational and proven so, but is it on track for a February start-up date?

Yes, they have advertised February 16th, and on that basis, we said if, you know, typically six weeks, assuming no hitches, we would be targeting perhaps an April 1st. I would say California is a difficult environment, and that's probably a little bit of a strong lift for them but hopefully they will be able to make it and we're looking forward, we would obviously like to get it as we enter into the gasoline season.

That makes sense. All right, guys. We'll leave it there. Thank you.

Our next question is from Chi Chow from Tudor, Pickering, Holt. Your line is open.

Okay. Thank you. I want to ask a couple questions on your East Coast crude slate. You know, it looks like you ran more sour crude than ever on the East Coast, both mediums and heavies. Can we expect a similar run rate going forward given the widening of the percent discount from the medium, heavies we've seen in recent months?

Yes, certainly if this market holds and you're exactly right, that we're going to run probably 55,000 barrels a day of rail crude or 60,000 barrels a day of rail crude as we go forward, we have a 30,000-barrel a day contract with Exxon. We might move some of that to Chalmette. We'll split it between Chalmette and the East Coast and we have kind of a baseline of about 25,000 barrels at Bakken that is economic and even at despreads because of the benefits it has in the still.

Beyond that, the economics completely favor running medium sours and heavy sour crudes and of course the fact that we have these cokers, we are able to do that and that is a demark from the rest of the (inaudible) facilities. Certainly our economics now continue to favor that, and as I said, frankly, that's the type of crude slate we'll be pushing into Chalmette because the economics are attractive. And it's not only just the absolute spreads but you hit on it, this having a $4.00 or $5.00 Brent-ASCI spread at $100 crude is one thing, having that at a $50 crude price is a different paradigm.

So we would expect that that's the slate. We're running Paulsboro effectively 100%, medium sour, we're running Vasconia, we're running Aramedium Isthmus, we're running no light sweet crudes and the only light sweet crudes we're running in Delaware, we plan to run at this 25 a day or so at Bakken that we see benefits just from having the base load in.

Thanks for that color, Tom. So there's just a lot of interesting moving pieces in the heavy crude market right now. You do have the Canadian heavies available now in Houston via pipeline. We just heard about this approval of the crude swap with Hemex for Mya can, you talk about how you're thinking about these and other dynamics long-term on the impact on the heavy crude market?

Well, I think my view and Tom might weigh in as well, is, over time, we'll have to see what happens. You've seen recently some announcements by Shell cutting their CapEx in the upgrades in Canada, but the world is awash with crude. You've got Iran coming on board next year. You've got increased production in the Middle East. The Colombians are pushing a lot of crude in the marketplace.

So while we clearly see the pressure being, existing from the domestic cutbacks on light shale, and certainly if you are completely reliant on light shale crude on the East Coast, you have a little bit of an issue because it's landing in at a pretty big number. Western Canadian crude, we can run, even at these spreads we can probably run it and make a little bit of money, and Chalmette can run it because, obviously, you can get it down there a little bit cheaper, but we also believe that there's going to be opportunities in the medium sour market and heavy crude market going forward, and we're positioned to be able to take advantage of that with the equipment we've got.

It certainly seems that way, with adding Chalmette and Torrance, and it certainly appears that you're making a bet on the medium and heavy crude market. Was that a conscious decision or was that just how the chips fell with the acquisition market?

Tom, let me take that. Look, in terms of a conscious decision, we've long had the view that the flexibility to handle medium sour and heavy sour crudes is at the core of future profitability for the company. Tom already mentioned the concept of the world having a lot of crude available.

Certainly if you look at Iranian crude, which long ago used to come to the United States, it really looks like Iraqi and Saudi crude, you know, 1.5% to 2% sulfur, 30 gravity, perhaps a little heavier, a little lighter, the Iranians are going to be produce quite a bit more crude. Certainly I would think that the growth in Iraqi product will continue, albeit it might have interruptions given the military turmoil out there, but the ability to run these heavy or higher sulfur crudes just has to be a tremendous advantage for us. And we would prefer to buy refineries that have that ability, therefore, I suppose you could call it a conscious decision.

Great. Thanks, Tom. Erik, I just have one kind of bookkeeping question. Can you help us reconcile the cash position at the end of the quarter? It's just a bit surprising to see the cash balance going down sequentially from 2Q given the earnings results. Was there a big draw on working capital or something like that?

Yes, there was a roughly $300 million draw on working capital and it's really a timing question 2Q to 3Q. We expect to get a good portion of that back here as we go into Q4. So that was going to be your biggest driver overall. And think about it in the context of we had a decent amount of payables on the balance sheet and also picked up in the crudes at the end of 2Q that then were ultimately paid into 3Q.

Thanks. Appreciate that.

We'll take our next question from Johannes VanderTuin from Credit Suisse. Your line is open.

Congratulations on the solid quarter. Especially up in Toledo.

Thank you.

A quick first question, which had to do with, you've been able to benefit from the volatility within quality differentials, which are, you know, to your advantage being on the coast, being able to have cokers and things like that, which is a fantastic thing to have. On the other side of it, you know, as you noted the rail (inaudible) is generally closed because crude diffs are narrow.

Does that change your thinking about, I guess, in drop downs in to PBFX over time and not necessarily what you drop down total EBITDA but just the order of which assets look for attractive to drop down into the FMLT versus less in the medium term?

Tom, let me take that. Look, we're not dropping down any additional rail facilities into the MLP. Certainly in the foreseeable future. As you know from our public announcements on the acquisition of Chalmette, which should close, as we say, within a week, and on the acquisition of Torrance, which will be a bit later, we're collecting quite a bit of pipeline and terminal assets.

So certainly we want to diversify the income stream within PBFX and we will be, we hope at least, dropping down other non-rail assets. And as for the pace of the drop downs, well, we're trying to grow PBFX. We think that's the right way to go. And we've been growing it rather quickly. And I think the market should expect us to continue to grow quickly.

And as a follow-up, I had a question about Torrance. In speaking to people, there's a bit of a truism out there, which in fact may be false and I would like you to be able to at least address it, that it can be difficult to operate in the California market without retail, and I was wondering, since you have such a breadth of experience in the California market, if you could speak to that, say what are the advantages and perhaps disadvantages of operating or just differences of operating a refinery in California without that retail arm.

Well, look, with regard to retail, I would certainly tell you that there's a difference between northern California and southern California. Northern California is surplus gasoline and generally exports it to Southern California, so in the North, yes, it's a little bit harder to operate out there without retail.

In the south there's a good commercial market. I've had, in previous companies, very large retail positions. We always treated it as a separate business. It's a separate profit center. I don't see any practical issue associated with that.

We will be entering into a rather substantial agreement with the Exxon corporation on various products coming out of Torrance, so I don't see any special difficulty and I would say straight out, not to signal the market, but to tell the market, we're not looking at any retail at the present time. It's not a business we're going into.

With regard to operating in California, both Tom Nimbley and I and many other people within our organization have a lot of experience out there. It is a complex marketplace to operate in. I would hate to be doing this if we didn't know from our previous jobs how we need to evaluate things, but we're, frankly, very comfortable. We don't see a problem.

We've got to comply with the market as it is. But, honestly speaking, that's the same in Delaware, the same in New Jersey, the same in Ohio, you know, each one of these markets has certain peculiarities that one has to deal with, and we operate locally. We don't have a situation where each and every time we want to buy paper clips, it comes back to the Parsippany headquarters.

We put very capable people on the ground. They know how to run it in the local business. And that probably is a differentiation of PBF from other owners of facilities in various states.

Much appreciation. Thank you.

We'll take our next question from Blake Fernandez from Howard Weil. Your line is open.

Guys, good morning. Congrats on the results. I had to hop on late so I apologize if you've addressed this but I had a few, just, quick ones for you. For one, I was just looking for a timeline on a formal CapEx including all of the facilities. Do you think you're in a position as we get toward year-end to get kind of an aggregated CapEx outlook or are you going to wait until you formally close on all of the facilities before doing so?

Tom?

We're in the process now of going through the budget process. We will, we haven't finalized that. We had our first set of reviews so we're going to keep moving on it. We will be in a position to provide a strong guidance here at the end of the year as we move, as it moves to the end of the year, certainly inclusive of Chalmette.

At Torrance, it will be, completely depend on, you know, the pace at which we're going to be closing on this thing. We have an idea of what we think we might be doing, but it won't be at the same time level of specificity that we will have for the other four refineries but we will be providing guidance here in the next six weeks or so for the company in 2016, including Chalmette.

Great.

Tom, let me just add there, and this is a general clarification for the marketplace and a kind of, I don't know if I want to call it a corporate ethic or general policy. Look, we're going to close on a total refinery for $322 million plus call it $150 million working capital or thereabouts, at the end of this month.

Thus, I look around and I see other companies announcing $800 million and billion dollar projects within refineries, I frequently scratch my head and I say, that doesn't seem to make a lot of sense if you can buy a whole refinery for half that amount. The one thing we want to be clear about, to the market, is that we're not investing in these giant projects, and we don't buy refineries that require these giant projects. We have a hydrogen plant scheduled to go into Delaware.

It's a terrific opportunity, but hydrogen plants are generally done with other people's money, and I suspect that will be the case here, a third party operation of it. So while Tom will be ready and the company will be ready to give you, I guess, a fulsome investment project, including Chalmette, not including Torrance because we're not giving out investment budgets for places that we're not sitting inside of, you're not going to see huge numbers coming at you.

Okay. Good deal. The second question, this may be for Erik, but to the extent you've got free cash flow generation over the coming quarters, I mean, I know we've got about $149 million of buy back authorization but obviously we've just done the recent equity issuance to fund these acquisitions, do you think it's fair to think that debt reduction is kind of the focal point here over the coming quarters to the extent that you've got excess cash flow?

I think it's a combination of debt reduction and then consideration for the future acquisition of Torrance as opposed to doing share buybacks. I know you mentioned you missed the first part of the call. Tom O'Malley mentioned that we would not be doing share buybacks going forward.

Sorry about that. Okay.

Hold on, going forward, I mean, the reality for us, we had a buyback program, we bought in a bit more than 6 million shares, we bought them quite favorably in terms of price. I believe it was under $25.00. Once we saw these acquisitions coming down the road, we, obviously, stopped buying back and the reality is, if you look at our financial situation, I think it would be prudent, on our part, to keep the money within the company.

We will not be buying back shares certainly in the next six months. And my guess is in the next 15 months. After that, look, if we really do well and it makes sense from a business point of view, who knows.

Okay. Sorry to be redundant there. The last one, I realize that you don't want to get into too much disclosure on Torrance, but one of the things we kind of get asked about and that we look at is the implied margins needed to get to some of the EBITDA targets.

It seems like it's a bit above kind of the average West Coast margins that some of your peers over there would be recognizing and I'm just wondering if you can talk a little bit about how Torrance stacks up as far as being top core tile or middle of the pack. I know there are some differences in complexity and crude runs, et cetera, but any help there would be appreciated.

Tom?

I think the, a couple points I'd make about Torrance. Obviously it's got a 14.9 Nelson complexity index. It is a powerful, powerful machine. That is an advantage. Its crude processing, I mean, it runs a 16-degree API crude, which gives it an advantage versus the rest of the competition out there. There are a lot of machines out there that can run and chew up heavy crude, but frankly, the coking capacity that exists and the hydrotreating capacity that exists in Torrance is very strong.

The other thing that we see as beneficial, Torrance is a gasoline machine and we do believe that there's going to, that this rebound in gasoline is going to have some strength. We've seen growth, picking numbers, (inaudible) or others, 3% to 4% year-over-year growth, we're seeing that in California. Obviously that is being spurred somewhat, to a large extent, by the lower flat priced gasoline. But we're very comfortable with the numbers that we have in what we put together.

The whole key to Torrance is, it has to run reliably. And your California markets, as you all know and look at it, in our experience, if you have an event like Torrance had, frankly, the whole industry probably benefited from that shutdown in terms of improvements in cracks as the supply chain moved around to start moving components and barrels into California. That's going to happen in California. We need to make sure we improve our reliability when we own it so that we are not the ones that are creating the problem but we're taking advantage of the opportunities.

Understood. Thanks, guys. Appreciate it.

Our next question is from Doug Leggate from Bank of America. Your line is open.

Oh, thanks, good morning, everybody.

Good morning.

I apologize, as you know there was another call going on, I may have missed this earlier in the call, but I'm just curious, fellas, as to what is the latest thoughts on the utilization of the rail facility in terms of whether you still see attractive opportunities to bring both Canadian and inland crude oil to the East Coast? And I've got a follow-up, please.

Let me answer that, Tom. Doug, thanks. Look, there's absolutely no question, nor should there be any confusion, that rail movements at the time are priced challenged. We have a situation in Canada where we're certainly going to continue to move rather significant volumes of railed crude through our facility in Delaware. That will be somewhere between 20,000 and 40,000 barrels a day.

If we look at the light sweet crude in the Bakken at these numbers, we're budgeting for the year 2016 about 25,000 barrels a day through the rail facility. Whenever we look at these numbers, in essence, if we wanted to try and do more, then we compare it to what's available over the dock, and certainly availabilities over the dock are, financially, at a tremendous advantage today. So we're going to move that way.

So when we look at 2016, those are the numbers that we're dealing with, about 30,000 a day of Canadian and 25,000 a day of light sweet crudes. It could be a bit more, a bit less. That's really going to depend on what we see in the marketplace.

Got it. Thanks for the answer, Tom. I guess it's kind of a related follow-up, but one of the things we're kind of thinking about as almost like an unintended consequence of what's going on with U.S. production right now, is the potential as we're seeing, that U.S. refiners swing back to a larger international diet.

And I'm kind of thinking that might be incrementally positive just from the point of view of a lower gasoline yield out of those barrels. I'm just wondering if you could opine on that, if we continue to see the level of imports that we're seeing from international, does that start to reverse some of the domestic increase in gasoline production that we've seen over the last couple of years? I guess it's kind of (inaudible).

Well, certainly to the degree that you're replacing the light sweet crude with heavier oil, you're going to get a little bit less gasoline production. In the particular market that we operate in, particularly on the U.S. East Coast, there's really not that much of an impact because our competitors on the East Coast, Trainer, which belongs to Delta airlines, which, frankly, I owned once before in another company, Bayway, which belongs to PSX, again, both Tom Nimbley and I have operated that refinery before, and PES, they're in a market where they've got to take in light sweet crudes.

So they don't have the capability to run any medium sour crude. So they're not going to drop their gasoline (inaudible) because they're going to run light crudes through there. I think certainly on the Gulf Coast, you're going to see a bit more impact. But my feeling, and Tom could correct me on this, in the overall picture, yes, maybe you're talking about 100,000 barrels a day or something on that order, 120,000 barrels a day. I don't think you're talking about much more.

Got it. Appreciate it, Tom. If I could squeeze one last one in very quickly, it seems maybe I got this wrong but it seems that Torrance had set some other additional downtime under Exxon's operatorship. Are you still comfortable with mid-year completion for that transaction?

Tom?

Yes we are and ExxonMobil has had some other issues other than the ESP over the last couple of years alkylation unit reliability and a hydrogen plants that they had some problems with. The good news is they've effectively diagnosed those issues, the root cause of those issues, and they have taken care of them.

They retooled the furnace and have taken steps to solve those problems. So hopefully they're behind us, remember, they had spent a significant amount of money in investments in that plant, including turn around the entire FCC.

We said earlier, they're saying and still advertising mid February for completion and start-up of the new ESP. I don't see them having made any progress on this interim operation that they were proposing. I think it's likely going to be wait till the new ESP gets rebuilt and then start up and we're hopeful it will be April 1, 2016, and we do expect to see benefits from them having made the investments to solve some of the reliability problems that you are correct that they had in addition to the ESP.

Tom, let me just add a little something there because I think it, look, we've, Tom and I have been involved in buying refineries from various companies over the past 25 years. And one thing I can say with a great deal of certainty, based on the experience that we've had, is that buying a refinery from the Exxon corporation is really at the top of our list.

Certainly they've had things go wrong, as indeed does every refiner all over the world from time to time. The difference with the Exxon corporation, perhaps than other companies that you might encounter, is, they don't do Band-Aids. When they fix something, they really fix it. So we see in Chalmette, in the past year, Chalmette's having a very good year. Certainly they made big changes there.

And Exxon is in the process of repairing things out in Torrance. And our experience is, when Exxon repairs something, it's not like bringing your Ferrari into the local garage that handles Chevrolets. They do it the right way. So I would tell you that buying from Exxon is truly, really, at the top of our list of refinery suppliers.

Appreciate the answers, guys. Thank you.

We'll take our next question from Chi Chow from Tudor, Pickering, Holt. Your line is open.

Hi, thanks. I just want to ask one clarification there on Torrance. Maybe you just answered that in your last response. But is there a targeted period of time you need to see the ESP and FCC running before you feel comfortable in closing the transaction? You kind of hinted at the six-week time period. Is that about right?

It's not, about 15 days is what we we've talked through with them on making sure that it, you know, it runs and runs reliably, and we have the opportunity to convince ourself that there are no issues.

15 days, 15, Tom?

Yes.

Okay. Thanks. Appreciate it.

I would now like to turn the program over, back to Mr. Tom Nimbley.

Well, thank you, everybody. If there are no other questions, and unless Tom has some comments, we thank you for your participation and have a great day.

Thank you for joining. This does conclude today's program. You may now disconnect at any time.