Executive Summary / Key Takeaways

• PBF Energy, a major independent refiner with a complex, predominantly coastal system, is navigating a challenging market environment characterized by weak margins and tight crude differentials, exacerbated by the significant impact of the Martinez refinery fire in Q1 2025.
• Despite near-term operational and market pressures reflected in Q1 2025 financial results, the company maintains a strong balance sheet and liquidity position, which provides crucial flexibility to weather difficult cycles and fund strategic initiatives.
• A key focus is the Refining Business Improvement (RBI) program, targeting over $200 million in annualized run rate cash savings by the end of 2025 (with potential for $350 million by 2026), aimed at permanently enhancing operational efficiency and reducing costs.
• The phased restart of the Martinez refinery, with unaffected units back online in April 2025 and damaged units targeted for Q4 2025, is supported by insurance coverage, mitigating the financial impact of the downtime.
• Longer-term, management remains constructive on the refining market outlook, anticipating a tightly balanced supply/demand environment and potential widening of crude differentials, while actively optimizing its portfolio through asset sales and evaluating opportunities in renewable fuels and underutilized assets.

Setting the Scene: A Complex Refiner in a Dynamic Market

PBF Energy stands as one of North America's largest independent petroleum refiners, a position forged through a history of strategic acquisitions under leadership like Thomas J. Nimbley, who oversaw its growth from a start-up to a system of six refineries with approximately 1 million barrels per day of processing capacity. This expansion established a predominantly coastal footprint with assets strategically located across the East Coast, Mid-Continent, Gulf Coast, and West Coast of the United States.

The company's core business revolves around transforming crude oil and other feedstocks into a range of refined products, including transportation fuels, heating oil, petrochemical feedstocks, and lubricants. A key differentiator, and a form of technological advantage for PBF, lies in the complexity of its refining assets. With a weighted-average Nelson Complexity Index of 12.8, PBF's refineries are equipped to process a wide variety of crudes, including cheaper, heavier, and more sour grades. This complexity provides operational flexibility and the potential for enhanced capture rates when the price differentials between different crude types are wide. While not a single, patentable technology like some manufacturing processes, this high complexity represents a significant engineering and operational capability that directly impacts feedstock costs and product yields, contributing to the company's competitive positioning. The ability to run diverse crude slates allows PBF to optimize its feedstock costs, a critical component of profitability in the refining business.

PBF's operations are segmented into Refining and Logistics. The Refining segment encompasses the core processing activities, while the Logistics segment, primarily through PBF Logistics LP (PBFX), owns and operates supporting infrastructure like terminals, pipelines, and storage facilities. This integrated logistics capability, while largely serving intercompany needs, provides a degree of control and potential cost advantage in product distribution and feedstock sourcing compared to refiners solely reliant on third-party logistics.

The competitive landscape for PBF is intense, populated by larger integrated players like Phillips 66 (PSX) and Marathon Petroleum (MPC), as well as other independent refiners such as Valero Energy (VLO) and HF Sinclair (DINO). These competitors often possess greater scale, more extensive midstream integration, or more advanced technological capabilities in specific areas. For instance, larger peers like PSX and MPC benefit from economies of scale and integrated supply chains, potentially leading to lower operating costs per unit. Valero and HF Sinclair have also invested in advanced refining technologies and, in some cases, renewables, positioning them differently for future market shifts. PBF's complexity allows it to compete effectively on feedstock flexibility, but it faces challenges in matching the overall operational efficiency and processing speed of some rivals, which can lead to higher operating costs per barrel. The company's strategic positioning leverages its coastal access for diverse crude sourcing and its regional market presence, particularly in structurally short markets like PADD1 (East Coast) and the unique, import-reliant West Coast. However, this also exposes PBF to regional regulatory pressures and the volatility of waterborne crude and product markets.

Beyond traditional refining, the industry is facing disruption from the growth of renewable fuels and electric vehicles, represented by indirect competitors like NextEra Energy (NEE) and Tesla (TSLA). While not directly competing for the same barrels today, these alternatives pose a long-term threat to demand for traditional refined products, pressuring all refiners, including PBF, to consider diversification and efficiency improvements. PBF's 50% equity investment in St. Bernard Renewables (SBR), a renewable diesel facility, represents a strategic step into this evolving energy landscape, providing both diversification and a hedge against Renewable Identification Number (RIN) compliance costs.

Navigating Challenges and Driving Efficiency

The first quarter of 2025 proved to be a tumultuous period for PBF, marked by challenging market conditions and a significant operational disruption. Refining margins were pressured by unfavorable movements in crack spreads and crude oil differentials, coupled with lower sales volumes. This difficult market backdrop was severely compounded by a fire at the Martinez refinery on February 1, 2025. The incident, which occurred during the preliminary stages of a planned turnaround, resulted in the full shutdown of the refinery for the remainder of the quarter.

The financial impact of the Martinez fire was substantial in Q1 2025, contributing $78.1 million in operating expenses related to response, recovery, and cleanup efforts. This, combined with lower throughput across the system due to the Martinez shutdown and extended maintenance activities at other refineries (such as the Torrance restart issues and planned turnarounds at Chalmette and Delaware City), significantly impacted the company's top and bottom lines. Revenues for the Refining segment decreased by 18.3% year-over-year in Q1 2025, and consolidated gross margin saw a substantial decline. The company reported a net loss of $405.9 million for the quarter, translating to a net loss attributable to PBF Energy Inc. stockholders of $401.8 million, or $3.53 per diluted share.

Operating expenses increased, driven by the Martinez fire costs and higher energy expenses. General and administrative expenses also rose. The equity loss in the SBR investee widened significantly to $17.0 million in Q1 2025, reflecting the performance of the renewable diesel market and operational factors like a planned catalyst change impacting production (Q1 2025 production was 10,000 bpd, expected to increase to 12,000-14,000 bpd in Q2 2025). Depreciation and amortization increased due to recent capital investments. Interest expense also rose following the issuance of $800 million in 9.88% Senior Notes in March 2025, the proceeds of which were used to repay revolving credit facility borrowings and for general corporate purposes.

Despite the challenging earnings, PBF demonstrated financial resilience. The company ended Q1 2025 with approximately $468.6 million in cash and cash equivalents and $2.0 billion in borrowing availability under its Revolving Credit Facility, totaling $2.4 billion in operational liquidity. While net cash used in operating activities was $661.4 million in Q1 2025, reflecting the net loss and working capital uses (including a $125.4 million Tax Receivable Agreement payment related to the 2023 tax year), the company's overall liquidity position remains robust.

In response to cost pressures and as part of its ongoing strategic process, PBF is aggressively pursuing its Refining Business Improvement (RBI) program. This initiative targets more than $200 million of annualized run rate sustainable cash savings by the end of 2025, with expectations potentially reaching $350 million by the end of 2026. The program focuses on key areas including energy usage, turnarounds, procurement, capital planning, maintenance, and organizational design. Management is currently on track to exceed the initial $200 million goal, emphasizing that these are intended to be sustainable, permanent cost reductions, not temporary measures. This focus on efficiency is critical for PBF to improve its competitive standing against peers who may have structural cost advantages.

The Martinez refinery restart is a critical operational focus. Phase 1, involving the restart of unaffected units like the crude unit, hydrocracker, and delayed coker, was completed in April 2025, allowing the refinery to operate in a limited configuration at 85,000 to 105,000 bpd. The restart of the remaining units damaged by the fire is planned for the fourth quarter of 2025. PBF is properly insured for the incident, with a $30 million deductible and retentions. An unallocated first installment of insurance proceeds of $250 million (net) is expected in Q2 2025, with future interim payments anticipated quarterly. This insurance coverage is expected to significantly offset the financial impact of the fire and downtime, although the timing of cash receipts may lag expenditures.

Outlook and Strategic Positioning for the Future

Looking ahead, PBF's management expresses a constructive view on the refining market, particularly beyond the immediate near-term challenges. They anticipate that the global refining supply and product demand will remain tightly balanced, providing a favorable backdrop for refiners. While 2024 saw net capacity additions outstrip shutdowns, 2025 is expected to be more balanced, with announced closures of approximately 1 million bpd offsetting new additions. Longer term, they foresee incremental product demand growth continuing to exceed net capacity additions.

A key factor expected to benefit PBF is the potential widening of crude oil differentials. Management is encouraged by the prospect of incremental OPEC+ barrels entering the market, which should help loosen the supply of heavy and sour crudes. As these tight differentials begin to widen, PBF's complex refining system, designed to process these cheaper feedstocks, stands to be a direct beneficiary, improving capture rates and profitability relative to less complex peers.

The RBI program is central to PBF's future outlook. The targeted $200 million+ in annualized run rate savings by the end of 2025, and potentially $350 million+ by 2026, represents a significant opportunity to lower the company's cost structure permanently. These savings, derived from operational efficiencies, improved turnaround execution, and optimized procurement, are expected to enhance profitability and cash flow generation, improving PBF's competitive position against rivals.

Capital allocation priorities remain focused on maintaining a strong balance sheet, investing in the reliability and efficiency of the refining assets, and returning value to shareholders. The expected full-year 2025 capital spending, excluding the Martinez fire rebuild costs (which are largely insured), is projected to be approximately $750 million to $775 million, directed towards facility improvements, maintenance, turnarounds, and compliance projects. The company retains the flexibility to adjust this spending based on market conditions.

PBF continues to evaluate its portfolio to maximize value. The announced sale of two refined product terminals for $175 million, expected to close in the second half of 2025, is part of this effort, unlocking value from non-core assets while maintaining necessary access through commercial agreements. The company is also actively exploring opportunities to develop underutilized assets, such as excess land, and evaluating the future role of its SBR renewable diesel business, including potential shifts towards sustainable aviation fuel production, as the market evolves.

The SBR facility, while facing a softer market than initially expected and operational challenges like more frequent catalyst changes, is viewed as a valuable long-term asset and a strategic hedge against the volatility of RIN prices. Management is particularly vocal about the current structure of the Renewable Fuel Standard (RFS), arguing that the linkage between D6 (ethanol) and D4 (renewable diesel) RINs, coupled with factors like feedstock tariffs and reduced imports, is leading to artificially high RIN prices that could negatively impact consumers and threaten refining capacity. They intend to advocate for policy changes to address this.

While the regulatory environment in California remains challenging, management notes recent indications of increased recognition from state stakeholders regarding the critical need for in-state refining capacity, particularly given announced closures and the state's reliance on imports. They are encouraged by collaborative discussions but emphasize the necessity of a level playing field for in-state refiners to ensure a viable operating environment.

Risks to the outlook include continued volatility in commodity prices and crack spreads, the successful execution of the Martinez restart and the timing/amount of insurance recoveries, potential regulatory actions (particularly in California and related to environmental compliance/RINs), the execution and realization of targeted savings from the RBI program, and the performance of the SBR venture in a dynamic renewable fuels market.

Conclusion

PBF Energy is navigating a period of significant challenge, marked by weak market conditions and the operational and financial impact of the Martinez refinery fire. However, the company's investment thesis is grounded in its strategically located, complex refining assets, its commitment to operational efficiency through initiatives like the RBI program, and its robust financial position. While Q1 2025 results reflect the near-term headwinds, the planned phased restart of Martinez, supported by insurance, and the aggressive pursuit of cost savings provide a pathway to improved performance. The longer-term outlook for the refining market appears constructive, with anticipated supply/demand balance and potential widening crude differentials favoring PBF's asset base. By leveraging its balance sheet, executing on operational improvements, and strategically optimizing its portfolio, PBF is positioning itself to capitalize on future market opportunities and enhance long-term shareholder value, despite the inherent cyclicality and regulatory complexities of the refining industry.