PBF Energy Inc. (NYSE:PBF) Q2 2022 Results Conference Call July 28, 2022 8:30 AM ET
Company Participants
Colin Murray – Vice President, Investor Relations
Tom Nimbley – Chief Executive Officer
Matt Lucey – President
Erik Young – Chief Financial Officer
Tom O’Connor – Senior Vice President, Commodity Risk & Strategy
Paul Davis – Senior Vice President, Supply, Trading and Optimization
Conference Call Participants
Roger Read – Wells Fargo
Doug Leggate – Bank of America
Carly Davenport – Goldman Sachs
Manav Gupta – Credit Suisse
Theresa Chen – Barclays
Connor Lynagh – Morgan Stanley
John Royall – JPMorgan
Karl Blunden – Goldman Sachs
Matthew Blair – Tudor Pickering Holt
Operator
Good day, everyone, and welcome to the PBF Energy Second 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, Investor Relations. Thank you, sir. You may begin.
Colin Murray
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 will 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 $116 million, or approximately $0.93 per share. For reconciliations of any non-GAAP measures, please refer to the supplemental tables provided in today’s press release.
I’ll now turn the call over to Tom Nimbley.
Tom Nimbley
Thanks, Colin. Good morning, everyone, and thank you for joining our call. For the second quarter PBF reported earnings per share of $10.58 and adjusted net income of $1.3 billion. Our strong financial results have provided us with the resources to accelerate the repayment of debt we incurred during the pandemic and to continue actions to strengthen our balance sheet. To be clear, the work is not complete, as we remain highly focused on doing more to recover from the ravages of the pandemic.
The second quarter picked up where the first quarter ended with volatile market conditions and rising energy prices. Refinery margins expanded as available refiners other than Russia and China were called on to run at high utilization levels. The Russian invasion of Ukraine continues to alter trade flows. Russian waterborne crude exports are generally flowing to Asia, as Western nations continue rejecting Russian crude and feed-stocks.
As trade flows reorganize, a couple of themes are appearing. European refiners are lightening their crudes rates, as the replacement crude for rejecting Russian barrels is generally like light sweet crude produced within Europe, West Africa, or the United States. Also, for some time, Europe has been facing a natural gas and power crisis that has only been exacerbated by the Russian invasion.
High price natural gas in Europe has made upgrading units and hydrogen plants very expensive to operate, giving U.S. refiners a significant competitive advantage. Differentials for light sweet crude versus heavy sour have been widening for a variety of factors. Light sweet crude strengthening for the reasons that I just mentioned, plus available upgrading units, coking capacity et cetera, are generally full.
We are seeing the heavy part of the barrel trade at wider discounts to the global benchmarks for light sweet crude than we have seen in many years. Heavy fuel is quite weak, and there is some market commentary about support coming from the reemergence of IMO 2020 market dynamics.
The beginning of the third quarter has seen a 15% to 20% correction in oil prices and refining margins. However, underlying fundamentals remain strong, low inventories, tight supply, improving demand and reduced refining capacity. Despite that, there are macroeconomic concerns that are weighing on the market, high inflation, rising interest rates and a rising U.S. dollar.
The macro concerns point to contracting oil demand to help bring the energy markets back into balance as the status quo is simply not sustainable. Inevitably inventories will need to be replenished from these extraordinary low levels. This will require refineries to continue running at high levels of utilization
Our valued employees continue working tirelessly to keep our assets running safely and reliably and we appreciate their contributions to our performance. With our balance sheet improving, and the bulk of our 2022 turnarounds complete, we anticipate that our assets will continue generating cash, which we will use to further strengthen our balance sheet and reward our investors.
With that, I will turn the call over to Matt.
Matt Lucey
Thanks, Tom. As Tom mentioned, PBF’s second quarter is one for the books, and demonstrates earnings power of our refining system and the dedication of our employees. While extraordinary market conditions seen during the second quarter will eventually normalize, the fundamentals and outlook remain strong.
On the East Coast, we completed work on the Delaware City reformer and other secondary units, which began in March and concluded in April. Additionally, we are in the midst of restarting our idle 50,000 barrels a day crude unit at Paulsboro, which we expect to have online in mid-August. We are confident that we’ll have enough access to feed for the unit and will help us — help ensure that all of our other secondary units on the East Coast remain full.
On the West Coast, we recently completed a significant turnaround in torrents of Appalachian and other ancillary units. The work was conducted primarily in June, and wrapped up in the first 10 days of July.
Looking ahead to the third quarter and the remainder of the year, our capital expenditure and throughput guidance is presented in today’s press release. We have no significant planned maintenance for the remainder of the third quarter. We do have a planned turnaround in Chalmette in the fourth quarter.
In addition to our refining CapEx, we continue to invest in and progress our renewable diesel project in Chalmette. We anticipate startup with full pretreatment capabilities in the first half of next year. Importantly, the project remains on time and on budget.
In terms of the forward refining market, as Tom said, the market needs to reset. As the current high price, low inventory conditions are unsustainable in the long-term. Over time, we expect that product inventories will eventually return to their historical average levels.
However, with a global reduction refining capacity as well as natural gas advantages in the U.S., we expect to see above midcycle refining margins, which is what we’re seeing today. Our assets are running well and positioned and are positioned to keep the market supplied and capture that margin.
Lastly, this morning we announced that PBF Energy has agreed to acquire all the common units of PBF Logistics that does not already own. This transaction will ultimately allow us to simplify our corporate structure and eliminate administrative compliance and cost burdens of running a separate public company. Following consummation of the merger, we believe we’ll have a significantly enhanced financial strength.
With that, I’ll turn it over to Erik.
Erik Young
Thank you, Matt. For the second quarter we reported adjusted net income of $10.58 per share, and adjusted EBITDA of approximately $1.9 billion. This brings our trailing 12-month adjusted EBITDA to over $2.8 billion. This financial performance provided the foundation for us to accelerate our deleveraging plan. Over the last 18 months, we have reduced consolidated debt by more than $2.6 billion
In addition to the $900 million pay down of our bank facility during the second quarter, we redeemed the full $1.25 billion of secured notes due 2025 on July, 11. When we include the more than 250 million of open market purchases at a discount to face value, our unsecured debt is now below the pre pandemic balance. Importantly, we were able to execute our plan while maintaining significant liquidity and have a current cash balance of more than $900 million.
On a go forward basis, we expect to recognize over $165 million of annualized interest expense savings. Simply put, PBF balance sheet is vastly improved, with quarter end net debt to cap of 24% and net debt of less than $1.1 billion. These statistics represent levels that we have not achieved since 2018.
Consolidated CapEx for the second quarter, was roughly 211 million, which includes $157 million for refining and corporate CapEx, roughly $52 million related to continuing development of the RD facility, and $2 million for PBF logistics. For the second half of 2022, we anticipate total refining and corporate CapEx to be approximately $200 million to $225 million, excluding the RD project. This reflects a return to our normalized pre pandemic turnaround schedule.
Operator, we’ve completed our opening remarks, and we’d be pleased to take any questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from the line of Roger Read with Wells Fargo.
Roger Read
I guess the biggest question we keep getting from investors is, where do we sit today in terms of demand? We’ve had some larger say, questionable numbers from the DOE, but overall, things still look pretty solid. I was just curious what you see on demand, and maybe how that fits into some of the discrepancies we’re seeing right now in terms of the cash markets, thinking how much stronger the East Coast is than say the Gulf Coast?
Tom Nimbley
We share the same kind of thoughts. So there was some average in the coming out of the July 4 Weekend. That’s always questionable what you do there. And then there was some true up I think, between a monthly EIAs from June that got floated into July. And perhaps that has run its course now and yesterday’s numbers were a little bit stronger. I’ll make another comment — So we’re seeing, frankly, while there’s some headwinds and we’ve seen some decrease in demand, EIA is reporting that in our own business, and I’m going to turn it over to Paul Davis in a moment to talk regionally.
Our demand wholesale level is holding up, we’re at basically the same levels we’ve been for the last 90 days. But you made a very good point on the East Coast. The East Coast demand — East Coast is structurally impacted more than any other region in the country by what has happened over the last several years.
When you look at the amount of refining capacity that’s been shut in or cut back in the Atlantic Basin, including PES, including come by chance, a disproportionate amount of capacity in the northeast, at the same time, the pipes are full coming up from the Gulf Coast. So we have the only coking capacity on the East Coast so. We think the Atlantic Basin is actually had a bigger step forward if you will than the other regions. Even though the other regions have benefited from what’s been going on than some of the others have.
Paul, why don’t you give Roger an idea by region?
Paul Davis
Well, we can start with the East Coast, you said it pretty well. Cash markets in New York Harbor are very strong and have been very strong, the backwardation is just arguably historic on cash valuations. Gasoline, obviously leads it, distillates early in second quarter, we’re leading it. jet has been incredibly strong. Jet’s actually pricing inside of diesel with lead of RINs. So the East Coast is really moved up here in markets for us.
Gulf Coast is, as you said, it’s pricing for tears. It’s running very strong. We see strong — strong export demand, we see arbitrages into the Midwest and to the East Coast pricing accordingly. And that’s a normal. We would call it a normalized market. Wholesale wise, it’s probably the weakest market we have, but it’s very normalized. Our July numbers look just like our Q2 numbers did on a month to month basis.
West Coast, very strong, it stayed constant all the way through second quarter and into the beginning of the third quarter. Even with the price challenges at the street, we’re seeing our wholesale markets there very strong and remain very strong, and supported by the return to work on the West Coast. And in the Midwest, we have a big wholesale business in the Midwest, that’s remained strong throughout.
Roger Read
And then pivoting a little bit here to you, Erik. Obviously, tremendous improvement in terms of balance sheet, liquidity, everything. But at this point, what do you feel is the most important thing to do? You’re going to consolidate PBFX so that’s got some debt with it. You’ve got, obviously some of the environmental obligations that are still out there, and then just the general balance sheet, ultimately maybe a reinstatement of the dividend. Just curious as you think about priorities, how that flows through.
Erik Young
I think you laid out kind of our plan at this point number one. We’ve taken out most of the pre-payable debt at this point in time, and we believe you know, the unsecured debt that we have on the books, we have ample time to deal with the 25 notes that will come due then. Once PBFX ultimately rolls in, we will handle that particular debt. But ultimately, we’ve provided ourselves enough financial flexibility here, and quite candidly that debt’s already consolidated on the balance sheet. So when we talk about our 1.1 billion, just shy of 1.1 billion of net debt, that includes that level.
So from our standpoint, it is simply a matter of continuing to reduce the overall net debt balance, operate well, take advantage of the market when it is afforded to us, and ultimately be reliable because otherwise profitability will not translate into free cash flow. So from our standpoint, we’ve gotten things significantly in order. And for us now it’s just a matter of execution on the day-to-day business.
Roger Read
And on the various environmental obligations that have been out there, is there any — does it make sense to go ahead and fund those, is there any incentive at all to fund them, preemptively?
Erik Young
I’m not so sure that preemptive, we now have a significant amount of clarity in terms of when these — this is an unprecedented time where we have three outstanding periods under the Renewable Fuel Standard, and so we at least have line of sight in terms of dates when we need to actually turn in credits. Fortunately, I think we’ve tried to highlight for folks, our 2020 obligation is done, that will be turned in at the end of this year. And then we have through Q1 and then into the end of Q3 next year, to fulfill the 2021 and 2022 obligations.
So included in our accrued liability line is about $850 million of balance sheet related accrual for RINs. Investors should expect that those numbers will start to tick down over time. And then the remainder is ultimately the combination of AB32, Cap-and-Trade and LCFS credits, those will also trade down or tick down over time. Because again, the AB32 program is a multiyear program that will involve multiple step downs, through the remainder of the existing period.
So I think over time, they will absolutely go down. But currently there is zero plan to preemptively take care of any type of RIN related obligation, simply because we need to see more of this renewable diesel come online that will ultimately create more RINs.
Operator
Our next question comes from line of Doug Leggate with Bank of America.
Doug Leggate
So guys, you opened up your comments talking about we will see inventories normalized. I guess my question is, what about costs and I’m thinking specifically about the dynamics on the East Coast, Tom, as you pointed out, have changed dramatically, which presumably makes the U.S. incrementally more dependent on European imports. And they’re paying $60 per thousand cubic feet for natural gas today. So when you talk about normalized inventories, how do you think about normalized margins?
Tom Nimbley
I think Doug, we would not expect to see a continuation of the margins that we saw in the second quarter. We do expect to be above mid cycle, and that’s because of the structural things that you pointed out, others have pointed out, and we see. We have this extraordinary change in differential between European and Asian natural gas prices, and what we’re seeing, that of course, raises the cost of production significantly in Europe, especially if you’re trying to run a [Euros] type crude. And you’ve got to pay up for the hydrogen that you need to take the sulfur out of the bowel. So it’s just not just operating costs, it’s also significant cost to get the sulfur out of the products.
And structurally with the cutbacks in Russia, both on feed stocks and obviously crude shifts, we believe that the — we’re going to see a structural change above mids — really into above mid cycle margins going forward. And in fact that will probably as we said in the opening comments, we certainly think the East Coast is going to be strong — as strong as any other region probably. West Coast might be behind, it depends on what happens in 2023, if deal goes down, converge to a renewable plant, that will be significant moment in time.
But why we’re saying that, obviously the inventories have to be replenished. We’re sitting at very low inventories, particularly on this — and particularly in day one. So there’s going to have to be steps to replenish those inventories, refining utilization is going to have to be very high, and the margins will be above midcycle.
Doug Leggate
Yeah, I guess the reason with my question Tom is, there’s a lot of folks in this business who still think about the seasonal trade in refining and that structural longer term reset is I think getting a little bit lost, which is why I asked the question, so thanks for your answer.
I guess my follow up is for Erik. Erik, you’re obviously issuing some equity for PBFX and that I think we discussed that when we were on the road a couple of months ago that PBFX could be next on the agenda after the balance sheet. But they’re still retaining a sizable amount of debt. And that obviously amplifies your equity volatility, as we’ve seen recently with your share price. So I guess my question is, where does, dare I say, a potential buyback of your stock feature has a use of win for cash, given that you’ve pretty much done as much debt as you can without sizable premiums, presumably?
Erik Young
Look, I think from our perspective, carrying what we have pro forma for buying in the secured notes than having a debt balance of $2 billion, you really have to look that excludes any cash netted against it. You have to go back to Tom’s most recent comment in terms of what is the new mid cycle? Well, with the structural changes in refining combined with the fact that quite frankly, the refining sector is significantly more flexible post COVID than it was pre-COVID, we all demonstrated our ability to ultimately adjust utilization rates to match demand. That’s going to be extremely important on a go forward basis.
Our plan is to continue to — right now we will be building cash, simply because of the market that we have today, that will in turn reduce our net debt. But going out and prepaying a bunch of expensive longer dated debt is not something that makes a ton of sense for us as we sit here today. We will be allocating some cash, as I mentioned, to the environmental credit side of things, but that’s going to be over the course of the next 12 to 14 months.
Doug Leggate
So to be clear you’re issuing equity for PBFX, could you presumably buy that back in overtime?
Erik Young
Look, I think from a — the transaction that is on the table for PBFX Logistics is ultimately more or less a 50-50 equity cash deal, there’s a cash component there. So we’ll be allocating it $9.25 per unit, around $300 million of cash, and the rest will be funded with equity, the amount of that equity will clearly be dependent upon where PBF Energy shares trade at the time of close. From our perspective, now again, I think it is we’re going to continue to operate safely and reliably. And that is the number one focus for us.
Tom Nimbley
Yeah, let me just add to that. I think, on your question Doug, look, as we sat down as a management team and executive team in the first quarter and laid out a bunch of a couple of milestones and objectives that we wanted to achieve by the end of 2023, and about half of them we achieved in the second quarter.
Two of those objectives is — recognize we work for the shareholders, and the shareholders paid a price for being in the industry and in PBF over the last two years. So certainly on the table for us to – look, if indeed we continue to have the above midcycle margins that we’ve got and we continue to build cash. So what do you think is that we have for further consideration? Resuming dividend down the road, and perhaps finance some equity. But right now we want to get — we’ve done good things on the debt side, we want to take the PBFX in, but we certainly are in a position where if we can continue to perform, we have other options at our disposal.
Operator
Our next question comes from the line of Carly Davenport with Goldman Sachs.
Carly Davenport
Just wanted to start on the crude markets obviously, a lot of volatility in stock prices as well as crude differentials across the board. Could you talk a bit about what the crude market is signaling — from a runs perspective across the portfolio, whether that is perhaps maximizing heavy sour runs or otherwise?
Tom Nimbley
I’m going to ask Tom O’Connor to handle that question. He’s been all over this.
Tom O’Connor
And I think in terms of when we look at the market right now, I mean, I didn’t — looking at it today, I want to go back a few days or forward a couple — a few weeks, we’re basically at peak runs right now as we head into the fourth quarter, seeing some forms of seasonal turnarounds. But as you mentioned, at that point, the incentives are certainly for high utilization, and the sour part of the barrel is taking over some of that in terms of more capacity.
Carly Davenport
And then the follow-up is around the RINs piece, — provide — around the current liabilities across California. And then just how much of that outstanding piece is fixed price contracts versus those that would be subject to mark-to-market?
Erik Young
There’s about $850 million of RIN related accrual and roughly $450 million of AB32, both Cap-and-Trade as well as small amount of LCFS. And on the RIN piece, I think the rough order of magnitude is you should assume it’s about 50/50 between what we have contracted that has just not yet been settled, and ultimately, what is the short related to our overall position, which quite candidly, is now a ‘22 related short.
Operator
Our next question comes from line of Manav Gupta with Credit Suisse.
Manav Gupta
This might be for Erik or Matt, whoever wants to take it. But look, it appears you have a lot of conviction in your renewable diesel project, you like your project, you see a very good fit for it. And our base case somewhere was that you will get a partner. But again, knowing you guys, you will not take a bad deal. So what we’re trying to get to is let’s say, you get in a situation where you don’t really like the deal you are getting, would you be okay with taking this project to completion on your own? If you could help us answer that?
Matt Lucey
I think we’re very pleased with where we sit today. I’ll make a couple of comments in regards to renewable diesel projects. If you were starting that project today, and obviously we started incubating that project over a year and a half ago, my guess is, our capital costs are advantaged to a material degree, because we haven’t idled hydrocracker there. But even our project, if we started today my guess is on capital side, you’d probably be 25% higher on the time to market, I don’t know, 30% longer.
So our project dynamics are strengthening as we execute the project, and our project team has been doing [Yellman’s] work, and we went ahead and secured the long lead items early. And so we feel pretty good about being insulated from the current inflation market. What we’ve said on the partnered side is we’re interested in, and we have been in active discussions with a number of parties, but we’re interested in finding potential partner that will improve the overall operation and the overall value of the entity.
And so, as it’s simply who can go out and find the cheapest money, that’s obviously less interesting. We have a number of options in front of us. We’re working at full time, and we’re very pleased with the discussions we’ve had. But your point is very much focused on how can we– if we bring someone in, how are we going to grow the pie as opposed to just put it up?
Manav Gupta
One quick thing, if you could help us understand. wWe’re seeing something where you’re buyers have both Syncrude and you’re also buyers of WCS. Now, they tend to move in the same direction generally. But what we’re seeing is they’re moving a little against each other, Syncrude is going at a premium to WTI, and WCS premium discount is widening. So it can’t only be aggressed. Help us understand what’s driving this almost $30 differential in the two Canadian crudes that you buy? Thank you.
Tom Nimbley
I’ll make one comment and turn it over to Paul Davis. Obviously, it’s a big spread, but directionally all three crudes are commanding a premium, because of what we talked about in terms of the deal with high natural gas prices, et cetera, et cetera, and the cutbacks from Russia.
So you’ve got pressure on the light sweet side going up, and some pressure on the downside, because of the sulfur content of the heavier crude.
Paul, why don’t you speak specifically to Manav’s questions.
Paul Davis
Yeah, and Manav, there is a market pressure on that spread. But primarily it’s all maintenance up in Canada, the upgraders that had planned and not an insignificant amount of unplanned maintenance. And that’s put a premium on the Syn of the business.
Operator
Our next question comes from the line of Theresa Chen with Barclays.
Theresa Chen
I actually just wanted to come back to your comment about mid cycle margins being higher, and the industry needing to replenish inventories over time. How concerned are you about the incremental capacity coming online, either ramping up today in the Middle East and Asia or recently ribbon cut in Mexico or penciled in to come online in Africa? Hope to get your thoughts there.
Tom Nimbley
I think we’re — actually we need capacity to come online to help replenish those inventory. So I don’t think it’s going to impact the utilization. To your point, for our business we’re going to see
continued growth today, there’s no doubt about that. They’ve been delayed, some of them delayed rather significantly because of COVID. But ultimately, they need to bring that capacity on and as the developed world continues to improve and grow, Asia needs that capacity.
So we expect that there will be capacity coming online. Mexico wants to be energy independent, that I think will take more time than what is advertised. We see the decrease in costs associated with some of this refining capacity, but they’re certainly moving down in that objective.
At the same time, as I said earlier, there’s continued examples of — particularly in the U.S. and the West Coast of refineries of the same, they’re going to — because of the pressures on fossil fuels, a banning of the internal combustion engine in 2035 by the state of California. And Avon has Tosco refinery — former Tosco refinery, and Avon is now owned by MPC, its going to convert to renewable, so is [indiscernible].
And the interesting thing is when you convert — going to make a renewable project, you’re going to make renewable diesel, but you’re not going to make any gasoline or any jet fuel. So I think while we do expect the capacity to increase worldwide, I don’t know that we’re going to see much creep in the United States. In fact, it may go the other way, and I suspect utilizations will remain high, absent a really pronounced recession or something like that in the U.S.
Operator
Our next question comes from line of Connor Lynagh with Morgan Stanley.
Connor Lynagh
I wanted to talk about the buy-in of PBF Logistics, excuse me. Just in terms of the strategic thinking, obviously, you highlighted the cost savings and some of the mechanical savings not having to run two separate companies, but just strategically thinking, what’s your sort of thought on the value creation there?
Erik Young
This is probably less PBF centric, but many of the attributes that existed with having a drop down MLP and subsided over the last number of years. And so it was an entity that was performing well in terms of its operations and financial performance. But many of the benefits that drove us to create that structure and the entity subsided. And so the ability to clean it up now as a number of other companies have done seems to make a lot of sense. And it’s — I think it’s pretty straightforward. We present as a more simple structure.
And so, yes, there are benefits of getting some costs out of the way, but that I don’t think was a big driver. The PBF acts as a growth platform, and something that was in high demand of yield, simply declined over the last couple of years. And so we’re happy to bring the assets in, all our employees will — many of which were serving, wearing two hats. So it simplifies that quite a bit. And so we tried to create a transaction that was fair for all parties, working with complex committee at PBFX. We went through a full process, but a very fair one and so we’re pleased.
Connor Lynagh
And I just wanted to talk and return to the conversation about the balance sheet. So understand that you don’t want to buyback debt at a high premium. I was trying to parse your comments, it sounded to me like maybe you’re thinking there isn’t sort of a need to run at a lower, structurally lower debt level than then before. Basically, could you just help us think through the framework of your buying in Logistics, which can probably support a little bit more leverage? I think you’re pointing to flexibility that you’ve demonstrated in the refining system, but just curious, is there an argument to be running at a lower debt level based on what we’ve just gone through or no change to that?
Erik Young
I think just inherently based on at least where we are today and what we see in terms of forward curve, there will absolutely be a significantly lower net debt level for PBF consolidated on a go forward basis. Where we are here at the end of July is ultimately we just, right, consumed a massive amount of delevering and there is zero pressure to do anything at this point. So we do have some PBF Logistics notes that will be coming due next year. We feel like we have ample capacity between the revolver at PBFX, as well as the PBF ABL. We also have a significant cash balance. And so really, what we’re prepared to do now is to determine what is the long-term structure in terms of debt?
Making a decision now, when quite frankly, the high yield market, I believe the first six months of this year might be the third worst performance in high yield ever. So waiting into a market that has not yet fully recovered to push out some of these maturities seems a bit premature. And quite frankly, there is zero pressure, and we have the financial flexibility. We are really focused on we should continue to see liquidity improve now that our numbers are out and we filed the Q this morning. Ultimately, we will be sitting down with suppliers in August and September. We should see letters of credit come down, the collateral posting, right. There’s really a significant amount of things that compound on themselves as a result of our balance sheet getting back to again, better than it was as we entered COVID and we are a significantly stronger and quite frankly, bigger business than we were.
Let’s not forget that we have a real workforce out on the West Coast and Martinez that now has been added to the portfolio. And we’ve not been able only with Q2 that we really been able to demonstrate what that particular asset can do. And we’ve got our high bar internally in terms of what we need to execute on. So I think the key message right now is that we are flexible. And most important, we are patient. We do not have our backs to the wall on anything we’ve just — we’ve just lived through the biggest demand disruption event that this industry has ever seen. And we’ve come out the other side, and we’re stronger than we were when we entered.
Operator
Our next question comes from line of John Royall with JPMorgan.
John Royall
I think you made a comment in the opener about IMO 2020 kind of coming back into view. Can you talk through some of those dynamics and the impact you’re seeing from IMO now and I guess how that could evolve going forward?
Tom Nimbley
I’d make a comment that — just look at the clean dirty spread, the spread between high sulfur fuel oil and diesel, low sulfur diesel and that spread is very wide. But there’s a number of factors that are impacting that. Not the least of which in fact perhaps the most important factor is right now at this 10 seconds is the stressed or shift crudes to sweet crude from sour crudes, heavy crudes because of high natural gas prices and the costs associated with those natural gas prices on getting the sulfur out of a crude.
So as we talked earlier, you’ve got pressure on the heavier crudes, feed stocks, driven down because of that dynamic and you’ve got pull on the sweet side. At the same time, what we are seeing is for the last, we’ve been saying one of the advantages — strengths of PBF for the last, I don’t know, 10 years, has been our complexity. And we are a very complex kit and we, candidly have not been rewarded for that in the past couple of years because of the low spreads between the light sweet and heavy. And that was to a certain extent, due to the fact that there was ample reserve destruction capacity available, coking capacity. While that’s changed some, coking capacity is getting full and that’s becoming tighter, which means that will be another contributor to the differential between the light sweets and the heavy sours.
So it’s really a combination of factors, but we have certainly seen a higher utilization of the reserve destruction equipment than we’ve seen over the past several years. And that’s been driven incrementally because you’ve got to get the sulfur added to high sulfur fuel to get it into the bunker fleet.
John Royall
Can you talk about a recession case and what that could mean for the industry and for product inventory balances and cracks, if it happened in, let’s say, the next 12 months? Would that change your view on the structural crack being above mid cycle if we had a bit of a reset due to recession?
Tom Nimbley
Not really. I think, well, it all depends upon the gravity of the recession. So if we have, we do have basically full employment in the U.S. right now. And I’m not saying that there isn’t going to be a correction here, a recession, there is no doubt that inflation is got to be dealt with, and there’s no doubt that the Fed indeed is going to do that. But there are other factors, that on the other side of the equation. As I said, you know, disposable income, people had a lot of disposable income coming out of COVID, and we do have effectively full employment, and there’s more job openings than there are people out of work. So hopefully, if there is a recession, it won’t be a drastic recession, it’ll hopefully be a little bit more shallow, who knows.
But the fact is, what we’re seeing already is the price of gasoline has dropped what was at the center down. And what has to happen really to the next steps in this correction is to work the food side and the other things in the supply chain to get those things turned around and bring the rate of inflation down. But there’ll be an impact, there is no doubt. But I don’t think it’s going to be an impact that is going to knock us off the need to run the refineries that are very high utilization, because of the supply demand balances and the fact that we don’t have as much capacity on the ground as we used to.
Operator
Our next question comes from line of Karl Blunden with Goldman Sachs.
Karl Blunden
Just had a question on RINs, I think it was helpful when you broke out the fixed versus floating exposure there. I was curious, is there a thought to change in your approach to how much you run fix versus floating? It’s just been such a focus for people, maybe a distraction away from the core business from time to time?
Erik Young
Absolutely. And on a go forward again, this is — we’re in a very unique position now where we have these three outstanding annual periods. And so the RIN market is not like the regular way securities markets for equity and debt. I think we’ve tried to highlight that for folks along the way. And so as these periods suddenly get put in the rearview mirror, we do believe that ultimately we will not be talking about — we’ll — happy to disclose what we expense in terms of RINs. But ultimately, we want to put a lot of this noise behind us. It’s been a very messy program along the way. But candidly, we’re also still trying to anticipate what the 2023 program is going to look like for us.
Our focus right now is really on making sure that that we handle our 2022 obligation and ultimately, we comply with the program for 2021 and ’22.
Karl Blunden
The follow-up just on the bond maturities that you have coming up, I think you’ve been clear that you can be patient. As you look forward, do you think the business or the appropriate capital structure could be one where you just take out the 2023 and 2025 debt and don’t replace any of it? So, run leaner in terms of how much debt you have on the balance sheet? Is that something still kind of thinking through what the appropriate quantum of debt is?
Erik Young
I think we’ll still have to figure out what the long-term debt quantum is. Right now, there’s zero plan to take out that, the stub is about $675 million outstanding on the ‘25 and then we clearly have the 525 for PBF Logistics.
There is a longer term appropriate level of — going debt free, and this business doesn’t seem to be extremely responsible. At the same time, we’ve seen the type of consternation that it provides when you have an over levered business in refining and so we’re trying to find what we deem to be the sweet spot there.
As we sit here today, we do have, on a trailing 12-month basis, we have less than 0.4 times debt to EBITDA, understood that we’ve just gone through a period where we’ve generated close to $2 billion of EBITDA during the quarter. However, the forward curve is spitting out numbers well north of $1.7 billion, $1.8 billion for our business over the next handful of years. And so what we are trying to ultimately determine is, what is the right level? But again, we can be patient now. We’re in the driver’s seat now as opposed to reacting to everything coming at us during COVID.
Operator
Our last question today comes from the line of Matthew Blair with Tudor Pickering Holt.
Matthew Blair
First one, could you talk about the product yield and feedstock slate for the upcoming RD plant? On the product side, do you anticipate having any SAF flexibility? And then on the feedstock side, I believe you’re looking at full pretreatment. But do you think you’ll be able to access these discounted waste oils and animal fats? Or would it be more like a crude SPO feed?
Matt Lucey
So in reverse order, maybe we are actively building out our commercial operation now. And so while the projects will not come on for — not until the second quarter, we’re actively staffing up and building the capabilities to source whatever is the most economic feed available. I do think in regards to our timing one strengths of our project is we’re coming on, there’s a number of projects behind us that will have the advantage of actually being out buying feeds. But yes, we believe we’ll have access to the market. We’re hiring the professional staff to execute on that. And we’ll have full capability to run whatever is the most economic at any given time. So we’ll have full flexibility. And that’s why we think the project is so attractive.
In regards to the yields and obviously, there was some news last night we haven’t fully digested what is in the potential compromise with [indiscernible] but we anticipate that SAF will be a demanded project, a demanded fuel in the future and we’ll have the capability to manufacture sustainable aviation fuel from the project.
Matthew Blair
Any initial thoughts on what the SAF yield might be?
Matt Lucey
I think we could get it up to 20% without much capital and for a modest amount of capital, we could get it higher than that.
Matthew Blair
And then the comment on you expect above mid cycle refining margins for now. When we think about the math behind it looking at European gas at 50 bucks per MMBtu, U.S. call it around $7, and then we think about generally every $1 per MMBtu in that gas, is about $0.25 per barrel in refining margins. And so just doing the math there that’d be about an $11 margin benefit from just a steeper global cost curve, does that make sense to you? Is that how you think about it as well or any different numbers there?
Tom Nimbley
Directionally, that’s the way we look at it. And there’s a number of publications that have put out in the scale of what the spread is between European gas and Henry Hub. If indeed, we wind up holding a $50 spread, that is going to be very big driver for improving margins. Because obviously, European refiners have got to cover those costs, and we will be costly managed in many ways. But you’re directionally correct.
Operator
Ladies and gentlemen, we come to the end of our time for questions. I’ll turn the floor back to Mr. Nimbley for any final comments.
Tom Nimbley
Thank you folks for joining the call today. We look forward to continuing to recognize our employees and reward our shareholders and talking to you at the third quarter call. Thank you very much.
Operator
Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
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