PBF Energy Inc. (NYSE:PBF) Q3 2022 Earnings Conference Call October 27, 2022 8:30 AM ET
Company Participants
Colin Murray – Senior Director of Investor Relations
Tom Nimbley – Chief Executive Officer
Matt Lucey – President
Erik Young – Senior Vice President & Chief Financial Officer
Paul Davis – Senior Vice President of Supply, Trading & Optimization
Tom O’Connor – Senior Vice President of Commodity Risk & Strategy
Conference Call Participants
Roger Read – Wells Fargo
Doug Leggate – Bank of America
Ryan Todd – Piper Sandler
John Royall – JPMorgan
Carly Davenport – Goldman Sachs
Paul Cheng – Scotiabank
Operator
Good day, everyone and welcome to PBF Energy Third Quarter 2022 Earnings Call and Webcast. [Operator Instructions] The floor will be open for your questions following management’s prepared remarks. [Operator Instructions]
It is now my pleasure to turn the call over to Colin Murray of Investor Relations. Thank you, sir. You may begin.
Colin Murray
[Technical Difficulty] 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 the safe harbor provisions under federal securities laws. There are many factors that could cause actual results to differ from our expectations, including those we described in our filings with the SEC. Consistent with our prior periods, we will discuss our results today, excluding special items. In today’s press release, we described the noncash special items included in our quarterly results. The cumulative impact of the special items increased net income by an after-tax amount of $55 million or approximately $0.44 per share. For reconciliations of any non-GAAP measures mentioned on today’s call, please refer to the supplemental tables provided in today’s press release.
I’ll now turn the call over to Tom Nimbley.
Tom Nimbley
Thanks, Colin. Good morning, everyone and thank you for joining our call. For the third quarter, PBF reported earnings per share of $7.96 and adjusted net income of just over $1 billion. The underlying supply and demand fundamentals of the global hydrocarbon market created an environment that has allowed PBF to finish the third quarter with effectively 0 net debt and reward our shareholders with the reinstatement of the $0.20 regular dividend we announced this morning.
We remain highly focused on continuing to strengthen our financial position while concurrently reinvested in our base refining business and diversifying our product lines. Continual reinvestment in our refining assets has allowed us to maintain relatively high operating rates that supply the market with our vital products. We are progressing on new investment in mobile carbon fuels in an effort to meet growing demand in that area while exploring other opportunities within our footprint to expand our business beyond traditional refining. We are making these investments because they will make our company more resilient in global energy markets that have become more chaotic and unpredictable due to geopolitical events and evolving policy positions that are causing uncertainty.
As markets adjust to these gyrations, we are seeing several repeating trends that are firming. Global crude oil and product inventories remain low, especially distillate. Refineries are being called to run at high levels of utilization. Global natural gas prices remain elevated, although well off the highest seen over the summer. U.S. refiners continue to benefit from low-cost natural gas versus our European competitors. We are seeing a benefit from wider light heavy spreads as some refineries in Europe are running a lighter slate due to energy OPEC challenges of some secondary units. The wider spread on light heavy is also implying that available coking capacity is at or near limits.
The supply side of the story has been focused on several bullish factors. U.S. SPR sales coming to an end, no Iran deal, OPEC+ agreed to oil production cuts, upcoming EU sanctions on Russian crude oil and products and confusion discussions about a G7 price cap on Russian exports. The simple synopsis is there is limited visibility on oil production rising materially in the near term. While there are some areas of growth in non-OPEC+, including the U.S. and Canada, in particular, this growth may not be enough to keep pace or losses in other regions. Global demand has rebounded from the lows of the pandemic and regional dislocations are occurring. Refining capacity is down which is requiring higher levels of utilization from the remaining facilities. The U.S. refining complex kit is benefiting from lower natural gas prices, a highly skilled workforce operating the most complex and well-maintained assets. We expect that U.S. regional trading partners and the international market, in general, will continue to require U.S. products to help balance and stabilize the markets.
The market instability we see today is the cumulative manifestation of politics and policy. Energy transition to a decarbonized energy stack is one large physics problem. Attempts to remove on-demand energy against fossil fuels from the energy stack and replace them with less energy dense and intermittent sources of energies is a very challenging proposition. The industry is being asked to pump and refine more oil today and at the same time being told that we do not want your fuels in the future, with some time lines putting the bookend of 2035 on the use of the internal combustion engine. Unfortunately, our business does not operate on such short time lines. Our investors and lenders require a return on their capital that does not necessarily fit within that time line. There are solutions and society needs to recognize that fossil fuels play a vital role in any transition and PBF is very willing to play our part.
We have restarted units at our refineries that were idled during the depths of the pandemic. We recognize the essential role that the products our refineries make are vital to today’s quality of life and we welcome a balanced discussion on how to fuel the future. We remain focused on running our assets safely in an environmentally responsible manner and reliably. Our valued employees work 24/7 to ensure safe, reliable operations that provide a continuous supply of products to the market. We will continue to invest in our assets, improve the financial resilience of our company and ultimately reward our investors for their support as we’ve done today by reinstating our dividend.
With that, I will now turn the call over to Matt.
Matt Lucey
Thanks, Tom. Our operating and financial results for the third quarter are a direct reflection of the tireless work of our employees. Since inception, PBF has been focused on assembling a highly complex and geographically diverse refining system. Our system is demonstrating the value of that diversity and complexity. Our dedicated employees are running the refinery safely and reliably in an effort to keep our customers and consumers well supplied. In the third quarter, our total throughput was over 90 million barrels or 984,000 barrels a day which is the highest level of throughput in our history. This follows an extensive maintenance completed in the second quarter and relatively uninterrupted operations in the third quarter. We are in the final stages of completing our last major turnaround of the year at Chalmette now and the impact of this is included in the guidance provided in today’s press release.
Our assets require continuous investment to remain competitive and stay in business. Over the last few years, we have seen over 5% of the refining capacity in the U.S. either shut down completely or converted to much smaller renewable operations. A reduction of capacity can be attributed to a capital-intensive business that is continuously under assault from certain state and federal initiatives geared towards accelerating a transition away from refined products. The energy supply cannot be rapidly changed through policies attempting to force a premature transition without significant costs. The conversation needs to happen amongst all stakeholders that focuses on the goal of providing cleaner fuels while not ignoring the necessity of maintaining reliable and affordable energy sources that are at the cornerstone of our high quality of life. To that end, PBF is focused on maintaining our refining operations while expanding the types of energy and fuel we provide.
We are progressing our renewable diesel project in Chalmette. We are approximately halfway through the capital spend and expect to be in production with full pretreatment capabilities in the first half of 2023. Our project will deliver new capacity above our existing refining operations to the market. Importantly, for PBF, our project will generate environmental credits with the potential to offset a significant portion of our annual purchase rent obligation. We are more committed than ever to bring this new capacity to market while we continue to have discussions with potential partners. In terms of the forward refining environment, we expect current volatile market conditions will persist. Inventories are low and demand will continue to support high refinery utilization.
The fact that the U.S. is the world’s largest oil and gas producer and the net exporter of oil liquids is a wonderful benefit for our country and something we should never apologize for. Our domestic energy industry brings the U.S. advantages that are the envy of many countries, especially in Europe, as they rely on the U.S. provide them energy at a time when they need it most.
With that, I’ll turn it over to Erik.
Erik Young
Thank you, Matt. For the third quarter, we reported adjusted net income of $7.96 per share and adjusted EBITDA of over $1.5 billion. This brings our trailing 12-month adjusted EBITDA to more than $4 billion. Consolidated CapEx for the third quarter was approximately $247 million which includes $142 million for refining and corporate, roughly $103 million related to continuing development of the RD facility and $2 million for PBF Logistics. For the full year 2022, we expect total refining and corporate CapEx to be roughly $550 million to $575 million, excluding the renewable diesel project.
As we have mentioned previously, we have transitioned to our normalized pre-pandemic turnaround schedule. We have been steadfast in our long-term commitment to maintaining a strong balance sheet. While challenging events like the recent pandemic caused us to use all available levers to maintain excess liquidity and demonstrate our commitment to prudent balance sheet management, our position never wavered. As we sit here today, PBF’s balance sheet is its strongest ever. Our reported net debt to cap is 1%. Liquidity is more than ample to operate our refining system at elevated utilization rates and at current hydrocarbon prices. Additionally, we have the financial flexibility to continue to fund our diversification efforts into renewable diesel, while we explore a potential partnership for this business unit. With our balance sheet now fortified, the dividend reinstated and the macro backdrop for refining translating into higher mid-cycle earnings, our complex and geographically diverse system is well positioned to generate significant value.
Our financial performance over the past 5 quarters has set the stage for a rebalancing of our future prospects. On paper, we meet or exceed many investment-grade metrics. In fact, we crossed into this territory over the summer as a result of our deleveraging efforts in connection with the full repayment of our secured notes. As we look forward, our system should continue to demonstrate through cycle earnings power with diversified earnings streams as we enter the low carbon fuel space and continued balance sheet discipline. In turn, our long-term cost of capital should go down as our credit ratings increase. These steps will make PBF more competitive in all market backdrops.
Lastly, on the previously announced transaction, whereby PBF Energy has agreed to acquire all of the common units of PBF Logistics that it does not already own. We expect that transaction will close this year, subject to receiving all of the necessary regulatory and unitholder approvals.
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 is from Roger Read with Wells Fargo.
Roger Read
Good morning, everybody and let me deliver my congratulations for you all fighting all the way back, given where the company has been over the last couple of years and the depths of the COVID issues. In terms of my questions, I guess, I’d like to understand, Erik, you’ve done a lot here in the balance sheet, a lot of repair but you’ve got commitments on renewable diesel. You’ve probably got some catch-up on refining maintenance and all. So how should we think about the necessary investments going forward for PBF to keep you on the right track? And obviously, you’ve got to close PBFX as well.
Erik Young
Yes. I think as we sit here at the end of the third quarter with consolidated cash of over $1.9 billion. Obviously, it’s a lot of money. To your point, we do have some commitments that we’ve made to not only — I think the total environmental accrual was about, a little north of $1.2 billion at the end of the third quarter. We’ve tried to outline for folks and have included in the Q, about 2/3 of that is committed. It’s going to erode or decay away over the course of the next 12 months on the RIN side of things. We’re still in an environment where there are 3 outstanding compliance periods. So we are actively managing that program. We also believe we will see the AB32 cap and trade and LCFS credits also start to decline in terms of overall balance over the course of the next 12 months.
There’s about $300 million allocated to a potential PBF Logistics buy-in that’s included in those figures as well. And from a CapEx standpoint, we’ve oftentimes talked about $500 million to $600 million a year of CapEx. Those numbers will swing a little bit depending on timing of turnarounds. To Matt’s point, we had the highest throughput in our history during this past quarter. Well, to go alongside high throughput, you need to make sure that this equipment is actively maintained and we are back on a regular way turnaround cycle. One thing — again, we’ve mentioned this before. Important to note, we never stopped investing in our assets. So we continue to spend circa $200 million a year, just in general maintenance, environmental, safety-related spend, that’s going to continue, whether we’re in the depths of the pandemic or we’re in the current market environment that we see today.
Roger Read
Yes, fair enough. I guess the other question and I don’t know if this is for you, Tom or Matt, or you all want to kind of split it up. Obviously, a lot of discussion about how policy is an issue. There’s a lot of worries about policy affecting either crude or refined product exports, maybe both. As you look at the current situation, inventories where they are on the East Coast, you’ve got a front row seat there, what are you seeing in the way of flows? I mean, does it look to you like there’s more than enough product available? Or is there something else going on in the market there?
Tom Nimbley
Well, there’s no doubt that distillate inventories are tight frankly, globally. And to your point, in all backyard by here in Pacific, New Jersey PADD 1. PADD 1 distillate inventory is right now of, I think, about 45% below the 5-year average. So that is a focus point and has to be a focus point for trying to get those inventories rebuilt. The base problem is really quite clear here. We’ve had rationalization of capacity associated with COVID and it’s been coupled and gained up on to a certain extent by policy that does not drive you to want to continue to operate facilities or invest as necessary when you think there may not be a long enough runway to get a return on that investment. But to your point, I think, in fact, the world is going to — if the oil caps go into place, if the bans go into place on February 5, on products. The world will become more reliant on the U.S. to supply not only our own base, the 5 heads [ph] but also other parts of the world. I’m confident we’re going to be able to do that but it’s going to take a heavy lift because we are running at already at high capacity utilization. Matt, would you add anything?
Matt Lucey
No, I think you covered it. I think actually, the President made a comment the other day where he reiterated the fact that it’s on the U.S. and our capabilities on producing energy to help fuel our friendly countries and our allies. And that is as important today as it’s ever been because the last thing we want to do is shove our allies to our adversaries.
Tom Nimbley
Roger, one other thing I should mention, we did, in fact, start up a number — I’m sure you’re aware, a number of pieces of equipment, number of units in Paulsboro that we had regrettably had to shut down. It’s a very difficult decision but [indiscernible] in a pandemic. But those — who reform and a couple of hydrotreaters that are supplying jet and ULSD to PADD 1 that weren’t running this time last year.
Operator
Our next question is from Doug Leggate with Bank of America.
Doug Leggate
Thanks. Tom, I’ll add my congrats getting back to net debt 0. It’s quite an achievement. So I’m sure all your shareholders are thrilled about the progress. My question is actually about gasoline. I know there’s a lot of focus on distillate. But we’re 3 or 4 months away from the traditional switch to lower vapor pressure product than the summer, ahead of summer starting on the West Coast. And I guess I’m curious that with gasoline stocks where they are and the spread still between heat and gas cracks, how do you get back to — how do you solve the supply problem for gasoline going into 2023? I’m just curious to your thoughts on that. My follow-up is for Erik. I guess, Erik simply put now that the balance sheet has been addressed. How do you think about managing cash balances going forward and your thoughts on cash returns — and I hope everyone is listening to your message to policymakers this morning. So I’ll leave it there.
Tom Nimbley
Thank you, Doug. And let me take the first one. It’s a great — I did read your piece. I didn’t get it all the way through it this morning but I did read the headlines, well written. We’re kind of in a do loop right now. And what happens is because we’re so tight on inventories, so tight on available capacity. What happens if we look at the market, every refiner looks at the market and says, “Okay, the distillate crack is $20 or $30 or $40 over to gas crack. We turned every drop of gasoline that we can into distillate. And then all of a sudden, you get what you’re alluding to is, wait a minute, this was inventories are very low. But yesterday, we drew 2.5 million barrels counter seasonally on gas link for the second week in a row and so it’s a little bit of — we’re making less gasoline yield because we’re trying to make more distillate yield.
And that worm will turn. But then what will happen is, of course, gasoline prices will likely come up in the spring. And in fact, with the season over, perhaps distillate prices will come down, there will be some build I’m confident of that over time. But you’re spot on and that what we’re really doing right now is reacting to where the crisis in the market or demand in the market is the heaviest. And right now its distillate, it was distillate in the beginning — in the first and second quarter, went to gasoline for a while. It’s going to happen again until really in my opinion and Tom O’Conner can weigh in, what’s going to solve this problem, hopefully, not a global war or something like that or a huge recession is there will be additional refining capacity coming on next year. Of course, is, in fact, the problem is that global refinery capacity is very, very tight. There’s going to be refineries coming up in Asia. How much would you say is going to come on board?
Tom O’Connor
I mean I think to those questions, Tom, I think it’s really kind of adding a couple of things in terms of capacity additions in the [indiscernible] and in Asia being a source of resupply, particularly in calendar ’23. But I think when you’re looking at the market today, so don’t diminish the fact that Monroe and Irving have been in turnaround. And those coming back to the market should provide a little bit more buffer in terms of where we’ve been over the last [indiscernible].
Erik Young
And Doug, on the returns concept, I think from our standpoint and the Board’s standpoint, reinstating the dividend, nominally, this is $100 million a year that’s going to go out the door based on current share count. That’s a great first step. And if we just go back 16, 17 months ago, that’s when we transitioned, right, from being in the red to being in the black and we’ve now found ourselves in a position where, clearly, the balance sheet is fixed. Again, it’s as strong as it’s ever been. And as we go forward, we do have a few remaining items that we need to cover. We will, again, see those environmental credits come down. We think that is important for shareholder value overall. And lastly, we do have about $525 million of debt that is essentially prepayable at the PBF Logistics level. We’ll need to do something with that over the course of the next year. And so there’s a couple of different levers that are already on the balance sheet. And as we go forward, we do have the renewable diesel project.
To Matt’s point, this thing is essentially halfway there. So we’ve got another, call it, $300 million to $350 million of CapEx that I think we’re comfortable overall investing to get that project up and running because that kind of current market environment or current market prices with 300 million gallons a year of production on an annualized basis, that should generate $400 million a year in EBITDA. And so I think we’re comfortable continuing to incubate that project because there are returns on the flip side once the pretreater is up and running.
Operator
Our next question is from Ryan Todd with Piper Sandler.
Ryan Todd
Maybe I will follow up on — start following up on the renewable diesel side. You clearly had the flexibility of the capacity, as you said, to fund the project on your own if you want to. How should we think about the urgency to find a partner? How important is it to you? How would you describe the ongoing conversations — or do you have a — is there a preference given the attractive returns that you see there to do it on your own?
Tom Nimbley
I would say it’s funny. Virtually nothing has changed with our renewable diesel project since we announced it and virtually everything has changed outside the renewable diesel project and certainly with PBF and certainly with our financial position. So we have the increased capability. We have the increase luxury. We have increased optionality to do what’s best for the company and its shareholders. I’m more than pleased with some of the discussions that are progressing with our partners or potential partners. And we have the ability to be a bit more selective because if terms are not our liking, we can obviously do it ourselves at this point, as you said. So that’s simply going to be a function of, is there a partner that can increase the value of the partnership where there’s an additive aspect where someone is bringing some attributes that we don’t currently have.
And then the valuation aspect to it, where the cost of the project today should be incrementally much more attractive than it was a year ago because we progressed the project projects on time. It’s on budget. If someone were to start a project today with inflation where it is and the scarcity of materials it would be a much, much longer build time and a much more expensive endeavor. So we are thrilled with our position for the project. We’re pleased that it’s on time and on budget and we’re very pleased with the discussions that are ongoing with our partners — potential partners and we’ll see where it brings us. Hopefully, that addresses your question.
Ryan Todd
Yes. I mean just one quick follow-up on that. On the attributes that potential partners could bring to the project. Is that — would that predominantly be something on the feedstock side? Or are there other attributes that, appreciated attributes that somebody can bring?
Tom Nimbley
Obviously, the base business is procuring feed and the disposition of products. And quite frankly, it could be on one or both sides and then secondarily would be simply the cost of capital and valuation.
Ryan Todd
Great. Maybe switching gears to the second one. Your underlying refining performance setting both operationally and in terms of margin capture has clearly exceeded expectations over the last couple of quarters. I know it’s early. But as you think about margin capture in the fourth quarter, what are you seeing in terms of crude differentials, market structure, secondary products, pricing, et cetera? Any early thoughts on how you think margin capture may trend versus the third quarter?
Tom Nimbley
It has been — as you stated, we’ve seen good capture rates and it’s because of the market environment. That market environment continues and the stack is probably moving further in a positive direction. We’ve got better crude differentials. We’ve got clean dirty spread that everybody understands that clean dirty spread is the difference between high sulfur fuel oil and ultra-low sulfur diesel, i.e., coking economic incentives are at very, very elevated numbers. We’ve got a situation where because of oversupply and overcapacity in the petrochemical market, that there’s surplus naphtha that’s being put onto the market that we are taking and other refiners are taking to blend into gasoline, that’s economically attractive. And it is also driving up the cost or the value of octane and we’re benefiting from that. So that, on top of the fact that the base business has got strong fundamentals because of the tight capacity utilization, high capacity utilization and recovering demand. We would expect this trend to continue.
Operator
Our next question is from John Royall with JPMorgan.
John Royall
Can you talk a little bit a bit about how we got to the point we did in California cracks in late September, early October? And what does that tell you about the market out there? And is this kind of a one-off anomaly? Or is this something that you think we’ll be seeing more frequently?
Tom Nimbley
I’m going to start and then turn it over to Paul Davis, who’s Head of Commercial but also was previously the President of West Coast operation. It’s kind of the same story only a little bit on steroids is the situation in California during the pandemic. California, you guys have said this many times. California typically was 1 to 1.5 refineries long with everything running well. And then when something happened that there was an operating upset or refinery went down, then you’d get these rather sharp and dramatic moves in the marketplace. Now during the course of the pandemic, of course, you had the Avon refinery, or I referred to it as the Avon refinery because that’s when it was under Tosco, that’s what it was but the Marathon’s refinery in the San Francisco Bay Area. Made the decision to go ahead and shut that down in the early part of the pandemic.
The cost of capital requirements and the fact that there was going to lose a lot of money and convert it to a renewable diesel plant, 160,000 barrel a day refinery coming off the market. That’s a significant move. So, we look at 1.4 million barrels a day of capacity coming off in North America. It has 4% to 5% of capacity. But when we start talking about 160 and then the correlator impacts on some other refineries like Rodeo and Santa Maria, the percentage of capacity is actually — that’s come off is actually slightly higher than that. So the market has simply tightened up. What thoughts would you have on that?
Paul Davis
Well, I think you said it well. I mean, the only thing you can add is going into the summer, there was a significant amount of planned and unplanned maintenance along PADD V and some of the unplanned maintenance really snowballed with the effects on the inventory drains coming into and out of September. And I think the price reacted to that. And the arbitrage into the West Coast for gasoline components which it needs to balance, we just have not seen the flow of products, both on gasoline and really [indiscernible] coming across from our Asian counterparts. So September was a month where a lot of that came to fruition.
John Royall
Okay, great. That’s really helpful. And then maybe to switch to capital allocation. Great to see the base dividend coming back and certainly a little earlier than we expected. I assume over the long term, you envision this company as having both a base dividend and the buyback. So I guess, first, I just wanted to confirm that a buyback is in the thought process down the road. And then how should we think about — should we think about maybe you have to get over some of these cash flow hurdles like PBFX and Chalmette first before we can define what that looks like?
Erik Young
I think that’s right. Ultimately, share buyback is yet another tool that can be employed. We’ve seen it amongst our peer group and amongst other folks that are out there. And so it absolutely can be something that we could put in place at some point in the future. I think we’ve tried to approach this in a prudent manner. Again, we know and we’ve gotten a considerable amount of questions over the past year around other things that we’re trying to address here and we tried to lay out a plan to true everything up over the — again, the course of the next year. But at the same time, we’ve also seen our business generate enough cash that we feel very confident that getting back to the first step is paying this dividend. And that’s really the most important message for today.
Operator
Our next question is from Carly Davenport with Goldman Sachs.
Carly Davenport
I wanted to just start a bit on the crude side, particularly on heavy Canadian differentials. Can you talk about what you think has been driving the wider WCS spreads? And if you’ve been able to take advantage of those discounts and source more of those barrels across the system?
Tom Nimbley
We’ll do this. I’ll comment and then Paul will come over the top. But somewhat impacted by the releases of — from this reserve which basically pushes back a little bit on Canadian crude. They came out of turnarounds on the upgrades. So the supply has come back. So there has been a rather significant widening of the — not only the WCS/WTI spread with the [indiscernible] spread which is we’re moving barrels which we are to the East Coast of the United States to Delaware City that has been advantageous and we have been able to take and continue to take advantage of that market dynamic pull.
Paul Davis
A lot of the WCS valuations have been impacted by the problems in PADD 2. I mean some of that — some of those problems are planned. Some of those are unplanned and they’re not insignificant. And that’s put pressure on the differentials there. Then fuel oil pricing is really driven where WCS valuations are for refiners in the Gulf and that’s impacting the price. We’ve taken advantage of it on the East Coast, we’re still running our slate there. We’re buying in Chalmette. And so both those sites have had some advantages with that.
Carly Davenport
Great. That’s helpful. And then just wanted to follow up on the renewable diesel side. I think you mentioned potential for $400 million of EBITDA there once the PTU is up and running. Can you just talk a bit about what the key assumptions around the economics are that you’re making to kind of drive those estimates?
Tom Nimbley
Well, I would say there’s obviously multiple levers with the economics of renewable diesel. Obviously, feedstock costs and diesel prices, obviously, the cornerstone but it’s a renewable fuel that gets RIN, qualifies for credits in California. You have the blenders tax credit that’s relatively stable. EBITDA today modeled for our plan is above $400 million. Our base case and approving the project, we assume something below that just to be conservative. And so we’re pleased with where the market is. We have as much conviction today as we did when we designed and improved the project. But like I said, starting out, there’s multiple levers to it. And so you can try to bring a fine-tooth comb to each one. But if you sit back and from a 10,000-foot view, look at a macro and say, look, the environment is such where governments are going to want to incentivize the manufacturing of renewable diesel. And whether that manifests itself in the D4 RIN which is clearly needed to incentivize the production or California credits or credits in Europe or lenders tax credit is constant. As I said, we believe the market is going to be there in a resilient fashion for us to make good money with our renewable diesel plan.
Operator
[Operator Instructions] Our next question is from Paul Cheng with Scotiabank.
Paul Cheng
Two questions. Tom, historically, that you guys have a growthful acquisition strategy. And of course, after the tolerance and the California acquisition and then the containment you pause. With the balance sheet is back in a very good shape, even though you still have some spending to go. So how should we look at whether that strategy is still intact and that how you balance between that and capital return to shareholders? That’s the first question.
Tom Nimbley
Okay, Paul. Good question. Let me start by saying that we pretty much accomplished the main objectives, are timing wasn’t particularly great but the main objectives that we had. We wanted to be diversified in several of the pads and particularly in California. So after we bought Torrance, we were looking for an opportunity to balance that capacity. We did that with Martinez. And as you all are well aware, the timing was not particularly good because we closed on February 1 and COVID hit around the same time. That being said, it’s a very good asset and it’s going to be a very powerful asset as part of that system. But we are very comfortable with where we have our assets right now. That being said and we are also trying to diversify the business. We can’t ignore the fact that the policymakers have got a different agenda perhaps. And so we have to do things like the renewable diesel project and we actually have some other things I alluded to in the comments that we might do with our footprint because of the amount of land that we have.
That being said, we will always be on the lookout for a deal if it makes a hell of a lot of sense. But right now, that’s where our focus is.
Paul Cheng
And I think in the past, I think the acquisition strategy is looking for some maybe how we shape refinery and you buy in and you’re trying to improve here. And I think subsequently that you have said you think that you may not want to do it anymore and if you’re going to buy, you may be willing to pay a little bit more but that buy the well maintain good quality asset. Is that still the thinking at this point?
Tom Nimbley
I think that has shifted, Paul. I mean at the time that we started PBF, there were a number, as you’re well aware, of refineries that the current owners were motivated to sell those refineries. So Delaware City, Valero had made the decision that we wanted to get out of PADD 1, Delaware City goes on the market, Paulsboro goes on the market. And we had the opportunity to buy at a reasonable price, knowing the full well that we’d have to spend a fair amount of money, particularly in Delaware, because it had been shut down and mothballed and we’d bring it up. Toledo is kind of the same way in that Sunoco wanted to get out of the refining business and that became an opportunity for us. Exxon wanted to get out [indiscernible] California after the precipitator explosion or even before that probably. So there were all opportunities that were there because of an exit strategy by the owner.
And we recognize that we were going to have to do, perhaps, as you suggested, we might be buying a fixer upper to a certain extent. Martinez was completely different. Top draw asset. And I think there’s not too many of the refineries that people are going to say they want to get rid of now. There’ll be some, obviously, that we will get on. But with the refining environment right now in the market environment, you’re going to have to pay up for it. Now if it’s a great deal, we will. Otherwise, we’ll focus our efforts on other things, including returning more capital to the shareholders.
Paul Cheng
Yes. The reason I asked that is why you have [indiscernible] going to shut down their Gulf Coast refinery because they couldn’t sell it. So it appears that quite a number of facility that is up for sale and may not have a lot of pickup. So that’s why I’m wondering that when you go back into your old strategy.
Tom Nimbley
Paul, I would just say it’s just all a function of price. And so we can’t declare here today that we are going to be acquiring refineries or not acquiring refineries. Obviously, the one in the Gulf Coast is set for closure because the market couldn’t come to terms on price and the company is moving on for opportunities for us going forward, it will simply depend on the opportunity exists at the time. As Tom said, we’re very pleased with the portfolio we have. And we think having highly complex coastal refineries with coking capacity is going to reward our shareholders handsomely.
Paul Cheng
A final question for me. Tom, you mentioned that you’re running some WCS and the diversity. Can you tell us how much you’re running in the third quarter? And how much do you expect in the fourth quarter? And what’s the current rough estimation transportation cost [indiscernible] from Alberta to the East Coast? And also that if you can mention that, I mean, how much is the cost to [indiscernible] to the Gulf Coast to Chalmette and how much you’re running there?
Tom Nimbley
Okay. I’ll take a shot at least at the beginning and then turn it over to Paul who’s got the answers to all of the other positive question. But what do we run? 25,000, 30,000 barrels a day of Canadian heavy.
Paul Davis
We’re running about 30,000 barrels a day, Canadian on the East Coast.
Tom Nimbley
East Coast. Now we’re running and we’re running some down in Chalmette. I would also say that our commercial organization has been able to source some other heavier materials were running a rocky straight run, heavy straight run material. So again, it’s a function of the fact that the heavy barrel is starting to get some pressure. In terms of transportation cost and how much of that is from Canada to Delaware…
Paul Davis
Canada to the East Coast, it’s still running around $15 on rail. And then Chalmette , we buy that barrel in place off the water from others that are shipping down there. The rail freight down to the Gulf Coast is pretty comparable to the East Coast economics. I don’t know exactly what they are because we’re not doing it but I do know it’s comparable. And then it’s just barging in in market valuations delivered into the [indiscernible].
Operator
We have reached the end of our question-and-answer session. I would like to turn the conference back over to Tom Nimbley for closing comments.
Tom Nimbley
Thank you very much all for participating in the call today. I’m very, very proud of the organization. And I’m very, very pleased with the results we’ve had. We look forward to hopefully being able to repeat that as we go forward and look forward to our next call. Thank you and have a great day.
Operator
Thank you. This does conclude today’s conference. You may disconnect your lines at this time and thank you for your participation.
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