This combined Annual Report on Form 10-K is filed by PBF Energy Inc. (“PBF Energy”), PBF Holding Company LLC (“PBF Holding”) and PBF Finance Corporation ("PBF Finance"). Each Registrant hereto is filing on its own behalf all of the information contained in this report that relates to such Registrant. Each Registrant hereto is not filing any information that does not relate to such Registrant, and therefore makes no representation as to any such information. PBF Energy is the sole managing member of, and owner of an equity interest representing approximately 40.9% of the outstanding economic interests in, PBF Energy Company LLC ("PBF LLC") as of December 31, 2013. PBF Holding is a wholly-owned subsidiary of PBF LLC and PBF Finance is a wholly-owned subsidiary of PBF Holding. PBF Holding is the parent company for PBF LLC's operating subsidiaries.
PBF Holding is an indirect subsidiary of PBF Energy, representing 100% of PBF Energy’s consolidated revenue for the year ended December 31, 2013 and constituting 100% of PBF Energy’s revenue generating assets as of December 31, 2013.
Unless the context indicates otherwise, the terms “we,” “us,” and “our” refer to both PBF Energy and PBF Holding and consolidated subsidiaries, including PBF LLC, PBF Investments LLC (“PBF Investments”), PBF Services Company LLC, PBF Power Marketing LLC, Toledo Refining Company LLC (“Toledo Refining”), Paulsboro Natural Gas Pipeline Company LLC, Paulsboro Refining Company LLC (“Paulsboro Refining”), Delaware Pipeline Company LLC, Delaware City Refining Company LLC (“Delaware City Refining”), Delaware City Terminaling Company LLC, PBF Logistics GP LLC, PBF Logistics LP and PBF Rail Logistics Company LLC. Discussions or areas of this report that either apply only to PBF Energy or PBF Holding are clearly noted in such sections.
In this Annual Report on Form 10-K, we make certain forward-looking statements, including statements regarding our plans, strategies, objectives, expectations, intentions, and resources, under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You should read our forward-looking statements together with our disclosures under the heading: “Cautionary Statement for the Purpose of Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.” When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements set forth in this Annual Report on Form 10-K under “Risk Factors” in Item 1A.
ITEM. 1 BUSINESS
Overview
We are one of the largest independent petroleum refiners and suppliers of unbranded transportation fuels, heating oil, petrochemical feedstocks, lubricants and other petroleum products in the United States. We sell our products throughout the Northeast and Midwest of the United States, as well as in other regions of the United States and Canada, and are able to ship products to other international destinations. We were formed in 2008 to pursue acquisitions of crude oil refineries and downstream assets in North America. We currently own and operate three domestic oil refineries and related assets, which we acquired in 2010 and 2011. Our refineries have a combined processing capacity, known as throughput, of approximately 540,000 bpd, and a weighted-average Nelson Complexity Index of 11.3.
Our three refineries are located in Toledo, Ohio, Delaware City, Delaware and Paulsboro, New Jersey. Our Mid-Continent refinery at Toledo processes light, sweet crude, has a throughput capacity of 170,000 bpd and a Nelson Complexity Index of 9.2. The majority of Toledo’s WTI-based crude is delivered via pipelines that originate in both Canada and the United States. Since our acquisition of Toledo in 2011, we have added additional truck and rail crude unloading capabilities that provide feedstock sourcing flexibility for the refinery and enables Toledo to run a more cost-advantaged crude slate. Our East Coast refineries at Delaware City and Paulsboro have a combined refining capacity of 370,000 bpd and Nelson Complexity Indices of 11.3 and 13.2, respectively. These high-conversion refineries process primarily medium and heavy, sour crudes and have historically received the bulk of their feedstock via ships and barges on the Delaware River.
During 2012 and 2013, we expanded and upgraded existing on-site railroad infrastructure at our Delaware City refinery, including the expansion of the crude rail unloading facilities that was completed in February 2013. Currently, crude delivered to this facility is consumed at our Delaware City refinery. We also transport some of the crude delivered by rail from Delaware City via barge to our Paulsboro refinery or other third party destinations. The Delaware City rail unloading facility allows our East Coast refineries to source WTI based crudes from Western Canada and the Midcontinent, which we believe provides significant cost advantages versus traditional Brent based international crudes.
PBF Energy, a Delaware corporation formed on November 7, 2011, is a holding company that manages its consolidated subsidiary, PBF LLC. Our sole asset is a controlling equity interest as of December 31, 2013 of approximately 40.9% in PBF LLC as discussed more fully in “History” below.
Available Information.
Our website address is www.pbfenergy.com. Information contained on our website is not part of this Annual Report on Form 10-K. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any other materials filed with (or furnished to) the Securities and Exchange Commission (SEC) by us are available on our website (under “Investors”) free of charge, soon after we file or furnish such material. In this same location, we also post our corporate governance guidelines, code of business conduct and ethics, and the charters of the committees of our board of directors. These documents are available free of charge in print to any stockholder that makes a written request to the Secretary, PBF Energy Inc., One Sylvan Way, Second Floor, Parsippany, New Jersey 07054.
PBF Energy is the sole managing member of PBF LLC. PBF Holding is a wholly-owned subsidiary of PBF LLC and PBF Finance is a wholly-owned subsidiary of PBF Holding. PBF Holding is the parent company for PBF LLC's operating subsidiaries.
On December 18, 2012, we completed the initial public offering of 23,567,686 shares of our Class A common stock at an offering price of $26.00 per share. In connection with the offering, our shares of Class A common stock began trading on the New York Stock Exchange under the symbol “PBF”. The proceeds to us from the offering, before deducting underwriting discounts, were approximately $612.8 million of which we used approximately $571.2 million to purchase 21,967,686 PBF LLC Series A Units from our financial sponsors, funds affiliated with The Blackstone Group L.P. (“Blackstone”) and First Reserve Management L.P. (“First Reserve”).
Additionally, on June 12, 2013, we completed a public offering of 15,950,000 shares of our Class A common stock at a price of $27.00 per share, less underwriting discounts and commissions, in a secondary public offering (the "June 2013 Secondary Offering"). All of the shares were sold by funds affiliated with Blackstone and First Reserve. In connection with this offering, Blackstone and First Reserve exchanged 15,950,000 Series A Units of PBF LLC for an equivalent number of shares of our Class A common stock. The holders of PBF LLC Series B Units, which include certain executive officers of PBF Energy, had the right to receive a portion of the proceeds of the sale of the PBF Energy Class A common stock by Blackstone and First Reserve.
As of December 31, 2013, Blackstone and First Reserve and our executive officers and directors and certain employees beneficially owned 57,201,674 PBF LLC Series A Units (we refer to all of the holders of the PBF LLC Series A Units as “the members of PBF LLC other than PBF Energy”) and we owned 39,665,473 PBF LLC Series C Units, and the members of PBF LLC other than PBF Energy through their holdings of Class B common stock have 59.1% of the voting power in us, and the holders of our issued and outstanding shares of Class A common stock have 40.9% of the voting power in us. As a result of the ownership of the Class B common stock and the PBF LLC Series A Units, prior to the January 2014 secondary offering discussed below under "Recent Developments", Blackstone and First Reserve controlled us as of December 31, 2013, and we in turn, as the sole managing member of PBF LLC, control PBF LLC and its subsidiaries.
PBF Energy consolidates the financial results of PBF LLC and its subsidiaries and records a noncontrolling interest in its consolidated financial statements representing the economic interests of the members of PBF LLC other than PBF Energy. PBF LLC is PBF Energy’s predecessor for accounting purposes. Our financial statements and results of operations for periods prior to the completion of our initial public offering are those of PBF LLC.
See “Item 1A. Risk Factors” and “Item 13. Certain Relationships and Related Transactions, and Director Independence.”
The diagram below depicts our organizational structure as of December 31, 2013:
On January 6, 2014, we completed a public offering of 15,000,000 shares of our Class A common stock at a price of $28.00 per share, less underwriting discounts and commissions, in a secondary public offering (the "January 2014 Secondary Offering"). All of the shares were sold by funds affiliated with Blackstone and First Reserve. In connection with this offering, Blackstone and First Reserve exchanged 15,000,000 Series A Units of PBF LLC for an equivalent number of shares of our Class A common stock, which increased PBF Energy's interest in PBF LLC to approximately 56.4%. The holders of PBF LLC Series B Units, which include certain executive officers of PBF Energy, had the right to receive a portion of the proceeds of the sale of the PBF Energy Class A common stock by Blackstone and First Reserve. Completion of the January 2014 Secondary Offering is estimated to increase our tax receivable agreement liability to $439.6 million due to the tax benefit expected to be generated as a result of the exchange in connection with the secondary offering and the corresponding tax benefits expected to be generated in future years from this transaction.
Refining Operations
We own and operate three refineries, all located in regions with currently favorable market dynamics where finished product demand exceeds operating refining capacity. We produce a variety of products at each of our refineries, including gasoline, ULSD, heating oil, jet fuel, lubricants, petrochemicals and asphalt. We sell our products throughout the Northeast and Midwest of the United States, as well as in other regions of the United States and Canada, and are able to ship products to other international destinations.
Delaware City Refinery
Acquisition and Re-Start. Through our subsidiaries, Delaware City Refining and Delaware Pipeline Company LLC, we acquired the idle Delaware City refinery and its related assets, including a petroleum product terminal, a petroleum products pipeline and an electric generation facility, on June 1, 2010 from affiliates of Valero for approximately $220.0 million in cash, consisting of approximately $170.0 million for the refinery, terminal and pipeline assets and $50.0 million for the power plant complex located on the property.
At the time of acquisition, we reached an agreement with the State of Delaware that provided for a five-year operating permit and up to approximately $45.0 million of economic support to re-start the facility, and negotiated a new long-term contract with the relevant union at the refinery. As of December 31, 2013, we had received $39.4 million in economic support from the State of Delaware under this agreement. We believe that the refinery’s ability to process lower quality crudes allows us to capture a higher margin as these lower quality crudes are typically priced at discounts to benchmark crudes, and to compete effectively in a region where product demand currently significantly exceeds refining capacity.
We restarted the Delaware City Refinery in October 2011. Since our acquisition through December 31, 2013, we have invested more than $700.0 million in turnaround and re-start projects at Delaware City, as well as in the recent strategic development of crude rail unloading facilities. In May 2012, we commenced crude shipments via rail into a newly developed crude rail unloading facility at our Delaware City refinery. We have expanded and upgraded the existing on-site railroad infrastructure, including the expansion of the crude rail unloading facilities which, as of February 2013 were capable of discharging approximately 110,000 bpd, consisting of 40,000 bpd of heavy crude oil and 70,000 bpd of light crude oil. However, due to greater operating efficiency, discharge capacity for light crude oil at our dual-loop track has increased from 70,000 bpd to approximately 105,000 bpd. In conjunction with the development of our rail crude unloading facilities at Delaware City, we constructed a railcar storage yard with capacity for 330 railcars that is integral to railcar staging and storage and helps facilitate daily rail traffic at the refinery. We are also adding additional unloading spots to the dual-loop track to increase unloading capabilities at that facility to approximately 130,000 bpd. Also in 2013 we commenced a third rail crude offloading project to add an additional 40,000 bpd of heavy crude rail unloading capability at the refinery, which is expected to be completed by the second half of 2014. Completion of these additional rail projects is expected to increase our discharge capacity of heavy crude oil from 40,000 bpd to 80,000 bpd and bring the total rail crude unloading capability up to 210,000 bpd by the end of 2014, subject to the delivery of coiled and insulated railcars, the development of crude rail loading infrastructure in Canada and the use of unit trains.