PBF Energy 2012 Annual Report Download - page 27

Prices of crude oil, other feedstocks, blendstocks, and refined products depend on numerous factors beyond
our control, including the supply of and demand for crude oil, other feedstocks, gasoline, diesel, ethanol, asphalt
and other refined products. Such supply and demand are affected by a variety of economic, market,
environmental and political conditions.
Our direct operating expense structure also impacts our profitability. Our major direct operating expenses
include employee and contract labor, maintenance and energy. Our predominant variable direct operating cost is
energy, which is comprised primarily of fuel and other utility services. The volatility in costs of fuel, principally
natural gas, and other utility services, principally electricity, used by our refineries and other operations affect
our operating costs. Fuel and utility prices have been, and will continue to be, affected by factors outside our
control, such as supply and demand for fuel and utility services in both local and regional markets. Natural gas
prices have historically been volatile and, typically, electricity prices fluctuate with natural gas prices. Future
increases in fuel and utility prices may have a negative effect on our revenues, profitability and cash flows.
Our historical financial statements may not be helpful in predicting our future performance.
We have grown rapidly since our inception and have not owned or operated our refineries for a substantial
period of time. Accordingly, our historical financial information may not be useful either as a means of
understanding our current financial situation or as an indicator of our future results. For the period from March 1,
2008 to December 16, 2010, we were considered to be in the development stage. Our historical financial
information for that period reflects our activities principally in connection with identifying acquisition
opportunities; acquiring the Delaware City refinery assets and commencing a reconfiguration of the refinery; and
acquiring the Paulsboro refinery. As a result of the Paulsboro and Toledo acquisitions, our historical consolidated
financial results include the results of operations for Paulsboro and Toledo from December 17, 2010 and
March 1, 2011 forward, respectively. Certain information in our financial statements and certain other financial
data included in this Annual Report on Form 10-K are based in part on financial data related to, and the
operations of, those companies that previously owned and operated our refineries. For example, at the time of its
acquisition, Paulsboro represented the major portion of our business and assets. As has been the case in our
acquisitions to date, it is likely that, when we acquire refineries, we will not have access to the type of historical
financial information that we will report regarding the prior operation of the refineries. As a result, it may be
difficult for investors to evaluate the probable impact of major acquisitions on our financial performance until we
have operated the acquired refineries for a substantial period of time.
Our profitability is affected by crude oil differentials, which fluctuate substantially.
A significant portion of our profitability is derived from the ability to purchase and process crude oil
feedstocks that historically have been cheaper than benchmark crude oils, such as the heavy, sour crude oils
processed at our Delaware City and Paulsboro refineries and the WTI based crude oils processed at our Toledo
refinery. These crude oil differentials vary significantly from quarter to quarter depending on overall economic
conditions and trends and conditions within the markets for crude oil and refined products. Any change in these
crude oil differentials may have an impact on our earnings. Our rail investment and strategy to acquire cost
advantaged Midcontinent and Canadian crude, which are priced based on WTI, could be adversely affected if the
WTI-Brent differential narrows. For example, the WTI/WCS differential, a proxy for the difference between
light U.S. and heavy Canadian crudes, has increased from $15.63 per barrel in 2011 to $21.80 per barrel for the
year ended December 31, 2012, however, this increase may not be indicative of the differential going forward.
Conversely, a narrowing of the light-heavy differential may reduce our refining margins and adversely affect our
recent profitability and earnings. In addition, while our Toledo refinery benefits from a widening of the Dated
Brent/WTI differential, a narrowing of this differential may result in our Toledo refinery losing a portion of its
crude price advantage over certain of our competitors, which negatively impacts our profitability. Divergent
views have been expressed as to the expected magnitude of changes to these crude differentials in future periods,
including some analysts that expect these crude differentials to contract in upcoming periods. Any narrowing of
these differentials could have a material adverse effect on our business and profitability.
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