PBF Energy 2012 Annual Report Download - page 61

The performance of our East Coast refineries follows the currently published Dated Brent (NYH) 2-1-1
benchmark refining margins. For our Toledo refinery, we utilize a composite benchmark refining margin, the
WTI (Chicago) 4-3-1 that is based on publicly available pricing information for products trading in the Chicago
and United States Gulf Coast markets.
While the benchmark refinery margins presented below under “Results of Operations—Market Indicators”
are representative of the results of our refineries, each refinery’s realized gross margin on a per barrel basis will
differ from the benchmark due to a variety of factors affecting the performance of the relevant refinery to its
corresponding benchmark. These factors include the refinery’s actual type of crude oil throughput, product yield
differentials and any other factors not reflected in the benchmark refining margins, such as transportation costs,
storage costs, credit fees, fuel consumed during production and any product premiums or discounts, as well as
inventory fluctuations, timing of crude oil and other feedstock purchases, a rising or declining crude and product
pricing environment and commodity price management activities. As discussed in more detail below, each of our
refineries, depending on market conditions, has certain feedstock-cost and product-value advantages and
disadvantages as compared to the refinery’s relevant benchmark.
Credit Risk Management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in
financial loss to us. Our exposure to credit risk is reflected in the carrying amount of the receivables that are
presented in our balance sheet. To minimize credit risk, all customers are subject to extensive credit verification
procedures and extensions of credit above defined thresholds are to be approved by the senior management. Our
intention is to trade only with recognized creditworthy third parties. In addition, receivable balances are
monitored on an ongoing basis. We also limit the risk of bad debts by obtaining security such as guarantees or
letters of credit.
Other Factors
We currently source our crude oil for Paulsboro and Delaware City on a global basis through a combination
of market purchases and short-term purchase contracts, mainly through our crude supply agreements. Our crude
supply agreement with Statoil for Paulsboro will terminate effective March 31, 2013, at which time we plan to
source Paulsboro’s crude oil and feedstocks internally. Our crude supply agreement with Statoil for Delaware
City has been extended by Statoil through December 31, 2015 and we have recently entered into certain
amendments to that agreement that are effective through the extended term. In addition, we have a long-term
contract with the Saudi Arabian Oil Company (“Saudi Aramco”) to purchase crude oil, and also purchase on the
spot market from Saudi Aramco when strategic opportunities arise. We have been purchasing up to
approximately 100,000 bpd of crude oil from Saudi Aramco that is processed at Paulsboro. Our Toledo refinery
sources domestic and Canadian crude oil through similar market purchases through our crude supply contract
with MSCG. We believe purchases based on market pricing has given us flexibility in obtaining crude oil at
lower prices and on a more accurate “as needed” basis. Since our Paulsboro and Delaware City refineries access
their crude slates from the Delaware River via ship or barge and through our rail facilities at Delaware City, these
refineries have the flexibility to purchase crude oils from the Midcontinent and Western Canada, as well as a
number of different countries.
In February 2013, we completed a second crude unloading facility at the refinery that increased our rail
crude unloading capacity at Delaware City from 40,000 barrels bpd to 110,000 bpd, comprised of 40,000 bpd of
heavy crude oil and 70,000 bpd of light crude oil. Also in February 2013, our board of directors approved a
project to add an additional 40,000 bpd of heavy crude rail unloading capability at the refinery. The project is
expected to cost approximately $50 million and to be completed in the fourth quarter of 2013. Completion of the
project will 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 150,000 bpd. During 2012 and January 2013, we entered into agreements to
lease or purchase a total of 3,600 coiled and insulated rails cars, which are capable of transporting Canadian
heavy crude oils, and 1,300 general purpose cars, which we intend to use to transport lighter crude oils.
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