PBF Energy 2012 Annual Report Download - page 78

not have to post letters of credit for these purchases and the Toledo agreement allows us to price and pay for our
crude oil as it is processed, which reduces the time we are exposed to market fluctuations. We record an accrued
liability at each period-end for the amount we owe MSCG for the crude oil that we own but have not processed.
The accrued liability is based on the period-end market value, as it represents our best estimate of what we will
pay for the crude oil.
In connection with the crude and feedstock supply agreements for our Paulsboro and Delaware City
refineries, Statoil also purchases the refineries’ production of certain feedstocks or purchases feedstocks from
third parties on the refineries’ behalf. Legal title to the feedstocks is held by Statoil and stored in the refineries’
storage tanks until they are needed for further use in the refining process. At that time, the feedstocks are drawn
out of the storage tanks and purchased by the refineries. These purchases and sales are netted at cost and reported
within cost of sales. The feedstock inventory owned by Statoil remains on our balance sheet with a corresponding
accrued liability.
At December 31, 2012, the LIFO value of crude oil and feedstocks owned by Statoil included within
inventory on our balance sheet was $257.9 million. The corresponding accrued liability for such crude oil and
feedstocks was $266.2 million at that date.
Product Offtake Agreements
Our Paulsboro and Delaware City refineries sell their light finished products, certain intermediates and lube
base oils to MSCG under a products offtake agreement. Legal title transfers to MSCG as the products leave the
process units and enter the refinery storage facilities. On a daily basis MSCG, under a payment direction
agreement, pays the purchase price of certain finished products directly to Statoil, the counterparty to our crude
oil and feedstocks supply agreements, effectively netting our liability for crude and feedstock purchases. The
payment direction agreement for Paulsboro will terminate effective March 31, 2013. Any shortfall or overage in
the netting process is trued up between us and Statoil. Under generally accepted accounting principles, we defer
the revenue on finished product sales and retain the inventory owned by MSCG on our balance sheet until MSCG
ships the products out of our refinery storage facilities, which typically occurs within an average of six days.
In addition, MSCG purchases the daily production of certain intermediates and lube products. When needed
for additional blending or sales to third parties, the Paulsboro and Delaware City refineries repurchase the
intermediates or lubes from MSCG. These purchases and sales occur at the daily market price for the related
products and are netted in cost of sales at cost. The inventory of intermediates and lubes owned by MSCG remain
in inventory on our balance sheet and the net cash receipts result in a liability that is recorded at market price for the
volumes held in storage with any change in the market price being recorded in cost of sales. In December 2012, we
issued notices terminating the MSCG agreements for Paulsboro and Delaware City effective June 30, 2013.
At December 31, 2012, the LIFO value of light finished products, intermediates and lubes owned by MSCG
included within inventory on our balance sheet was $417.9 million. The corresponding deferred revenue for light
finished products and accrued liability for intermediates and lubes was $210.5 million and $270.4 million,
respectively.
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