PBF Energy 2012 Annual Report Download - page 83

valued based on average cost during the year. The cost of supplies and other inventories is determined principally
on the weighted average cost method.
Our Paulsboro and Delaware City refineries acquire substantially all of their crude oil from Statoil under our
crude supply agreements whereby we take title to the crude oil as it is delivered to our processing units. We have
risk of loss while the Statoil inventory is in our storage tanks. We are obligated to purchase all the crude oil held
by Statoil on our behalf upon termination of the agreements. In addition, we are obligated to purchase a fixed
volume of the Paulsboro feedstocks from Statoil when the arrangement is terminated. As a result of the purchase
obligations, we record the inventory of crude oil and feedstocks in the refineries’ storage facilities. The purchase
obligations contain derivatives that change in value based on changes in commodity prices. Such changes are
included in our cost of sales. Our agreement with Statoil for Paulsboro will terminate effective March 31, 2013,
at which time we plan to source crude oil and feedstocks internally.
For the period from March 1, 2011 through May 31, 2011, our Toledo refinery acquired substantially all of
its crude oil from MSCG under a crude oil supply agreement whereby we took title to the crude oil as it was
delivered to the refinery processing units. We had custody and risk of loss for MSCG’s crude oil stored on the
refinery premises. As a result, we recorded the crude oil in the Toledo refinery’s storage facilities as inventory
with a corresponding accrued liability. Effective June 1, 2011 we entered into a new supply agreement with
MSCG under which we take legal title to the crude oil at certain interstate pipeline delivery locations. 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.
Environmental Matters
Liabilities for future clean-up costs are recorded when environmental assessments and/or clean-up efforts are
probable and the costs can be reasonably estimated. Other than for assessments, the timing and magnitude of these
accruals generally are based on the completion of investigations or other studies or a commitment to a formal plan
of action. Environmental liabilities are based on best estimates of probable future costs using currently available
technology and applying current regulations, as well as our own internal environmental policies. The actual
settlement of our liability for environmental matters could materially differ from our estimates due to a number of
uncertainties such as the extent of contamination, changes in environmental laws and regulations, potential
improvements in remediation technologies and the participation of other responsible parties.
Long-Lived Assets and Definite-Lived Intangibles
We review our long and finite lived assets for impairment whenever events or changes in circumstances
indicate their carrying value may not be recoverable. Impairment is evaluated by comparing the carrying value of
the long and finite lived assets to the estimated undiscounted future cash flows expected to result from the use of
the assets and their ultimate disposition. If such analysis indicates that the carrying value of the long and finite
lived assets is not considered to be recoverable, the carrying value is reduced to the fair value.
Impairment assessments inherently involve judgment as to assumptions about expected future cash flows
and the impact of market conditions on those assumptions. Although management would utilize assumptions that
it believes are reasonable, future events and changing market conditions may impact management’s assumptions,
which could produce different results.
Indefinite-lived Assets
We consider precious metals catalyst and linefill to be indefinite-lived assets as they are not expected to
deteriorate in their prescribed functions. These assets are not depreciated, but are assessed for impairment.
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