PBF Energy 2013 Annual Report Download - page 119

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
F- 23
The Company’s Delaware City refinery acquires a portion of its crude oil from Statoil under the Crude Supply
Agreements as did the Paulsboro refinery prior to the termination of its crude supply agreement with Statoil in
March 2013. The Company takes title to the crude oil as it is delivered to the processing units, in accordance with
the Crude Supply Agreements; however, the Company is obligated to purchase all the crude oil held by Statoil on
the Company’s behalf upon termination of the agreement at the then market price. The Paulsboro crude supply
agreement also included an obligation to purchase a fixed volume of feedstocks from Statoil on the later of maturity
or when the arrangement is terminated based on a forward market price of West Texas Intermediate crude oil. As
a result of the purchase obligations, the Company records the inventory of crude oil and feedstocks in the refineries’
storage facilities. The Company determined the purchase obligations to be contracts that contain derivatives that
change in value based on changes in commodity prices. Such changes in the fair value of these derivatives are
included in cost of sales. On October 31, 2012, the Delaware City crude supply agreement was amended and
modified to among other things, allow the Company to directly purchase U.S. and Canadian onshore origin crude
oil and feedstock that is delivered to the Delaware City refinery via rail independent of Statoil.
The Company’s Toledo refinery acquires substantially all of its crude oil from MSCG under a crude oil acquisition
agreement (the “Toledo Crude Oil Acquisition Agreement”). Under the Toledo Crude Oil Acquisition Agreement,
the Company takes title to crude oil at various pipeline locations for delivery to the refinery or sale to third parties.
The Company records the crude oil inventory when it receives title. Payment for the crude oil is due to MSCG
under the Toledo Crude Oil Acquisition Agreement three days after the crude oil is delivered to the Toledo refinery
processing units or upon sale to a third party.
Property, Plant and Equipment
Property, plant and equipment additions are recorded at cost. The Company capitalizes costs associated with the
preliminary, pre-acquisition and development/construction stages of a major construction project. The Company
capitalizes the interest cost associated with major construction projects based on the effective interest rate of total
borrowings. The Company also capitalizes costs incurred in the acquisition and development of software for internal
use, including the costs of software, materials, consultants and payroll-related costs for employees incurred in the
application development stage.
Depreciation is computed using the straight-line method over the following estimated useful lives:
Process units and equipment 5-25 years
Pipeline and equipment 5-25 years
Buildings 25-40 years
Computers, furniture and fixtures 3-15 years
Leasehold improvements 20 years
Railcars 50 years
Maintenance and repairs are charged to operating expenses as they are incurred. Improvements and betterments,
which extend the lives of the assets, are capitalized.
Deferred Charges and Other Assets, Net
Deferred charges and other assets include refinery turnaround costs, catalyst, precious metals catalyst, linefill,
deferred financing costs and intangible assets. Refinery turnaround costs, which are incurred in connection with
planned major maintenance activities, are capitalized when incurred and amortized on a straight-line basis over
the period of time estimated to lapse until the next turnaround occurs (generally 3 to 5 years).