PBF Energy 2013 Annual Report Download - page 29

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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 and delivered by rail to our East Coast refineries. 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 $21.80 per barrel in
2012 to $24.62 per barrel for the year ended December 31, 2013, 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. This applies as well to our East Coast strategy of delivering crude by rail. 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.
Our recent historical earnings have been concentrated and may continue to be concentrated in the future.
Our three refineries have similar throughput capacity, however, favorable market conditions due to, among
other things, geographic location, crude and refined product slates, and customer demand, may cause an individual
refinery to contribute more significantly to our earnings than others for a period of time. For example, our Toledo,
Ohio refinery has produced a substantial portion of our earnings over the past several quarters. As a result, if there
were a significant disruption to operations at this refinery, our earnings could be materially adversely affected (to
the extent not recoverable through insurance) disproportionally to Toledo’s portion of our consolidated
throughput. The Toledo refinery, or one of our other refineries, may continue to disproportionally affect our results
of operations in the future. Any prolonged disruption to the operations of such refinery, whether due to labor
difficulties, destruction of or damage to such facilities, severe weather conditions, interruption of utilities service
or other reasons, could have a material adverse effect on our business, results of operations or financial condition.
A significant interruption or casualty loss at any of our refineries and related assets could reduce our production,
particularly if not fully covered by our insurance. Failure by one or more insurers to honor its coverage
commitments for an insured event could materially and adversely affect our future cash flows, operating results
and financial condition.
Our business currently consists of owning and operating three refineries and related assets. As a result, our
operations could be subject to significant interruption if any of our refineries were to experience a major accident,
be damaged by severe weather or other natural disaster, or otherwise be forced to shut down or curtail production
due to unforeseen events, such as acts of God, nature, orders of governmental authorities, supply chain disruptions
impacting our crude rail facilities or other logistical assets, power outages, acts of terrorism, fires, toxic emissions
and maritime hazards. Any such shutdown or disruption would reduce the production from that refinery. There is
also risk of mechanical failure and equipment shutdowns both general and following unforeseen events. Further,
in such situations, undamaged refinery processing units may be dependent on or interact with damaged sections
of our refineries and, accordingly, are also subject to being shut down. In the event any of our refineries is forced