PBF Energy 2013 Annual Report Download - page 80

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Product Offtake Agreements
Prior to the termination of our product offtake agreements on July 1, 2013, our Paulsboro and Delaware
City refineries sold their light finished products, certain intermediates and lube base oils to MSCG. Legal title
transferred to MSCG as the products left the process units and entered the refinery storage facilities. On a daily
basis MSCG, under a payment direction agreement, paid 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 was terminated effective March 31,
2013. Any shortfall or overage in the netting process was trued up between us and Statoil. Under generally accepted
accounting principles, we deferred the revenue on finished product sales and retain the inventory owned by MSCG
on our balance sheet until MSCG shipped the products out of our refinery storage facilities, which typically occurred
within an average of six days.
In addition, MSCG purchased 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 repurchased the
intermediates or lubes from MSCG. These purchases and sales occurred at the daily market price for the related
products and were netted in cost of sales at cost. The inventory of intermediates and lubes owned by MSCG
remained in inventory on our balance sheet and the net cash receipts result in a liability that was recorded at market
price for the volumes held in storage with any change in the market price being recorded in cost of sales.
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.
Inventory Intermediation Agreements
We entered into two separate Inventory Intermediation Agreements with J. Aron on June 26, 2013 which
commenced upon the termination of the product offtake agreements with MSCG. Pursuant to the Inventory
Intermediation Agreements, J. Aron purchases and holds title to all of the intermediate and finished products
produced by the Delaware City and Paulsboro refineries and delivered into our tanks at the refineries. Inventory
held outside the refineries may be purchased and owned by J. Aron under the Inventory Intermediation Agreements
upon the agreement of both parties. Furthermore, J. Aron agrees to sell the intermediate and finished products
back to us as they are discharged out of the refineries' tanks (or other locations outside the refineries as agreed
upon by both parties). We currently market and sell the finished products independently to third parties. We entered
into the Inventory Intermediation Agreements for the purpose of managing the Products inventory at the Delaware
City and Paulsboro refineries. They provide us with financial flexibility and improve our liquidity by allowing us
to monetize Products inventory in our tanks as they are produced prior to being sold to third parties.
Our accounts receivable increased from $503.8 million at December 31, 2012 to $596.6 million at December
31, 2013 and our deferred revenue decreased from $210.5 million at December 31, 2012 to $7.8 million at December
31, 2013 as a result of the termination of the MSCG offtake agreements and commencement of the J. Aron Inventory
Intermediation Agreements. Previously, under the MSCG offtake agreements, we sold substantially all of our East
Coast finished products to MSCG and received payment on the day of sale. We deferred the revenue on these
finished product sales until MSCG shipped the products out of our refinery storage facilities. Under the J. Aron
agreements no revenue is deferred as we sell finished products directly to third parties with varying payment terms
and recognize revenue as the products are shipped and title transfers to the customer. Similarly, accounts payable
increased from $360.1 million at December 31, 2012 to $402.3 million at December 31, 2013, primarily as a result
of the termination of the Statoil supply agreement at Paulsboro and our increased purchases of crude by rail delivered
to the East Coast.