PBF Energy 2013 Annual Report Download - page 85

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cost 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 costs of sales. The liability represents the amount the
Company expected to pay to repurchase the volumes held in storage.
While MSCG had legal title, it had the right to encumber and/or sell these products and any such sales by
MSCG result in sales being recognized by the refineries when products were shipped out of the storage facility. As
the exclusive vendor of intermediate products to the refineries, MSCG had the obligation to provide the intermediate
products to the refineries as they were needed. Accordingly, sales by MSCG to others were limited and only made
with the Company or its subsidiaries’ approval.
As of July 1, 2013, the Company terminated the Offtake Agreements for the Company’s Paulsboro and
Delaware City refineries. The Company 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 the
Company's tanks at the refineries. All purchase and sale transactions under the Inventory Intermediation Agreements
are consummated at a benchmark market price adjusted for a specified product type differential. The sale and
purchase transactions under the Inventory Intermediation Agreements are considered to be made in contemplation
of each other and, accordingly, do not result in the recognition of a sale when title passes to J. Aron. The Products
inventory remains on our balance sheet at cost and the net cash receipts result in a liability that is recorded at market
price for the volume of Products inventory held in our refineries’ storage tanks with any change in the market price
recorded in costs of sales.
Furthermore, J. Aron agrees to sell the Products back to the Company as the Products are discharged out of
the refineries' tanks. J. Aron has the right to store the Products purchased in the Company's tanks under the Inventory
Intermediation Agreements and will retain these storage rights for the term of the agreements. Inventory held
outside the refineries may be owned by the Company or by J. Aron under the Inventory Intermediation Agreements.
The Company will market and sell the Products independently to third parties.
Our Delaware City refinery sells and purchases feedstocks under a supply agreement primarily with Statoil.
Statoil purchases the refinery’s production of certain feedstocks or purchases feedstocks from third parties on the
refinery’s behalf. Legal title to the feedstocks is held by Statoil and the feedstocks are held in the refinery’s 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 us. These purchases and sales are settled monthly at the daily market prices related
to those feedstocks. These transactions are considered to be made in the contemplation of each other and,
accordingly, do not result in the recognition of a sale when title passes from the refinery to the counterparty.
Inventory remains at cost and the net cash receipts result in a liability. The Statoil crude supply agreement with
Paulsboro terminated effective March 31, 2013, at which time we began to purchase from Statoil the feedstocks
owned by them at that date.
Inventory
Inventories are carried at the lower of cost or market. The cost of crude oil, feedstocks, blendstocks and
refined products is determined under the LIFO method using the dollar value LIFO method with increments 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 Delaware City refinery acquires a portion of its crude oil from Statoil under our crude supply agreement
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 of the crude oil held by Statoil on our behalf
upon termination of the agreements. As a result of the purchase obligations, we record the inventory of crude oil
and feedstocks in the refinery’s 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