PBF Energy 2013 Annual Report Download - page 89

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significantly with movements in crude oil and feedstock prices and our operating expenses fluctuate with
movements in the price of natural gas. We manage our exposure to these commodity price risks through our supply
and offtake agreements as well as through the use of various commodity derivative instruments.
Certain of our crude and feedstock supply agreements and products offtake agreements, reduce the time we
are exposed to market price fluctuations. For example, our crude and feedstock supply agreements with Statoil
allow us to take title to and price our crude oil at locations in close proximity to our refineries, as opposed to the
crude oil origination point. The crude supply agreement with MSCG for our Toledo refinery allows us to price
and pay for our crude oil as it is processed at that refinery. In addition, the products offtake agreements with MSCG
for our Delaware City and Paulsboro refineries that were terminated effective July 1, 2013, allowed us to sell our
light finished products, certain intermediates and lube base oils as they were produced. Subsequent to termination
of the MSCG products offtake agreements, we independently sell and market our refined products to customers
on the spot market or through term agreements.
We may use non-trading derivative instruments to manage exposure to commodity price risks associated
with the purchase or sale of crude oil and feedstocks, finished products and natural gas outside of our supply and
offtake agreements. The derivative instruments we use include physical commodity contracts and exchange-traded
and over-the-counter financial instruments. We mark-to-market our commodity derivative instruments and
recognize the changes in their fair value in our statements of operations.
At December 31, 2013 and 2012, we had gross open commodity derivative contracts representing 43.2
million barrels and 10.5 million barrels, respectively, with an unrealized net (loss) gain of $(19.4) million and $1.4
million, respectively. The open commodity derivative contracts as of December 31, 2013 expire at various times
during 2014.
We carry inventories of crude oil, intermediates and refined products (“hydrocarbon inventories”) on our
balance sheet, the values of which are subject to fluctuations in market prices. Our hydrocarbon inventories totaled
approximately 13.9 million barrels and 14.4 million barrels at December 31, 2013 and December 31, 2012,
respectively. The average cost of our hydrocarbon inventories was approximately $101.65 and $101.89 per barrel
on a LIFO basis at December 31, 2013 and December 31, 2012, respectively. If market prices decline to a level
below the average cost, we may be required to write down the carrying value of our hydrocarbon inventories to
market.
Our predominant variable operating cost is energy, which is comprised primarily of natural gas and electricity.
We are therefore sensitive to movements in natural gas prices. Assuming normal operating conditions, we annually
consume a total of approximately 37 million MMBTUs of natural gas amongst our three refineries. Accordingly,
a $1.00 per MMBTU change in natural gas prices would increase or decrease our natural gas costs by approximately
$37 million.
Compliance Program Price Risk
We are exposed to market risks related to the volatility in the price of Renewable Identification Numbers
("RINs") required to comply with the Renewable Fuel Standard. Our overall RINs obligation is based on a
percentage of our domestic shipments of on-road fuels as established by the EPA. To the degree we are unable to
blend the required amount of biofuels to satisfy our RINs obligation, we must purchase RINs on the open market.
To mitigate the impact of this risk on our results of operations and cash flows we may purchase RINs when the
price of these instruments is deemed favorable.
Interest Rate Risk
During 2013, we amended the terms of our ABL Revolving Credit Facility to increase the size of our asset-
based revolving credit facility from $1.575 to $1.610 billion. Borrowings under our ABL Revolving Credit Facility
bear interest at the Adjusted LIBOR Rate plus 1.75% to 2.50%, depending on our debt rating. If this facility were
fully drawn, a one percent change in the interest rate would increase or decrease our interest expense by $16.1
million annually.