PBF Energy 2015 Annual Report Download - page 103

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Prior to July 1, 2013, the Company’s Paulsboro and Delaware City refineries sold light finished products,
certain intermediates and lube base oils to MSCG under product offtake agreements with each refinery (the “Offtake
Agreements”). 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.
On May 29, 2015, PBF Holding entered into amended and restated inventory intermediation agreements with J.
Aron pursuant to which certain terms of the existing inventory intermediation agreements were amended, including,
among other things, pricing and an extension of the term for a period of two years from the original expiry date
of July 1, 2015, subject to certain early termination rights. In addition, the A&R Intermediation Agreements include
one-year renewal clauses by mutual consent of both parties.
Pursuant to each A&R Intermediation Agreement, J. Aron will continue to purchase and hold title to certain
of the intermediate and finished products produced by the Paulsboro and Delaware City refineries, respectively,
and delivered into tanks at the Refineries. Furthermore, J. Aron agrees to sell the Products back to Paulsboro
refinery and Delaware City refinery as the Products are discharged out of the Refineries' tanks. J. Aron has the
right to store the Products purchased in tanks under the A&R Intermediation Agreements and will retain these
storage rights for the term of the agreements. PBF Holding will continue to market and sell the Products
independently to third parties.
Until December 31, 2015, our Delaware City refinery sold and purchased feedstocks under a supply
agreement with Statoil. Statoil purchased the refinery’s production of certain feedstocks or purchased feedstocks
from third parties on the refinery’s behalf. Legal title to the feedstocks was held by Statoil and the feedstocks were
held in the refinery’s storage tanks until they were needed for further use in the refining process. At that time the
feedstocks were drawn out of the storage tanks and purchased by us. These purchases and sales were settled monthly
at the daily market prices related to those feedstocks. These transactions were considered to be made in the
contemplation of each other and, accordingly, did not result in the recognition of a sale when title passed from the
refinery to the counterparty. Inventory remained at cost and the net cash receipts resulted in a liability. The Statoil
crude supply agreement with our Delaware City refinery terminated effective December 31, 2015, at which time
we began to purchase from Statoil the feedstocks owned by them at that date that had been purchased on our behalf.
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 that had been purchased on our behalf.
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 acquired a portion of its crude oil from Statoil under our crude supply agreement
whereby we took title to the crude oil as it was delivered to our processing units. We had risk of loss while the
Statoil inventory was in our storage tanks. We were 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 recorded the inventory
of crude oil and feedstocks in the refinery’s storage facilities. The purchase obligations contained derivatives that
changed in value based on changes in commodity prices. Such changes were included in our cost of sales. Our
agreement with Statoil for our Delaware City refinery terminated effective December 31, 2015, at which time we
began to source crude oil and feedstocks internally. Our agreement with Statoil for Paulsboro terminated effective
March 31, 2013, at which time we began to source crude oil and feedstocks independently.