PBF Energy Inc. (PBF) Q3 2026 Earnings Call Transcript

Operator: Good day, everyone, and welcome to the PBF Energy Third Quarter 26 Earnings Conference Call and Webcast. At this time, all participants have been placed in a listen-only mode. And the floor will open for questions following management's prepared remarks. Please note this conference is being recorded. It is now my pleasure to turn the floor over to Colin Murray of Investor Relations. Sir, you may begin.

Colin Murray: Thank you, Jeannie. Good morning, and welcome to today's call. With me today are Matthew C. Lucey, our President and CEO Michael Bukowski, our Senior Vice President and Head of Refining Joe Marino, our CFO and several other members of our management team. Copies of today's earnings release and our 10 Q filing, including supplemental information, are available on our website. Before getting started, I would like to direct your attention to the safe harbor statement contained in today's press release. Statements expressing the company's or management's expectations or predictions of the future, are forward looking statements intended to be covered by the safe harbor provisions under federal securities laws. Consistent with our prior periods, we will discuss our results excluding special items. Which are described in today's press release. Also included in the press release is forward looking guidance information, For any questions on these items or other follow-up questions, please contact Investor Relations. I will now turn the call over to Matthew C. Lucey.

Matthew C. Lucey: Thanks, Colin. Good morning, everyone, and thanks for joining our call. Third quarter earnings speak for themselves. We intend to convert those earnings into lasting improvements in our business. The company reduced net debt by more than $1.2 billion during the quarter, and by more than $2 billion this year. As Joe will detail, our balance sheet transformation has put the company on strongest financial footing since our formation. Over the last 7 years, markets have become increasingly volatile with shorter cycles. And that is despite the 3 once-in-a-generation events over that period. Prudent prudence dictates a deeper balance sheet to navigate this new reality. The company's focus is to execute, execute, execute our base business and do so efficiently. And importantly, through our business improvement initiatives, to improve the competitive positioning of each asset we own. Extract incremental profitability through all cycles up or down. We are investing in our assets to improve utilization reliability, and yields. Which will translate into stronger through the cycle cash flow and make our system more resilient. By executing well on these priorities, we will maximize the resilience of our system, create greater long term shareholder value, and increase our ability to return capital to shareholders. Turning to the market. The biggest disruptions to the oil market have materialized in the availability of refined products. The disruptions have coincided with what was an already structurally tight refining market. On the crude side, the market has adapted reasonably given the circumstances. Flows through the Strait Of Hormuz have recovered to roughly 3/4 of prewar levels with some recent weekly reports higher. But product flows remain well below prewar levels. Recently, the dramatic increase in freight rates has really put pressure on the Asian refiners. Freight coupled with rising natural gas costs overseas is raising the cost to run international capacity. Headwinds that US refiners are less exposed to due to our shorter transit times, and abundant domestic supply of natural gas. Freight dynamics paired with growing production of heavy crudes has widened the light heavy differentials. PBF's crude slate flexibility and close proximity production is a real tailwind going into the fourth quarter for our cost of crude. The freight realities raised the bar for delivery of imports. Needed in our product short coastal markets. PBF sells the majority of our products thereby avoiding costly transits. The story on products remains a supply story. More than 5 million barrels a day of global capacity is offline. A portion of which with physical damage. With global inventories roughly 500 million barrels below prewar levels, there is essentially zero cushion in the system. All c responses can be helpful on the margin, However, at the core, the world is simply short refined products. Benchmark cracks reflected the tightness. The New York Harbor 2-1-1 averaged nearly $65/barrel in the third quarter compared with about $26/barrel a year ago. Nowhere are current product dynamics more clear than our coasts. Which are structurally short refined capacity and dependent on imports. California alone imports roughly 250 thousand barrels/day of gasoline about 30% of its demand. The situation reinforces the point we have made for some time. US refining is critical infrastructure. Looking ahead, demand has proven resilient. Holding up well domestically. Peace may, and hopefully will normalize trade flows. But it will not restore damaged capacity rebuild depleted inventories, or reverse years of capacity rationalization. Crude normalization will happen much quicker than stabilization in the product markets. Taken together, we believe that refining has entered a new higher cycle characterized by higher volatility, with a bias towards wider crude differentials. Given our highly complex coastal refining system is well positioned for this market environment. None of this changes what we can control. To be successful, enhance value for our investors, we must operate safely reliably, and responsibly. And we must execute on our process improvement initiatives to maximize market capture. With that, I will turn the call over to Mike.

Michael Bukowski: Thank you, Matthew. Good morning, everyone. In the third quarter, our throughput averaged approximately 924 thousand barrels/day across the system. Which is in line with our overall guidance for the quarter. On the West Coast, we began the Martinez hydrocracker turnaround in September, and completed it in October as planned. Also in September, we closed the acquisition of the 2 hydrogen plants servicing our Torrance refinery from Air Products. Owning and operating those assets allows us to more closely integrate their operations, maintenance and turnarounds with the refinery. Which we expect will improve the overall reliability of Torrance. On the East Coast, the Paul crude unit turnaround also commenced in September was completed in October as planned. Both the Martinez and Paul turnarounds were within budget and industry benchmark targets. With Paulsboro back online, we are well positioned to supply our markets as temperatures drop in the Northeast. At Chalmette, the pretreater and reformer that were taken offline in May are back in service. Chalmette had no impact from hurricane Isaias. With our turnarounds complete, we have a clear operational runway for the remainder of 2026. For the fourth quarter, we expect total throughput of 925 thousand to 985 thousand barrels/day. Continue to make progress on our refining business improvement program. Our business improvement program, or RBI, generated in excess of $230 million of run rate cost improvements that were included in our 2026 plans. And we expect that to grow to more than $350 million by year-end 2026. Some recent accomplishments. Our turnaround performance continues to improve, as demonstrated by the execution of the Martinez and Paul turnarounds this quarter. Our RBI-driven 2026 capital reductions are tracking approximately $88 million versus $70 million versus our $70 million commitment. Including approximately $54 million from turnarounds. Natural gas intensity across our system is down approximately 11% year to date, And for instance, Toledo has improved its overall energy intensity by 10%-15%. Our strategic sourcing organization has identified approximately $55 million/year of savings across 3 ways of contract renewals. As Matt mentioned, investing in our assets is a key pillar of our strategy to enhance the long term value of our system. We have identified a number of relatively small to mid scale projects that will improve utilization yields, and reduce costs. We have already begun executing this plan. In the third quarter, we completed the first phase of a jet fuel project at Chalmette. By upgrading high sulfur diesel we are now producing approximately 10 thousand barrels/day of jet fuel. And in 2027, we plan to increase that capability to 20 thousand barrels/day. As a further example, we have identified a similar opportunity at Paul. Included in our 2027 plans. Where upgrading lower value intermediates will increase our gasoline yield and blending capability by about 10 thousand barrels/day. To be clear, these are yield improvement projects, not capacity expansions. We are not pursuing high cost mega projects. And we have no intention of investing in large capacity expansions. RBI is central to improving PBS future performance. But it will not distract us from our obligation to operate in a safe, reliable, and environmentally responsible way every day. I will now turn the call over to Joe Marino for our financial overview.

Joseph Marino: Thanks, Mike. For the third quarter, excluding special items, we reported adjusted net income of $12.78/share and adjusted EBITDA of approximately $2.3 billion Our discussion of third quarter results excludes the net effect of special items, which decreased net income by a net after-tax charge of $29 million or $0.24/share. These primarily consisted of approximately $11 million of costs associated with the RBI initiative, and $28 million pretax loss on extinguishment of debt related to the redemption of our 7/8 senior notes due 2030 and the write off of a portion of a deferred financing cost in connection with refinancing activities. PBF's results for the quarter are primarily a reflection of the strong product markets driven by tight supply and relatively firm demand. With our full system available this quarter, we were able to improve our capture in an elevated market environment. On the Martinez Insurance claim, total recoveries to date are $1.25 billion net of our deductibles and retention. As expected, we did not receive further payments in the third quarter. We are working with our insurance group to finalize the claims process before year end with a final payment expected in a similar range to the recent precedent. Also included in our results the $62 million of equity income from our investment in SBR. Or approximately $72 million of EBITDA. As the renewable business continues to benefit from strong margins and higher credit prices. SBR produced an average of approximately 19.2 thousand barrels/day of renewable diesel in the third quarter, at the upper end of our guidance range. And we expect fourth quarter production of 18 thousand to 20 thousand barrels/day. PBF's cash from operations for the quarter was approximately $1.9 billion which includes a modest working capital tailwind of $56 million primarily driven by the timing and delivery of hydrocarbon purchases. Higher commodity prices are generally a tailwind to working capital, but as a significant portion of the price increases occurred late in the quarter, we are seeing benefits flow through in early Q4. We also expect the cash tax payment to flow through working capital in the fourth quarter. However, the ultimate impact on Q4 working capital will depend on where prices go from here. Cash invested in consolidated CapEx for the quarter was $177 million which includes refining, corporate and logistics. This amount excludes approximately $8 million related to Martinez rebuild and $46.5 million associated with the Air Products asset purchase. Our guidance for 2026 capital expenditures remains $825 million to $875 million excluding capital related to the Martinez rebuild. Included in that guidance is funding for advanced purchases of materials for the turnaround through schedule for 2027. We ended the quarter with approximately $2.5 billion of cash, approximately $2.1 billion of total debt and $426 million of net cash. Reducing net debt by more than $1.2 billion during the quarter. In September, we issued $550 million of 0% exchangeable notes due 2032, and used the proceeds and cash on hand to fully redeem the $500 million of 7/8 senior notes due 2030. We also closed the acquisition of the Torrance Hydrogen Plant which was financed at the seller's promissory note of approximately $340 million that is included in our total debt. Subsequent to quarter end, we fully redeemed the outstanding $800 million 9 7/8 senior notes due 2030 using cash on hand. Following this redemption, our gross debt is approximately $1.4 billion inclusive of the Air Products promissory note. As a result of these actions, interest expense is coming down. However, including refinancing costs, we expect 2026 interest expense to be within our guidance. Importantly, while we are still in the midst of our 2027 budgeting process, we expect this year's refinancing and debt pay down to reduce interest expense by at least $130 million in 2027. We project using a substantial majority of our NOLs in 2026 and you can continue to use an effective tax rate approximately 26% for modeling purposes. As Matt mentioned, our capital allocation framework is focused on strengthening the balance sheet investing in our assets, and delivering long-term value and returns to shareholders. While we do envision allocating capital to strategic and margin enhancing spending at the refineries, our intention is to be prudent stewards of capital and allocate tactically for long term strategic benefit. Today's 18% increase in our quarterly dividend reflects our confidence in that approach. Operator, we have completed our opening remarks, and we would be pleased to take any questions.

Operator: In a moment, we will open the call to questions. The company requests that all callers limit each turn to 1 question and 1 follow-up. You may rejoin the queue with additional questions. If you would like to ask a question, please press star 1. You may press star 1 again if you would like to remove your question from the queue. It may be necessary to pick up your handset before pressing the star key. 1 moment please while we poll for questions. Your first question comes from the line of Manav Gupta with UBS. Please go ahead.

Manav Gupta: Congrats team, and great job with dividend raised, debt lowered. My first question is, you are 1 of the biggest users of beneficiaries of quality discounts We are seeing quality discounts widen across the world. So if you could talk about, what is driving that and how UBS benefits from it, And again, on the West Coast, it is a little tricky because A and S is sitting in a slight premium. To Brent. So I am just trying to understand how you are managing your crude purchases on the West Coast. So if you could talk about all those things.

Matthew C. Lucey: Sure. Thanks, Manav. Simply put, crude costs across our system in California, in bad 1, and in the Gulf Coast, look like real tailwinds for our system. Our strength has always been on the back of our complexity. And as crude differentials widen out, we are certainly the beneficiary of that situation. California is a bit unique because the California grades in particular, impact our West Coast system. We are maximizing how much California crude we can run. Indeed, you know, the dynamics in California are a bit unique, but we have a proprietary pipeline that has even a little space left. So we try to gobble up as much California crude as we can. But the other aspect is the Gulf Coast and the East Coast. We will we will directly benefit from a widening light heavy differential. Paul or Tom?

Thomas D. O'Malley: The, you know, the Latin American heavies are really driving the discounts that everybody is seeing and talking about. We are seeing freight drive the FOB valuations in South America much lower. The Canadian markets are following that, and our system is taking advantage of that everywhere we can. We run a substantial amount of heavy stuff. Very beneficial.

Manav Gupta: So okay. My second follow-up is a little more tricky. I am just trying to understand what the right level of cash for a company like PBF to hold on the balance sheet? Look. Tom low of a cash is a problem, but too much of a cash on the balance sheet kind of makes you a very interesting acquisition target because you have a unique footprint. The world realizes the benefits of North American refining, And if you start getting to a point, you know, where 40%-50% of your market cap starts sitting as cash on the balance sheet, then you become a very interesting acquisition target. So I am just trying to understand what is the right amount of cash to be holding on the balance sheet.

Matthew C. Lucey: It is a bit tricky because the volatility has been so severe in the marketplace. As I commented, you know, 3 once-in-a-generation, once in a career event in 7 years, it gives you pause. And, obviously, the cycle, we have had down cycles on the back of the pandemic. But in refining, there is no replacement for a strong balance sheet. So we intend to maintain that. The sort of percentages, you are quoting there were a bit of ways from that, so that is not an issue for today. But if you take a step back, and you get the balance sheet as strong as it possibly can be, then we just bring good prudent, disciplined, management of the capital that we have. We have increased our dividend. We did that very methodically. We always look at our dividend this time of year. And we stated that we wanted to be competitive and maybe most importantly sustainable to all markets. And obviously, we have completely reconfigured the debt side of the balance sheet. And so we have tremendous confidence in our dividend and the increase there from as sustainable through all markets. So we address the net debt. We increased the competitive dividend this quarter. Share buybacks are always critical component of shareholder return programs. But we also think we can benefit significantly from low hanging fruit. If you think back to PBS history, you know, for, you know, standing on our feet when we first became public, and then growing We are really at a moment now where as it company across our system, my guess of our inventory of low hanging fruit is simply larger than others. And when I say low hanging fruit, I am really implying no 1 in these halls are contemplating, as Mike said, mega projects. Or massive expansions. But the example of what we are. What we did at Chalmette where we are converting high sulfur diesel jet fuel, and we are doing that for under 20 million dollars of capital. That delta of high sulfur diesel in The Gulf to jet is about $0.20/gallon. If you wanna say $89/barrel and 20 thousand barrels/day, that really makes us a more resilient company, and that capital has such a high return. that is the best that project has such a high return. that is the best allocation of that capital. But we have other projects like that through our system, and so we are gonna be evaluating those very prudently, very cautiously, very disciplined, But we think we have a tremendous opportunity to deepen the keel And so that is where our focus is.

Manav Gupta: Thank you, Matthew. Very comprehensive. Congrats on a great quarter, and looks like the fourth 1 will be very, very strong also. I will turn it over.

Matthew C. Lucey: Thanks, Manav.

Operator: Your next question comes from the line of Doug Leggate with Wolfe Research. Please go ahead.

Doug Leggate: Hey, guys. Let me echo Matthew what I. what a turnaround in the last, the last year. After all you have been through. But I do. If I do not mind, I am gonna follow-up on Manav's question. And ask the question about cash a little differently. So you have done this zero cost coupon convertible. You are basically looking at. It seems to keep some level of debt on the balance sheet and you are. you are still quite a volatile business just by the nature of the cost base and everything else. So my question is why keep any permanent financing? You have taken the net debt to zero. Why have any permanent financing on the balance sheet? Because all it does is exacerbate the volatility of your business. that is my first question. My second question is I just wonder coming out the other side of Martinez, can you give us a refresh on what you think the sustaining capital and the operating cost base of the business is? Because on our numbers, your, you know, your capacity to generate extraordinary free cash flow in this environment continues. But clearly, the market is not giving you credit for that. So we are just trying to figure out where the gap is. Thanks.

Matthew C. Lucey: Alright. So in regards to why have any debt at all, we have a view that it makes. Again, it is prudent It makes a lot of sense to maintain access to the capital markets. So we have 2 pieces of paper now. We have a $500 million bond. And a $550 million convertible bond. But what we have done over the last year if you look at our historical interest expense, it is been roughly a $175 million/year. The interest expense on those 2 pieces of paper is less than $40 million or $37.5 million/year. So we dramatically reduced the cost of the fixed charge of carrying the debt And I think it is absolutely appropriate for our company to maintain access to the capital markets. So that is what really drove the decision to maintain the instruments that we have in place. And I think it just makes the company stronger going forward. And maximizes optionality going forward.

Joseph Marino: In regards to your second question, Martinez, the issue with Martinez is completely behind us. In fact, Martinez just completed its turnaround on its hydrocracker on time. And so in terms of having the full force and effect of our business, we have it.

Matthew C. Lucey: We think we have real tailwinds. The required spending, there is no material change going forward. 2027 will be heavier turnaround schedule than most years. it is never ratable. it is never perfectly ratable, and we were able to move some turnarounds from this year because the market we have been in. So. But there is nothing changed. Would say 2027 is probably a higher turnaround year. It might actually, I know 2028 is gonna be a lighter turnaround year. But was there anything else specific you want in regards to that? Well, I think it really was driving at, Matthew, is obviously you have had your business optimization, the benefit coming through there, but you. We have not really seen a clean year for capital with Martinez back up and running. What I was really trying to get to was the. What is the call on your cash flow to maintain the business including turnarounds and the operating cost post the business improvement initiatives you have had underway? Sure. You can take it offline if necessary, but I am gonna talk about No. I think it is it is important to address. Happy to, Mike. Why do not you speak to the success that we have had with RBI and how that will play out over 2027?

Michael Bukowski: So as you look at. So as we said, RBI was $230 million and that was broken down between capital and OpEx. So we said that roughly $70 million was gonna come out of capital and $100 million was gonna come out of OpEx. So let's talk about OpEx first. Now when we contemplated this program back in the tail end of 24, there is a couple of things that happened. We did not anticipate. 1, as you mentioned, was the Martinez, so that delayed some of the savings And then the other thing that happened was the market that we have had in the past couple. Couple of months or past quarters or so. So as I look at the OpEx, we are, like, we are maybe about 10%, maybe $8 million-$10 million. Of savings shy for this year. But then you flip that and look at the capital and the turnarounds we are up about $20 million. And so net, we are meeting our commitment. Turnaround is an interesting thing, and it is difficult to measure year on year. As Matt said, it is not usually ratable. But 1 thing that we look at is we benchmark every turnaround. And prior to kicking off RBI, we were in the bottom half of the industry in terms of our turnaround cost performance. And we put a lot of things together in place in 2024 to get better, to get predictable first and foremost, And then 2026, we focused on competitive. And now 2026 yeah, turnaround performance is in the top half. Of the industry benchmarks. And then when you look at sustaining capital, we took a baseline of where we were spending sustaining capital before, and it was about $230 million And we saved about $25 million-$30 million on that. So it will change from year to year based on the size and the complexity of the turnarounds. So it is not always ratable. And as Matthew mentioned, next year is going to be 1 of our larger turnarounds because of our 2 turn 2 deferrals that we had into this year. But we continue to make continuous improvement on both the OpEx and the capital side. So that is how we look at it.

Joseph Marino: And just-- yeah. We can get into the details, Colin.

Matthew C. Lucey: it is 1 final comment in that regard, which is we are just stacking these wins. Right? So the reduction in interest expense the RBI savings on the operating cost side, the RBI savings on the capital side, the margin improvement projects such as the Chalmette jet production. Each 1 of these is deepening the keel. And making our company more resilient. And, obviously, it will make us more profitable through, you know, not only through down cycles, but throughout cycles as well.

Doug Leggate: Appreciate the details, guys. I will get into the details of the call offline. Thanks so much.

Matthew C. Lucey: Thanks, Doug.

Operator: Your next question comes from the line of Joseph Laetsch with Morgan Stanley. Please go ahead.

Joseph Laetsch: Hey, good morning, Matthew and team, and thanks for taking my questions. So I wanted to start on the refining side. And within the regions, 1 of the areas that came in stronger than we expected was the West Coast. Could you just talk a bit about how those assets are running post turnaround And then also what you are seeing just on the ground in that market from a demand perspective as well?

Matthew C. Lucey: Paul, do you want to quickly comment on demand?

Paul Sankey: Well, I mean, look, West Coast demand has been you know, resilient. We even with these volatile prices that we have seen in the marketplace out there, it is been remarkably resilient. Our wholesale numbers have gone up actually a little bit. We think that is probably some branding going to wholesale. But in general, from a demand standpoint, West Coast has been pretty steady. Over the last 12 months.

Matthew C. Lucey: I think broadly on the marketplace, I think our assets are now that we are fully up and running with, you know, a very clean runway, We are very, very well positioned in the marketplace. And as we have talked about for multiple quarters, it is on the product side, It is a market that requires a massive importance to the state just to balance. But importantly, on the crude side as well. Where we have not only the 2 refineries, we have our M70 pipeline, where we can maximize our access to California grade crudes obviously, some production has come online. Some new production has come online this year. So I think as a competitive positioning, PBF and our access and exposure to California looks very, very attractive. Going forward.

Joseph Laetsch: Thanks, Matthew. that is helpful. And then, just looking in the fourth quarter, I recognize it is still early in the quarter, and there is a lot of volatility in the market. But could you maybe just walk through the puts and takes that you are thinking about on relative to 3Q, in particular, as we think about the benefit from wider WCS differentials, Do you have anything on crude backwardation, secondary product margins that you all are watching? Any color you could provide would be helpful.

Matthew C. Lucey: Sure. So we are further into the quarter on crude. Than we are on products just because you buy your crude in advance. And so I think my expectation for the fourth quarter is to have widening crude diffs, which obviously are quite impactful to our business. I think it will be folly for us to predict prompt cracks. Obviously, 1-third through the quarter, they have been quite strong. And indeed, just my sneak peek into what October looks like, it looks quite strong. But, you know, going forward, as we talked about, as they stand around the world is achieved today, none of the problems are solved on the product side. That being said, prompt prices and prompt cracks can jump around. But the fourth quarter looks obviously very constructive with the backdrop we have. Great. Thanks.

Operator: that is helpful. Your next question comes from the line of Phil Jungwirth with BMO. Please go ahead.

Phillip Jungwirth: Yeah, thanks. Good morning and really strong results. Sticking with the fourth quarter, throughput guidance is really strong. I was looking back and I think there is only 1 other quarter in PBF history where you were above the midpoint. Obviously, no turnarounds planned, but was just hoping you could speak to the level of confidence in the system and just what is allowing you to run at a higher rate into year end? And separately, is there the ability to run a heavier crude slate into 4Q just given the continued weakness in diff differentials and if so, could you push a higher distillate yield also?

Matthew C. Lucey: I promise you, we will run the most economic grades that we can get our hand on and push our system in that regard. So there is nothing to discuss on that front other than we will absolutely maximize our economic outcome, based on the crudes that are available and so. I am sorry. Your first question was in regards to throughput. The market is dictating it to a great degree. You know, generally speaking, you do have turnarounds in the fourth quarter. And generally speaking, the market does not always incent max runs. But obviously, the world is in desperate need for our products. And we intend to manufacture as many as we can in this period.

Phillip Jungwirth: Great. And then coming back to the source of California crude, you referenced your advantageous pipeline into Torrance. But more specifically, how would you see any San Pablo Bay pipeline restart changing crude sourcing at Martinez. And just with the election coming up, how would you characterize current regulatory environment in California and any expectation whether this could change for better or worse depending on the outcome of the governor election?

Matthew C. Lucey: Yeah. The pipeline 1 is a funny 1 only because, yeah, as I mentioned before, we have space on our M70 pipeline. And so now, I think the San Pablo pipeline has been sold. So I do not yet know what the new owners full intent is. But from PBS perspective, when we get this a fair amount in California, well, when are we gonna open San Pablo? it is like, if you own a hotel in a town and you got 20% vacancy, and someone is saying, well, you gonna build a new hotel? well, when vacancy becomes a problem, we will we will look to increase the flows. Obviously, Martinez sits at the end of the San Pablo Bay pipeline. And to the degree that our M70 pipeline is full, we would certainly love to bring crudes up to Martinez. But at the moment, you have gotten a lot of legislation through California, which is decreased the friction in getting permits for the producers. So to the degree that production increases, I think the San Pablo Bay Pipeline is sitting there in a perfect spot to take incremental grades that cannot be taken south. But simply, egress is not the constraint at the moment. it is production. In regards to the election, it is not worth me prognosticating, but I do not see any material shift in the sort of the California political environment. I do think there is been a great awakening in terms of how important and impactful and how necessary our products are, to the economy and to the welfare of all the people that live there. So I think that is a very good thing. I do not see that backtracking and clearly California was a microcosm of what the world is going through now. So we will see where the election goes. We have had a tremendous partnership with the state over the last couple years through navigating all the changes that have existed, and we look forward to working with them going forward regardless whoever the administration is.

Phillip Jungwirth: Very helpful. Thank you.

Operator: Your next question comes from the line of Neil Mehta with Goldman Sachs. Please go ahead.

Analyst: Good morning, Matthew and thanks for taking our question. Maybe just circling back on freight rates. Can you talk about how exposed is your system to the elevated rates we are seeing in the system right now, or in the market right now? And then additionally, what steps have you been taking to mitigate these impacts?

Matthew C. Lucey: So as you think about freight rates for PBF, you think about supplying crude into the East Coast and into Northern California. We have about half of our fleet on time charter, which has obviously insulated us from, you know, the massive gyrations that are occurring. We have close. Closer proximity than much of the rest of the world in regards to where we are delivering our crude from. And obviously, we are in a freight firestorm at the moment. So I do not envision any material changes to that because this is not time in which you wanna go out and get more time charters. But so I-- to a great degree, and it is-- PBF for certain, and to a great degree US refining, is dramatically in a better place than, say, Asia. In that regard because of the distance that they have to go. As Tom O'Connor always points out, the Atlantic Basin has crude avails, and so our transit time is much shorter. that is helpful. And then the follow-up is just on the delayed turnarounds that Chalmette and Toledo. Could you just remind us of the decision making process here? And then additionally, how should we be framing out the impacts to 2027 throughput and then 27 CapEx? So we are not going to get into specific CapEx guidance yet. We usually put that out. A different time, we will follow that. I mean, in regards to the turnaround, it is it is no different than what. How we run our business every single day, which is evaluating the condition of our units, which are continuously and meticulously sort of evaluated on a on a day by day basis. And to the degree that we can optimize our turnarounds and our operations, that is what our job is. Mike, you wanna comment in regards to anything else in regards to the insurance?

Michael Bukowski: I think you nailed it right there. Particularly in Toledo. As we stated on the call the last time, we had some downtime unplanned downtime in May, and we took advantage of going after a few things during that downtime to set us up to be in a position to defer this turnaround into next year. So there is an example of we are not just. We are being-- we are applying rigor and discipline, analyzing performance in the unit, fixing things, and then moving forward.

Analyst: that is helpful. Thank you.

Operator: Next question comes from the line of Ryan Todd with Piper Sandler. Please go ahead.

Analyst: Hi, good morning. Thanks for taking my question. So my first question is on the performance of SBR. Obviously, it is a very positive macro for RD. But looks like a really strong quarter on that equity earnings line for 3Q. Could you talk about that unit kind of operationally, how it is running and what feedstocks look like? And secondly, are you taking any dividend out of that JV right now? Just trying to understand the cash impact given that business is having a more meaningful contribution right now.

Joseph Marino: Sure. I will start with the dividend. We did receive our first dividend distribution from SBR during the quarter of about $20 million. So reflected in the results. As far as operations, it is been running well. You can do around the top end of our throughput guidance. For Q3. So everything going well there. Our feedstock slate, obviously, changes over time, although we try to source the most economic you know, feed there. It will move between the higher and lower CI. And I think for Q3, was more on the lower CI level, which helped from a-- from a margin capture standpoint. But overall, as I said in my remarks, you know, just the strong margins there, the tightening of the HOBO spread and the RINs price kind of maintaining at high levels has helped to really charge the earnings of that business.

Analyst: Great. And then my follow-up is on bringing the hydrogen plants back in house. And realize you touched on this in 2Q a little bit, but how should we expect to see the returns on that kind of investment? Is it just about reliability and reducing downtime? Does it reduce OpEx overall? Just trying to understand maybe how to model that acquisition. And also, I think there were a few others that were sold to Air Products when you did that initial transaction a few years ago. Was there any thought to bringing those back in house as well?

Matthew C. Lucey: Just on your last piece, just on the last piece, I do not expect there to be any other. Did-- Torrance was a bit unique. Because of where it was situated within our refinery and the way it was being operated. Mike, why do not you walk through it?

Michael Bukowski: Yeah. So jump on that point. The uniqueness of it was that they were so integrated to the operation of the facility where we shared utilities, The hydrogen plant was a major steam producer, for instance for the refinery. And so any impact to the operation of the hydrogen plant and because of that refinery so beholden to hydrogen, terms of being able to perform and maximize the refinery, had all kinds of impacts. I would look at it like this When we did the acquisition, was primarily just based on increasing the utilization of the refinery. And in the past, because of either planned or unplanned downtime associated with those hydrogen plants and the lack of integrated plants really drove the performance of the refinery. So I would look at it is it is it is mainly just the utilization. 1 thing-- 1 thing I would add from a modeling standpoint is nothing changed with the transaction as far as the cash flows go or overall cash flows.

Joseph Marino: it is just really a change in the classification now. In the past, it was classified as operating leases and would flow through a session in the P&L. Now it is gonna be a debt promissory note that will flow through, you know, financing activities. But the cash flow itself remains the same.

Analyst: Thank you.

Operator: We have reached the end of the question and answer session.

Matthew C. Lucey: I will now turn the call over to Matthew C. Lucey for closing remarks. Thanks for everyone's attention today, and we look forward to speaking to you after a very solid fourth quarter. Have a great day.

Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you all for your participation.