# PBF Energy Inc. (PBF) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from PBF Energy Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1534504/000153450423000011/pbf-20221231.htm
Accession: 0001534504-23-000011
Filing date: 2023-02-16
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/PBF/
All MD&A years: /company/PBF/mda/
Previous year: /company/PBF/mda/fy2021/ (FY 2021)
Next year: /company/PBF/mda/fy2023/ (FY 2023)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following review of our results of operations and financial condition should be read in conjunction with “Item 1. Business”, “Item 1A. Risk Factors”, “Item 2. Properties”, and “Item 8. Financial Statements and Supplementary Data,” respectively, included in this Annual Report on Form 10-K.

In this Item 7, we discuss results for the years ended December 31, 2022 and 2021 and comparisons of the results for the years ended December 31, 2022 and 2021. Discussions of results for the year ended December 31, 2020 and comparisons of the results for the years ended December 31, 2021 and 2020 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's annual report on Form 10-K for the year ended December 31, 2021.

CAUTIONARY STATEMENT FOR THE PURPOSE OF SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Annual Report on Form 10-K contains certain “forward-looking statements,” as defined in the Private Securities Litigation Reform Act of 1995 (“PSLRA”), of expected future developments that involve risks and uncertainties. You can identify forward-looking statements because they contain words such as “believes,” “expects,” “may,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “anticipates” or similar expressions that relate to our strategy, plans or intentions. All statements we make relating to our estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results or to our strategies, objectives, intentions, resources and expectations regarding future industry trends are forward-looking statements made under the safe harbor provisions of the PSLRA except to the extent such statements relate to the operations of a partnership or limited liability company. In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results.

Important factors that could cause actual results to differ materially from our expectations, which we refer to as “cautionary statements,” are disclosed under “Item 1A. Risk Factors,” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report on Form 10-K. All forward-looking information in this Annual Report on Form 10-K and subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Some of the factors that we believe could affect our results include:

•supply, demand, prices and other market conditions for our products or crude oil, including volatility in commodity prices or constraints arising from federal, state or local governmental actions or environmental and/or social activists that reduce crude oil production or availability in the regions in which we operate our pipelines and facilities;

•rate of inflation and its impacts on supply and demand, pricing, and supply chain disruption;

•the possibility that the expected synergies and value creation from the Merger Transaction will not be realized, or will not be realized within the expected time period;

•the risk that unexpected costs will be incurred in connection with the Merger Transaction;

•the effects related to, or resulting from, Russia's military action in Ukraine, including the imposition of additional sanctions and export controls, as well as the broader impacts to financial markets and the global macroeconomic and geopolitical environment;

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•the effectiveness of our crude oil sourcing strategies, including our crude by rail strategy and related commitments;

•our obligation to buy RINs and market risks related to the volatility in the price of RINs required to comply with the RFS and GHG emission credits required to comply with various GHG emission programs, such as AB 32;

•our ability to operate our businesses efficiently, manage capital expenditures and costs (including general and administrative expenses) and generate earnings and cash flow;

•our expectations with respect to our capital spending and turnaround projects;

•the impact of current and future laws, rulings and governmental regulations, including restrictions on the exploration and/or production of crude oil in the state of California, the implementation of rules and regulations regarding transportation of crude oil by rail or in response to the potential impacts of climate change, decarbonization and future energy transition;

•adverse impacts related to legislation by the federal government lifting the restrictions on exporting U.S. crude oil or subjecting us to trade and sanctions laws, which change frequently as a result of foreign policy developments, and which may necessitate changes to our crude oil acquisition activities;

•our ability to target and execute expense reduction measures and achieve opportunities to improve our liquidity, including continued repurchases of our outstanding debt securities or otherwise further reducing our debt, and/or potential sales of non-operating assets or other real property;

•political pressure and influence of environmental groups and other stakeholders on decisions and policies related to the refining and processing of crude oil and refined products, and the related adverse impacts from changes in our regulatory environment, such as the effects of compliance with AB 32, or from actions taken by environmental interest groups;

•the risk of cyber-attacks;

•our increased dependence on technology;

• the effects of competition in our markets;

•the possibility that we might reduce or not pay further dividends in the future;

•the inability of our subsidiaries to freely pay dividends or make distributions to us;

•our ability to make acquisitions or investments, including in renewable diesel production, on any announced time frame or at all, and to realize the benefits from such acquisitions or investments;

•liabilities arising from recent acquisitions or investments, that are unforeseen or exceed our expectations;

•our expectations and timing with respect to our acquisition activity and whether such acquisitions are accretive or dilutive to shareholders;

• adverse developments in our relationship with both our key employees and unionized employees;

•our indebtedness, including the impact of potential downgrades to our corporate credit rating and unsecured notes;

•changes in currency exchange rates, interest rates and capital costs;

•restrictive covenants in our indebtedness that may adversely affect our operational flexibility;

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•counterparty credit and performance risk exposure related to our supply and inventory intermediation arrangements;

•termination of our Third Inventory Intermediation Agreement with J. Aron, which is scheduled to expire in December 2024 and could have a material adverse effect on our liquidity, as we would be required to finance our crude oil, intermediate and refined products inventory covered by the agreement. Additionally, we are obligated to repurchase from J. Aron certain J. Aron Products upon termination of the agreement;

•payments by PBF Energy to the current and former holders of PBF LLC Series A Units and PBF LLC Series B Units under PBF Energy’s Tax Receivable Agreement for certain tax benefits we may claim;

•our assumptions regarding payments arising under PBF Energy’s Tax Receivable Agreement and other arrangements relating to our organizational structure are subject to change due to various factors, including, among other factors, the timing of exchanges of PBF LLC Series A Units for shares of PBF Energy Class A common stock as contemplated by the Tax Receivable Agreement, the price of PBF Energy Class A common stock at the time of such exchanges, the extent to which such exchanges are taxable, and the amount and timing of our income; and

•the impact of disruptions to crude or feedstock supply to any of our refineries, or with third-party logistics infrastructure or operations, including pipeline, marine and rail transportation.

We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this Annual Report on Form 10-K may not in fact occur. Accordingly, investors should not place undue reliance on those statements.

Our forward-looking statements speak only as of the date of this Annual Report on Form 10-K. Except as required by applicable law, including the securities laws of the United States, we do not intend to update or revise any forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing.

Executive Summary

Our business operations are conducted by our subsidiaries. We own and operate six domestic oil refineries and related assets located in Delaware City, Delaware, Paulsboro, New Jersey, Toledo, Ohio, Chalmette, Louisiana, Torrance, California, and Martinez, California. Our refineries have a combined processing capacity, known as throughput, of approximately 1,000,000 bpd, and a weighted-average Nelson Complexity Index of 12.7 based on current operating conditions. The complexity and throughput capacity of our refineries are subject to change dependent upon configuration changes we make to respond to market conditions, as well as a result of investments made to improve our facilities and maintain compliance with environmental and governmental regulations. We operate in two reportable business segments: Refining and Logistics. Our six refineries are all engaged in the refining of crude oil and other feedstocks into petroleum products, and represent the Refining segment. PBFX operates certain logistical assets such as crude oil and refined products terminals, pipelines, and storage facilities, which represent the Logistics segment.

Factors Affecting Comparability

Our results over the past three years have been affected by the following events, the understanding of which will aid in assessing the comparability of our period to period financial performance and financial condition.

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Share Repurchase Program

On December 12, 2022, our Board of Directors authorized the repurchase of up to $500.0 million of PBF Energy's Class A common stock. The Repurchase Program will expire in December 2024. For the period of time from the inception of the Repurchase Program through December 31, 2022, we purchased 4,192,555 shares for $156.4 million, inclusive of commissions paid. We may make additional share repurchases in the future.

These repurchases were made from time to time through various methods, including open market transactions, block trades, accelerated share repurchases, privately negotiated transactions or otherwise, certain of which may be effected through Rule 10b5-1 plans. The timing and number of shares repurchased depended on a variety of factors, including price, capital availability, legal requirements and economic and market conditions. We were not obligated to purchase any shares under the Repurchase Program, and repurchases might have been suspended or discontinued at any time without prior notice.

Merger Transaction

On July 27, 2022, PBF Energy, PBF LLC, PBFX Holdings, Merger Sub, PBFX, and PBFX GP entered into the Merger Agreement pursuant to which PBF Energy and PBF LLC announced their intention to acquire all of the publicly held common units in PBFX representing limited partner interests in the MLP not already owned by certain wholly-owned subsidiaries of PBF Energy and its affiliates on the closing date of the Merger Transaction. The Merger Transaction closed on November 30, 2022 and PBFX became an indirect wholly-owned subsidiary of PBF Energy and PBF LLC.

At the Effective Time, pursuant to the terms of the Merger Agreement, each PBFX Public Common Unit was converted into the right to receive: (i) the Merger Consideration and (ii) any cash in lieu of fractional shares of PBF Energy Common Stock to which the holder thereof became entitled upon surrender of such PBFX Public Common Units in accordance with the Merger Agreement. Such Merger Agreement consideration totaled $303.7 million in cash and resulted in the issuance of 8,864,684 shares of PBF Energy Class A common stock. The PBFX Common Units owned by PBF LLC and PBFX Holdings and the non-economic general partner interest remain outstanding and were unaffected by the Merger. There was no change in ownership of the non-economic general partner interest.

Debt and Credit Facilities

Senior Notes

PBFX’s 6.875% senior notes (the “PBFX 2023 Senior Notes”) were redeemed on February 2, 2023 and are classified as Current debt as of December 31, 2022 within our Consolidated Balance Sheet.

During the year ended December 31, 2022, we exercised our rights under the indenture governing the 9.25% senior secured notes due 2025 (the “2025 Senior Secured Notes”) to redeem all of the outstanding 2025 Senior Secured Notes at a price of 104.625% of the aggregate principal amount thereof plus accrued and unpaid interest. The aggregate redemption price for all 2025 Senior Secured Notes approximated $1.3 billion plus accrued and unpaid interest. The difference between the carrying value of the 2025 Senior Secured Notes on the date they were redeemed and the amount for which they were redeemed was $69.9 million and was recorded as a Loss on extinguishment of debt in the Consolidated Statements of Operations.

During the year ended December 31, 2022, we made a number of open market repurchases of our 2028 Senior Notes and our 2025 Senior Notes that resulted in the extinguishment of $24.9 million in principal of the 2028 Senior Notes and $5.0 million in principal of the 2025 Senior Notes. Total cash consideration paid to repurchase the principal amount outstanding of the 2028 Senior Notes and the 2025 Senior Notes, excluding accrued interest, totaled $25.9 million and we recognized a $3.8 million gain on the extinguishment of this debt during the year ended December 31, 2022.

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During the year ended December 31, 2021, we made a number of open market repurchases of our 2028 Senior Notes and our 2025 Senior Notes that resulted in the extinguishment of $173.5 million in principal of the 2028 Senior Notes and $55.5 million in principal of the 2025 Senior Notes. Total cash consideration paid to repurchase the principal amount outstanding of the 2028 Senior Notes and the 2025 Senior Notes, excluding accrued interest, totaled $146.8 million and we recognized a $79.9 million gain on the extinguishment of debt during the year ended December 31, 2021.

On December 21, 2020, we issued an additional $250.0 million in aggregate principal amount of the 2025 Senior Secured Notes. The net proceeds from this offering were approximately $245.7 million after deducting the initial purchasers’ discount and offering expenses. We used the net proceeds for general corporate purposes.

On May 13, 2020, we issued $1.0 billion in aggregate principal amount of the 2025 Senior Secured Notes. The net proceeds from this offering were approximately $982.9 million after deducting the initial purchasers’ discount and offering expenses. We used the net proceeds for general corporate purposes.

On February 14, 2020, we exercised our rights under the indenture governing the 7.00% senior notes due 2023 (the “2023 Senior Notes”) to redeem all of the outstanding 2023 Senior Notes at a price of 103.5% of the aggregate principal amount thereof plus accrued and unpaid interest. The aggregate redemption price for all 2023 Senior Notes approximated $517.5 million plus accrued and unpaid interest. The difference between the carrying value of the 2023 Senior Notes on the date they were redeemed and the amount for which they were redeemed was $22.2 million and has been classified as Loss on extinguishment of debt in the Consolidated Statements of Operations for the year ending December 31, 2020.

On January 24, 2020, we issued $1.0 billion in aggregate principal amount of the 2028 Senior Notes. The net proceeds from this offering were approximately $987.0 million after deducting the initial purchasers’ discount and offering expenses. We used $517.5 million of the proceeds to fully redeem our 2023 Senior Notes and the balance to fund a portion of the cash consideration for Martinez Acquisition (as defined below).

PBF Holding Revolving Credit Facility

On May 25, 2022, we entered into an amendment of our existing Revolving Credit Agreement. Among other things, the Revolving Credit Agreement amended and extended the Revolving Credit Facility through January 2025 and increased the maximum commitment to $4.3 billion through May 2023 (currently set to adjust to $2.75 billion in May 2023 through January 2025). The amendments also redefine certain components of the Borrowing Base (as defined in the Revolving Credit Agreement) to reflect the existence of the two tranches, tranche A which is comprised of existing lenders who have not elected to extend and whose commitments retain the existing maturity date under the existing revolving credit agreement of May 2, 2023 (the “Tranche A Commitments”) and tranche B, which is comprised of existing and new lenders whose commitments have an extended maturity date of January 31, 2025 (the “Tranche B Commitments”). The Tranche A Commitments total $1.55 billion and the Tranche B Commitments total $2.75 billion. The amendments also include changes to incorporate the adoption of Secured Overnight Financing Rate (“SOFR”) as a replacement of LIBOR, changes to joint lead arrangers, bookrunners, syndication agents and other titles, and other changes related to the foregoing. In addition, an accordion feature allows for additional Tranche B Commitments of up to an additional $500.0 million plus an amount equal to the Tranche A Commitments for existing Tranche A lenders.

During the year ended December 31, 2022, we made net repayments of $900.0 million on the Revolving Credit Facility, resulting in no outstanding borrowings as of December 31, 2022. There was $900.0 million of outstanding borrowings under the Revolving Credit Facility as of December 31, 2021 and December 31, 2020.

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PBFX Revolving Credit Facility

During the year ended December 31, 2022 PBFX made net repayments of $100.0 million on the PBFX Revolving Credit Facility, resulting in no outstanding borrowings as of December 31, 2022. The outstanding borrowings under the PBFX Revolving Credit Facility were $100.0 million and $200.0 million as of December 31, 2021 and December 31, 2020, respectively.

Catalyst Financing Obligations

During the year ended December 31, 2022 and December 31, 2021, we settled certain of our precious metals financing arrangements, resulting in reductions of debt of approximately $56.2 million and $31.7 million, respectively.

The volumes of the precious metal catalyst and the interest rates are fixed over the term of each financing arrangement. We are obligated to repurchase the precious metals catalyst at fair market value upon expiration of these leases. For all leases not renewed at maturity, we have the ability and intent to finance such debt through availability under our revolving credit facilities.

Refer to “Note 8 - Credit Facilities and Debt” of our Notes to Consolidated Financial Statements, for further information.

Market Developments

The impact of the unprecedented global health and economic crisis sparked by the COVID-19 pandemic at the end of the quarter ended March 31, 2020, created a shock in oil demand resulting in an economic challenge to our industry which has not occurred since our formation. This resulted in significant demand reduction for our refined products and atypical volatility in oil commodity prices. The demand for these products started to recover in 2021 and continued to improve in 2022. Additionally, refining margins improved significantly in 2022 as a result of high demand and global supply disruption.

Land Sales

On December 20, 2021, PBFX closed on a third-party sale of real property at the refined products terminals in the greater Philadelphia area (“East Coast Terminals”). The sale resulted in a gain of approximately $2.8 million in the fourth quarter of 2021, included within Gain on sale of assets in the Consolidated Statements of Operations.

On December 30, 2020, we closed on a third-party sale of parcels of real property acquired as part of the Torrance refinery, but not part of the refinery itself. The sale resulted in a gain of approximately $8.1 million in the fourth quarter of 2020, included within Gain on sale of assets in the Consolidated Statements of Operations.

East Coast Refining Reconfiguration

On December 31, 2020, we completed the East Coast Refining Reconfiguration. As part of the reconfiguration process, we temporarily idled certain of our major processing units at the Paulsboro refinery, resulting in lower overall throughput and inventory levels in addition to decreases in capital and operating costs. In 2022, we restarted several of these idled processing units. Based on this reconfiguration and subsequent restart of several processing units, our East Coast throughput capacity currently approximates 335,000 barrels per day.

Turnaround Costs and Assets under Construction

In 2020, we accelerated the recognition of approximately $56.2 million of unamortized deferred turnaround amortization costs associated with these idled units. Additionally, we abandoned certain projects related to assets under construction related to these idled assets, resulting in an impairment charge of approximately $11.9 million in 2020.

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Capital Project Abandonments

During 2020, in connection with our strategic initiative to address the COVID-19 pandemic, including our East Coast Refining Reconfiguration, we reassessed our refinery wide slate of capital projects that were either in process or not yet placed into service as of December 31, 2020. Based on this reassessment and our strategic plan to reduce capital expenditures, we decided to abandon various capital projects across the refining system, resulting in an impairment charge of approximately $79.9 million in 2020.

Severance Costs

Following the onset of the COVID-19 pandemic, in 2020 we implemented a number of cost reduction initiatives to strengthen our financial flexibility and rationalize overhead expenses, including workforce reduction. During the second quarter of 2020, we reduced headcount across our refineries, which resulted in approximately $12.9 million of severance related costs. Additionally, as a result of the East Coast Refining Reconfiguration, we incurred charges in the fourth quarter of 2020 of approximately $11.8 million of severance related expenses. These severance costs were included in general and administrative expenses.

Tax Receivable Agreement

In connection with PBF Energy’s IPO, PBF Energy entered into a Tax Receivable Agreement pursuant to which PBF Energy is required to pay the members of PBF LLC, who exchange their units for PBF Energy Class A common stock or whose units PBF Energy purchases, approximately 85% of the cash savings in income taxes that PBF Energy realizes as a result of the increase in the tax basis of its interest in PBF LLC, including tax benefits attributable to payments made under the Tax Receivable Agreement. PBF Energy has recognized, as of December 31, 2022, a liability for the Tax Receivable Agreement of $338.6 million ($48.3 million as of December 31, 2021) reflecting the estimate of the undiscounted amounts that PBF Energy expects to pay under the agreement. As of December 31, 2020, there was zero liability recognized related to the Tax Receivable Agreement. As future taxable income is recognized, increases in our Tax Receivable Agreement liability may be necessary in conjunction with the revaluation of deferred tax assets. Refer to “Note 12 - Commitments and Contingencies” and “Note 19 - Income Taxes” of our Notes to Consolidated Financial Statements for more details.

Early Return of Railcars

In the fourth quarter of 2020 we agreed to voluntarily return a portion of railcars under an operating lease in order to rationalize certain components of our railcar fleet. Under the terms of the lease amendment, we agreed to pay amounts in lieu of satisfaction of return conditions (the “early termination penalty”). As a result, we recognized an expense of $12.5 million within Cost of sales, consisting of charges for the early termination penalty and charges related to the remaining lease payments associated with the railcars identified within the amended lease, all of which were idled and out of service as of December 31, 2020.

Sale of Hydrogen Plants

On April 17, 2020, we closed on the sale of five hydrogen plants to Air Products and Chemicals, Inc. (“Air Products”) in a sale-leaseback transaction for gross cash proceeds of $530.0 million and recognized a gain of $471.1 million. In connection with the sale, we entered into a transition services agreement, which was followed by the execution of long-term supply agreements in August 2020, through which Air Products will exclusively supply hydrogen, steam, carbon dioxide and other products to the Martinez, Torrance and Delaware City refineries for a term of fifteen years.

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Martinez Acquisition

We acquired the Martinez refinery and related logistics assets from Shell Oil Products on February 1, 2020 for an aggregate purchase price of $1,253.4 million (the “Martinez Acquisition”), including final working capital of $216.1 million and the obligation to make certain post-closing earn-out payments to Shell Oil Products based on certain earnings thresholds of the Martinez refinery for a period of up to four years (the “Martinez Contingent Consideration”). The transaction was financed through a combination of cash on hand, including proceeds from the 2028 Senior Notes, and borrowings under the Revolving Credit Facility.

The Martinez refinery is located on an 860-acre site in the City of Martinez, 30 miles northeast of San Francisco, California. The refinery is a high-conversion 157,000 bpd, dual-coking facility with a Nelson Complexity Index of 16.1, making it one of the most complex refineries in the United States. The facility is strategically positioned in Northern California and provides for operating and commercial synergies with the Torrance refinery located in Southern California. In addition to refining assets, the Martinez Acquisition includes a number of high-quality onsite logistics assets including a deep-water marine facility, product distribution terminals and refinery crude and product storage facilities with approximately 8.8 million barrels of shell capacity.

Inventory Intermediation Agreement

On October 25, 2021, PBF Holding and its subsidiaries, the PBF Entities, entered into the Third Inventory Intermediation Agreement with J. Aron, pursuant to which the terms of the existing inventory intermediation agreements were amended and restated in their entirety, including, among other things, pricing and an extension of the terms. The Third Inventory Intermediation Agreement extends the term to December 31, 2024, which term may be further extended by mutual consent of the parties to December 31, 2025. On May 25, 2022, the PBF Entities entered into an amendment of the Third Inventory Intermediation Agreement to amend certain provisions thereof that related to and were impacted by amendments made on May 25, 2022 to the Revolving Credit Agreement.

Pursuant to the Third Inventory Intermediation Agreement, J. Aron will continue to purchase and hold title to the J. Aron Products purchased or produced by the Refineries and delivered into the Storage Tanks. Furthermore, J. Aron agrees to sell the J. Aron Products back to PRC and DCR (and, at the election of the PBF Entities, Chalmette Refining) as the J. Aron Products are discharged out of the Storage Tanks. We exercised our right to include the Chalmette refinery under the Third Inventory Intermediation Agreement in November 2021. J. Aron has the right to store the J. Aron Products purchased in tanks under the Third Inventory Intermediation Agreement and will retain these storage rights for the term of the agreement. We intend to utilize the crude oil and will market and sell the refined products independently to third parties.

Renewable Fuel Standard

We are subject to obligations to purchase RINs required to comply with the Renewable Fuel Standard. Our overall RINs obligation is based on a percentage of domestic shipments of on-road fuels as established by EPA. To the degree we are unable to blend the required amount of biofuels to satisfy our RINs obligation, RINs must be purchased on the open market to avoid penalties and fines. We record our RINs obligation on a net basis in Accrued expenses when our RINs liability is greater than the amount of RINs earned and purchased in a given period and in Prepaid and other current assets when the amount of RINs earned and purchased is greater than the RINs liability. We incurred approximately $1,225.5 million in RINs costs during the year ended December 31, 2022 as compared to $726.0 million and $326.4 million during the years ended December 31, 2021 and 2020, respectively. The increases in RINs costs are due primarily to volatility in prices for ethanol-linked RINs and increases in our production of on-road transportation fuels. Our RINs purchase obligation is dependent on our actual shipment of on-road transportation fuels domestically and the amount of blending achieved.

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Factors Affecting Operating Results

Overview

Our earnings and cash flows from operations are primarily affected by the relationship between refined product prices and the prices for crude oil and other feedstocks. The cost to acquire crude oil and other feedstocks and the price of refined products ultimately sold depends on numerous factors beyond our control, including the supply of, and demand for, crude oil, gasoline, diesel and other refined products, which, in turn, depend on, among other factors, changes in global and regional economies, weather conditions, global and regional political affairs, production levels, the availability of imports, the marketing of competitive fuels, pipeline capacity, prevailing exchange rates and the extent of government regulation. Our revenue and income from operations fluctuate significantly with movements in industry refined product prices, our materials cost fluctuate significantly with movements in crude oil prices and our other operating expenses fluctuate with movements in the price of energy to meet the power needs of our refineries. In addition, the effect of changes in crude oil prices on our operating results is influenced by how the prices of refined products adjust to reflect such changes.

Crude oil and other feedstock costs and the prices of refined products have historically been subject to wide fluctuation. Expansion and upgrading of existing facilities and installation of additional refinery distillation or conversion capacity, price volatility, governmental regulations, international political and economic developments and other factors beyond our control are likely to continue to play an important role in refining industry economics. These factors can impact, among other things, the level of inventories in the market, resulting in price volatility and a reduction or increase in product margins. Moreover, the industry typically experiences seasonal fluctuations in demand for refined products, such as for gasoline and diesel, during the summer driving season and for home heating oil during the winter.

Benchmark Refining Margins

In assessing our operating performance, we compare the refining margins (revenue less materials cost) of each of our refineries against a specific benchmark industry refining margin based on crack spreads. Benchmark refining margins take into account both crude and refined product prices. When these prices are combined in a formula they provide a single value—a gross margin per barrel—that, when multiplied by throughput, provides an approximation of the gross margin generated by refining activities.

The performance of our East Coast refineries generally follows the Dated Brent (NYH) 2-1-1 benchmark refining margin. Our Toledo refinery generally follows the WTI (Chicago) 4-3-1 benchmark refining margin. Our Chalmette refinery generally follows the LLS (Gulf Coast) 2-1-1 benchmark refining margin. Our Torrance refinery generally follows the ANS (West Coast) 4-3-1 benchmark refining margin. Our Martinez refinery generally follows the ANS (West Coast) 3-2-1 benchmark refining margin.

While the benchmark refinery margins presented below under “Results of Operations—Market Indicators” are representative of the results of our refineries, each refinery’s realized gross margin on a per barrel basis will differ from the benchmark due to a variety of factors affecting the performance of the relevant refinery to its corresponding benchmark. These factors include the refinery’s actual type of crude oil throughput, product yield differentials and any other factors not reflected in the benchmark refining margins, such as transportation costs, storage costs, credit fees, fuel consumed during production and any product premiums or discounts, as well as inventory fluctuations, timing of crude oil and other feedstock purchases, a rising or declining crude and product pricing environment and commodity price management activities. As discussed in more detail below, each of our refineries, depending on market conditions, has certain feedstock-cost and product-value advantages and disadvantages as compared to the refinery’s relevant benchmark.

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Credit Risk Management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to us. Our exposure to credit risk is reflected in the carrying amount of the receivables that are presented in our Consolidated Balance Sheets. To minimize credit risk, all customers are subject to extensive credit verification procedures and extensions of credit above defined thresholds are to be approved by the senior management. Our intention is to trade only with recognized creditworthy third parties. In addition, receivable balances are monitored on an ongoing basis. We also limit the risk of bad debts by obtaining security such as guarantees or letters of credit.

We continually monitor our market risk exposure for market developments which could introduce significant volatility in the financial markets.

Other Factors

We currently source our crude oil for our refineries on a global basis through a combination of market purchases and short-term purchase contracts, and through our crude oil supply agreements. We believe purchases based on market pricing has given us flexibility in obtaining crude oil at lower prices and on a more accurate “as needed” basis. Since our East Coast refineries access their crude slates from the Delaware River via ship or barge and through our rail facilities at Delaware City, these refineries have the flexibility to purchase crude oils from the Mid-Continent and Western Canada, as well as a number of different countries. We have not sourced crude oil under our crude supply arrangement with Petróleos de Venezuela S.A. (“PDVSA”) since 2017 as PDVSA has suspended deliveries due to our inability to agree to mutually acceptable payment terms and because of U.S. government sanctions against PDVSA.

Currently, crude oil delivered by rail is consumed at our East Coast refineries. The Delaware City rail unloading facilities, and the East Coast Storage Assets, allow our East Coast refineries to source WTI-based crude oils from Western Canada and the Mid-Continent, which we believe, at times, may provide cost advantages versus traditional Brent-based international crude oils. In support of this rail strategy, we have at times entered into agreements to lease or purchase crude railcars. Certain of these railcars were subsequently sold to a third-party, which has leased the railcars back to us for periods of between four and seven years. In subsequent periods, we have sold or returned railcars to optimize our railcar portfolio. Our railcar fleet, at times, provides transportation flexibility within our crude oil sourcing strategy that allows our East Coast refineries to process cost advantaged crude from Canada and the Mid-Continent.

Our operating cost structure is also important to our profitability. Major operating costs include costs relating to employees and contract labor, energy, maintenance and environmental compliance, and emission control regulations, including the cost of RINs required for compliance with the Renewable Fuel Standard. The predominant variable cost is energy, in particular, the price of utilities, natural gas and electricity.

Our operating results are also affected by the reliability of our refinery operations. Unplanned downtime of our refinery assets generally results in lost margin opportunity and increased maintenance expense. The financial impact of planned downtime, such as major turnaround maintenance, is managed through a planning process that considers such things as the margin environment, the availability of resources to perform the needed maintenance and feed logistics, whereas unplanned downtime does not afford us this opportunity.

68

Refinery-Specific Information

The following section includes refinery-specific information related to our operations, crude oil differentials, ancillary costs, and local premiums and discounts.

East Coast Refining System (Delaware City and Paulsboro Refineries). The benchmark refining margin for the East Coast Refining System is calculated by assuming that two barrels of Dated Brent crude oil are converted into one barrel of gasoline and one barrel of diesel. We calculate this benchmark using the NYH market value of reformulated blendstock for oxygenate blending (“RBOB”) and ULSD against the market value of Dated Brent and refer to the benchmark as the Dated Brent (NYH) 2-1-1 benchmark refining margin. The East Coast Refining System has a product slate of approximately 39% gasoline, 37% distillate, 2% high-value Group I lubricants, 1% high-value petrochemicals, with the remaining portion of the product slate comprised of lower-value products (3% LPGs, 12% black oil and 6% other). For this reason, we believe the Dated Brent (NYH) 2-1-1 is an appropriate benchmark industry refining margin. The majority of East Coast refining revenues are generated off NYH-based market prices.

The East Coast Refining System’s realized gross margin on a per barrel basis is projected to differ from the Dated Brent (NYH) 2-1-1 benchmark refining margin due to the following factors:

•the system processes a slate of primarily medium and heavy sour crude oils, which has constituted approximately 60% to 75% of total throughput. The remaining throughput consists of sweet crude oil and other feedstocks and blendstocks. In addition, we have the capability to process a significant volume of light, sweet crude oil depending on market conditions. Our total throughput costs have historically priced at a discount to Dated Brent; and

•as a result of the heavy, sour crude slate processed at our East Coast Refining System, we produce lower value products including sulfur, carbon dioxide and petroleum coke. These products are priced at a significant discount to RBOB and ULSD.

•the Paulsboro refinery produces Group I lubricants which carry a premium sales price to RBOB and ULSD and the black oil is sold as asphalt which may be sold at a premium or discount to Dated Brent based on the market.

Toledo Refinery. The benchmark refining margin for the Toledo refinery is calculated by assuming that four barrels of WTI crude oil are converted into three barrels of gasoline, one-half barrel of ULSD and one-half barrel of jet fuel. We calculate this refining margin using the Chicago market values of CBOB and ULSD and the United States Gulf Coast value of jet fuel against the market value of WTI and refer to this benchmark as the WTI (Chicago) 4-3-1 benchmark refining margin. Our Toledo refinery has a product slate of approximately 51% gasoline, 36% distillate, 5% high-value petrochemicals (including nonene, tetramer, benzene, xylene and toluene) with the remaining portion of the product slate comprised of lower-value products (5% LPGs and 3% black oil). For this reason, we believe the WTI (Chicago) 4-3-1 is an appropriate benchmark industry refining margin. The majority of Toledo revenues are generated off Chicago-based market prices.

The Toledo refinery’s realized gross margin on a per barrel basis has historically differed from the WTI (Chicago) 4-3-1 benchmark refining margin due to the following factors:

•the Toledo refinery processes a slate of domestic sweet and Canadian synthetic crude oil. Historically, Toledo’s blended average crude costs have differed from the market value of WTI crude oil;

•the Toledo refinery configuration enables it to produce more barrels of product than throughput which generates a pricing benefit; and

•the Toledo refinery generates a pricing benefit on some of its refined products, primarily its petrochemicals.

69

Chalmette Refinery. The benchmark refining margin for the Chalmette refinery is calculated by assuming two barrels of LLS crude oil are converted into one barrel of gasoline and one barrel of diesel. We calculate this benchmark using the US Gulf Coast market value of 87 conventional gasoline and ULSD against the market value of LLS and refer to this benchmark as the LLS (Gulf Coast) 2-1-1 benchmark refining margin. Our Chalmette refinery has a product slate of approximately 44% gasoline and 36% distillate, 1% high-value petrochemicals with the remaining portion of the product slate comprised of lower-value products (7% black oil, 5% LPGs, 3% petroleum coke, and 4% other). For this reason, we believe the LLS (Gulf Coast) 2-1-1 is an appropriate benchmark industry refining margin. The majority of Chalmette revenues are generated off Gulf Coast-based market prices.

The Chalmette refinery’s realized gross margin on a per barrel basis has historically differed from the LLS (Gulf Coast) 2-1-1 benchmark refining margin due to the following factors:

•the Chalmette refinery has generally processed a slate of primarily medium and heavy sour crude oils, which has historically constituted approximately 50% to 75% of total throughput. The remaining throughput consists of sweet crude oil and other feedstocks and blendstocks; and

•as a result of the heavy, sour crude slate processed at Chalmette, we produce lower-value products including sulfur and petroleum coke. These products are priced at a significant discount to 87 conventional gasoline and ULSD.

Torrance Refinery. The benchmark refining margin for the Torrance refinery is calculated by assuming that four barrels of ANS crude oil are converted into three barrels of gasoline, one-half barrel of diesel and one-half barrel of jet fuel. We calculate this benchmark using the West Coast Los Angeles market value of California reformulated blendstock for oxygenate blending (“CARBOB”), CARB diesel and jet fuel and refer to the benchmark as the ANS (West Coast) 4-3-1 benchmark refining margin. Our Torrance refinery has a product slate of approximately 56% gasoline and 27% distillate with the remaining portion of the product slate comprised of lower-value products (3% LPG, 3% black oil and 11% other). For this reason, we believe the ANS (West Coast) 4-3-1 is an appropriate benchmark industry refining margin. The majority of Torrance revenues are generated off West Coast Los Angeles-based market prices.

The Torrance refinery’s realized gross margin on a per barrel basis has historically differed from the ANS (West Coast) 4-3-1 benchmark refining margin due to the following factors:

•the Torrance refinery has generally processed a slate of primarily heavy sour crude oils, which has historically constituted approximately 70% to 90% of total throughput. The Torrance crude slate has the lowest API gravity (typically an API gravity of less than 20 degrees) of all of our refineries. The remaining throughput consists of other feedstocks and blendstocks; and

•as a result of the heavy, sour crude slate processed at Torrance, we produce lower-value products including petroleum coke and sulfur. These products are priced at a significant discount to gasoline and diesel.

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Martinez Refinery. The benchmark refining margin for the Martinez refinery is calculated by assuming that three barrels of ANS crude oil are converted into two barrels of gasoline, one-quarter barrel of diesel and three-quarter barrel of jet fuel. We calculate this benchmark using the West Coast San Francisco market value of CARBOB, CARB diesel and jet fuel and refer to the benchmark as the ANS (West Coast) 3-2-1 benchmark refining margin. Our Martinez refinery has a product slate of approximately 54% gasoline and 35% distillate with the remaining portion of the product slate comprised of lower-value products (2% black oil petroleum coke, 4% LPG and 5% other). For this reason, we believe the ANS (West Coast) 3-2-1 is an appropriate benchmark industry refining margin. The majority of Martinez revenues are generated off West Coast San Francisco-based market prices.

The Martinez refinery’s realized gross margin on a per barrel basis has historically differed from the ANS (West Coast) 4-3-1 benchmark refining margin due to the following factors:

•the Martinez refinery has generally processed a slate of primarily heavy sour crude oils, which has historically constituted approximately 70% to 90% of total throughput. The remaining throughput consists of other feedstocks and blendstocks; and

•as a result of the heavy, sour crude slate processed at Martinez, we produce lower-value products including petroleum coke and sulfur. These products are priced at a significant discount to gasoline and CARB diesel.

Results of Operations

The tables below reflect our consolidated financial and operating highlights for the years ended December 31, 2022, 2021 and 2020 (amounts in millions, except per share data). Differences between the results of operations of PBF Energy and PBF LLC primarily pertain to income taxes, interest expense and noncontrolling interest as shown below. Earnings per share information applies only to the financial results of PBF Energy. We operate in two reportable business segments: Refining and Logistics. Our oil refineries, excluding the assets operated by PBFX, are all engaged in the refining of crude oil and other feedstocks into petroleum products, and represent the Refining segment. PBFX is an indirect wholly-owned subsidiary of PBF Energy and PBF LLC that operates certain logistics assets such as crude oil and refined products terminals, pipelines and storage facilities. PBFX’s operations represent the Logistics segment. We do not separately discuss our results by individual segments as, apart from PBFX’s third-party acquisitions, our Logistics segment did not have any significant third-party revenues and a significant portion of its operating results are eliminated in consolidation.

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[[GREPCENT_TABLE]]
[["PBF Energy","","Year Ended December 31,"],["","","2022","","2021","","2020"],["Revenues","","$","46,830.3","","","$","27,253.4","","","$","15,115.9"],["Cost and expenses:"],["Cost of products and other","","39,049.1","","","23,826.8","","","14,275.6"],["Operating expenses (excluding depreciation and amortization expense as reflected below)","","2,599.0","","","2,085.9","","","1,918.3"],["Depreciation and amortization expense","","503.6","","","453.5","","","551.7"],["Cost of sales","","42,151.7","","","26,366.2","","","16,745.6"],["General and administrative expenses (excluding depreciation and amortization expense as reflected below)","","468.7","","","247.3","","","248.5"],["Depreciation and amortization expense","","7.5","","","13.3","","","11.3"],["Change in fair value of contingent consideration, net","","48.3","","","32.4","","","(93.7)"],["Impairment expense","","\u2014","","","\u2014","","","98.8"],["Loss (gain) on sale of assets","","0.9","","","(3.0)","","","(477.8)"],["Total cost and expenses","","42,677.1","","","26,656.2","","","16,532.7"],["Income (loss) from operations","","4,153.2","","","597.2","","","(1,416.8)"],["Other income (expense):"],["Interest expense, net","","(246.0)","","","(317.5)","","","(258.2)"],["Change in Tax Receivable Agreement liability","","(290.3)","","","(48.3)","","","373.5"],["Change in fair value of catalyst obligations","","(2.0)","","","8.5","","","(11.8)"],["(Loss) gain on extinguishment of debt","","(66.1)","","","79.9","","","(22.2)"],["Other non-service components of net periodic benefit cost","","8.8","","","7.8","","","4.3"],["Income (loss) before income taxes","","3,557.6","","","327.6","","","(1,331.2)"],["Income tax expense","","584.8","","","12.1","","","2.1"],["Net income (loss)","","2,972.8","","","315.5","","","(1,333.3)"],["Less: net income attributable to noncontrolling interests","","96.0","","","84.5","","","59.1"],["Net income (loss) attributable to PBF Energy Inc. stockholders","","$","2,876.8","","","$","231.0","","","$","(1,392.4)"],["Consolidated gross margin","","$","4,678.6","","","$","887.2","","","$","(1,629.7)"],["Gross refining margin (1)","","$","7,429.9","","","$","3,087.7","","","$","496.8"],["Net income available to Class A common stock per share:"],["Basic","","$","23.47","","","$","1.92","","","$","(11.64)"],["Diluted","","$","22.84","","","$","1.90","","","$","(11.64)"]]
[[/GREPCENT_TABLE]]

——————————

(1) See Non-GAAP Financial Measures.

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[[GREPCENT_TABLE]]
[["PBF LLC","","Year Ended December 31,"],["","","2022","","2021","","2020"],["Revenues","","$","46,830.3","","","$","27,253.4","","","$","15,115.9"],["Cost and expenses:"],["Cost of products and other","","39,049.1","","","23,826.8","","","14,275.6"],["Operating expenses (excluding depreciation and amortization expense as reflected below)","","2,599.0","","","2,085.9","","","1,918.3"],["Depreciation and amortization expense","","503.6","","","453.5","","","551.7"],["Cost of sales","","42,151.7","","","26,366.2","","","16,745.6"],["General and administrative expenses (excluding depreciation and amortization expense as reflected below)","","466.6","","","245.2","","","247.7"],["Depreciation and amortization expense","","7.5","","","13.3","","","11.3"],["Change in fair value of contingent consideration, net","","48.3","","","32.4","","","(93.7)"],["Impairment expense","","\u2014","","","\u2014","","","98.8"],["Loss (gain) on sale of assets","","0.9","","","(3.0)","","","(477.8)"],["Total cost and expenses","","42,675.0","","","26,654.1","","","16,531.9"],["Income (loss) from operations","","4,155.3","","","599.3","","","(1,416.0)"],["Other income (expense):"],["Interest expense, net","","(257.2)","","","(327.8)","","","(268.5)"],["Change in fair value of catalyst obligations","","(2.0)","","","8.5","","","(11.8)"],["(Loss) gain on extinguishment of debt","","(66.1)","","","79.9","","","(22.2)"],["Other non-service components of net periodic benefit cost","","8.8","","","7.8","","","4.3"],["Income (loss) before income taxes","","3,838.8","","","367.7","","","(1,714.2)"],["Income tax expense (benefit)","","4.6","","","(14.0)","","","6.1"],["Net income (loss)","","3,834.2","","","381.7","","","(1,720.3)"],["Less: net income attributable to noncontrolling interests","","68.1","","","82.1","","","76.2"],["Net income (loss) attributable to PBF Energy Company LLC","","$","3,766.1","","","$","299.6","","","$","(1,796.5)"]]
[[/GREPCENT_TABLE]]

73

Operating Highlights

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2022","","2021","","2020"],["Key Operating Information"],["Production (bpd in thousands)","","937.1","","","852.2","","","737.1"],["Crude oil and feedstocks throughput (bpd in thousands)","","925.1","","","834.5","","","727.7"],["Total crude oil and feedstocks throughput (millions of barrels)","","337.7","","","304.6","","","266.3"],["Consolidated gross margin per barrel of throughput","","$","13.85","","","$","2.91","","","$","(6.12)"],["Gross refining margin, excluding special items, per barrel of throughput (1)","","$","22.00","","","$","7.94","","","$","3.23"],["Refinery operating expense, per barrel of throughput","","$","7.39","","","$","6.56","","","$","6.89"],["Crude and feedstocks (% of total throughput) (2)"],["Heavy","","32","%","","34","%","","42","%"],["Medium","","36","%","","31","%","","26","%"],["Light","","18","%","","18","%","","17","%"],["Other feedstocks and blends","","14","%","","17","%","","15","%"],["Total throughput","","100","%","","100","%","","100","%"],["Yield (% of total throughput)"],["Gasoline and gasoline blendstocks","","47","%","","53","%","","51","%"],["Distillates and distillate blendstocks","","35","%","","30","%","","30","%"],["Lubes","","1","%","","1","%","","1","%"],["Chemicals","","1","%","","2","%","","1","%"],["Other","","17","%","","16","%","","18","%"],["Total yield","","101","%","","102","%","","101","%"]]
[[/GREPCENT_TABLE]]

——————————

(1) See Non-GAAP Financial Measures.

(2) We define heavy crude oil as crude oil with an API gravity of less than 24 degrees. We define medium crude oil as crude oil with an API gravity between 24 and 35 degrees. We define light crude oil as crude oil with an API gravity higher than 35 degrees.

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The table below summarizes certain market indicators relating to our operating results as reported by Platts, a division of The McGraw-Hill Companies.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2022","","2021","","2020"],["","","(dollars per barrel, except as noted)"],["Dated Brent crude oil","","$","101.27","","","$","70.89","","","$","41.62"],["West Texas Intermediate (WTI) crude oil","","$","94.58","","","$","68.10","","","$","39.25"],["Light Louisiana Sweet (LLS) crude oil","","$","96.81","","","$","69.59","","","$","41.13"],["Alaska North Slope (ANS) crude oil","","$","98.76","","","$","70.56","","","$","42.20"],["Crack Spreads"],["Dated Brent (NYH) 2-1-1","","$","40.26","","","$","16.84","","","$","9.11"],["WTI (Chicago) 4-3-1","","$","31.56","","","$","16.34","","","$","6.30"],["LLS (Gulf Coast) 2-1-1","","$","37.56","","","$","16.03","","","$","7.59"],["ANS (West Coast-LA) 4-3-1","","$","41.64","","","$","20.10","","","$","11.30"],["ANS (West Coast-SF) 3-2-1","","$","41.89","","","$","20.55","","","$","9.99"],["Crude Oil Differentials"],["Dated Brent (foreign) less WTI","","$","6.68","","","$","2.80","","","$","2.37"],["Dated Brent less Maya (heavy, sour)","","$","13.95","","","$","6.47","","","$","5.37"],["Dated Brent less WTS (sour)","","$","6.98","","","$","2.63","","","$","2.33"],["Dated Brent less ASCI (sour)","","$","9.68","","","$","3.90","","","$","1.81"],["WTI less WCS (heavy, sour)","","$","21.30","","","$","14.19","","","$","10.72"],["WTI less Bakken (light, sweet)","","$","(4.05)","","","$","(0.14)","","","$","2.41"],["WTI less Syncrude (light, sweet)","","$","(3.04)","","","$","2.25","","","$","2.13"],["WTI less LLS (light, sweet)","","$","(2.22)","","","$","(1.50)","","","$","(1.88)"],["WTI less ANS (light, sweet)","","$","(4.17)","","","$","(2.46)","","","$","(2.95)"],["Natural gas (dollars per MMBTU)","","$","6.54","","","$","3.73","","","$","2.13"]]
[[/GREPCENT_TABLE]]

2022 Compared to 2021

Overview— PBF Energy net income was $2,972.8 million for the year ended December 31, 2022 compared to net income of $315.5 million for the year ended December 31, 2021. PBF LLC net income was $3,834.2 million for the year ended December 31, 2022 compared to net income of $381.7 million for the year ended December 31, 2021. Net income attributable to PBF Energy stockholders was $2,876.8 million, or $22.84 per diluted share, for the year ended December 31, 2022 ($22.84 per share on a fully-exchanged, fully-diluted basis based on adjusted fully-converted net income, or $23.36 per share on a fully-exchanged, fully-diluted basis based on adjusted fully-converted net income excluding special items, as described below in Non-GAAP Financial Measures) compared to net income attributable to PBF Energy stockholders of $231.0 million, or $1.90 per diluted share, for the year ended December 31, 2021 ($1.90 per share on a fully-exchanged, fully-diluted basis based on adjusted fully-converted net income, or $(2.50) per share on a fully-exchanged, fully-diluted basis based on adjusted fully-converted net loss excluding special items, as described below in Non-GAAP Financial Measures). The net income attributable to PBF Energy stockholders represents PBF Energy’s equity interest in PBF LLC’s pre-tax income, less applicable income tax expense. PBF Energy’s weighted-average equity interest in PBF LLC was 99.3% and 99.2% for the years ended December 31, 2022 and 2021, respectively.

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Our results for the year ended December 31, 2022 were negatively impacted by special items consisting of pre-tax charges associated with the change in the Tax Receivable Agreement liability of $290.3 million, or $215.1 million net of tax, a net loss on the extinguishment of debt mainly associated with the redemption of our 2025 Senior Secured Notes of $66.1 million, or $49.0 million net of tax, and net changes in fair value of contingent consideration of $48.3 million, or $35.8 million net of tax, partially offset by a $233.8 million tax benefit associated with the remeasurement of certain deferred tax assets. Our results for the year ended December 31, 2021 were positively impacted by special items consisting of a non-cash, pre-tax LCM inventory adjustment of approximately $669.6 million, or $496.2 million net of tax, a pre-tax gain on the extinguishment of debt associated with the repurchase of a portion of our 2028 Senior Notes and 2025 Senior Notes of $79.9 million, or $59.2 million net of tax, a gain on the sale of certain PBFX land of $2.8 million, or $2.1 million net of tax, and a $37.4 million tax benefit associated with the remeasurement of certain deferred tax assets, offset by pre-tax charges associated with the change in the Tax Receivable Agreement liability of $48.3 million, or $35.8 million net of tax and a change in fair value of the Martinez Contingent Consideration and the earn-out obligation associated with the acquisition of CPI Operations LLC (the “PBFX Contingent Consideration”) of $32.4 million, or $24.0 million net of tax.

Excluding the impact of these special items, when comparing our results to the year ended December 31, 2021, we experienced an increase in the demand for our refined products, evidenced by higher throughput volumes and barrels sold at all of our refineries, as well as overall stronger refining margins due to favorable movements in crack spreads and crude oil differentials. These improving metrics have positively impacted our revenues, gross margin, and operating income.

Revenues— Revenues totaled $46.8 billion for the year ended December 31, 2022 compared to $27.3 billion for the year ended December 31, 2021, an increase of approximately $19.5 billion or 71.4%. Revenues per barrel sold were $123.26 and $80.79 for the years ended December 31, 2022 and 2021, respectively, an increase of 52.6% directly related to higher hydrocarbon commodity prices. For the year ended December 31, 2022, the total throughput rates at our East Coast, Mid-Continent, Gulf Coast and West Coast refineries averaged approximately 300,300 bpd, 148,500 bpd, 180,700 bpd and 295,600 bpd, respectively. For the year ended December 31, 2021, the total throughput rates at our East Coast, Mid-Continent, Gulf Coast and West Coast refineries averaged approximately 250,900 bpd, 134,100 bpd, 163,300 bpd and 286,200 bpd, respectively. For the year ended December 31, 2022, the total barrels sold at our East Coast, Mid-Continent, Gulf Coast and West Coast refineries averaged approximately 353,800 bpd, 158,200 bpd, 190,600 bpd and 338,400 bpd, respectively. For the year ended December 31, 2021, the total barrels sold at our East Coast, Mid-Continent, Gulf Coast and West Coast refineries averaged approximately 292,500 bpd, 142,600 bpd, 170,400 bpd and 318,700 bpd, respectively.

Overall average throughput rates were higher for the year ended December 31, 2022 compared to 2021. During the year ended December 31, 2021, we operated our refineries at reduced rates and periodically increased the throughput rates across our entire refining system to correlate with the gradual increases in demand experienced throughout the year. Overall average throughput in 2022 remained high as a result of sustained increases in demand and favorable market conditions. Total refined product barrels sold were higher than throughput rates, reflecting sales from inventory as well as sales and purchases of refined products outside our refineries.

Consolidated Gross Margin— Consolidated gross margin totaled $4,678.6 million for the year ended December 31, 2022, compared to $887.2 million for the year ended December 31, 2021, an increase of $3,791.4 million. Gross refining margin (as described below in Non-GAAP Financial Measures) totaled $7,429.9 million, or $22.00 per barrel of throughput, for the year ended December 31, 2022 compared to $3,087.7 million, or $10.14 per barrel of throughput, for the year ended December 31, 2021, an increase of approximately $4,342.2 million. Gross refining margin excluding special items totaled $7,429.9 million, or $22.00 per barrel of throughput, for the year ended December 31, 2022 compared to $2,418.1 million, or $7.94 per barrel of throughput, for the year ended December 31, 2021, an increase of $5,011.8 million.

76

During the year ended December 31, 2022, our margin calculations were not impacted by special items. Consolidated gross margin and gross refining margin increased due to favorable movements in certain crack spreads and crude oil differentials and higher throughput volumes and barrels sold at all our refineries. For the year ended December 31, 2021, our margin calculations included a favorable special item related to a non-cash LCM inventory adjustment of approximately $669.6 million on a net basis resulting from the increase in crude oil and refined product prices from the year ended December 31, 2020 to the year ended December 31, 2021.

Additionally, our results continue to be impacted by significant costs to comply with the RFS. Total RFS costs were $1,225.5 million for the year ended December 31, 2022 compared to $726.0 million for the year ended December 31, 2021.

Average industry margins were favorable during the year ended December 31, 2022 compared to the prior year, primarily due to increased refining margins as a result of sustained demand and global supply disruptions.

Favorable movements in these benchmark crude differentials typically result in lower crude costs and positively impact our earnings, while reductions in these benchmark crude differentials typically result in higher crude costs and negatively impact our earnings.

On the East Coast, the Dated Brent (NYH) 2-1-1 industry crack spread was approximately $40.26 per barrel, or 139.1% higher, in the year ended December 31, 2022, as compared to $16.84 per barrel in the same period in 2021. Our margins were positively impacted from our refinery specific slate on the East Coast by strengthened Dated Brent/Maya differential, which increased by $7.48 per barrel, offset by weakened WTI/Bakken differential, which decreased by $3.91 per barrel compared to the same period in 2021. The WTI/WCS differential increased to $21.30 per barrel in 2022 compared to $14.19 per barrel in 2021, which favorably impacted our cost of heavy Canadian crude.

Across the Mid-Continent, the WTI (Chicago) 4-3-1 industry crack spread was $31.56 per barrel, or 93.1% higher, in the year ended December 31, 2022, as compared to $16.34 per barrel in the prior year. Our margins were negatively impacted from our refinery specific slate in the Mid-Continent by a decreasing WTI/Bakken differential, which averaged a premium of $4.05 per barrel in the year ended December 31, 2022, as compared to a premium of $0.14 per barrel in the prior year. Additionally, the WTI/Syncrude differential averaged a premium of $3.04 per barrel for the year ended December 31, 2022 as compared to a discount of $2.25 per barrel in the prior year.

On the Gulf Coast, the LLS (Gulf Coast) 2-1-1 industry crack spread was $37.56 per barrel, or 134.3% higher, in the year ended December 31, 2022 as compared to $16.03 per barrel in the prior year. Margins on the Gulf Coast were negatively impacted from our refinery specific slate by a weakening WTI/LLS differential, which averaged a premium of $2.22 per barrel for the year ended December 31, 2022 as compared to a premium of $1.50 per barrel in the prior year.

On the West Coast, the ANS (West Coast) 4-3-1 industry crack spread was $41.64 per barrel, or 107.2% higher, in the year ended December 31, 2022 as compared to $20.10 per barrel in the prior year. Additionally, the ANS (West Coast) 3-2-1 industry crack spread was $41.89 per barrel, or 103.8% higher, in the year ended December 31, 2022 as compared to $20.55 per barrel in the prior year. Our margins on the West Coast were negatively impacted from our refinery specific slate by a weakening WTI/ANS differential, which averaged a premium of $4.17 per barrel for the year ended December 31, 2022 as compared to a premium of $2.46 per barrel in the prior year.

77

Operating Expenses— Operating expenses totaled $2,599.0 million for the year ended December 31, 2022 compared to $2,085.9 million for the year ended December 31, 2021, an increase of approximately $513.1 million, or 24.6%. Of the total $2,599.0 million in operating expenses, $2,495.6 million, or 7.39 per barrel of throughput, related to expenses incurred by the Refining segment, while the remaining $103.4 million related to expenses incurred by the Logistics segment ($1,999.1 million or 6.56 per barrel of throughput, and $86.8 million of operating expenses for the year ended December 31, 2021 related to the Refining and Logistics segments, respectively). The increase in operating expenses was mainly attributable to increases in natural gas volumes and price across our refineries when compared to the prior year. Additionally, we experienced higher outside services, maintenance and operational costs due to increased production.

General and Administrative Expenses— General and administrative expenses totaled $468.7 million for the year ended December 31, 2022, compared to $247.3 million for the year ended December 31, 2021, an increase of $221.4 million or 89.5%. The increase in general and administrative expenses is primarily related to higher employee-related expenses, certain of which includes the recognition of incentive compensation. Our general and administrative expenses are comprised of personnel, facilities and other infrastructure costs necessary to support our refineries and related logistics assets.

Depreciation and Amortization Expense— Depreciation and amortization expense totaled $511.1 million for the year ended December 31, 2022 (including $503.6 million recorded within Cost of sales) compared to $466.8 million for the year ended December 31, 2021 (including $453.5 million recorded within Cost of sales), an increase of $44.3 million. The increase was a result of a general increase in our fixed asset base due to capital projects and turnarounds completed since the end of the prior year.

Change in Fair Value of Contingent Consideration, net— Change in fair value of contingent consideration represented a loss of $48.3 million and a loss of $32.4 million for the years ended December 31, 2022 and December 31, 2021, respectively. These losses were primarily related to the changes in estimated fair value of the earn-out liability associated with the acquisition of the Martinez refinery, offset by the recognition of contingent assets associated with the acquisition.

Loss (Gain) on Sale of Assets— There was a loss of $0.9 million for the year ended December 31, 2022 related primarily to the sale of non-operating refinery assets. There was a gain of $3.0 million for the year ended December 31, 2021 related primarily to a third-party sale of PBFX real property.

Change in Tax Receivable Agreement Liability— Change in the Tax Receivable Agreement liability for the year ended December 31, 2022 and December 31, 2021, represented a charge of $290.3 million and a charge of $48.3 million, respectively. These charges were primarily the result of changes in the deferred tax asset valuation allowance recorded in accordance with Accounting Standards Codification (“ASC”) 740 Income Taxes (“ASC 740”), related to the reduction of deferred tax assets associated with the payments made or expected to be made in connection with the Tax Receivable Agreement liability.

Change in Fair Value of Catalyst Obligations— Change in fair value of catalyst obligations represented a loss of $2.0 million for the year ended December 31, 2022, compared to a gain of $8.5 million for the year ended December 31, 2021. These losses and gains relate to the change in fair value of the precious metals underlying the sale and leaseback of our refineries’ precious metal catalysts, which we are obligated to repurchase at fair market value upon lease termination.

(Loss) Gain on Extinguishment of Debt— We incurred a loss on extinguishment of debt of $66.1 million in the year ended December 31, 2022 related to the redemption of all of the outstanding 2025 Senior Secured Notes, slightly offset by a gain related to the repurchase of a portion of our 2028 Senior Notes and 2025 Senior Notes. We incurred a gain on extinguishment of debt of $79.9 million in the year ended December 31, 2021 related to the repurchase of a portion of our 2028 Senior Notes and 2025 Senior Notes.

78

Interest Expense, net— PBF Energy interest expense totaled $246.0 million for the year ended December 31, 2022, compared to $317.5 million for the year ended December 31, 2021, a decrease of $71.5 million. This net decrease is mainly attributable to the redemption of the 2025 Senior Secured Notes during the third quarter of 2022, as well as lower outstanding balances on our revolving credit facilities. Interest expense includes interest on long-term debt including the PBFX credit facilities, costs related to the sale and leaseback of our precious metal catalysts, financing costs associated with the Third Inventory Intermediation Agreement with J. Aron, letter of credit fees associated with the purchase of certain crude oils and the amortization of deferred financing costs. PBF LLC interest expense totaled $257.2 million and $327.8 million for the year ended December 31, 2022 and December 31, 2021, respectively (inclusive of $11.2 million and $10.3 million, respectively, of incremental interest expense on the affiliate note payable with PBF Energy that eliminates in consolidation in the PBF Energy consolidated financial statements).

Income Tax Expense— PBF LLC is organized as a limited liability company and PBFX is a partnership, both of which are treated as “flow-through” entities for federal income tax purposes and therefore are not subject to income tax. However, two subsidiaries of Chalmette Refining and our Canadian subsidiary, PBF Energy Limited, are treated as C-Corporations for income tax purposes and may incur income taxes with respect to their earnings, as applicable. The members of PBF LLC are required to include their proportionate share of PBF LLC’s taxable income or loss, on their respective tax returns. PBF LLC generally makes distributions to its members, per the terms of PBF LLC’s amended and restated limited liability company agreement, related to such taxes on a pro-rata basis. PBF Energy recognizes an income tax expense or benefit in our consolidated financial statements based on PBF Energy’s allocable share of PBF LLC’s pre-tax income or loss, which was approximately 99.3% and 99.2%, on a weighted-average basis for the years ended December 31, 2022 and 2021, respectively. PBF Energy’s Consolidated Financial Statements do not reflect any benefit or provision for income taxes on the pre-tax income or loss attributable to the noncontrolling interests in PBF LLC (although, as described above, PBF LLC must make tax distributions to all its members on a pro-rata basis). PBF Energy’s effective tax rate, including the impact of noncontrolling interests, for the years ended December 31, 2022 and 2021 was 16.4% and 3.7%, respectively. The effective tax rate for both years was significantly impacted by changes in the deferred tax valuation allowance. In 2022, the full valuation allowance was released, resulting in a tax benefit of $308.5 million for the year ended December 31, 2022, compared to a tax benefit of $49.9 million for the year ended December 31, 2021.

Noncontrolling Interest— PBF Energy is the sole managing member of, and has a controlling interest in, PBF LLC. As the sole managing member of PBF LLC, PBF Energy operates and controls all of the business and affairs of PBF LLC and its subsidiaries. PBF Energy consolidates the financial results of PBF LLC and its subsidiaries, including PBFX. With respect to the consolidation of PBF LLC, we record a noncontrolling interest for the economic interest in PBF LLC held by members other than PBF Energy, with respect to the consolidation of PBFX, we recorded a noncontrolling interest for the economic interests in PBFX held by the public unitholders of PBFX prior to the close of the PBFX Merger Transaction, and with respect to the consolidation of PBF Holding, we record a 20% noncontrolling interest for the ownership interests in two subsidiaries of Chalmette Refining held by a third-party. The total noncontrolling interest on the Consolidated Statements of Operations represents the portion of the Company’s earnings or loss attributable to the economic interests held by members of PBF LLC other than PBF Energy, by the public common unitholders of PBFX prior to the close of the PBFX Merger Transaction and by the third-party stockholders of certain of Chalmette Refining’s subsidiaries. The total noncontrolling interest on the Consolidated Balance Sheets represents the portion of the Company’s net assets attributable to the economic interests held by the members of PBF LLC other than PBF Energy, and by the third-party stockholders of the two Chalmette Refining subsidiaries. PBF Energy’s weighted-average equity noncontrolling interest ownership percentage in PBF LLC for the years ended December 31, 2022 and 2021 was approximately 0.7% and 0.8%, respectively. The carrying amount of the noncontrolling interest on our Consolidated Balance Sheets attributable to the noncontrolling interest is not equal to the noncontrolling interest ownership percentage due to the effect of income taxes and related agreements that pertain solely to PBF Energy.

79

Non-GAAP Financial Measures

Management uses certain financial measures to evaluate our operating performance that are calculated and presented on the basis of methodologies other than in accordance with GAAP (“Non-GAAP”). These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP, and our calculations thereof may not be comparable to similarly entitled measures reported by other companies. Such Non-GAAP financial measures are presented only in the context of PBF Energy’s results and are not presented or discussed in respect to PBF LLC.

Special Items

The Non-GAAP measures presented include Adjusted Fully-Converted Net Income (Loss) excluding special items, gross refining margin excluding special items, EBITDA excluding special items, and net debt to capitalization excluding special items. Special items for the periods presented relate to LCM inventory adjustments, net changes in fair value of contingent consideration, changes in the Tax Receivable Agreement liability, loss (gain) on extinguishment of debt, gain on sale of hydrogen plants, severance and reconfiguration costs, impairment expense, net tax (benefit) expense on remeasurement of deferred tax assets, gains on land sales, charges associated with the early return of certain leased railcars, turnaround acceleration costs, and a LIFO inventory decrement. See “Notes to Non-GAAP Financial Measures” below for more details on all special items disclosed. Although we believe that Non-GAAP financial measures, excluding the impact of special items, provide useful supplemental information to investors regarding the results and performance of our business and allow for helpful period-over-period comparisons, such Non-GAAP measures should only be considered as a supplement to, and not as a substitute for, or superior to, the financial measures prepared in accordance with GAAP.

80

Adjusted Fully-Converted Net Income (Loss) and Adjusted Fully-Converted Net Income (Loss) Excluding Special Items

PBF Energy utilizes results presented on an Adjusted Fully-Converted basis that reflects an assumed exchange of all PBF LLC Series A Units for shares of PBF Energy Class A common stock. In addition, we present results on an Adjusted Fully-Converted basis excluding special items as described above. We believe that these Adjusted Fully-Converted measures, when presented in conjunction with comparable GAAP measures, are useful to investors to compare PBF Energy results across different periods and to facilitate an understanding of our operating results.

Neither Adjusted Fully-Converted Net Income (Loss) nor Adjusted Fully-Converted Net Income (Loss) excluding special items should be considered an alternative to net income (loss) presented in accordance with GAAP. Adjusted Fully-Converted Net Income (Loss) and Adjusted Fully-Converted Net Income (Loss) excluding special items presented by other companies may not be comparable to our presentation, since each company may define these terms differently. The differences between Adjusted Fully-Converted and GAAP results are as follows:

1.Assumed exchange of all PBF LLC Series A Units for shares of PBF Energy Class A common stock. As a result of the assumed exchange of all PBF LLC Series A Units, the noncontrolling interest related to these units is converted to controlling interest. Management believes that it is useful to provide the per-share effect associated with the assumed exchange of all PBF LLC Series A Units.

2.Income Taxes. Prior to PBF Energy’s IPO, PBF Energy was organized as a limited liability company treated as a “flow-through” entity for income tax purposes, and even after PBF Energy’s IPO, not all of its earnings are subject to corporate-level income taxes. Adjustments have been made to the Adjusted Fully-Converted tax provisions and earnings to assume that PBF Energy had adopted its post-IPO corporate tax structure for all periods presented and is taxed as a C-corporation in the U.S. at the prevailing corporate rates. These assumptions are consistent with the assumption in clause 1 above that all PBF LLC Series A Units are exchanged for shares of PBF Energy Class A common stock, as the assumed exchange would change the amount of PBF Energy’s earnings that are subject to corporate income tax.

81

The following table reconciles PBF Energy’s Adjusted Fully-Converted results with its results presented in accordance with GAAP for the years ended December 31, 2022, 2021 and 2020 (in millions, except share and per share amounts):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2022","","2021","","2020"],["Net income (loss) attributable to PBF Energy Inc. stockholders","","$","2,876.8","","","$","231.0","","","$","(1,392.4)"],["Less: Income allocated to participating securities","","\u2014","","","\u2014","","","0.1"],["Income (loss) available to PBF Energy Inc. stockholders - basic","","2,876.8","","","231.0","","","(1,392.5)"],["Add: Net income (loss) attributable to noncontrolling interests(1)","","27.9","","","2.4","","","(17.1)"],["Less: Income tax (expense) benefit (2)","","(7.2)","","","(0.6)","","","4.6"],["Adjusted fully-converted net income (loss)","","$","2,897.5","","","$","232.8","","","$","(1,405.0)"],["Special Items:(3)"],["Add: Non-cash LCM inventory adjustment","","\u2014","","","(669.6)","","","268.0"],["Add: Change in fair value of contingent consideration, net","","48.3","","","32.4","","","(93.7)"],["Add: Gain on sale of hydrogen plants","","\u2014","","","\u2014","","","(471.1)"],["Add: Gain on land sales","","\u2014","","","(2.8)","","","(8.1)"],["Add: Impairment expense","","\u2014","","","\u2014","","","98.8"],["Add: LIFO inventory decrement","","\u2014","","","\u2014","","","83.0"],["Add: Turnaround acceleration costs","","\u2014","","","\u2014","","","56.2"],["Add: Severance and reconfiguration costs","","\u2014","","","\u2014","","","30.0"],["Add: Early railcar return expense","","\u2014","","","\u2014","","","12.5"],["Add: Loss (gain) on extinguishment of debt","","66.1","","","(79.9)","","","22.2"],["Add: Change in Tax Receivable Agreement liability","","290.3","","","48.3","","","(373.5)"],["Add: Net tax (benefit) expense on remeasurement of deferred tax assets","","(233.8)","","","(37.4)","","","259.1"],["Less: Recomputed income tax on special items","","(104.9)","","","173.9","","","99.9"],["Adjusted fully-converted net income (loss) excluding special items","","$","2,963.5","","","$","(302.3)","","","$","(1,421.7)"],["Weighted-average shares outstanding of PBF Energy Inc.","","122,598,076","","","120,240,009","","","119,617,998"],["Conversion of PBF LLC Series A Units (4)","","917,991","","","988,730","","","1,042,667"],["Common stock equivalents (5)","","3,344,039","","","1,409,415","","","\u2014"],["Fully-converted shares outstanding\u2014diluted","","126,860,106","","","122,638,154","","","120,660,665"],["Diluted net income (loss) per share","","$","22.84","","","$","1.90","","","$","(11.64)"],["Adjusted fully-converted net income (loss) per fully exchanged, fully diluted shares outstanding (5)","","$","22.84","","","$","1.90","","","$","(11.64)"],["Adjusted fully-converted net income (loss) excluding special items per fully exchanged, fully diluted shares outstanding","","$","23.36","","","$","(2.50)","","","$","(11.78)"]]
[[/GREPCENT_TABLE]]

——————————

See Notes to Non-GAAP Financial Measures.

82

Gross Refining Margin and Gross Refining Margin Excluding Special Items

Gross refining margin is defined as consolidated gross margin excluding refinery depreciation, refinery operating expenses, and gross margin of PBFX. We believe both gross refining margin and gross refining margin excluding special items are important measures of operating performance and provide useful information to investors because they are helpful metric comparisons to the industry refining margin benchmarks, as the refining margin benchmarks do not include a charge for operating expenses and refinery depreciation. In order to assess our operating performance, we compare our gross refining margin (revenues less cost of products and other) to industry refining margin benchmarks and crude oil prices as defined in the table below.

Neither gross refining margin nor gross refining margin excluding special items should be considered an alternative to consolidated gross margin, income from operations, net cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Gross refining margin and gross refining margin excluding special items presented by other companies may not be comparable to our presentation, since each company may define these terms differently. The following table presents our GAAP calculation of gross margin and a reconciliation of gross refining margin to the most directly comparable GAAP financial measure, consolidated gross margin, on a historical basis, as applicable, for each of the periods indicated (in millions, except per barrel amounts):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2022","","2021","","2020"],["","","$","per barrel of throughput","","$","per barrel of throughput","","$","per barrel of throughput"],["Calculation of consolidated gross margin:"],["Revenues","","$","46,830.3","","$","138.69","","","$","27,253.4","","$","89.46","","","$","15,115.9","","$","56.76"],["Less: Cost of sales","","42,151.7","","124.84","","","26,366.2","","86.55","","","16,745.6","","62.88"],["Consolidated gross margin","","$","4,678.6","","$","13.85","","","$","887.2","","$","2.91","","","$","(1,629.7)","","$","(6.12)"],["Reconciliation of consolidated gross margin to gross refining margin:"],["Consolidated gross margin","","$","4,678.6","","$","13.85","","","$","887.2","","$","2.91","","","$","(1,629.7)","","$","(6.12)"],["Add: PBFX operating expense","","121.4","","0.36","","","103.4","","0.35","","","99.9","","0.38"],["Add: PBFX depreciation expense","","36.7","","0.11","","","37.8","","0.13","","","53.7","","0.19"],["Less: Revenues of PBFX","","(369.3)","","(1.09)","","","(355.5)","","(1.17)","","","(360.3)","","(1.35)"],["Add: Refinery operating expenses","","2,495.6","","7.39","","","1,999.1","","6.56","","","1,835.2","","6.89"],["Add: Refinery depreciation expense","","466.9","","1.38","","","415.7","","1.36","","","498.0","","1.87"],["Gross refining margin","","$","7,429.9","","$","22.00","","","$","3,087.7","","$","10.14","","","$","496.8","","$","1.86"],["Special Items: (3)"],["Add: Non-cash LCM inventory adjustment","","\u2014","","\u2014","","","(669.6)","","(2.20)","","","268.0","","1.01"],["Add: LIFO inventory decrement","","\u2014","","\u2014","","","\u2014","","\u2014","","","83.0","","0.31"],["Add: Early railcar return expense","","\u2014","","\u2014","","","\u2014","","\u2014","","","12.5","","0.05"],["Gross refining margin excluding special items","","$","7,429.9","","$","22.00","","","$","2,418.1","","$","7.94","","","$","860.3","","$","3.23"]]
[[/GREPCENT_TABLE]]

——————————

See Notes to Non-GAAP Financial Measures.

83

EBITDA, EBITDA Excluding Special Items and Adjusted EBITDA

Our management uses EBITDA (earnings before interest, income taxes, depreciation and amortization), EBITDA excluding special items and Adjusted EBITDA as measures of operating performance to assist in comparing performance from period to period on a consistent basis and to readily view operating trends, as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations, and in communications with our Board of Directors, creditors, analysts and investors concerning our financial performance. Our outstanding indebtedness for borrowed money and other contractual obligations also include similar measures as a basis for certain covenants under those agreements which may differ from the Adjusted EBITDA definition described below.

EBITDA, EBITDA excluding special items and Adjusted EBITDA are not presentations made in accordance with GAAP and our computation of EBITDA, EBITDA excluding special items and Adjusted EBITDA may vary from others in our industry. In addition, Adjusted EBITDA contains some, but not all, adjustments that are taken into account in the calculation of the components of various covenants in the agreements governing our senior notes and other credit facilities. EBITDA, EBITDA excluding special items and Adjusted EBITDA should not be considered as alternatives to income from operations or net income as measures of operating performance. In addition, EBITDA, EBITDA excluding special items and Adjusted EBITDA are not presented as, and should not be considered, an alternative to cash flows from operations as a measure of liquidity. Adjusted EBITDA is defined as EBITDA before adjustments for items such as stock-based compensation expense, change in the fair value of catalyst obligations, gain on sale of hydrogen plants, the write down of inventory to the LCM, changes in the Tax Receivable Agreement liability due to factors out of PBF Energy’s control such as changes in tax rates, loss (gain) on extinguishment of debt, change in the fair value of contingent consideration and certain other non-cash items. Other companies, including other companies in our industry, may calculate EBITDA, EBITDA excluding special items and Adjusted EBITDA differently than we do, limiting their usefulness as comparative measures. EBITDA, EBITDA excluding special items and Adjusted EBITDA also have limitations as analytical tools and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations include that EBITDA, EBITDA excluding special items and Adjusted EBITDA:

•do not reflect depreciation expense or our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

•do not reflect changes in, or cash requirements for, our working capital needs;

•do not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

•do not reflect realized and unrealized gains and losses from certain hedging activities, which may have a substantial impact on our cash flow;

•do not reflect certain other non-cash income and expenses; and

•exclude income taxes that may represent a reduction in available cash.

84

The following tables reconcile net income (loss) as reflected in PBF Energy’s results of operations to EBITDA, EBITDA excluding special items and Adjusted EBITDA for the periods presented (in millions):

[[GREPCENT_TABLE]]
[["","","","Year Ended December 31,"],["","","","2022","","2021","","2020"],["Reconciliation of net income (loss) to EBITDA and EBITDA excluding special items:"],["Net income (loss)","$","2,972.8","","","$","315.5","","","$","(1,333.3)"],["Add: Depreciation and amortization expense","511.1","","","466.8","","","563.0"],["Add: Interest expense, net","246.0","","","317.5","","","258.2"],["Add: Income tax expense","584.8","","","12.1","","","2.1"],["EBITDA","$","4,314.7","","","$","1,111.9","","","$","(510.0)"],["Special Items: (3)"],["Add: Non-cash LCM inventory adjustment","\u2014","","","(669.6)","","","268.0"],["Add: Change in fair value of contingent consideration, net","48.3","","","32.4","","","(93.7)"],["Add: Gain on sale of hydrogen plants","\u2014","","","\u2014","","","(471.1)"],["Add: Gain on land sales","\u2014","","","(2.8)","","","(8.1)"],["Add: Impairment expense","\u2014","","","\u2014","","","98.8"],["Add: LIFO inventory decrement","\u2014","","","\u2014","","","83.0"],["Add: Severance and reconfiguration costs","\u2014","","","\u2014","","","30.0"],["Add: Early railcar return expense","\u2014","","","\u2014","","","12.5"],["Add: Loss (gain) on extinguishment of debt","66.1","","","(79.9)","","","22.2"],["Add: Change in Tax Receivable Agreement liability","290.3","","","48.3","","","(373.5)"],["EBITDA excluding special items","$","4,719.4","","","$","440.3","","","$","(941.9)"],["Reconciliation of EBITDA to Adjusted EBITDA:"],["EBITDA","$","4,314.7","","","$","1,111.9","","","$","(510.0)"],["Add: Stock based compensation","54.3","","","35.6","","","34.2"],["Add: Change in fair value of catalyst obligations","2.0","","","(8.5)","","","11.8"],["Add: Non-cash LCM inventory adjustment (3)","\u2014","","","(669.6)","","","268.0"],["Add: Change in fair value of contingent consideration, net (3)","48.3","","","32.4","","","(93.7)"],["Add: Gain on sale of hydrogen plants (3)","\u2014","","","\u2014","","","(471.1)"],["Add: Gain on land sales (3)","\u2014","","","(2.8)","","","(8.1)"],["Add: Impairment expense (3)","\u2014","","","\u2014","","","98.8"],["Add: LIFO inventory decrement (3)","\u2014","","","\u2014","","","83.0"],["Add: Severance and reconfiguration costs (3)","\u2014","","","\u2014","","","30.0"],["Add: Early railcar return expense (3)","\u2014","","","\u2014","","","12.5"],["Add: Loss (gain) on extinguishment of debt (3)","66.1","","","(79.9)","","","22.2"],["Add: Change in Tax Receivable Agreement liability (3)","290.3","","","48.3","","","(373.5)"],["Adjusted EBITDA","$","4,775.7","","","$","467.4","","","$","(895.9)"]]
[[/GREPCENT_TABLE]]

——————————

See Notes to Non-GAAP Financial Measures.

85

Net Debt to Capitalization Ratio and Net Debt to Capitalization Ratio Excluding Special Items

The total debt to capitalization ratio is calculated by dividing total debt by the sum of total debt and total equity. This ratio is a measurement that management believes is useful to investors in analyzing our leverage. Net debt and the net debt to capitalization ratio are Non-GAAP measures. Net debt is calculated by subtracting cash and cash equivalents from total debt. We believe these measurements are also useful to investors since we have the ability to and may decide to use a portion of our cash and cash equivalents to retire or pay down our debt. Additionally, we have also presented the total debt to capitalization and net debt to capitalization ratios excluding the cumulative effects of special items on equity.

[[GREPCENT_TABLE]]
[["","","","","","December 31,","","December 31,"],["","","","","","2022","","2021"],["Balance Sheet Data:"],["","Cash and cash equivalents","$","2,203.6","","","$","1,341.5"],["","Inventories","2,763.6","","","2,505.1"],["","Total assets","13,549.1","","","11,641.4"],["","Total debt","1,959.1","","","4,295.8"],["","Total equity","5,056.0","","","2,532.8"],["","Total equity excluding special items (6)","$","4,660.5","","","$","2,071.3"],["","Total debt to capitalization ratio","28","%","","63","%"],["","Total debt to capitalization ratio, excluding special items (6)","30","%","","67","%"],["","Net debt to capitalization ratio*","(5)","%","","54","%"],["","Net debt to capitalization ratio, excluding special items* (6)","(6)","%","","59","%"],["","* Negative ratio exists at 12/31/2022 as cash is in excess of debt."]]
[[/GREPCENT_TABLE]]

——————————

See Notes to Non-GAAP Financial Measures.

86

Notes to Non-GAAP Financial Measures

The following notes are applicable to the Non-GAAP Financial Measures above: 

(1)    Represents the elimination of the noncontrolling interest associated with the ownership by the members of PBF LLC other than PBF Energy, as if such members had fully exchanged their PBF LLC Series A Units for shares of PBF Energy Class A common stock.

(2)    Represents an adjustment to reflect PBF Energy’s annualized statutory corporate tax rate of approximately 25.9% for 2022 and 2021, and 26.6% for 2020, applied to the net income (loss) attributable to noncontrolling interest for all periods presented. The adjustment assumes the full exchange of existing PBF LLC Series A Units as described in (1) above.

(3)    Special items:

         LCM Inventory Adjustment - LCM is a GAAP requirement related to inventory valuation that mandates inventory to be stated at the lower of cost or market. Our inventories are stated at the lower of cost or market. Cost is determined using the LIFO inventory valuation methodology, in which the most recently incurred costs are charged to cost of sales and inventories are valued at base layer acquisition costs. Market is determined based on an assessment of the current estimated replacement cost and net realizable selling price of the inventory. In periods where the market price of our inventory declines substantially, cost values of inventory may exceed market values. In such instances, we record an adjustment to write down the value of inventory to market value in accordance with GAAP. In subsequent periods, the value of inventory is reassessed and an LCM inventory adjustment is recorded to reflect the net change in the LCM inventory reserve between the prior period and the current period. The net impact of these LCM inventory adjustments are included in the Refining segment’s income from operations, but are excluded from the operating results presented, as applicable, in order to make such information comparable between periods.

    The following table includes the LCM inventory reserve as of each date presented (in millions):

[[GREPCENT_TABLE]]
[["","2022","","2021","","2020"],["January 1,","$","\u2014","","","$","669.6","","","$","401.6"],["December 31,","\u2014","","","\u2014","","","669.6"]]
[[/GREPCENT_TABLE]]

    The following table includes the corresponding impact of changes in the LCM inventory reserve on income (loss) from operations and net income (loss) for the periods presented (in millions):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021","","2020"],["Net LCM inventory adjustment benefit (charge) in income (loss) from operations","$","\u2014","","","$","669.6","","","$","(268.0)"],["Net LCM inventory adjustment benefit (charge) in net income (loss)","\u2014","","","496.2","","","(196.7)"]]
[[/GREPCENT_TABLE]]

87

Change in Fair Value of Contingent Consideration, net - During the year ended December 31, 2022, we recorded a net change in fair value of contingent consideration related to changes in the estimated fair value of the earn-out liability associated with the acquisition of the Martinez refinery, offset by the recognition of contingent assets associated with the acquisition. These changes resulted in decreases to income from operations and net income by $48.3 million and $35.8 million, respectively. During the year ended December 31, 2021, we recorded a change in fair value of the contingent consideration related to both the Martinez Contingent Consideration and the PBFX Contingent Consideration, which decreased income from operations and net income by $32.4 million and $24.0 million, respectively. During the year ended December 31, 2020 we recorded a change in fair value of the contingent consideration related to both the Martinez Contingent Consideration and the PBFX Contingent Consideration, which increased income from operations and net income by $93.7 million and $68.8 million, respectively.

Gain on Sale of Hydrogen Plants - During the year ended December 31, 2020, we recorded a gain on the sale of five hydrogen plants. The gain increased income from operations and net income by $471.1 million and $345.8 million, respectively. There were no such gains in the years ended December 31, 2022 and December 31, 2021.

Gain on Land Sales - During the year ended December 31, 2021, we recorded a gain on sale of PBFX real-property at the East Coast Terminals, which increased income from operations and net income by $2.8 million and $2.1 million, respectively. During the years ended December 31, 2020, we recorded a gain on sale of one separate parcels of real property acquired as part of the Torrance refinery, but not part of the refinery itself, which increased income from operations and net income by $8.1 million and $5.9 million, respectively, during the year ended December 31, 2020. There were no such gains in the year ended December 31, 2022.

Impairment Expense - During the year ended December 31, 2020, we recorded an impairment charge which decreased income from operations and net income by $98.8 million and $72.5 million, respectively, resulting from the write-down of certain assets as a result of the East Coast Refining Reconfiguration, project abandonments and the write-down of certain PBFX long-lived assets. There were no such impairment charges during the years ended December 31, 2022 and December 31, 2021.

LIFO Inventory Decrement - As part of our overall reduction in throughput in 2020 and our reduction in inventory volume as of December 31, 2020, the Company recorded a pre-tax charge to cost of products and other related to a LIFO inventory layer decrement. The majority of the decrement related to our East Coast LIFO inventory layer and the reduction to our East Coast inventory experienced as part of the East Coast Refining Reconfiguration. These charges decreased income from operations and net income by $83.0 million and $60.9 million, respectively, for the year ended December 31, 2020. Decrements recorded in the years ended December 31, 2022 and December 31, 2021 were not significant.

Turnaround Acceleration Costs - During the year ended December 31, 2020, we accelerated the recognition of turnaround amortization associated with units that were temporarily idled as part of the East Coast Refining Reconfiguration. These costs decreased income from operations and net income by $56.2 million and $41.3 million, respectively. There were no such costs in the years ended December 31, 2022 and December 31, 2021.

Severance and Reconfiguration Costs - During the year ended December 31, 2020, we recorded severance charges related to reductions in our workforce, which decreased income from operations and net income by $24.7 million and $18.1 million, respectively. During the year ended December 31, 2020, we recorded reconfiguration charges related to the temporary idling of certain assets as part of our East Coast Refining System, which decreased income from operations and net income by $5.3 million and $3.9 million, respectively. There were no such costs in the years ended December 31, 2022 and December 31, 2021.

88

Early Return of Railcars - During the year ended December 31, 2020, we recognized certain expenses within Cost of sales associated with the voluntary early return of certain leased railcars, which decreased income from operations and net income by $12.5 million and $9.2 million, respectively. There were no such expenses recorded in the years ended December 31, 2022 and December 31, 2021.

Loss (Gain) on Extinguishment of Debt - During the year ended December 31, 2022, we recorded a pre-tax net loss on extinguishment of debt which decreased income before income taxes and net income by $66.1 million and $49.0 million, respectively, primarily related to the redemption of our 2025 Senior Secured Notes, partially offset by the repurchase of a portion of the 2028 Senior Notes and the 2025 Senior Notes. During the year ended December 31, 2021, we recorded a pre-tax gain on extinguishment of debt related to the repurchase of a portion of the 2028 Senior Notes and the 2025 Senior Notes, which increased income before income taxes and net income by $79.9 million and $59.2 million, respectively. During the year ended December 31, 2020, we recorded pre-tax debt extinguishment costs related to the redemption of the 2023 Senior Notes which decreased income before income taxes and net income by $22.2 million and $16.3 million, respectively.

Change in Tax Receivable Agreement liability - During the year ended December 31, 2022, we recorded a change in the Tax Receivable Agreement liability that decreased income before income taxes and net income by $290.3 million and $215.1 million, respectively. During the year ended December 31, 2021, PBF Energy recorded a change in the Tax Receivable Agreement liability that decreased income before income taxes and net income by $48.3 million and $35.8 million, respectively. During the year ended December 31, 2020, PBF Energy recorded a change in the Tax Receivable Agreement liability that increased income before taxes and net income by $373.5 million and $274.1 million, respectively. The changes in the Tax Receivable Agreement liability reflect charges or benefits attributable to changes in PBF Energy’s obligation under the Tax Receivable Agreement due to factors out of our control such as changes in tax rates, as well as periodic adjustments to our liability based, in part, on an updated estimate of the amounts that we expect to pay, using assumptions consistent with those used in our concurrent estimate of the deferred tax asset valuation allowance.

Recomputed Income Tax on Special Items - The income tax impact on these special items, other than the net tax expense special item discussed below, is calculated using the tax rates shown in (2) above.

Net Tax (Benefit) Expense on Remeasurement of Deferred Tax Assets - During the year ended December 31, 2022, we recorded a decrease to our deferred tax valuation allowance of $308.5 million (reducing our deferred tax valuation allowance to zero), in accordance with ASC 740, of which $233.8 million related to a tax benefit with respect to the remeasurement of deferred tax assets and the balance related to our net changes in the Tax Receivable Agreement liability. During the year ended December 31, 2021, we recorded a deferred tax valuation allowance of $308.5 million in accordance with ASC 740 (a decrease of $49.9 million when compared to December 31, 2020, which includes a tax benefit of approximately $12.5 million related to our net change in the Tax Receivable Agreement liability and a net tax benefit of $37.4 million related primarily to the remeasurement of deferred tax assets). During the year ended December 31, 2020, we recorded a deferred tax valuation allowance of $358.4 million. This amount includes tax expense of approximately $99.3 million related to our net change in the Tax Receivable Agreement liability or a net tax expense of $259.1 million related primarily to the remeasurement of deferred tax assets.

89

(4)     Represents an adjustment to weighted-average diluted shares outstanding to assume the full exchange of existing PBF LLC Series A Units as described in (1) above.

(5)    Represents weighted-average diluted shares outstanding assuming the conversion of all common stock equivalents, including options and warrants for PBF LLC Series A Units and performance share units and options for shares of PBF Energy Class A common stock as calculated under the treasury stock method (to the extent the impact of such exchange would not be anti-dilutive) for the years ended December 31, 2022, 2021 and 2020, respectively. Common stock equivalents exclude the effects of performance share units and options and warrants to purchase 3,877,035, 12,568,275 and 14,446,894 shares of PBF Energy Class A common stock and PBF LLC Series A Units because they are anti-dilutive for the years ended December 31, 2022, 2021 and 2020, respectively. For periods showing a net loss, all common stock equivalents and unvested restricted stock are considered anti-dilutive.

(6)    Total Equity excluding special items is calculated in the table below:

[[GREPCENT_TABLE]]
[["","","","","December 31,","","December 31,"],["","","","","2022","","2021"],["","","","","(in millions)"],["Total equity","$","5,056.0","","","$","2,532.8"],["Special Items (Note 4)"],["Add: Change in fair value of contingent consideration, net","(13.0)","","","(61.3)"],["Add: Gain on sale of hydrogen plants","(471.1)","","","(471.1)"],["Add: Gain on land sales","(87.8)","","","(87.8)"],["Add: Impairment expense","98.8","","","98.8"],["Add: LIFO inventory decrement","83.0","","","83.0"],["Add: Turnaround acceleration costs","56.2","","","56.2"],["Add: Severance and reconfiguration costs","30.0","","","30.0"],["Add: Early railcar return expense","64.8","","","64.8"],["Add: Loss (gain) on extinguishment of debt","33.9","","","(32.2)"],["Add: Change in Tax Receivable Agreement liability","(325.3)","","","(615.6)"],["Less: Recomputed income tax on special items","126.9","","","231.8"],["Add: Net tax (benefit) expense on remeasurement of deferred tax assets","(12.1)","","","221.7"],["Add: Net tax expense on Tax Cuts and Jobs Act related special items","20.2","","","20.2"],["Net impact of special items to equity","(395.5)","","","(461.5)"],["Total equity excluding special items","$","4,660.5","","","$","2,071.3"]]
[[/GREPCENT_TABLE]]

90

Liquidity and Capital Resources

Overview

Our primary sources of liquidity are our cash flows from operations, cash and cash equivalents and borrowing availability under our credit facilities, as described below. We believe that our cash flows from operations and available capital resources will be sufficient to meet our and our subsidiaries’ capital expenditures, working capital needs, dividend payments, debt service and share repurchase program requirements, as well as PBF Energy’s obligations under the Tax Receivable Agreement, for the next twelve months. However, our ability to generate sufficient cash flow from operations depends, in part, on petroleum oil market pricing and general economic, political and other factors beyond our control. As of December 31, 2022, we are in compliance with all covenants, including financial covenants, in all our debt agreements.

Cash Flow Analysis

Cash Flows from Operating Activities

Net cash provided by operating activities was $4,772.0 million for the year ended December 31, 2022 compared to net cash provided by operating activities of $477.3 million for the year ended December 31, 2021. Our operating cash flows for the year ended December 31, 2022 included our net income of $2,972.8 million, and net changes in operating assets and liabilities reflecting cash proceeds of $341.0 million, primarily driven by timing of payments for accrued expense. Change in accrued expenses is due primarily to an increase in renewable energy and emissions obligations, as a result of an increase in our unfunded RINs obligation as of December 31, 2022. Our overall increase in cash provided by operating activities also included depreciation and amortization of $533.9 million, deferred income taxes of $420.2 million, change in the Tax Receivable Agreement liability of $290.3 million, net loss on extinguishment of debt primarily related to the redemption of our 2025 Senior Secured Notes of $66.1 million, stock-based compensation of $54.3 million, net change in the fair value of contingent consideration of $48.3 million, pension and other post-retirement benefit costs of $47.6 million, change in the fair value of our catalyst obligations of $2.0 million, and loss on sale of assets of $0.9 million, partially offset by net non-cash charges related to the change in the fair value of our inventory repurchase obligations of $5.4 million.

Our operating cash flows for the year ended December 31, 2021 included our net income of $315.5 million, depreciation and amortization of $483.8 million, net changes in operating assets and liabilities reflecting cash proceeds of $268.6 million primarily driven by accrued expenses due to an increase in renewable energy credit and emissions obligations, as a result of an increase in our unfunded RINs obligation as of December 31, 2021, pension and other post-retirement benefit costs of $50.8 million, change in the Tax Receivable Agreement liability of $48.3 million, stock-based compensation of $35.6 million, change in the fair value of contingent consideration of $32.4 million, and deferred income taxes of $11.7 million, partially offset by a net non-cash benefit of $669.6 million related to an LCM inventory adjustment, gain on extinguishment of debt related to the repurchase of a portion of our 2028 Senior Notes and 2025 Senior Notes of $79.9 million, changes in the fair value of our catalyst obligations of $8.5 million, net non-cash charges related to the change in the fair value of our inventory repurchase obligations of $8.4 million, and gain on sale of assets of $3.0 million.

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Net cash provided by operating activities was $477.3 million for the year ended December 31, 2021 compared to net cash used in operating activities of $631.6 million for the year ended December 31, 2020. Our operating cash flows for the year ended December 31, 2020 included our net loss of $1,333.3 million, gain on sale of assets of $477.8 million mainly related to the sale of the hydrogen plants and the sale of land at our Torrance refinery, change in the Tax Receivable Agreement liability of $373.5 million, net non-cash charges relating to the change in the fair value of our inventory repurchase obligations of $12.6 million and change in the fair value of the contingent consideration of $93.7 million, partially offset by depreciation and amortization of $581.1 million, net non-cash charge of $268.0 million related to an LCM inventory adjustment, impairment expense of $98.8 million, pension and other post-retirement benefits costs of $55.7 million, stock-based compensation of $34.2 million, debt extinguishment costs related to the early redemption of our 2023 Senior Notes of $22.2 million, change in the fair value of our catalyst obligations of $11.8 million and deferred income taxes of $1.6 million. In addition, net changes in operating assets and liabilities reflected cash inflows of $585.9 million driven by the timing of inventory purchases, payments for accrued expenses and accounts payable and collections of accounts receivable.

Cash Flows from Investing Activities

Net cash used in investing activities was $1,010.9 million for the year ended December 31, 2022 compared to $388.5 million for the year ended December 31, 2021. The net cash flows used in investing activities for the year ended December 31, 2022 was comprised of cash outflows of capital expenditures totaling $633.3 million, expenditures for refinery turnarounds of $311.6 million, and expenditures for other assets of $66.0 million. Net cash used in investing activities for the year ended December 31, 2021 was comprised of cash outflows of capital expenditures totaling $249.1 million, expenditures for refinery turnarounds of $117.7 million, and expenditures for other assets of $28.9 million, partially offset by proceeds from the sale of assets of $7.2 million.

Net cash used in investing activities was $388.5 million for the year ended December 31, 2021 compared to $1,026.5 million for the year ended December 31, 2020. Net cash used in investing activities for the year ended December 31, 2020 was comprised of cash outflows of $1,176.2 million used to fund the Martinez Acquisition, capital expenditures totaling $196.2 million, expenditures for refinery turnarounds of $188.1 million and expenditures for other assets of $9.1 million, partially offset by proceeds from sale of assets of $543.1 million.

92

Cash Flows from Financing Activities

Net cash used in financing activities was $2,899.0 million for the year ended December 31, 2022 compared to net cash used in financing activities of $356.8 million for the year ended December 31, 2021. For the year ended December 31, 2022, net cash used in financing activities consisted of the redemption of our 2025 Senior Secured Notes of $1,307.4 million, net repayments on the Revolving Credit Facility of $900.0 million, the purchase of PBFX publicly held shares in connection with the Merger Transaction of $303.7 million, the share repurchase of PBF Energy’s Class A common stock of $156.4 million, net repayments on the PBFX Revolving Credit Facility of $100.0 million, dividends and distributions of $73.6 million, settlements of precious metal catalyst obligations of $56.2 million, deferred financing costs and other costs of $31.3 million, $25.9 million related to the repurchase of the principal amount outstanding of the 2028 Senior Notes and the 2025 Senior Notes, excluding accrued interest, payments on finance leases of $11.3 million, and PBFX Contingent Consideration payments of $3.1 million, partially offset by transactions made in connection with stock-based compensation plans of $67.8 million, and proceeds from insurance premium financing of $2.1 million. For the year ended December 31, 2021, net cash used in financing activities consisted of $146.8 million related to the repurchase of the principal amount outstanding of the 2028 Senior Notes and the 2025 Senior Notes, excluding accrued interest, net repayments on the PBFX Revolving Credit Facility of $100.0 million, distributions and dividends of $39.7 million, net settlements of precious metal catalyst obligations of $31.7 million, payments on finance leases of $17.8 million, PBFX Contingent Consideration payments of $12.2 million, principal amortization payments on the PBF Rail Term Loan of $7.4 million, and deferred financing costs and other of $1.2 million.

Net cash used in financing activities was $356.8 million for the year ended December 31, 2021 compared to net cash provided by financing activities of $2,452.7 million for the year ended December 31, 2020. For the year ended December 31, 2020, net cash provided by financing activities consisted of cash proceeds of $1,228.7 million from the issuance of the 2025 Senior Secured Notes net of related issuance costs, cash proceeds of $469.9 million from the issuance of the 2028 Senior Notes net of cash paid to redeem the 2023 Senior Notes and related issuance costs, net borrowings under our Revolving Credit Facility of $900.0 million, and proceeds from catalyst financing arrangements of $51.9 million, partially offset by net repayments on the PBFX Revolving Credit Facility of $83.0 million, net settlements of precious metal catalyst obligations of $8.8 million, distributions and dividends of $82.2 million, principal amortization payments of the PBF Rail Term Loan of $7.2 million, payments on finance leases of $12.4 million, taxes paid for net settlement of equity-based compensation of $2.1 million, repurchases of our common stock in connection with tax withholding obligations upon the vesting of certain restricted stock awards of $1.6 million and deferred financing costs and other of $0.5 million.

The cash flow activity of PBF LLC for the years ended December 31, 2022, 2021 and 2020 is materially consistent with that of PBF Energy discussed above, other than changes in deferred income taxes and certain working capital items, which are different from PBF Energy due to certain tax related items not applicable to PBF LLC. Additionally, PBF LLC reflects net borrowings of $1,070.5 million for the years ended December 31, 2022 and net repayments of $1.1 million and $0.1 million for 2021 and 2020, respectively, related to an affiliate loan with PBF Energy, included in cash flows from financing activities, which eliminates in consolidation at PBF Energy.

93

Capitalization

Our capital structure was comprised of the following as of December 31, 2022 (in millions):

[[GREPCENT_TABLE]]
[["","December 31, 2022"],["Debt: (1)"],["PBF LLC debt"],["Affiliate note payable","$","1,445.7"],["PBF Holding debt"],["2028 Senior Notes","801.6"],["2025 Senior Notes","664.5"],["Revolving Credit Facility","\u2014"],["Catalyst financing arrangements","4.0"],["PBF Holding debt","1,470.1"],["PBFX debt"],["PBFX 2023 Senior Notes (2)","525.0"],["PBFX Revolving Credit Facility","\u2014"],["PBFX debt","525.0"],["Unamortized deferred financing costs","(36.2)"],["Unamortized premium","0.2"],["Total PBF LLC debt, net of unamortized deferred financing costs and premium","3,404.8"],["Less: Affiliate note payable","(1,445.7)"],["Total PBF Energy debt, net of unamortized deferred financing costs and premium(3)","$","1,959.1"],["Total PBF Energy Equity","$","5,056.0"],["Total PBF Energy Capitalization (4)","$","7,015.1"]]
[[/GREPCENT_TABLE]]

_______________________________________________

(1) Refer to “Note 8 - Credit Facilities and Debt” and “Note 9 - Affiliate Note Payable - PBF LLC” of our Notes to Consolidated Financial Statements for further disclosure related to debt.

(2) The PBFX 2023 Senior Notes were redeemed on February 2, 2023.

(3) Excludes the PBF LLC affiliate note payable that is eliminated in the PBF Energy consolidated financial statements.

(4) Total Capitalization refers to the sum of debt, excluding intercompany debt, plus total equity.

2022 Debt Related Transactions

During the year ended December 31, 2022, we exercised our rights under the indenture governing the 2025 Senior Secured Notes to redeem all of the outstanding 2025 Senior Secured Notes at a price of 104.625% of the aggregate principal amount thereof plus accrued and unpaid interest. The aggregate redemption price for all 2025 Senior Secured Notes approximated $1.3 billion plus accrued and unpaid interest. The difference between the carrying value of the 2025 Senior Secured Notes on the date they were redeemed and the amount for which they were redeemed was $69.9 million and was recorded as a loss on extinguishment of debt in the Consolidated Statements of Operations.

94

In addition, we made a number of open market repurchases of our 2028 Senior Notes and 2025 Senior Notes that resulted in the extinguishment of $24.9 million in principal of the 2028 Senior Notes and $5.0 million in principal of the 2025 Senior Notes. Total cash consideration paid to repurchase the principal amount outstanding of the 2028 Senior Notes and the 2025 Senior Notes, excluding accrued interest, totaled $25.9 million and we recognized a $3.8 million gain on this extinguishment of debt during the year ended December 31, 2022.

On May 25, 2022, we entered into an amendment of our Revolving Credit Agreement. Among other things, the Revolving Credit Agreement amended and extended the Revolving Credit Facility through January 2025 and increased the maximum commitment to $4.3 billion through May 2023 (currently set to adjust to $2.75 billion in May 2023 through January 2025). The amendments also redefine certain components of the Borrowing Base (as defined in the Revolving credit Agreement) to reflect the existence of the two tranches, Tranche A Commitments and Tranche B Commitments. The Tranche A Commitments total $1.55 billion and the Tranche B Commitments total $2.75 billion. The amendments also include changes to incorporate the adoption of SOFR as a replacement of LIBOR, changes to joint lead arrangers, bookrunners, syndication agents and other titles, and other changes related to the foregoing. In addition, an accordion feature allows for additional Tranche B Commitments of up to an additional $500.0 million plus an amount equal to the Tranche A Commitments for existing Tranche A lenders.

During 2022, we also settled certain of our precious metals financing arrangements, resulting in a reduction of debt of approximately $56.2 million.

    Revolving Credit Facilities Overview

One of our primary sources of liquidity are borrowings available under our revolving credit facilities. As of December 31, 2022, PBF Energy had $2,203.6 million of cash and cash equivalents and no outstanding balances under the Revolving Credit Facility or the PBFX Revolving Credit Facility. PBF LLC cash and cash equivalents totaled $2,201.8 million as of December 31, 2022.

We had available capacity under revolving credit facilities as follows at December 31, 2022 (in millions):

[[GREPCENT_TABLE]]
[["","","Total Commitment","","Amount Borrowed as of December 31, 2022","","Outstanding Letters of Credit","","Borrowing Base Availability","","Expiration Date"],["Revolving Credit Facility (a)","","$","4,300.0","","","$","\u2014","","","$","576.1","","","$","4,300.0","","","January 2025"],["PBFX Revolving Credit Facility","","500.0","","","\u2014","","","3.5","","","496.5","","","July 2023"],["Total Credit Facilities","","$","4,800.0","","","$","\u2014","","","$","579.6","","","$","4,796.5"]]
[[/GREPCENT_TABLE]]

___________________________________

(a)    The amount available for borrowings and letters of credit under the Revolving Credit Facility is calculated according to a “borrowing base” formula based on (i) 90% of the book value of Eligible Accounts with respect to investment grade obligors plus (ii) 85% of the book value of Eligible Accounts with respect to non-investment grade obligors plus (iii) 80% of the cost of Eligible Hydrocarbon Inventory plus (iv) 100% of Cash and Cash Equivalents in deposit accounts subject to a control agreement, in each case as defined in the Revolving Credit Agreement. The borrowing base is subject to customary reserves and eligibility criteria and in any event cannot exceed $4.3 billion.

95

Additional Information on Indebtedness

Our debt, including our revolving credit facilities and senior notes, include certain typical financial covenants and restrictions on our subsidiaries’ ability to, among other things, incur or guarantee new debt, engage in certain business activities including transactions with affiliates and asset sales, make investments or distributions, engage in mergers or pay dividends in certain circumstances. These covenants are subject to a number of important exceptions and qualifications. We are in compliance as of December 31, 2022 with all covenants, including financial covenants, in all of our debt agreements. For further discussion of our indebtedness and these covenants and restrictions, see “Note 8 - Credit Facilities and Debt” of our Notes to Consolidated Financial Statements.

Liquidity

As of December 31, 2022, our operational liquidity was more than $4.9 billion (more than $2.4 billion as of December 31, 2021), which consists of $2.1 billion of cash, excluding cash held at PBFX, and more than $2.8 billion of borrowing availability under our Revolving Credit Facility, which includes our cash on hand. In addition, as of December 31, 2022, PBFX had approximately $530.4 million of liquidity ($430.4 million as of December 31, 2021), including approximately $47.8 million in cash, and access to approximately $496.5 million under the PBFX Revolving Credit Facility.

We are actively monitoring the ongoing volatility in the global oil markets and we continue to adjust our operational plans to the evolving market conditions. We may, at any time and from time to time, seek to continue to repurchase or retire our outstanding debt securities through cash purchases (and/or exchanges for equity or debt), in open-market purchases, block trades, privately negotiated transactions or otherwise, upon such terms and at such prices as we may determine. We will evaluate any such transactions in light of then-existing market conditions, taking into account our current liquidity and prospects for future access to capital, the trading prices of our debt securities, legal requirements and contractual restrictions and economic and market conditions. The amounts involved in any such transactions, individually or in the aggregate, may be material. We are not obligated to repurchase any of our debt securities other than as set forth in the applicable indentures, and repurchases may be made or suspended or discontinued at any time without prior notice.

We may incur additional indebtedness in the future, including secured indebtedness, subject to the satisfaction of any debt incurrence and, if applicable, lien incurrence limitation covenants in our existing financing agreements. Although we were in compliance with incurrence covenants during the year ended December 31, 2022, to the extent that any of our activities triggered these covenants, there are no assurances that conditions could not change significantly, and that such changes could adversely impact our ability to meet some of these incurrence covenants at the time that we needed to. Failure to meet the incurrence covenants could impose certain incremental restrictions on, among other matters, our ability to incur new debt (including secured debt) and also may limit the extent to which we may pay future dividends, make new investments, repurchase our outstanding debt or stock or incur new liens.

Pursuant to the terms of the Merger Agreement, which closed on November 30, 2022, each PBFX Public Common Unit was converted into the right to receive: (i) the Merger Consideration and (ii) any cash in lieu of fractional shares of PBF Energy Common Stock to which the holder thereof became entitled upon surrender of such PBFX Public Common Units in accordance with the Merger Agreement. Such Merger Agreement consideration totaled $303.7 million in cash and resulted in the issuance of 8,864,684 PBF Energy common shares. The Merger Transaction cash consideration was funded with cash on hand.

96

Share Repurchases

On December 12, 2022, our Board of Directors authorized the repurchase of up to $500.0 million of PBF Energy's Class A common stock. The Repurchase Program will expire in December 2024. As of February 16, 2023, we have purchased approximately 5,045,478 shares of PBF Energy's Class A common stock under the Repurchase Program for $188.8 million through open market transactions. We may make additional share repurchases in the future but we are not obligated to purchase any shares under the Repurchase Program, and repurchases could be suspended or discontinued at any time without prior notice.

Working Capital

PBF Energy’s working capital at December 31, 2022 was approximately $1,345.6 million, consisting of $6,546.3 million in total current assets and $5,200.7 million in total current liabilities. PBF Energy’s working capital at December 31, 2021 was $1,439.5 million, consisting of $5,199.2 million in total current assets and $3,759.7 million in total current liabilities. PBF LLC’s working capital at December 31, 2022 was approximately $1,297.5 million, consisting of $6,544.5 million in total current assets and $5,247.0 million in total current liabilities. PBF LLC’s working capital at December 31, 2021 was $1,385.6 million, consisting of $5,197.5 million in total current assets and $3,811.9 million in total current liabilities.

Crude and Feedstock Supply Agreements

Certain of our purchases of crude oil under our agreements with foreign national oil companies require that we post letters of credit, if open terms are exceeded, and arrange for shipment. We pay for the crude when invoiced, at which time any applicable letters of credit are lifted. We have a contract with Saudi Aramco pursuant to which we have been purchasing up to approximately 100,000 bpd of crude oil from Saudi Aramco that is processed at our Paulsboro refinery. In connection with the acquisition of the Chalmette refinery we entered into a contract with PDVSA for the supply of 40,000 to 60,000 bpd of crude oil that can be processed at any of our East or Gulf Coast refineries. We have not sourced crude oil under this agreement since 2017 when PDVSA suspended deliveries due to the parties’ inability to agree to mutually acceptable payment terms and because of U.S. government sanctions against PDVSA. Notwithstanding the suspension, the U.S. government sanctions imposed against PDVSA and Venezuela prevented us from purchasing crude oil under this agreement. In connection with the closing of the acquisition of the Torrance refinery, we entered into a crude supply agreement with ExxonMobil for approximately 60,000 bpd of crude oil that can be processed at our Torrance refinery. We currently purchase all of our crude and feedstock needs independently from a variety of suppliers on the spot market or through term agreements for our Delaware City and Toledo refineries.

We currently have various crude supply agreements with terms through 2025 with Shell Oil Products for approximately 145,000 bpd, in the aggregate, to support our West Coast and Mid-Continent refinery operations. In addition, we have certain offtake agreements for our West Coast system with the same counterparty for clean products with varying terms up to 15 years.

Inventory Intermediation Agreement

On October 25, 2021, PBF Holding and the PBF Entities, entered into the Third Inventory Intermediation Agreement with J. Aron, pursuant to which the terms of the previous inventory intermediation agreements were amended and restated in their entirety, including, among other things, pricing and an extension of terms. The Third Inventory Intermediation Agreement extends the term to December 31, 2024, which term may be further extended by mutual consent of the parties to December 31, 2025. If not extended or replaced, at expiration, we will be required to repurchase the inventories outstanding under the Third Inventory Intermediation Agreement at that time. On May 25, 2022, the PBF Entities entered into an amendment of the Third Inventory Intermediation Agreement to amend certain provisions thereof that related to and were impacted by amendments made on May 25, 2022 to the Revolving Credit Agreement. We intend to either extend or replace the Third Inventory Intermediation Agreement prior to its expiration.

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At December 31, 2022, the LIFO value of the J. Aron Products included within Inventories in our Consolidated Balance Sheets was $181.8 million. We accrue a corresponding liability for such crude oil, intermediates and finished products.

Capital Spending

Capital spending was $1,010.9 million for the year ended December 31, 2022 and was primarily comprised of annual maintenance and turnaround costs at our Delaware City, Chalmette, Torrance and Martinez refineries in addition to spending related to our project for a renewable fuels production facility co-located at our Chalmette refinery (the “Renewable Diesel Project”). Capital spending also included costs associated with safety related enhancements and facility improvements at our refineries and logistics assets. Excluding capital expenditures related to our Renewable Diesel Project, we currently expect to spend an aggregate of approximately $700.0 million to $750.0 million during 2023 for facility improvements and refinery maintenance and turnarounds, as well as expenditures to meet environmental, regulatory and safety requirements.

During the fourth quarter of 2022, we invested approximately $140 million in capital related to our Renewable Diesel Project. We currently anticipate remaining capital expenditures to complete the project to range from $200.0 million to $250.0 million in 2023 with the goal of commencing production in the first half of 2023.

Material Cash Requirements

Our material cash requirements include the following known contractual and other obligations as of December 31, 2022 that are expected to be paid within the next year and thereafter (in millions). The table below does not include any intercompany contractual obligations with PBFX as our related party transactions are eliminated upon consolidation of our financial statements.

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[[/GREPCENT_TABLE]]

___________________________

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(a)    Credit facilities and debt

Credit facilities and debt represent (i) the repayment of indebtedness incurred in connection with the 2025 Senior Notes, 2028 Senior Notes and PBFX 2023 Senior Notes; and (ii) the repayment of our catalyst financing obligations on their maturity dates. With the exception of our PBFX 2023 Senior Notes, which were redeemed on February 2, 2023, and our catalyst financing obligations, we have no debt maturing before 2024.

Refer to “Note 8 - Credit Facilities and Debt” of our Notes to Consolidated Financial Statements for further disclosure related to debt.

(b)    Leases and other rental-related commitments

Operating and Finance lease obligations include options to extend terms that are reasonably certain of being exercised. We have entered into certain agreements for the supply of hydrogen that contain both lease and non-lease components. The table above also includes such non-lease components of these agreements. See “Note 13 - Leases” of our Notes to Consolidated Financial Statements for further details and disclosures regarding our operating and finance lease obligations.

We also enter into contractual obligations with third parties for the right to use property for locating pipelines and accessing certain of our assets (also referred to as land easements) in the normal course of business. Our obligations regarding such land easements are included within Leases and other rental-related commitments in the table above.

(c)    Purchase obligations

Purchase obligations include commitments to purchase crude oil from certain counterparties under supply agreements, contracts for the transportation of crude oil and supply of hydrogen, nitrogen, oxygen, chemicals, steam, or natural gas to certain of our refineries, contracts for the treatment of wastewater, contracts for pipeline capacity, and forward purchase commitments to acquire AB 32, RINs or LCFS credits from third parties. Additionally, we have obligations to repurchase the J. Aron Products under the Third Inventory Intermediation Agreement with J. Aron as further explained in “Note 2 - Summary of Significant Accounting Policies”, “Note 4 - Inventories” and “Note 7 - Accrued Expenses” of our Notes to Consolidated Financial Statements.

The amounts included in this table exclude our crude supply agreement with PDVSA. We have not sourced crude oil under this agreement since the third quarter of 2017 as PDVSA has suspended deliveries due to the parties inability to agree to mutually acceptable payment terms and because of U.S. government sanctions against PDVSA.

(d)    Environmental obligations

In connection with certain of our refinery and logistics acquisitions, we have assumed certain environmental remediation obligations to address matters that were outstanding at the time of such acquisitions. In addition, in connection with most of these acquisitions, we have purchased environmental insurance policies to insure against unknown environmental liabilities at each site. The obligations in the table above reflect our undiscounted best estimate in cost and tenure to remediate our outstanding obligations and are further discussed in “Note 12 - Commitments and Contingencies” of our Notes to Consolidated Financial Statements.

(e)    Pension and post-retirement obligations

Pension and post-retirement obligations include only those amounts we expect to pay out in benefit payments and are further explained in “Note 17 - Employee Benefit Plans” of our Notes to Consolidated Financial Statements.

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(f) Tax Receivable Agreement obligation

The table reflects PBF Energy’s estimated timing of payments under the Tax Receivable Agreement, assuming that we earn sufficient taxable income to realize all tax benefits that are subject to the Tax Receivable Agreement as of December 31, 2022. Refer to “Note 12 - Commitments and Contingencies” and “Note 19 - Income Taxes” of our Notes to the Consolidated Financial statements for further discussion of the Tax Receivable Agreement.

(g)    Martinez Contingent Consideration

Contingent consideration includes our obligations to pay certain contractual earn-outs entered into as part of the acquisition. Our earn-out obligation related to the Martinez Acquisition includes the estimated undiscounted contingent consideration amounts payable to Shell Oil Products related to annual refinery earnings in 2022 and 2023.

(h)    Affiliate Note Payable

As described in “Note 9 - Affiliate Note Payable - PBF LLC” of our Notes to Consolidated Financial Statements, as of December 31, 2022, PBF LLC had an outstanding note payable with PBF Energy for an aggregate principal amount of $1,445.7 million. The note has an interest rate of 2.5% and matures in April 2030, but may be prepaid in whole or in part at any time, at the option of PBF LLC without penalty or premium. This affiliate note payable is a cash obligation of PBF LLC only and eliminates in consolidation for PBF Energy.

Tax Distributions

PBF LLC is required to make periodic tax distributions to the members of PBF LLC, including PBF Energy, pro rata in accordance with their respective percentage interests for such period (as determined under the amended and restated limited liability company agreement of PBF LLC), subject to available cash and applicable law and contractual restrictions (including pursuant to our debt instruments) and based on certain assumptions. Generally, these tax distributions will be an amount equal to our estimate of the taxable income of PBF LLC for the year multiplied by an assumed tax rate equal to the highest effective marginal combined U.S. federal, state and local income tax rate prescribed for an individual or corporate resident in New York, New York (taking into account the nondeductibility of certain expenses). If, with respect to any given calendar year, the aggregate periodic tax distributions were less than the actual taxable income of PBF LLC multiplied by the assumed tax rate, PBF LLC will make a “true up” tax distribution, no later than March 15 of the following year, equal to such difference, subject to the available cash and borrowings of PBF LLC. As these distributions are conditional they have been excluded from the table above.

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Critical Accounting Policies

The following summary provides further information about our critical accounting policies that involve critical accounting estimates and should be read in conjunction with “Note 2 - Summary of Significant Accounting Policies” of our Notes to Consolidated Financial Statements. The following accounting policies involve estimates that are considered critical due to the level of subjectivity and judgment involved, as well as the impact on our financial position and results of operations. We believe that all of our estimates are reasonable. Unless otherwise noted, estimates of the sensitivity to earnings that would result from changes in the assumptions used in determining our estimates is not practicable due to the number of assumptions and contingencies involved, and the wide range of possible outcomes.

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. In addition, the use of the LIFO inventory method may result in increases or decreases to cost of sales in years that inventory volumes decline as the result of charging cost of sales with LIFO inventory costs generated in prior periods. At December 31, 2022 and December 31, 2021 the replacement value of inventories exceeded the LIFO carrying value. The LCM or market inventory valuation reserve, or a portion thereof, is subject to reversal as a reduction to cost of products sold in subsequent periods as inventories giving rise to the reserve are sold, and a new reserve is established. Such a reduction to cost of products sold could be significant if inventory values return to historical cost price levels. Additionally, further decreases in overall inventory values could result in additional charges to cost of products sold should the LCM or market inventory valuation reserve be increased.

Environmental Matters

Liabilities for future clean-up costs are recorded when environmental assessments and/or clean-up efforts are probable and the costs can be reasonably estimated. Other than for periodic assessments, the timing and magnitude of these accruals generally are based on the completion of investigations or other studies or a commitment to a formal plan of action. Environmental liabilities are based on best estimates of probable future costs using currently available technology and applying current regulations, as well as our own internal environmental policies. The actual settlement of our liability for environmental matters could materially differ from our estimates due to a number of uncertainties such as the extent of contamination, changes in environmental laws and regulations, potential improvements in remediation technologies and the participation of other responsible parties. While we believe that our current estimates of the amounts and timing of the costs related to the remediation of these liabilities are reasonable, we have had limited prior exposure to certain of these environmental obligations due to our short operating history with certain of our assets. It is possible that our estimates of the costs and duration of the environmental remediation activities related to these liabilities could materially change.

Business Combinations

We use the acquisition method of accounting for the recognition of assets acquired and liabilities assumed in business combinations at their estimated fair values as of the date of acquisition. Any excess consideration transferred over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. Significant judgment is required in estimating the fair value of assets acquired. As a result, in the case of significant acquisitions, we obtain the assistance of third-party valuation specialists in estimating fair values of tangible and intangible assets based on available historical information and on expectations and assumptions about the future, considering the perspective of marketplace participants. While management believes those expectations and assumptions are reasonable, they are inherently uncertain. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions.

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Certain of our acquisitions may include earn-out provisions or other forms of contingent consideration. As of the acquisition date, we record contingent consideration, as applicable, at the estimated fair value of expected future payments associated with the earn-out. Any changes to the recorded fair value of contingent consideration, subsequent to the measurement period, will be recognized as earnings in the period in which it occurs. Such contingent consideration liabilities are based on best estimates of future expected payment obligations, which are subject to change due to many factors outside of our control. Changes to the estimate of expected future contingent consideration payments may occur, from time to time, due to various reasons, including actual results differing from estimates and adjustments to the revenue or earnings assumptions used as the basis for the liability based on historical experience. While we believe that our current estimate of the fair value of our contingent consideration liability is reasonable, it is possible that the actual future settlement of our earn-out obligations could materially differ.

Deferred Turnaround Costs

Refinery turnaround costs, which are incurred in connection with planned major maintenance activities at our refineries, are capitalized when incurred and amortized on a straight-line basis over the period of time estimated until the next turnaround occurs (generally three to six years). While we believe that the estimates of time until the next turnaround are reasonable, it should be noted that factors such as competition, regulation or environmental matters could cause us to change our estimates thus impacting amortization expense in the future.

Derivative Instruments

We are exposed to market risk, primarily related to changes in commodity prices for the crude oil and feedstocks used in the refining process, as well as the prices of the refined products sold and the risk associated with the price of credits needed to comply with various governmental and regulatory environmental compliance programs. The accounting treatment for commodity and environmental compliance contracts depends on the intended use of the particular contract and on whether or not the contract meets the definition of a derivative. Non-derivative contracts are recorded at the time of delivery.

All derivative instruments that are not designated as normal purchases or sales are recorded in our Consolidated Balance Sheets as either assets or liabilities measured at their fair values. Changes in the fair value of derivative instruments that either are not designated or do not qualify for hedge accounting treatment or normal purchase or normal sale accounting are recognized in income. Contracts qualifying for the normal purchases and sales exemption are accounted for upon settlement. We elect fair value hedge accounting for certain derivatives associated with our inventory repurchase obligations.

Derivative accounting is complex and requires management judgment in the following respects: identification of derivatives and embedded derivatives; determination of the fair value of derivatives; identification of hedge relationships; assessment and measurement of hedge ineffectiveness; and election and designation of the normal purchases and sales exemption. All of these judgments, depending upon their timing and effect, can have a significant impact on earnings.

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Impairment of Long-Lived Assets

We evaluate long-lived assets for impairment on a continual basis and reassess the reasonableness of their related useful lives whenever events or changes in circumstances warrant assessment. Possible triggering events may include, among other things, significant adverse changes in the business climate, market conditions, environmental regulations or a determination that it is more likely than not that an asset or an asset group will be sold or retired before its estimated useful life. These possible triggering events of impairment may impact our assumptions related to future throughput levels, future operating revenues, expenses and gross margin, levels of anticipated capital expenditures and remaining useful life. Long-lived assets are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. A long-lived asset is not recoverable if its carrying amount exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition. Cash flows for long-lived assets/asset groups are determined at the lowest level for which identifiable cash flows exist. The cash flows from the refinery asset groups are evaluated individually regardless of product mix or fuel type produced. If a long-lived asset is not recoverable, an impairment loss is recognized for the amount by which the carrying amount of the long-lived asset exceeds its fair value, with fair value determined based on discounted estimated net cash flows or other appropriate methods. Our assumptions incorporate inherent uncertainties that are at times difficult to predict and could result in impairment charges or accelerated depreciation in future periods if actual results materially differ from the estimated assumptions used.

Income Taxes and Tax Receivable Agreement

As a result of PBF Energy’s acquisition of PBF LLC Series A Units or exchanges of PBF LLC Series A Units for PBF Energy Class A common stock, it expects to benefit from amortization and other tax deductions reflecting the step up in tax basis in the acquired assets. Those deductions will be allocated to PBF Energy and will be taken into account in reporting its taxable income. As a result of a federal income tax election made by PBF LLC, applicable to a portion of PBF Energy’s acquisition of PBF LLC Series A Units, the income tax basis of the assets of PBF LLC, underlying a portion of the units PBF Energy acquired, has been adjusted based upon the amount that PBF Energy paid for that portion of its PBF LLC Series A Units. PBF Energy entered into the Tax Receivable Agreement which provides for the payment by PBF Energy equal to 85% of the amount of the benefits, if any, that it is deemed to realize as a result of (i) increases in tax basis and (ii) certain other tax benefits related to entering into the Tax Receivable Agreement, including tax benefits attributable to payments under the Tax Receivable Agreement. As a result of these transactions, PBF Energy’s tax basis in its share of PBF LLC’s assets will be higher than the book basis of these same assets. This resulted in a deferred tax asset of $191.4 million as of December 31, 2022.

Deferred taxes are calculated using a liability method, whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences represent the differences between reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment. We recognize tax benefits for uncertain tax positions only if it is more likely than not that the position is sustainable based on its technical merits. Interest and penalties on uncertain tax positions are included as a component of the provision for income taxes on the Consolidated Statements of Operations. As a result of management’s assessment of the available positive and negative evidence it was determined that the $308.5 million valuation allowance, as of December 31, 2021, associated with deferred tax assets should be released because we believed that it had become more likely than not that the deferred tax assets would be realized. The amount of the deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for future taxable income.

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Pursuant to the Tax Receivable Agreement PBF Energy entered into at the time of its initial public offering, it is required to pay the current and former PBF LLC Series A unitholders, who exchange their units for PBF Energy stock or whose units we purchase, approximately 85% of the cash savings in income taxes that PBF Energy is deemed to realize as a result of the increase in the tax basis of its interest in PBF LLC, including tax benefits attributable to payments made under the Tax Receivable Agreement. These payment obligations are of PBF Energy and not of PBF LLC or any of its subsidiaries. PBF Energy has recognized a liability for the Tax Receivable Agreement reflecting its estimate of the undiscounted amounts that it expects to pay under the agreement. PBF Energy’s estimate of the Tax Receivable Agreement liability is based, in part, on forecasts of future taxable income over the anticipated life of PBF Energy’s future business operations, assuming no material changes in the relevant tax law. The assumptions used in the forecasts are subject to substantial uncertainty about PBF Energy’s future business operations and the actual payments that it is required to make under the Tax Receivable Agreement could differ materially from its current estimates. PBF Energy must adjust the estimated Tax Receivable Agreement liability each time we purchase PBF LLC Series A Units or upon an exchange of PBF LLC Series A Units for PBF Energy Class A common stock. Such adjustments will be based on forecasts of future taxable income and PBF Energy’s future business operations at the time of such purchases or exchanges. Periodically, PBF Energy may adjust the liability based on an updated estimate of the amounts that it expects to pay, using assumptions consistent with those used in its concurrent estimate of the deferred tax asset valuation allowance. These periodic adjustments to the Tax Receivable Agreement liability, if any, are recorded in general and administrative expense and may result in adjustments to our income tax expense and deferred tax assets and liabilities.

Recent Accounting Pronouncements

Refer to “Note 2 - Summary of Significant Accounting Policies” of our Notes to Consolidated Financial Statements, for Recently Issued Accounting Pronouncements.