M&A Announcement

Jun 11, 2019

Good day, everyone, and welcome to the Business Update Call. My name is David, and I'll be your operator for today's call. At this time, all participants are in a listen only mode. After the company's prepared remarks, we will conduct a question and answer session. Please note that this conference call is being recorded. I'll now turn the program over to Colin Murray. Sir, you may begin. Thank you, David, and thank you for joining us in today's call to discuss PBS acquisition of the Martinez Refinery. Slides that accompany today's call can be found on our website at www.pbfenergy.com and were also submitted in a filing with the SEC. On our call today are Tom Nimbley, our CEO Matt Lucey, President Eric Young, CFO and several other members of PVF's senior leadership team. Before we begin, I ask that you read the Safe Harbor statement on Slide 2 of today's presentation and included in our press release. This is a reminder that we will be making forward looking statements during the presentation and Q and A session. Our actual results may differ materially from what we expect today, and factors that could cause these results to differ are included here as well as in our filings with the SEC. Additionally, we will be using several non GAAP measures while describing PVF's financial performance and the expected future performance of the acquired assets as we believe these metrics are useful, but they are non GAAP figures and should be taken as such. I'll now turn the call over to Tom Nimbley. Thank you, Colin. Good afternoon, everyone, and thank you for joining us on such short notice and for some of you a bit late in the day. This is an exciting day for us at PBF and is the result of a great deal of effort from the entire PBF team led by our President, Matt Lucey. Almost 3 years have passed since we made our last acquisition. And during that time, we have been working hard to assimilate our Torrance and Chalmet refineries. While we have made significant progress, our work is not done on those assets. However, the Martinez acquisition is too compelling for us to pass it up. Simply put, we are buying a world class asset at a fair price and at an opportune time. We are very excited to be acquiring Shell's Martinez refinery. The comfort in acquiring a refinery from Shell is that we know the asset has been well cared for and this is evident in Martinez' top quartile performance and world class workforce. With this acquisition, we will achieve our strategic goals of expanding our geographic diversification, increasing our total throughput capacity to over 1,000,000 barrels per day and expanding our footprint in California. With the Nelson Complexity Index of 16.1, Martinez is one of the most complex refineries in the country and in combination with Torrance, PVF will have the most complex versatile refining system in the state. We believe the Martinez and Torrance refineries complement each other very well. With the 2 refinery system in California, we will be able to coordinate operations to provide quicker response time to market disruptions with product inventory in both Northern and Southern California. We will be able to coordinate our own activities to keep markets supplied. Having assets in both Northern and Southern California and operating them as a system will allow us to realize both operational and other synergies and maximize the potential of both refineries. Martinez will be PBS most complex asset. Martinez's high complexity dual coking operations allow it to cleanly process 1 of the harshest crude slates and still produce a high yield of high value clean products, 90% to 95% of total production. The refinery is designed to process a slate of heavy high sulfurhighcan crude oils sourced from California and internationally, which is delivered directly to the refinery via third party pipelines and through the refinery's on-site marine facilities. Importantly, similar to Torrance, because of its high complexity, Martinez generates through volumetric gain an overall yield of approximately 103% of its total input. This means that for every 100 barrels of raw material that Martinez processes, the refinery generates 103 barrels of products. On a historical basis, Martinez generated EBITDA of approximately 2.75 dollars to $375,000,000 per year. The $375,000,000 is based on a 6 year historical average. The $275,000,000 number is a 5 year average that removes the high year of 2015 from the calculation. Pro form a adjustments were made to carve the asset out of its existing integrated major model, removing corporate overheads and adjusting for actual market pricing as opposed to internal transfer price mechanisms. Using the historical base, our earnings assumptions are based on the current configuration and equates to an average San Francisco ANS 321 crack spread of approximately $16 per barrel and a Martinez crude input cost of approximately $1.50 under A and S. Not included in our historical base, we estimate that there will be approximately $125,000,000 of annual synergies that we expect to achieve by the end of year 3. Additionally, we do not include any upside for IMO in our historical base case assumptions. If you apply the current forward curves for 2020, you could reasonably forecast $100,000,000 to $200,000,000 in incremental IMO driven earnings that are excluded from our initial earnings expectations. As you can see, we believe there is significant upside to our base case, some of which we will be responsible for delivering and we believe that IMO driven benefits will provide the rest. We expect to pay approximately $900,000,000 to $1,000,000,000 for the refinery and accompanying logistical assets plus working capital to be valued at closing. The purchase price will cascade down dependent upon the time of closing. If we close on October 1 or before, the closing cost will be $1,000,000,000 with purchase price declining by $10,000,000 for every month thereafter until January 1, I. E. If we close on January 1 a January close, the purchase price would be $970,000,000 In the event that the closing does not occur until April 1 or thereafter, the purchase price will be further reduced to $900,000,000 Assuming an October close, we will be acquiring Martinez at approximately $3.52 per complexity barrel, which is well below the industry average since PBF was formed. The seller has agreed to fund the Q1 2020 turnaround activity, which equates to approximately $70,000,000 In the event that PBF is the owner during the turnaround, Shell will also provide $40,000,000 of compensation to PBF for the margin cost of taking the units down. Additionally, the seller has agreed to fund approximately $80,000,000 for future capital cost, thereby reducing the future CapEx requirements for the facility to approximately $150,000,000 per year. Importantly, on a 3 year forward look, $150,000,000 per year is back end loaded with year 1 capital requirements of approximately $75,000,000 dollars As you can see, there are many moving parts that will affect our final net acquisition cost with both parties being motivated to close the transaction quickly. Over the last 10 months, PBS has raised through an equity issuance and MLP dropdown and land sale, dollars 550,000,000 in cash proceeds. Consistent with PBS history, maintaining a strong balance sheet is of utmost importance as we execute our growth plans and we fully intend to keep our net debt to cap under 40%. While it is not completely in our control, closing is anticipated towards the end of the year. As we have discussed, PBS is well positioned to generate strong cash flow over the second half of this year as virtually all of our major maintenance activity is complete. Additionally, the transaction is set up to generate significant free cash flow in year 1 as CapEx is low to the reimbursements we discussed. Similar to the Toledo transaction we did with Sunoco, we have agreed to an earn out with Shell. We view this as very positive. If we are in a position to pay an earn out, Martinez is performing as we expect it will. For the 1st 2 years following the close, EBITDA above $275,000,000 will be split with the seller on a fifty-fifty basis, and this will be uncapped on an annual and total basis. After the initial 2 year period, the earn out will remain in effect for an additional 2 years with an annual cap of $100,000,000 and a total cap of $400,000,000 for the entire 4 year earn out period. To put this into context, if Martinez performs well as IMO begins to have an effect, Shell could earn more than $400,000,000 in the 1st 2 years. We hope they do. If we are able to pay more than $400,000,000 in those 1st 2 years, then the earn out will stop after 2 years. Based on our analysis and assumptions, we are confident we will be acquiring a well cared for asset in an immediately accretive transaction that will generate significant free cash flow. This is an important and meaningful transaction for PBF. Our increased scale should bring benefits and we expect our expanded West Coast system to deliver both operational and other synergies. In addition to 1st quartile performance, Martinez also has a well trained and professional workforce and is a highly respected member of the community. We look forward to welcoming Martinez's employees to the PBF family and continuing Shell's dedicated community partnerships. For our strategy to be successful, we will continue to focus on the safe, reliable, environmentally responsible and positive operating performance of all of our existing and future assets as well as diligently maintaining a strong balance sheet. By being vigilant in these areas, we will position PBF to capture any opportunities that the market may offer and deliver superior returns to our shareholders. With that, we will now open up the call to questions. Operator? We'll take our first question from Roger Read with Wells Fargo. Please go ahead. Your line is open. Yes, thanks. Can you guys hear me all right? Yes, we can, Roger. Great. Thank you. Well, congratulations on the transaction. Certainly, a lot for it to digest, but maybe if I could just dive into a few other questions worth asking. The geographic position of this refinery is pretty attractive in the Martinez area because you have the access on the deepwater side. Can you give us an idea of what that brings to the table, how much that affects the OpEx, which actually kind of running through looked a little bit high, close to $9 a barrel? And then maybe an idea of what can be done on the logistics side in terms of, I presume, dropping that down to PBFX at some later date? Great questions, Roger. We certainly contemplate in the synergy bucket. Some of the synergy benefits coming from transportation and logistics related opportunities because of we have these both assets in the State of California, we'll be able to do backhaul economics on shipping and alike. We can move crudes, obviously, south and north. So we expect the major benefits. I haven't really looked at it, see whether or not that will accrue to the $9 a barrel, $9 plus barrel operating cost. I will say this, I was surprised when I saw the operating cost until I saw the power of the machine. The sheer number of units that this refinery has, which means they have be staffed, they are going to have higher operating costs than almost any other refinery or most of the refineries in the state, including Torrance. The good news is those additional units also bring with it additional margin. And I'll ask Eric if he wants to add anything on the logistics. Yes, Roger, I think there are a handful of logistics related assets. There's a little shy of 9,000,000 barrels of storage that's here. There is a deepwater facility. There's a truck rack and some other associated logistics assets. I think as it relates to PBF Logistics, until we start to see a meaningful increase in that unit price, right, our focus has been much more driven by 3rd party acquisitions and organic projects at the PBFX level. But But ultimately, we still feel like this is yet another set of logistics assets that kind of falls into that $200,000,000 bucket of EBITDA that sits at the parent company that could market conditions being open could potentially be dropped down. Okay, great. And then as a follow-up, the way the price the purchase price would cascade lower, what would be the potential to slow the transaction down? I understand there'd be an antitrust review as there typically is in California, but what else would tend to be an issue here? I think the clearly, we would expect that the critical path on getting the deal closed is going to be the regulatory reviews, both FTC, but as you mentioned, California is a little bit different. Our current advice from counsel, I think consistent with Shell has received is that we're probably looking at a closing closer to the end of the year. If you ask me when I would like to close this transaction, I would like to close it on September 1. Yes, the purchase price would go up, but we believe that because of the high advance of IMO and we all believe is an IMO and the power of this kit, this machine and the forward curve that we would be making more margin and we'd be able to offset that. Okay. And last question I'll throw in there. The $35,000,000 estimated interest expense, should we presume that's being done off the full purchase price? Or as you mentioned, you'd expect to generate a decent amount of cash flow from operations It really is the latter, Roger. We have not assumed that this is one It really is the latter, Roger. We have not assumed that this is 100% financed with debt. I think we've talked a lot about how we would finance transactions in the past. And ultimately, this is an all cash deal that will make its way to Shell. From our perspective, we've raised, as Tom mentioned, a little shy of $550,000,000 worth of stuff outside of our regular way business through equity as well as the drop down and then through a land sale. We did front end load the vast bulk of our maintenance, and we still firmly believe we will be through all of that by the end of this quarter. So from our perspective, as we look through the remainder of the year and look at where the forward curve is, we should start to generate significant free cash flow. And so from our perspective, we're going to see free cash flow from operations combined with lower working capital as we go forward driven by primarily our builds being reduced through the second and into the third quarter and then also a decline in flat price From our perspective, it's absolutely the latter for the two scenarios that you laid out, not 100% debt financed. Okay, great. Thank you. We'll take our next question from Manav Gupta with Credit Suisse. Please go ahead. Your line is open. Hey, guys. A couple of questions. First of all, when you acquired Torrance, I think you have said that it wasn't exactly in the condition you were hoping for and more work was needed initially to get it to a point where you like it. Of course, you have turned the asset around, but I'm just trying to understand what kind of due diligence was done here to make sure this asset is coming in a condition where you really expect it to be? That's a great question. I would be honest and candid with you. When you do a transaction like we did in Torrance with the counterparty, everything is done with virtual data rooms, a little bit more of a transaction, a difficult transaction than we had with Shell. They were open. We've had significantly better access. We know the facility, worked in the Bay Area before for Exxon. Obviously, Cosco had refineries in the Bay Area. I can tell you, without question, over the last 20 years, the Joao Martinez refinery has had the reputation because it has earned it of being the best refinery in the Bay Area. And we see that demonstrated. They do participate in something called the Solomon survey. You've probably heard of it. It's an industry wide. I don't fall in love with it myself. But at the same time, they are 1st or second quartile in every major category, including reliability, operating costs. So it is very clear that this is we are not buying the Torrance and we are not buying the Chalmette. We are buying a facility that is basically a world class facility that we can win and hit the ground running on. That's clear. Just one follow-up, Tom. There's a few school of thought out there that complexity is not the right way to go, that heavy lights will be much narrower in the future. And just the fact that you don't expect IOMOS to be such a big tailwind. So what would you like to say to that? Actually, I am clearly not a believer that complexity doesn't matter. I understand that because of sanctions against all the heavy crudes, Venezuela, Iran, the OPEC, non OPEC and then restrict crude too, that we've capriciously narrowed the light heavy spreads. But the fact is those crudes are not going to be kept in the ground or in the sand forever and Canada is going to continue to produce. I believe that you will see a re widening of the and we're already starting to see some of the light heavy spread. And the fact remains that on January 1, there's an awful lot of stranded resid coming from crews that are being run that can no longer get into heavy fuel oil and have to go somewhere. I would say that I think my own thinking is more on the diesel side that you can make the new fuel by basically hydro treated gas oils and that may be less bullish than we originally thought. But I think it's going to be there and it's going to be opportunistic on the heavy crude side differentials. And I think the coking spreads are going to be just fine. One last one. If on June 18, TMX is approved, would that be a material tailwind for you guys considering this asset addition? Yes. Yes. We'll take our next question from Paul Sankey with Mizuho. Please go ahead. Your line is open. Good evening, all. Good morning, Paul. Can you talk a little bit about, to the extent that you didn't already mention this, your assumptions for IMO impacts in the economics that you talked about. I think you referenced future strips, but I just wondered if you could be more specific about what you're expecting the impact to actually be? Thanks. No, actually, we did say that the base EBITDA, depending on whether or not it's historical and what timeframe is $275,000,000 to $375,000,000 But we think that given our current view of what the impact of IMO would be, if it goes the way we think it's going to go, it would improve the EBITDA for this asset somewhere between $100,000,000 $200,000,000 Yes. And I guess my question was, what are the assumptions that gets you the impact of IMO? I mean, that gave you that final number. We have a price deck, but I don't have it with me, Paul. But it's basically there's a widening of the crude dips and that's a big driver on it. It's got about a $32 clean dirty spread, not anywhere near the ones that were out there at $40, dollars 45 early on in the heyday, but still a very nice $32 heavy fuel oil diesel spray. Got it. Thanks, Tom. And then just on the timing of the deal, how can it suddenly pops up now? Could you talk more about that? Thanks. In terms of when we expect to close? No, just thinking in what I guess this is out for the spin. We actually have been working with the counterparty for a significant amount of time. We didn't make a lot of progress early on. We viewed this asset very positively. And I will tell you, if and you attended Shell's Analyst Day, Shell has been very open about what their strategy is. Right. They've been adopting that strategy for some period of time. Matt and I met with Jon Abbott back in December of this year where he expressed Shell's strategy and we indicated that obviously we are refiners and we are in the business of trying to grow and diversify our business. And that really started the dialogue. But it's just sometimes it takes a deal to come together and that's what happened here very recently. Understood. Okay, guys. Thanks. We'll take our next question from Prashant Rao with Citigroup. Please go ahead. Your line is open. Good afternoon. Thanks for taking my question. Good. On the heels of Paul's question there, when you looked at potential transactions in the market over the last several, let's say, years or since the Torrance and Chalmette acquisition, Was it always at what point did you sort of winnow in on it being a West Coast acquisition? Or to put it another way, were there other deals that you had looked at? Or were you fed on California or some adding another asset in PADD V? And maybe going forward, is this sort of maybe quiet the transaction window for you for a little while until you get this asset integrated? Or how should we think about your appetite sort of As we said before, we look at anything that comes up in a market, that's just for no other reason than to get competitive data. We've been very vocal, I think, that in terms of our acquisition strategy, would prefer to have more than one asset in PADD 3 and more than one asset in PADD 5. We are clearly focused on trying to get a second we're focused on trying to get a second asset in PADD V, but we were not we weren't going out with deal lust on this thing. We didn't really see anything pop up on the Coast that was overly attractive to us. So we can, at that point, focus on what we were trying to do, which is improve the operation of Chalmette and Torrance and we will continue to do that. But as I said, I think because of Shell's strategic direction going forward and our positioning, this deal came to the front. And it was something that we really felt like we couldn't pass up because of the attributes of the facility. Prashant, I think another key message is, Tom referenced it, we do evaluate lots of different transactions, but ultimately when comes time to really honing in and spending a lot of time on anything, we tend to take very much a rifle shot approach. Martinez absolutely fit into that particular bucket. This is the perfect complement to what we already own in Southern California, and we don't get to always control the timing around when transactions are available. But when we think about the last few deals that have been announced, whether it's Superior or Pasadena or U. S. Oil, none of those other assets fit the bill that Martinez did. And ultimately, this is something that makes a ton of sense for PBF and specifically to basically pair up Martinez with Torrance. Okay. That makes sense. Helpful, guys. Thank you. And my follow-up would be, the turnaround that's coming up in Q1 2020 and you've got some terms stipulated around that's depending upon when the deal closes. Could you give us a little more detail maybe on what's going into that turnaround? And then also, is there the cost of the payments involved there, the $70,000,000 and then the $40,000,000 include any contemplated upside from IMO 2020? Or is that ex in the IMO 2020 opportunity cost? It's Matt Lucey. In regards we're not privy to give out information on the turnarounds. There's a fair amount of work being done under all cases. PBF is paying for, when I say under all cases, whether they own the if we haven't closed the transaction, they'll simply complete the turnarounds. To the extent we own the facility, they'll simply reimburse us for the turnaround amounts. In regards to the downtime, we've negotiated for that period that we will be reimbursed essentially up to $40,000,000 of the results of the units being down. That's the deal. Could the IMO benefits be larger than that? I certainly hope they will be, but we felt comfortable proceeding with the $40,000,000 of margin protection. Got it. And then just last question, something that was mentioned that caught my interest, smaller point maybe, but the renewable diesel opportunity that's in the slides and mentioned in the press release. Can you give a little more color about that? Obviously, that's something that's becoming a lot more focused with all different projects around the U. S. But how much what are the what's the existing idle equipment there and sort of what would be the window of opportunity or time for that? Yes. It's actually, we think it's quite attractive. Shell is a worldwide leader in this, and so we think they obviously can bring a lot to the table. What PBF will be bringing to the table is the Martinez refinery where there happens to be some idle loop facilities that dramatically reduce the what would be the capital cost of building a facility. And so each party is committed to each other for extended period of time to see if we can work out a partnership. And we think its potential is very, very large. I can't quantify it for you yet or the possibilities yet, but it's something that Shell has been working on for a very long time and something they were very keen on sort of creating a partnership between the two companies so that they could stay engaged on the project, which we are happy to have them do. All right. Thanks very much for the time, gentlemen. Appreciate it. We'll take our next question from Doug Leggate with Bank of America. Please go ahead. Your line is open. Thank you. Good afternoon, everybody. Can you guys hear me okay? Yes. Sorry, I'm in an airport. Guys, just a couple of points of clarification, if I may. So there's $150,000,000 of capital include the turnaround expense amortized over like an average 4 year time frame or something like that or is that excluded from the 150? No, the $150,000,000 is our average for the next 3 years. As you well know, nothing is ratable in this business and so turnarounds come in lumpy. Not insignificant for this transaction, it's back end loaded. So on year 1, especially with the seller being responsible for the Q1 turnaround, our CapEx required spending is very low, call it approximately $75,000,000 range. So it's just another way the asset can delever itself just with the transaction. Okay. So my second these are really just clarification points guys, so I can get to the it's in a key question. The second thing is then you said if you take out 2015, the average EBITDA is about $275,000,000 What's the range been? And what's behind my thinking there is since you guys have been running torrents really well, you've kind of single handedly reset lower the margin environment on the West Coast. So I'm just wondering about 2.75% average ex 2015, what's the trend been like sort of 2016 through 2018? Doug, it's been in kind of the $200,000,000 to $350,000,000 $375,000,000 range. Okay. So my final question then is, if I take that $250,000,000 the $250,000,000 number out and I look at the low case that you I mean, with the 275 case, the free cash flow looks like it's about $70,000,000 So that's basically the $180,000,000 minus the $150,000,000 185 minus the $150,000,000 held to a 10% discount rate, which gets you about a $700,000,000 valuation. Am I thinking about it right? And I'm trying to put that in the context of what you're paying and basically how you where you expect to extract the upside given what looks like in that case a fairly full price that you're paying based on the cash flow or the free cash flow of the asset as opposed to some metric of capacity? No, I don't think you're looking at it right. 1, it's in the package on Page 7 that's been posted to our website. And we cite over $100,000,000 of synergies that are real. Those will be between Torrance and Martinez. But at least since PBS has been a public company, this is really the first transaction we've had straight synergies between two assets. That $125,000,000 is incremental to the base case EBITDA of the facility. I do and PBF does not subscribe to your theory that because Torrance is run, the California has taken a seismic shift down. And in fact, in the first half of this year, we've seen quite the opposite as there's been unplanned downtimes. The earnings count of these two machines in the second quarter were quite strong. But in addition to the synergies, we're also entering an IMO marketplace, which even makes it more compelling. So when you lay off the history plus the synergies plus what we think the forward market potentially could be, we think the economics on any metric makes a lot of sense. So just to be clear, on the base economics though, I understand the optionality, but on the 185,000,000 mid cycle EBITDA ex 2015 minuteus the $150,000,000 sustaining capital, if you like, before turnarounds, what am I missing, dollars 35,000,000 of free cash flow? The base EBITDA The full dis synergies, right? Base EBITDA, historical base EBITDA ex 2015 is 2.75. Correct. Yes, but I'm looking at free cash flow from not EBITDA. What matters is free cash flow again? I heard you say that you were going in and assuming that we were going to be on the low end of the cycle because of basically a sloppiness in the gasoline market. But I thought you only took out 2015 to get to 275. But we show in the numbers that we have, what is the accretion that we have in this thing? The accretion is significant. I mean, it's well over 20% on EPS accretion and it's significant on free cash flow accretion. Okay, guys. So basically, it's an option on delivering the synergies. That's the way I should think about it? Well, no, I disagree with your the way you think about it, but anyone can think about it any way they want. I think the transaction makes sense on its historical performance. I think the synergies are on top of that and I think it becomes even more compelling with the IMO marketplace that's in front of us. All right, guys. Appreciate the answers. Thank you. We'll take our next question from Phil Gresh with JPMorgan. Please go ahead. Your line is open. Hey, good afternoon. First question, I guess, just on the synergy amount. I know you've already kind of talked about this and but other transactions recently, I think investors have struggled to see the synergies in these refining deals. And so I guess I was just hoping maybe you could address that from your perspective and what would make this transaction different? I think there's a number of things. We think we absolutely think that the synergies are real. When you look at how these refineries are configured, you have a larger hydrocracker in significantly larger hydrocracker in Martinez than you have in Torrance. We have a life cycle oil that we can move up from one facility up to the other facility. We can backhaul. We can do things on VGO. The fact that we're going into an IMO world and we can move these things around to produce more fuel oil, it's the proximity of the 2 refineries and the short haul economics that we have, even if we have to move stuff by the water. And there's a lot of other synergies that frankly are pretty detailed. There are even environmental benefits and things of that nature. But we're actually we haircut the synergies quite a bit because of what you just said, Phil, is those are numbers that people throw and they should. They should throw under a big magic light. But we're confident we're going to get them. And we're saying we're going to get them after 3 years too, by the way. We'll lag into it over the course of the 3 years. And one not to be ignored is the fact that this facility for the last 100 years has been part of a major oil company, has essentially not been optimized around being a merchant refiner. We see tremendous opportunities to grow EBITDA simply on that basis. And then as Tom mentioned, there are many attributes that complement Torrance perfectly, which will provide other opportunities. Okay. And in terms of the capital spending number of the $150,000,000 is that essentially more of a sustaining CapEx number? Is there any amount in there to help achieve synergies? And if there if you do move forward with the renewable diesel project, would that be incremental to this $150,000,000 Yes, to the last question. There is a small amount as there always is in return projects, but that's sort of a standard. But I think it's the right way to look at it is $150,000,000 is the required spending for the facility on a run rate basis. Okay. Okay. And then I guess last question, understanding that you're using essentially a mixture of cash and debt here. There obviously have been some concerns out there about the macro environment of late. And I guess, I'm just wondering, is there a scenario where you would consider issuing equity to fund the transaction just to derisk any kind of macro downside case that could present itself in the next 1 to 2 years? Or do you feel comfortable where the balance sheet is day 1? I think we feel comfortable where the balance sheet is day 1, Phil. But ultimately, if you're drawing out a scenario where something changes that ultimately we absolutely, I think, we would go out and raise equity if it looked like that was the only way we were going to be able to get a transaction done. Candidly though with our share price where it is at 26, we think there's a big dislocation between what the forward curve looks like, what we think makes a lot of sense in terms of what PBF is going to do for the next 6 to 12 months and where the share price is. Okay. All right. Thank you. We'll take our next question from Neil Mehta with Goldman Sachs. Please go ahead. Your line is open. Yes. Thanks everyone for taking the time. I want to go back to your initial comments around the earn out. There's a lot of moving pieces as we think about the value associated with the transaction that you guys are paying. But just can you walk us through the mechanisms associated with the earn out again? Yes, happy to do it. Fairly simple, but there is a step to it. So in total, it's a 4 year earnout with a $275,000,000 threshold for actual EBITDA of the facility. So there's no synthetic calculation. It will be actual results and $275,000,000 Every dollar above that will be split fifty-fifty with the seller. And to the extent after the 1st 2 years, they receive more than $400,000,000 the earn out will stop. But they can they will earn for the 1st 2 years for whatever that amount equates to be. But if it's over $400,000,000 it will be over. If it proceeds to year 34, years 34 will have an annual cap where they cannot earn more than $100,000,000 in any one year. And the moment their proceeds reach $400,000,000 in years 34, the earn out ceases. That's helpful. And then we got you guys on the line, Tom. We appreciate your views just on the product macro. And this is less a view about IMO, but just the way we should think about cracks over 2019, given how choppy gasoline has been and we've seen some increased concerns on the demand side. And then to tie it in today's call, if you could talk about your outlook for California specifically too. Yes. I think obviously the volatility in the marketplace is, I wouldn't say extraordinary because there is always volatility. But given what's going on, it's all over the map. I think the fact is we have full employment in the United States. We still have a reasonable growing economy in the United States. The reality is, I guess, the Fed may in fact be moving to protect some. I don't think we're moving into a recession, but I'm not a true economist. I do think there will be times where there will be some pressure on gasoline, but we're not seeing poor margins going forward. I think diesel will return. A lot of what we've seen recently is associated with floods and aberrant effects in the Gulf Coast and other places where you haven't been able to displace products. So I don't think we're going to have a real robust economy with great growth, but I don't think it's going to be stagnant either. As I said, I do believe when it comes to IMO, I'm probably a little bit more conservative on diesel than I was when we first started talking about IMO, but it's still going to be you can't escape the fact that there's going to be 3,000,000 barrels a day of a new product that demand is going to be there for and that's going to come out of the heavy product. So I think in the short term, we might have some headwinds, but as we get into the second half of the year, our belief is that we will see an improvement in crack environment. And then your views on You have to repeat that. That didn't come through. I'm sorry. I said your views on California specifically and that market, your views on that market? California is the 5th largest economy in the world. And the gasoline demand in the state of California is strong. And I think we've participated and I've been in this marketplace from a refining perspective for probably 20 years, various refineries. California is what California is. If everything runs perfectly, you're going to have a balance to a little long market. But that isn't just what it takes and you go back to the strong fundamentals. It's an islandized product market. So we believe that that trend, that history is going to continue. Thanks guys. The last question today will come from Patrick Flam with Simmons Energy. Please go ahead. Your line is open. Hey, guys. Thanks for taking my question. Just a really quick one. Adding a facility of this size, obviously, kind of increasing your portfolio a lot here. Does this increase the amount of cash you need to keep on hand just to fund operations? And if so, by how much? I would say directionally, sure, you want to have a little bit of extra cushion if you think about, right, I think we mentioned on our last call that having kind of $250,000,000 to $500,000,000 of cash at any point in time, Maybe you want to keep another $50,000,000 to $75,000,000 We do see again, it kind of falls into the synergies bucket that we talked about before. But ultimately, we're going to have some opportunities there that if this were a refinery that didn't really tie into the Torrance refinery, it might be a different equation. But for us, it's probably another $50,000,000 to $75,000,000 of cash. Okay. That's perfect. Thanks. Now I will turn the call to our speakers for any closing remarks. Well, thank you very much for attending the call on short notice. We will do our debt level best to update you accordingly as we proceed towards the closing of this acquisition. Have a great night.