Good day, everyone, and welcome to the PBF Energy second quarter 2022 earnings conference call and webcast. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following management's prepared remarks. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. It's now my pleasure to turn the floor over to Colin Murray, Investor Relations. Thank you, sir. You may begin.
Thank you, Melissa. Good morning, and welcome to today's call. With me today are Tom Nimbley, our CEO, Matt Lucey, our President, Erik Young, our CFO, and several other members of our management team. Copies of today's earnings release and our 10-Q filing, including supplemental information, are available on our website. Before getting started, I'd like to direct your attention to the Safe Harbor statement contained in today's press release. Statements in our press release and those made on this call that express the company's or management's expectations or predictions of the future are forward-looking statements intended to be covered by the Safe Harbor provisions under federal securities laws. There are many factors that could cause actual results to differ from our expectations, including those we describe in our filings with the SEC. Consistent with prior periods, we will discuss our results today excluding special items.
In today's press release, we describe the non-cash special items included in our quarterly results. The cumulative impact of the special items decreased net income by an after-tax amount of $116 million or approximately $0.93 per share. For reconciliations of any non-GAAP measures, please refer to the supplemental tables provided in today's press release. I'll now turn the call over to Tom Nimbley.
Thanks, Colin. Good morning, everyone, and thank you for joining our call. For the second quarter, PBF reported earnings per share of $10.58 and adjusted net income of $1.3 billion. Our strong financial results have provided us with the resources to accelerate the repayment of debt we incurred during the pandemic and to continue actions to strengthen our balance sheet. To be clear, the work is not complete as we remain highly focused on doing more to recover from the ravages of the pandemic. The second quarter picked up where the first quarter ended with volatile market conditions and rising energy prices. Refinery margins expanded as available refiners other than Russia and China were called on to run at high utilization levels. The Russian invasion of Ukraine continues to alter trade flows.
Russian waterborne crude exports are generally flowing to Asia as Western nations continue rejecting Russian crude and feedstocks. As trade flows reorganize, a couple of themes are appearing. European refiners are lightening their crude slates as the replacement crude for rejecting Russian barrels is generally light sweet crude produced within Europe, West Africa, or the United States. Also, for some time, Europe has been facing a natural gas and power crisis that has only been exacerbated by the Russian invasion. High-priced natural gas in Europe has made upgrading units and hydrogen plants very expensive to operate, giving U.S. refiners a significant competitive advantage. Differentials for light sweet crude versus heavy sour have been widening for a variety of factors. Light sweet crude strengthening for the reasons I just mentioned, plus available upgrading units, coke and capacity, et cetera, are generally full.
We are seeing the heavy part of the barrel trade at wider discounts to the global benchmarks for light sweet crude than we have seen in many years. Heavy fuel oil is quite weak and there is some market commentary about support coming from the reemergence of IMO 2020 market dynamics. The beginning of the third quarter has seen a 15%-20% correction in oil prices and refining margins. However, underlying fundamentals remain strong. Low inventories, tight supply, improving demand, and reduced refining capacity. Despite that, there are macroeconomic concerns that are weighing on the market. High inflation, rising interest rates, and a rising U.S. dollar. The macro concerns point to contracting oil demand to help bring the energy markets back into balance as the status quo is simply not sustainable. Inevitably, inventories will need to be replenished from these extraordinary low levels.
This will require refineries to continue running at high levels of utilization. Our valued employees continue working tirelessly to keep our assets running safely and reliably, and we appreciate their contributions to our performance. With our balance sheet improving and the bulk of our 2022 turnarounds complete, we anticipate that our assets will continue generating cash, which we will use to further strengthen our balance sheet and reward our investors. With that, I will turn the call over to Matt.
Thanks, Tom. As Tom mentioned, PBF's second quarter is one for the books and demonstrates earnings power of our refining system and the dedication of our employees. While the extraordinary market conditions seen during the second quarter will eventually normalize, the fundamentals and outlook remain strong. On the East Coast, we completed work on the Delaware City reformer and other secondary units, which began in March and concluded in April. Additionally, we are in the midst of restarting our idle 50,000 bbl a day crude unit at Paulsboro, which we expect to have online in mid-August. We are confident that we'll have enough access to feed for the unit, and will help ensure that all of our other secondary units on the East Coast remain full. On the West Coast, we recently completed a significant turnaround in Torrance of the alkylation and other ancillary units.
The work was conducted primarily in June and wrapped up in the first 10 days of July. Looking ahead to the third quarter and the remainder of the year, our capital expenditure and throughput guidance is presented in today's press release. We have no significant planned maintenance for the remainder of the third quarter. We do have a planned turnaround in Chalmette in the fourth quarter. In addition to our refining CapEx, we continue to invest in and progress our renewable diesel project in Chalmette. We anticipate startup with full pretreatment capabilities in the first half of next year. Importantly, the project remains on time and on budget. In terms of the forward refining market, as Tom said, the market needs to reset, as the current high price, low inventory conditions are unsustainable in the long term.
Over time, we expect that product inventories will eventually return to their historical average levels. However, with a global reduction in refining capacity as well as natural gas advantages in the U.S., we expect to see above mid-cycle refining margins, which is what we are seeing today. Our assets are running well and are positioned to keep the market supplied and capture that margin. Lastly, this morning we announced that PBF Energy has agreed to acquire all the common units of PBF Logistics that it does not already own. This transaction will ultimately allow us to simplify our corporate structure and eliminate administrative, compliance, and cost burdens of running a separate public company. Following consummation of the merger, we believe we'll have a significantly enhanced financial strength. With that, I'll turn it over to Erik.
Thank you, Matt. For the second quarter, we reported adjusted net income of $10.58 per share and adjusted EBITDA of approximately $1.9 billion. This brings our trailing 12-month adjusted EBITDA to over $2.8 billion. This financial performance provided the foundation for us to accelerate our deleveraging plan. Over the last 18 months, we have reduced consolidated debt by more than $2.6 billion. In addition to the $900 million pay down of our bank facility during the second quarter, we redeemed the full $1.25 billion of secured notes due 2025 on July 11th. When we include the more than $250 million of open market purchases at a discount to face value, our unsecured debt is now below the pre-pandemic balance.
Importantly, we were able to execute our plan while maintaining significant liquidity and have a current cash balance of more than $900 million. On a go-forward basis, we expect to recognize over $165 million of annualized interest expense savings. Simply put, PBF's balance sheet is vastly improved, with quarter-end net debt to cap of 24% and net debt of less than $1.1 billion. These statistics represent levels that we have not achieved since 2018. Consolidated CapEx for the second quarter was roughly $211 million, which includes $157 million for refining and corporate CapEx, roughly $52 million related to continuing development of the RD facility, and $2 million for PBF Logistics.
For the second half of 2022, we anticipate total refining and corporate CapEx to be approximately $200 million-$225 million, excluding the RD project. This reflects a return to our normalized pre-pandemic turnaround schedule. Operator, we've completed our opening remarks, and we'd be pleased to take any questions.
Thank you. In a moment, we'll open the call to questions. The company requests that all callers limit each turn to one question and one follow-up. You may rejoin the queue for additional questions. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Roger Read with Wells Fargo. Please proceed with your question.
Yeah, thank you. Good morning, and congratulations on the quarter, guys. Nice execution. Guess the biggest question we keep getting from investors is, you know, where do we sit today in terms of demand? We've had some, well, I'll just say, questionable numbers from the DOE, but overall, you know, things still look pretty solid. I was just curious what you see on demand and maybe how that fits into some of the discrepancies we're seeing right now in terms of the cash markets, thinking how much stronger the East Coast is than, say, the Gulf Coast.
Great question, Roger, and thanks for your comments. We share the same kind of thoughts. There was some aberration coming out of the July 4th weekend that's always
You know, questionable what you do there. Then there was some true-up, I think, between the monthly EIAs from June that got flowed into July, and perhaps that has run its course now, and yesterday's numbers were a little bit stronger. I'll make another comment. We're seeing, frankly, while there's some headwinds and we've seen some decrease in demand, EIA is reporting that. In our own business, and I'm gonna turn it over to Paul Davis in a moment to talk regionally, our demand wholesale level is holding up. We're at basically the same levels we've been for the last 90 days. You made a very good point on the East Coast.
The East Coast is structurally impacted more than any other region in the country by what has happened over the last several years. When you look at the amount of refining capacity that's been shut in or cut back in the Atlantic Basin, including PES, including Come By Chance, a disproportionate amount of capacity in the Northeast. At the same time, the pipes are full coming up from the Gulf Coast. We have the only coking capacity on the East Coast. We think the Atlantic Basin has actually had a bigger step forward, if you will, than the other regions, even though the other regions have benefited from what's been going on than some of the others. Paul, why don't you go give Roger an idea by region.
Well, we can start with the East Coast. You said it pretty well. You know, cash markets in New York Harbor are very strong and have been very strong. The backwardation is just arguably historic on cash valuations. Gasoline obviously leads it. Distillates early in second quarter were leading it. Jet has been incredibly strong. Jet's actually pricing inside of diesel with net of RINs. The East Coast has really moved up tier and markets for us. Gulf Coast is, as you said, it's pricing for tiers. It's running very strong. We see strong export demands. We see arbitrages into the Midwest and to the East Coast pricing accordingly. We would call it a normalized market.
Wholesale-wise, it's probably the weakest market we have, but it's very normalized. Our July numbers look just like our Q2 numbers did on a month-to-month basis. West Coast, very strong. It stayed constant all the way through second quarter and into the beginning of the third quarter, even with the price challenges at the street. We're seeing our wholesale markets there very strong and remain very strong and supported by the return to work on the West Coast. In the Midwest, we have a big wholesale business in the Midwest, and that's remained strong throughout.
Great. Thanks for that. Then, pivoting a little bit here, to you, Erik, obviously, tremendous improvement in terms of balance sheet, liquidity, everything. At this point, what do you feel is the most important thing to do, right? You're gonna consolidate PBFX, so that's got some debt with it. You've got, obviously some of the environmental, obligations that are still out there, and then just the general balance sheet, ultimately maybe a reinstatement of the dividend. Just curious, as you think about priorities, how that flows through.
I think you laid out kind of our plan at this point. Number one, we've taken out most of the prepayable debt at this point in time. We believe, you know, the unsecured debt that we have on the books, we have ample time to deal with the 25 notes that will come due then. Once PBFX ultimately rolls in, you know, we will handle that particular debt. Ultimately, we've provided ourselves enough financial flexibility here. Quite candidly, that debt's already consolidated on the balance sheet. When we talk about our $1.1 billion, just shy of $1.1 billion of net debt, you know, that includes that level.
From our standpoint, it is simply a matter of continuing to reduce the overall net debt balance, operate well, take advantage of the market when it is afforded to us, and ultimately be reliable because otherwise profitability will not translate into free cash flow. From our standpoint, we've gotten things significantly in order, and for us now it's just a matter of execution on the day-to-day business.
On the various environmental obligations that have been out there, does it make sense to go ahead and fund those? Is there any incentive at all to fund them, you know, preemptively?
I'm not so sure that preemptive. We now have a significant amount of clarity in terms of when these. You know, this is an unprecedented time where we have three outstanding periods under the Renewable Fuel Standard, and so we at least have line of sight in terms of dates when we need to actually turn in credits. Fortunately, I think we've tried to highlight for folks our 2020 obligation is done. That will be turned in at the end of this year, and then we have through Q1 and then into the end of Q3 next year to fulfill the 2021 and 2022 obligations. Included in our accrued liability line is about $850 million of balance sheet-related accrual for RINs. Investors should expect that those numbers will start to tick down over time.
The remainder is ultimately the combination of AB 32 cap and trade and LCFS credits. Those will also trade down or tick down over time because again, the AB 32 program is a multi-year program that will involve multiple step-downs through the remainder of the existing period. I think over time, they will absolutely go down, but currently there is zero plan to preemptively take care of any type of RIN-related obligation simply because we need to see more of this renewable diesel come online that will ultimately create more RINs.
Great. Thank you.
Thank you. Our next question comes from the line of Doug Leggate with Bank of America. Please proceed with your question.
Oh, thanks. Good morning, everyone. Thanks for taking my questions. Guys, you opened up your comments talking about we will see inventories normalize. I guess my question is, what about costs? I'm thinking specifically about, you know, the dynamics on the East Coast, Tom, as you pointed out, have changed dramatically, which presumably makes the U.S. incrementally more dependent on European imports.
Mm-hmm.
They're paying $60 per thousand MMBtu for natural gas today. When you talk about normalized inventories, how do you think about normalized margins?
Well, I think, Doug, we would not expect to see a continuation of the margins that we saw in the second quarter. We do expect to be above mid-cycle, and that's because of the structural things that you pointed out, others have pointed out, and we see. We have this extraordinary change in differential between European and Asian natural gas prices and what we're seeing. That of course raises the cost of production significantly in Europe, especially if you're trying to run a Urals-type crude, and you've got to pay up for the hydrogen that you need to take the sulfur out of the barrel. It's just.
Right.
Not just operating costs, it's also significant cost to get the sulfur out of the products. Structurally, with the cutbacks in Russia, both on feedstocks and obviously, crude shifts, we believe that we're going to see a structural change above mid-cycle leading to above mid-cycle margins going forward. In fact, that will also probably, as we said in the opening comments, we certainly think the East Coast is going to be strong, as strong as any other region, probably. West Coast might be behind it, depending upon what happens in 2023. If you know, if Rodeo goes down and we converts to a renewable plant, that will be a significant moment in time. Why we're saying that the
Obviously, the inventories have to be replenished. We're sitting at very low inventories, particularly on distillate and particularly in PADD 1. There's going to have to be steps to replenish those inventories. Refining utilization is gonna have to be very high, and the margins will be above the mid-cycle.
Yeah. I guess the reason for my question, Tom, is there's a lot of folks in this business still think about the seasonal trade in refining and that structural longer term reset is, I think, getting a little bit lost, which is why I asked the question. Thanks for your answer. I guess my follow-up is for Erik. Erik, you're obviously issuing some equity for PBFX, and I think we discussed that when we were on the road a couple months ago, that you know, PBFX could be next on the agenda after the balance sheet. But you're still retaining a sizable amount of debt, and that obviously amplifies your equity volatility, as we've seen recently with your share price.
I guess my question is, where does, you know, dare I say, a potential buyback of your stock feature as a use of windfall cash, given that you've pretty much done as much debt as you can without sizable premiums, presumably?
Look, I think from our perspective, carrying, you know, what we have pro forma for buying in the secured notes and having a debt balance of $2 billion, you really have to look, that excludes any cash netted against it. You have to go back to Tom's most recent comment in terms of what is the new mid-cycle? Well, with the structural changes in refining, combined with the fact that quite frankly, the refining sector is significantly more flexible post-COVID than it was pre-COVID, we all demonstrated our ability to ultimately adjust utilization rates to match demand. You know, that's gonna be extremely important on a go-forward basis. Our plan is to continue to. Right now, we will be building cash simply because of the market that we have today. That will in turn reduce our net debt.
Going out and prepaying a bunch of expensive longer-dated debt is not something that makes a ton of sense for us as we sit here today. We will be allocating some cash, as I mentioned, to the environmental credit side of things, but that's gonna be over the course of the next 12-14 months.
To be clear, that you're issuing equity for PBFX, could you presumably buy that back in over time?
Look, I think the transaction that is on the table for PBF Logistics is ultimately more or less a 50/50 equity cash deal. There's a cash component there, so we'll be allocating it $9.25 per unit around $300 million of cash, and the rest will be funded with equity. The amount of that equity will clearly be dependent upon where PBF Energy shares trade at the time of close. From our perspective now, again, I think it is.
We're gonna continue to operate safely and reliably, and, you know, that is the number one focus for us.
Yeah, let me just add to that, I think in your question, Doug. Look, if we sat down as a management team, executive team, in the first quarter and laid out a bunch of a couple of milestones and objectives that we wanted to achieve by the end of 2023, and about half of them we achieved in the second quarter. Two of those objectives is recognizing we work for the shareholder, and the shareholders pay the price for being in the industry and in PBF over the last two years. Certainly on the table for us to look at if indeed we continue to have the above mid-cycle margins that we've got, and we continue to build cash.
Two of the things that we have for further consideration are resuming the dividend down the road and perhaps buying in some equity. Right now we wanna get, we've done good things on the debt side. We wanna take the PBFX in, but we certainly are in a position where if we can continue to perform, we have other options at our disposal.
Great stuff. I appreciate you answering the questions, guys. Thank you.
Thank you. Our next question comes from the line of Carly Davenport with Goldman Sachs. Please proceed with your question.
Hey, good morning. Thanks for taking the questions today. Just wanted to start on the crude markets. Obviously, a lot of volatility and flat price as well as crude differentials across the board. Could you talk a bit about what the crude market is signaling from a runs perspective across the portfolio, whether that is, you know, perhaps maximizing heavy sour runs or otherwise?
I'm gonna ask Tom O'Connor to handle that question. He's been all over this.
Yeah. I think in terms of when we look at the market right now, I mean, in looking at it today, if you wanna go back a few days or forward a couple, you know, a few weeks, we're basically at peak runs right now as we head into the fourth quarter. We'll be seeing some forms of seasonal turnarounds. As you mentioned at that point, you know, the incentives are certainly for, you know, high utilization. You know, the sour part of the barrel is taking over some of that in terms of our capacity.
Got it. Great. Thank you. The follow-up just around the RINs piece. Can you provide around the current liabilities, the breakdown across California, and then just how much of that outstanding piece is fixed-price contract versus those that would be subject to mark-to-market?
There's about $850 million of RIN-related accrual and roughly $450 million of AB 32. AB 32, both cap and trade as well as a small amount of LCFS. On the RIN piece, I think the rough order of magnitude is you should assume it's about 50/50 between what we have contracted that has just not yet been settled, and ultimately what is the short related to our overall position, which quite candidly is now a 22-related short.
Great answers.
Thank you. Our next question comes from line of Manav Gupta with Credit Suisse. Please proceed with your question.
Hey, this might be for Erik or Matt, whoever wants to take it. Look, it appears you have a lot of conviction in your renewable diesel project. You like your project. You see a very good fit for it. Our base case somewhere was that you will get a partner. Again, knowing you guys, you will not take a bad deal. What we are trying to get to is, let's say you get in a situation where you don't really like the deal you are getting, would you be okay with taking this project to completion on your own? If you could help us answer that.
Hey, Manav. I think we are very pleased with where we sit today. I'd make a couple comments in regards to renewable diesel project. If you were starting that project today, and obviously we started incubating that project over a year and a half ago, my guess is, you know, our capital costs have an advantage to a material degree because we have an idled hydrocracker there. Even our project, if we started today, my guess is on the capital side, you'd probably be 25% higher on the time to market, I don't know, 30% longer.
Our project dynamics are strengthening as we execute the project and our project team has been doing yeoman's work, and we went ahead and secured long lead items early, and we feel pretty good about being insulated from the current inflation market. What we've said on the partner side is we're interested in, and we have been in active discussions with a number of parties, but we're interested in finding a potential partner that will improve the overall operation and the overall value of the entity. You know, if it's simply who can go out and find the cheapest money, that's obviously less interesting. We have a number of options in front of us. We're working it full time, and we're very pleased with the discussions we've had.
To your point, it's very much focused on how can we, if we bring someone in, how are we gonna grow the pie as opposed to just split it up?
Perfect. It makes sense. One quick thing if you could help us understand. We are seeing something where you are buyers of both Syncrude and you are also buyers of WCS. Now, they tend to move in the same direction generally, but what we are seeing is they're moving a little against each other. Syncrude is going at a premium to WTI and WCS premium discount is widening. So it can't only be egress. Help us understand what's driving this almost $30 differential in the two Canadian crudes that you buy. Thank you.
I'll make one comment and turn it over to Paul Davis. Obviously, it is a big spread, but directionally, all select crudes are commanded a premium because of what we talked about in terms of the need to deal with high natural gas prices, et cetera, et cetera, and the cutbacks from Russia. So you've got pressure on the light sweet side going up and some pressure on the downside because of the sulfur content of the heavier crudes. Paul, why don't you speak specifically to Manav's question?
Yeah. Manav, there is a market pressure on that spread, but primarily it's all maintenance up in Canada. The upgraders have had planned and not an insignificant amount of unplanned maintenance. That's put a premium on the Syncrude side of the business.
Thank you so much, guys.
Thank you. Our next question comes from the line of Theresa Chen with Barclays. Please proceed with your question.
Good morning. Thank you for taking my questions. I actually just wanted to, you know, come back to your comment, Tom, about, you know, mid-cycle margins being higher and the industry needing to replenish inventories over time. How concerned are you about the incremental capacity coming online, either ramping up today in the Middle East and Asia or, you know, recently ribbon cut in Mexico or penciled in to come online in Africa? Hope to get your thoughts there.
Yeah, I think, well, actually we need the capacity to come online to help replenish those inventories. I don't think it's gonna impact the utilization. To your point for our business, we're gonna see continued growth in Asia. There's no doubt about that. They've been delayed. Some of them delayed rather significantly because of COVID. But ultimately, they need to bring that capacity on. As the developed world continues to improve and grow, Asia needs that capacity. We expect that there will be capacity coming online. Mexico wants to be energy independent. That I think will take more time than what is advertised. We see the creep in costs associated with some of this refining capacity. They're certainly moving down in that objective.
At the same time, as I said earlier, there's continued examples of, particularly in the U.S., in the West Coast of refineries that are saying they're going to because of the pressures on fossil fuels, a banning of the internal combustion engine in 2035 by the state of California. Avon Tesoro Refining, former Tesoro Refinery in Avon is now owned by MPC, is gonna convert to a renewable, so is Rodeo. You know, the interesting thing there is when you convert, going to make a renewable project, yeah, you're gonna make renewable diesel, but you're not gonna make any gasoline or any jet fuel. I think while we do expect the capacity to increase worldwide, I don't know that we're gonna see much creep in the United States.
In fact, it may go the other way, and I suspect the utilizations will remain high, absent a really pronounced recession or something like that in the U.S.
Thank you.
Thank you. Our next question comes from the line of Conor Fitzpatrick with Morgan Stanley. Please proceed with your question.
Yeah, thanks. I wanted to talk about the buy-in of PBF Logistics. Excuse me. Just in terms of the strategic thinking, obviously, you highlighted the cost savings and some of the, you know, mechanical savings and not having to run two separate companies. Just strategically thinking, you know, what's your sort of thought on the value creation there?
You know, this is probably less PBF centric, but many of the attributes that existed with having a drop-down MLP has subsided over the last number of years. It was an entity that was performing well in terms of its operations and its financial performance. Many of the benefits that drove us to create the structure and the entity subsided. The ability to clean it up now, as a number of other companies have done, seems to make a lot of sense. It, you know, I think it's pretty straightforward. We present as a more simple structure.
Yes, there are benefits of getting some costs out of the way, but that I don't think was the big driver. The PBF acts as a growth platform and something that was in high demand of yield simply declined over the last couple of years. We're happy to bring the assets in. All our employees will, many of which were wearing two hats. It simplifies that quite a bit. We try to create a transaction that was fair for all parties, working with the conflicts committee at PBFX. It went through a full process, but a very fair one, and so we were pleased.
Yep, makes sense. I just wanted to talk and return to the conversation about the balance sheet. I understand that you don't want to, you know, buy back debt at a high premium. I was trying to parse your comments. It sounded to me like maybe you're thinking there is a sort of a need to run at a lower, you know, structurally lower debt level than before. You know, basically, could you just help us think through the framework of, you know, you're buying in logistics, which can probably support a little bit more leverage. I think you're pointing to flexibility that you've demonstrated in the refining system. But just curious, is there an argument to be running at a lower debt level based on what we've just gone through or no change to that?
I think it just inherently based on at least where we are today and what we see in terms of forward curve, there will absolutely be a significantly lower net debt level for PBF consolidated on a go-forward basis. Where we are here at the end of July is ultimately we've just consumed a massive amount of delevering, and there is zero pressure to do anything at this point. We do have some PBF Logistics notes that will be coming due next year. We feel like we have ample capacity between the revolver at PBFX as well as the PBF ABL. We also have a significant cash balance. Really what we're prepared to do now is to determine what is the long-term structure in terms of debt.
Making a decision now when, quite frankly, the high yield market, I believe the first six months of this year might be the third worst performance in high yield ever. Wading into a market that is not yet fully recovered to push out some of these maturities seems a bit premature, and quite frankly, there is zero pressure, and we have the financial flexibility. We are really focused on. We should continue to see liquidity improve now that our numbers are out and we filed the 10-Q this morning. Ultimately, we will be sitting down with suppliers in August and September. We should see letters of credit come down, the collateral posting, right?
There's really a significant amount of things that compound on themselves as a result of our balance sheet getting back to, again, better than it was as we entered COVID, and we are a significantly stronger and quite frankly, bigger business than we were. Let's not forget that we have a real workhorse out on the West Coast in Martinez that now has been added to the portfolio. Only with Q2 have we really been able to demonstrate, you know, what that particular asset can do. We've got a high bar internally in terms of what we need to execute on. I think the key message right now is that we are flexible and most important, we are patient. We do not have our backs to the wall on anything.
We've just lived through the biggest demand destruction event that this industry has ever seen, and we've come out the other side, and we're stronger than we were when we entered.
Yep, makes sense. Thank you.
Thank you. Our next question comes from line of John Royall with J.P. Morgan. Please proceed with your question.
Hey, good morning, guys. Thanks for taking my question. I think you made a comment in the opener about IMO 2020 kind of coming back into view. Can you talk through some of those dynamics and the impact you're seeing from IMO now and I guess how that could evolve going forward?
I will make a comment that just look at the clean dirty spread, the spread between high sulfur fuel oil and diesel, ultra-low sulfur diesel, and that spread is very wide. There's a number of factors that are impacting that. Not the least of which, in fact, perhaps the most important factors right now at this tense seconds is the stress to shift crudes to sweet crude from sour crudes, heavy crudes because of high natural gas prices and the costs associated with those natural gas prices on getting the sulfur out of a crude. As we talked earlier, you've got pressure on the heavier crudes, feedstocks being driven down because of that dynamic, and you've got pull on the sweet side.
At the same time, what we are seeing is. We've been saying one of the advantages, strengths of PBF for the last, I don't know, 10 years, has been our complexity. We are a very complex kit, and we candidly have not been rewarded for that in the past couple of years because of the low spreads between the light sweets and heavies. That was to a certain extent due to the fact that there was ample resid destruction capacity available, coking capacity. Well, that's changed some. Coking capacity is getting full, and that's becoming tighter, which means that will be another contributor to the differential between the light sweets and the heavy sours.
It's really a combination of factors, but we are certainly seeing a higher utilization of resid destruction equipment than we've seen over the past several years. That's being driven incrementally because you've got to get the sulfur out of the high sulfur fuel oil to get it into the bunker fleet.
Okay. That's really helpful. Thank you. Can you talk about a recession case and what that could mean for the industry and for product inventory balances and cracks if it happened in, you know, let's say the next 12 months? Would that change your view on the structural crack being above mid-cycle if we had a bit of a reset due to recession?
Not really. I think. Well, it would all depend upon the gravity of the recession. If we have you know, we do have basically full employment in the U.S. right now. I'm not saying that there isn't gonna be a correction here or a recession. There's no doubt that inflation has got to be dealt with, and there's no doubt that the Fed indeed is going to do that. There are other factors that on the other side of the equation, as I said, you know, disposable income, people had a lot of disposable income coming out of COVID, and we do have effectively full employment, and there's more job openings than there are people out of work. Hopefully, if there is a recession, it won't be a drastic recession.
It'll hopefully be a little bit more shallow. Who knows?
The fact is, what we're seeing already is the price of gasoline has dropped, you know, over $0.50 a gallon. What has to happen really to the next steps in this correction is to work the food side and the other things in the supply chain to get those things turned around and bring the rate of inflation down. There'll be an impact, there's no doubt, but I don't think it's going to be an impact that is gonna knock us off the need to run the refineries that are very high utilization because of the supply-demand balances and the fact that we don't have as much capacity on the ground as we used to.
Great. Thanks very much, guys.
Thank you. Our next question comes from the line of Karl Blunden with Goldman Sachs. Please proceed with your question.
Hi, good morning. Thanks for the time. I just had a question on RINs. I think it was helpful when you broke out the fixed versus floating exposure there. I was curious, is there a thought to changing your approach to how much you run fixed versus floating? It's just been such a focus for people, maybe a distraction away from the core business from time to time.
Yeah. Absolutely. Going forward, again, we're in a very unique position now where we have these three outstanding annual periods. You know, the RIN market is not like the regular way securities markets for equity and debt. I think we've tried to highlight that for folks along the way. As these periods suddenly get put in the rearview mirror, we do believe that ultimately we will not be talking about. We're happy to disclose what we expense in terms of RINs, but ultimately, we wanna put a lot of this noise behind us. It's been a very messy program along the way. Candidly, we're also still trying to anticipate what the 2023 program is going to look like for us.
Our focus right now is really on making sure that we handle our 2022 obligation, and ultimately, we comply with the program for 2021 and 2022.
Thanks, Erik. A follow-up just on the bond maturities that you have coming up. I think you've been clear that you can be patient. As you look forward, though, do you think the business or the appropriate capital structure could be one where you just take out the 2023 and 2025 debt and don't replace any of it, so run leaner in terms of how much debt you have on the balance sheet? Is that something still kind of thinking through what the appropriate quantum of debt is?
I think we'll still have to figure out what the long-term debt quantum is. Right now there's zero plan to take out that. You know, the stub is about $675 million outstanding on the 25s, and then we clearly have the 2025 for PBF Logistics. There is a longer-term appropriate level. Going debt-free in this business doesn't seem to be extremely responsible. At the same time, we've seen the type of consternation that it provides when you have an over-levered business in refining. We're trying to find what we deem to be the sweet spot there. As we sit here today, you know, we do have on a trailing twelve-month basis, we have less than 0.4x debt to EBITDA.
Understood that we've just gone through a period where we've generated close to $2 billion of EBITDA during the quarter. However, the forward curve is spitting out numbers right well north of $1.7 billion-$1.8 billion for our business over the next handful of years. What we are trying to ultimately determine is what is the right level. Again, we can be patient now. We're in the driver's seat now as opposed to reacting to everything coming at us during COVID.
We'll stay tuned. Thanks, Erik. Appreciate it.
Thank you. Our last question today comes from the line of Matthew Blair with Tudor, Pickering, Holt & Co. Please proceed with your question.
Hey, good morning. Thanks for taking my questions here. First one, could you talk about the product yield and feedstock slate for the upcoming RD plant? On the product side, do you anticipate having any SAF flexibility? Then on the feedstock side, I believe you're looking at full pretreatment, but do you think you'll be able to access, you know, these discounted waste oils and animal fats, or would it be more like a crude SBO feed?
Go in reverse order maybe. We are actively building out our commercial operation now. While the project will not come on until the second quarter, we're actively staffing up and building the capabilities to source whatever is the most economic feed available. I do think in regards to our timing, one of the strengths of our project is when we're coming on, there's a number of projects behind us that will have the advantage of actually being out buying feeds. Yes, we believe we'll have access to the market. We're hiring the professional staff to execute on that, and we'll have full capability to run whatever is the most economic at any given time.
We'll have full flexibility and, you know, that's why we think the project is so attractive. In regards to the yields, and obviously there was some news last night. We haven't fully digested what is in the potential compromise with Joe Manchin. We anticipate that SAF will be a demanded project or a demanded fuel in the future, and we'll have the capability to manufacture sustainable aviation fuel from the project.
Any initial thoughts on what the SAF yield might be?
You know, I think we could get it up to 20% without much capital, and for a modest amount of capital, we could get higher than that.
Wow, okay. That's great. To comment on you expect above mid-cycle refining margins for now. You know, when we think about the math behind it, looking at Europe natural gas at $50 per MMBtu, U.S., you know, call it around $7. We think about generally, you know, every $1 per MMBtu in natural gas is about $0.25 per barrel in refining margins. Just doing the math there, that'd be about an $11 margin benefit from just a steeper global cost curve. Does that make sense to you? Is that how you think about it as well, or any different numbers there?
Directionally, that's the way we look at it. There's been a number of publications that have put out in the scale of what the spread is between European gas and Henry Hub. If indeed we wind up holding a $50 spread, that is going to be a very big driver for improving margins because obviously European refineries have got to cover those costs and we will be cost advantaged in many ways. You're directionally correct.
Great. Thank you.
Thank you. Ladies and gentlemen, we've come to the end of our time for questions. I'll turn the floor back to Mr. Nimbley for any final comments.
Thank you folks for joining the call today. We look forward to continuing to recognize our employees and reward our shareholders and talking to you at the third quarter call. Thank you very much.
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.