PBF Energy - Q4 2023

Transcript

Operator (participant)

Good day, everyone, and welcome to the PBF Energy fourth quarter and full year 2023 earnings conference call and webcast. At this time, all participants are 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 0 on your telephone keypad. Please note this conference is being recorded. It is now my pleasure to turn the floor over to Colin Murray of Investor Relations. Sir, you may begin.

Colin Murray (VP of Investor Relations)

Thank you, Kat. Good morning and welcome to today's call. With me today are Matt Lucey, our President and CEO, Karen Davis, our CFO, and several other members of our management team. Copies of today's earnings release and our 10-K filing, including supplemental information, are available on our website. Before getting started, I'd like to direct your attention to the safe harbor statements 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 our prior periods, we will discuss our results today, excluding special items.

In today's press release, we describe the special items included in our quarterly results. The cumulative impact of the special items increased fourth quarter results by an after-tax amount of approximately $700,000, or $0.01 per share. Primarily relates to a change in the fair value of contingent consideration associated with the Martinez acquisition and a benefit related to a change in the Tax Receivable Agreement liability, offset by a decrease to our gain on the formation of SBR and our share of the SBR lower of cost or market inventory adjustment. Also included in today's press release is further guidance information related to our expectations for the first quarter of 2024. For any questions on these items or follow-up questions, please contact investor relations after the call. For reconciliations of any non-GAAP measures mentioned on today's call, please refer to the supplemental tables provided in the press release.

I'll now turn the call over to Matt Lucey.

Matt Lucey (President and CEO)

Good morning, everyone, and thank you for joining our call. As we close the book from last year, PBF achieved its second best financial year in 2023. Over the course of the year, we further enhanced equity value by reducing our debt by over $700 million, and we returned $640 million directly to shareholders through dividends and share buybacks. The company was able to purchase 150 million of our shares in the fourth quarter. I'm pleased to announce our board of directors has approved an incremental 750 million share repurchase authorization. This resets our program to just over $1 billion of remaining capacity. We ended the year with our balance sheet transformation complete and our strongest financial position ever. As we look at the quarter, the West Coast operations had clear challenges. Operations outside the West Coast were reasonable.

Our East Coast and Gulf Coast systems performed well in their respective markets, with capture rates broadly in line with prior quarters. While Toledo operated well, the MidCon market was certainly challenging. At times, gasoline cracks were at or near negative numbers. This phenomenon in the MidCon during the fourth quarter is not new and somewhat of a return to normal seasonality. Importantly, we've seen a recovery in the MidCon product cracks as February began. Our West Coast system underperformed largely to our overlapping planned and unplanned maintenance activities. This was an unfortunate convergence of circumstances where we had both assets undergoing maintenance. While not the plan, it was the reality. In Q4, we completed the major FCC turnaround in Torrance, and as mentioned last quarter, we experienced unplanned FlexiCoker downtime at Martinez. The FCC was delayed getting restarted, and the Coker work rippled through Martinez operations.

The delayed restart of Torrance and the unplanned Martinez work cost us approximately $100 million in lost profit and an additional $32 million in operating expenses. In looking at our tariff sheets, you'll see that on the West Coast, we consume less heavy crude as a percentage of inputs, which increased costs. Our production yielded less high-value products, notably gasoline. As a result of the delays and downtime, we did build high-priced crude inventory, which will be consumed in the first quarter. Again, while Q4 was clearly disappointing in California, I believe our West Coast system will be significant contributors to our results in 2024, as it has demonstrated over the last few years. Looking ahead to Q1 across the system, we have a hydrocracker turnaround in Toledo beginning this month and an FCC turnaround on the East Coast beginning in March.

With industry maintenance across the refining space increasing, we have seen significant improvements in our market cracks in February. Indeed, the outlook for 2024 is constructive, and we are focused on positioning our assets to perform to their potential. Global refining capacity, including new additions and refined product demand, remains tightly balanced. The refining industry has not been able to sustain product inventory builds, and balances remain tight to historical levels with growing demand. Disruptions in historic trade flows and patterns are creating tension in the market that is accruing to U.S. refiners, specifically coastal U.S. refiners such as PBF. With this favorable market backdrop, PBF should continue delivering strong earnings and free cash flow and generating long-term value for our shareholders.

On the regulatory front, we are pleased to report that we have reached an agreement with the Bay Area Air Quality Management District on a path forward with regards to Regulation 6.5, which will achieve the mutual goal of lowering particulate emissions. Consistent with expectations, we're able to reach a settlement where we will comply with Rule 6.5 without any mandated incremental investment when the rule goes into effect in July of 2026. Additionally, we do not expect any material changes to our operations or product yields as a result of the regulation. As we saw from activity earlier in the quarter, combined markets will continue to be volatile. The global refining system and PBF in particular will be nimble in adapting to market conditions. The focus will be, as always, on maintaining consistent operations coupled with disciplined, rigorous capital allocation.

Before turning the call over to Karen, I want to take a moment to publicly thank all of PBF's employees for operating safely. Last year, PBF recorded its best year in our history from a personal safety perspective. This is across all segments of our business, including our employees and the contractors who work in our facilities on a daily basis. The achievement of the lowest lost-time incident rate in our history is a testament to the focus of each and every person in the company in executing their daily routines with the utmost professionalism and care. With that, I'll turn it over to Karen.

Karen Davis (SVP and CFO)

Thank you, Matt. For the fourth quarter, we reported an adjusted net loss of $0.41 per share and adjusted EBITDA of $117.2 million. For the full year 2023, PBF reported adjusted net income of $11.32 per share and adjusted EBITDA of more than $2.6 billion. Cash flow from operations for the quarter was just under $306 million, including a working capital benefit of $59 million. Consolidated CapEx for the fourth quarter was approximately $233 million, which includes $221 million for refining, corporate, and logistics, and approximately $12 million in final payments related to SBR construction costs. For full year 2023, consolidated CapEx was approximately $1.2 billion, which includes approximately $312 million to complete the SBR facility. On a go-forward basis, capital expenditures for SBR will not be reflected in PBF's consolidated numbers. We continue to demonstrate our commitment to shareholder returns through our quarterly dividends and share repurchase program.

In 2023, we paid over $105 million in dividends and repurchased approximately $533 million of PBF shares. Dividends paid in the fourth quarter totaled more than $30 million, reflecting the 25% increase in the quarterly dividend rate announced last quarter. In the fourth quarter, we repurchased $150 million of PBF stock, more than 3.3 million shares. Since the program was introduced in December of 2022 through yesterday, or in just over a little year's time, we have completed approximately $740 million in total share repurchases, more than 17.6 million shares. We have reduced our total share count to just under 120 million shares. During our third quarter call, we commented that our work to fortify our balance sheet was largely complete. Over the past three years, we have reduced debt by over $3.4 billion, which in turn reduced our annual interest expense by over $200 million.

In addition, we eliminated the overhang of our environmental credit payables by reducing the liability by $900 million, and we retired our inventory intermediation agreement at a cost of $268 million. These efforts, which totaled nearly $4.8 billion, have enhanced our equity value and produced a balance sheet with investment-grade level credit metrics. One comment on our outstanding environmental payables: at year-end, our RINs liability was fully committed. With the reduction achieved in 2023, we have brought down the balance to near what we would consider the upper range of normal. As a reminder, the current balance sheet represents PBF's commitments across a number of environmental credit programs, not just RINs. Now that we are in the business of generating credits through SBR, we are going to actively manage our consolidated positions in order to take advantage of market pricing and structure and to reduce our overall costs.

Individual components may shift based on our commercial strategy, but we expect that maintaining this balance in the $200 million-$400 million range is appropriate over the long term. Over the course of 2024, you can expect the $430 million that was outstanding at year-end to be reduced to this range over the coming quarters. The balance may fluctuate depending on market conditions and commercial strategy. We ended the quarter with almost $1.8 billion in cash and approximately $1.3 billion of debt. Also of note, the final payment of the Martinez earnout, which we expect to pay in April, now stands at approximately $21 million, down from last quarter's estimate of nearly $95 million. Sustainable dividends and share repurchases are important components of our overall long-term capital allocation and shareholder return objectives. Maintaining our firm financial footing and strong balance sheet remain priorities.

To the extent our operations continue to generate cash beyond the needs of the business and the requirement to continuously invest in our assets, a greater percentage of that cash should be available for shareholder returns. As always, though, we will look at all opportunities to allocate capital through the lens that directs cash to the option that generates the greatest long-term value for our shareholders. Operator, we've completed our opening remarks, and we'd be pleased to take any questions.

Operator (participant)

In a moment, we will open the call to questions. The company requests that all callers limit their turn to one question and one follow-up. You may rejoin the queue with additional questions. If you would 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 would 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. One moment, please, while we pull for questions. Your first question comes from Roger Read with Wells Fargo. Please proceed.

Roger Read (Managing Director and Senior Equity Research Analyst)

Hey, thank you. And good morning. I guess, Matt, you kind of hit on it in some of your opening comments. We had the IEA out today with a bucket of cold water over the oil and gas industry. But I was just curious how you see demand as you look across your nationwide approach. Obviously, you've had some pretty rainy weather in California. We've had the snowstorms on the East Coast. But looking through those items, how do things look on the demand side?

Matt Lucey (President and CEO)

I think they look reasonable. Obviously, you touched on it in regards to the seasonality and weather. And when it's really wet in California, people generally don't go out. If it's really cold in the Gulf Coast, people don't know how to drive. And indeed, we just had some weather here in the Northeast. That certainly impacts it. But that's seasonal. I think going into the remainder of the year, I'm fairly pleased where I was much more cautious on the soft landing going back over the last couple of years. Overall GDP and the economy look pretty constructive.

Roger Read (Managing Director and Senior Equity Research Analyst)

Okay. And then as a follow-up on the share, let's call it cash returns to shareholders, whichever method it takes, comment made about having an IG quality balance sheet. Is there anything you're doing different until you receive an IG rating, or you have what you have, and we should look at it as that'll be a, "Oh, I don't know. Let's call it a nice feather in your cap," or something like that, but doesn't really alter the way you think about things, or it will help you down the road in the way we should think about total returns for the company?

Matt Lucey (President and CEO)

I'll make a couple of comments. And then ask Karen to comment, in terms of doing anything differently, I don't think so. We would maintain the balance sheet that we're having today because it's the right thing to do. And there are a number of benefits, some of which we've already gotten in terms of trade credit. We have market participants that can see through the rating agencies. I was born of the credit world, meaning that's where I began my career in banking. And the credit agencies are going to be slower. And that's just a reality. That's not news to us. We have a good relationship with each of them. And I think we're going to continue to demonstrate that indeed, we have a market-leading balance sheet on any credit metric someone wants to pull up.

So we're operating our business as we would if the credit rating agencies didn't exist. We do want recognition for what the reality is, but that will take some time. Karen, I don't know if you had any other comments.

Karen Davis (SVP and CFO)

just would add that our goal of achieving an Investment-Grade rating is based not only on the obvious benefits of reducing our weighted average cost of capital and certain other expenses, but we also think it might give us access to a greater or broader base of shareholders, those that an Investment-Grade rating sort of confirms that the underlying fundamentals are strong and that will be appealing, we think, to longer-term investors.

Roger Read (Managing Director and Senior Equity Research Analyst)

I would agree with that. All right. Great. I'll turn it back. Thanks.

Operator (participant)

Your next question comes from John Royall from JPMorgan. Please proceed.

John Royall (Executive Director and Senior Equity Research Analyst)

Morning. Thanks for taking my question. So my first question is just a clarification, I think, on the RIN liability. And I appreciate it that it's very much dwindling at this point. But I think Karen mentioned the $200-$400 million target range. Is that apples to apples with the $50-$100 million you gave on the last call? And if so, could you just bridge us from one range to the next? I feel like I may be missing something there, but if you could just help us with that change in the number. Thanks.

Karen Davis (SVP and CFO)

Last year or last quarter, in the guidance we gave, we talked in terms of number of RINs that we thought would be represented in that liability. I think now we're viewing the environmental credits liability more holistically and including things like cap and trade and whatnot. So, our range now we're expressing in terms of dollars and inclusive of all of our credit programs.

John Royall (Executive Director and Senior Equity Research Analyst)

Okay. That's helpful. Thank you. And then just on SBR, on an adjusted basis, I think you lost about $20 million if we did those adjustments correctly. And that's coming off a nicely positive result in 3Q. I know you had a catalyst change, but anything else to call out there? And how should we think about the first quarter for RD?

Matt Lucey (President and CEO)

Nothing's changed. A couple of positive developments have come down the path in regards to as we've gotten into Q1. We expect for all of Q1 that we'll get our actual low-carbon score in regards to our feedstocks. We expect that will come in in Q1 and actually apply to the whole quarter. So that's a positive development. We are also expecting to, in quarter one, be able to be specced into Europe. That requires approved feedstocks. So that's not only a regulatory check the box, but it also requires that you have approved feedstocks go into that. That will take a little bit longer to get into our system where we'll be able to fully ARB into Europe. But both of those are very positive developments in looking forward. Looking back, obviously, the catalyst change was impactful in Q4, as we talked about on our last call.

And then there was noise around some LCM charges and other things in the financials.

John Royall (Executive Director and Senior Equity Research Analyst)

Thank you.

Operator (participant)

Your next question comes from Doug Leggett from Bank of America. Please proceed.

Doug Leggate (Managing Director and Head of US Oil and Gas Equity Research)

Hey, good morning, everybody. Thanks for taking my questions. Karen, these are both probably or maybe for you. Let me start with working capital. Even if we took account of the J. Aron buyout earlier this year, you still had a fairly sizable net working capital impact for the whole year that was negative. Was that related to Matt's comment about crude inventory building, or is there something going on there that we should expect to reverse?

Karen Davis (SVP and CFO)

No, Doug, I think the main impact there is the $900 million that we spent to reduce the environmental credit liabilities. That's all within there and quite outsized in one time. So I think we'll see that less of an impact in working capital going forward.

Doug Leggate (Managing Director and Head of US Oil and Gas Equity Research)

Great stuff. So it shouldn't reverse, but it shouldn't repeat either, fair?

Karen Davis (SVP and CFO)

Correct. Yeah, that's the right way to think about it.

Doug Leggate (Managing Director and Head of US Oil and Gas Equity Research)

All right. Thank you. Matt, the East Coast, it's a bit in the weeds, I guess, but the East Coast is where we saw your earnings miss this quarter relative to your normal kind of capture, if you like, or at least how we think about your LP on that side of the business. We're trying to figure out if this is something to do with freight costs, crude, or maybe the pool as Dangote gets started. Is there anything going on that you can point to that says why the East Coast with better throughput, why it did a little bit worse, perhaps, than we might have thought?

Matt Lucey (President and CEO)

No, not in regards to refinery startups. Paul, would you make any comments on East Coast?

Paul Davis (EVP, President, Western Region)

No. I mean, I didn't see anything out of the ordinary on the East Coast, to be honest with you guys.

Matt Lucey (President and CEO)

What we had over the quarter is crude differentials began to widen because that takes a while to get into the plant. So you see the market indicators on the cost of crude. There's a lag to that. And I expect you'll see the benefit in the first quarter on that side of it. But quite honestly, Doug, the freight realities of having to navigate around the Cape of Good Hope means more materials are on the water, which obviously increases demands on shipping. And freight rates have gone up as a result. And I think the net result of that resides in a higher crack on the East Coast. So I think it's resilient to our markets, but there's nothing extraordinary on the East Coast that was negatively impacting us.

Doug Leggate (Managing Director and Head of US Oil and Gas Equity Research)

That's a great color. Thanks. Thanks very much.

Operator (participant)

Your next question comes from Ryan Todd with Piper Sandler. Please proceed.

Ryan Todd (Managing Director and Senior Research Analyst)

Good. Thanks. You mentioned a few things on SBR, but I guess you're a little over six months, 6, 7, 8 months into operations there. Can you maybe talk about high level about what you've learned so far, what's gone well, what's been challenging? How often do you expect to perform catalyst changes there and maybe how your feedstock mix has evolved over the last 6ameto 8 months of operations?

Matt Lucey (President and CEO)

I'll make some high-level comments, and I'll ask James Fedena, who's in charge of that operation, to make some comments. Directionally, I think it's been an extraordinary experience so far in getting the plan up on time. Yeah, you're always going to work out some gremlins coming out of it, but I think we did that better than most. Our relationship with Eni, I think, has been off to a terrific start. I was over with some of their executives back in December. And indeed, some of their executives are stateside, and we're working with our team this week. So the partnership, I think, is going as well as we could expect. And I think our interests are very, very well aligned and focused on maximizing all of SBR's capabilities.

We still view it as absolutely a tier-one asset in the right geographic location, which gives great options on feedstocks and disposing of products as opposed to being tied into California. We'll have the wherewithal to go wherever the market is best. Obviously, we get some benefits connected to Chalmette on the operating expense side. Jim, would you give any other particulars in terms of operations?

James Fedena (SVP)

The only thing I'll add from a catalyst change out perspective is on an annual basis, you change out the guard bed catalyst. About every 24 months or so, you change out the ISOM catalyst in the back end of the unit.

Matt Lucey (President and CEO)

The other just more macro thing, much less in regard to PBF, is obviously the market for RD is down as credits have come down. The supply of RD has reduced. RINs and California credit prices as well have come down. That's not a surprise to us. We were expecting it. Indeed, I think that will continue for a bit. And where it's going to put pressure is on the more marginal players, where what they ultimately do, that will certainly impact the market. But we're clearly advantaged to those marginal players. I think the supply side will shuffle out here over 2024.

Ryan Todd (Managing Director and Senior Research Analyst)

Great. Thank you. That's helpful. And then maybe just shifting to the West Coast, not on renewable, but on the rest of the refining business, you've seen a big bounce in margins there over the last couple of weeks. Can you talk about what you're seeing in terms of kind of overall supply-demand dynamics and product-market dynamics there on the West Coast within your operations? And then just to clarify, I think did you say in your opening comments that you're still going to be working your way through higher-priced crude inventories there in California? And is that going to be a headwind to kind of margin capture in the first quarter there?

Matt Lucey (President and CEO)

It will. Look, there's no question that and extensive comments around it. Q4 operations were poor. That inventory that we carry over will carry over into the first quarter, but that will then be behind us. Paul, why don't you give direct comments in regards to what you see every day on the ground in California?

Paul Davis (EVP, President, Western Region)

The big move in California markets really is the seasonal changeout from winter gas to summer gas in Los Angeles. That's the big pop you're seeing on the cracks that you guys look at every day. In addition to that, jet fuel is well bid in the L.A. market and San Francisco markets, with the arbitrage from Asia pretty much shut down. You're seeing the impacts of a short market moving into the high seasonal demand periods.

Ryan Todd (Managing Director and Senior Research Analyst)

Thank you.

Operator (participant)

Your next question comes from Manav Gupta from UBS. Please proceed.

Manav Gupta (Executive Director and Senior Equity Research Analyst)

Hi. Good morning. I wanted to ask about the renewable diesel market a little. I fully appreciate that these are developments which happened a couple of days ago, but I'm hoping you have more information than we do. A few days ago, it looks like the New Mexico Senate passed the low-carbon fuel standards bills. This could go into effect in 2026. It's a very aggressive program. It goes from 0% to 20% in like four or five years. We haven't seen that before. So I'm just trying to understand if this all works out. Given your location, could this be a new market for you besides California? Can you move the product to New Mexico if things work out in this direction?

Matt Lucey (President and CEO)

Yeah. One, I think the point of what happened in New Mexico speaks to the investment thesis in RD. And that is, over the course of time, governments are going to price carbon to incentivize the manufacturer of renewable diesel, specifically to our ability to competitively deliver product into New Mexico. It's too premature to say that. But I would also say the market is a bathtub. And to the degree New Mexico draws other barrels, it opens up other markets. So I'm not so focused on our direct ability to impact the New Mexico market in particular, but all these things cascade with each other, and it'll free up demand in other markets. But it's certainly constructive and consistent with our investment theme, as I said.

Manav Gupta (Executive Director and Senior Equity Research Analyst)

Perfect. My quick follow-up is, and you kind of mentioned this also in the earlier parts of the call. You saw this big MidCon weakness. It looks like it's abating. The cracks are rebounding. And just like you gave an outlook on West Coast, what are you seeing in the MidCon market? Was this weakness just seasonal, and should we expect a strong 2024 as it goes to overall the MidCon region in terms of cracks? Thank you.

Paul Davis (EVP, President, Western Region)

I mean, the MidCon economics in the fourth quarter were seasonal, and it's something we normally see on an annualized basis. As we move into the first quarter, Whiting falling over was definitively beneficial to the cracks, and you're seeing that. So that's been the catalyst to move the cracks forward. There's been some crude advantages out of Canada for PADD 2. Those are going to come to an end as we get into Q2 and Q3. But I think we're expecting normalized cracks in PADD 2 going forward.

Manav Gupta (Executive Director and Senior Equity Research Analyst)

Thank you.

Operator (participant)

Your next question comes from Neil Mehta from Goldman Sachs. Please proceed.

Neil Mehta (Managing Director and Senior Equity Research Analyst)

Yeah. Good morning, team. The first question is just how you're thinking about capital allocation in the context of M&A. What do you think the market is? I mean, it's been a big part of the PBF story and how you've gotten to where you are today. Do you still think there are opportunities out there, and what's the overall framework for thinking about it?

Matt Lucey (President and CEO)

Well, I think the M&A, as I mentioned in the comments, a disciplined and rigorous capital allocation effort. M&A is no different than internal projects or share buybacks. We'll evaluate everything in the market as we always have and judge them against each other and allocate the capital as best we can. I don't think it's worth speculating on M&A activity at the moment. There's nothing of immediate sort of action. We don't comment on it in the base case anyway. It's consistent with what we've been talking about over 2023, the full year 2023. We are so focused on transforming our balance sheet, and we've done that. It's complete. We mentioned it in the last quarter. We're mentioning it again today. There's nothing left to address there. So now we're a company, as any company should be, focused on generating cash.

As we generate cash, how we allocate it. Whether it's external opportunities, internal opportunities, or simply returning cash to shareholders, we've got a dedicated team analyzing all alternatives as we go forward.

Neil Mehta (Managing Director and Senior Equity Research Analyst)

Yeah. No, that's helpful, Matt. And just a follow-up is just I just love your perspective on how you're seeing refining balances, particularly in the context of global refining, which was alluded to earlier. We've had two to three extraordinary years of margin. Do you see margins mean reverting, or do you believe that this is a new structural normal?

Matt Lucey (President and CEO)

Well, it's interesting. And I'll ask Tom O'Connor to make some comments. As I sit here today and was looking at it as of yesterday, if you look at 2024 board cracks, the market for calendar 2024, it actually looks very comparable to 2023. I think there's been discussions of reverting to the mean, and I'm not so sure that we're going to revert to the mean as quickly as some maybe were predicting. And obviously, there's a very, very big difference from where we were in 2022 and even 2023 to what the historical mean is. But the market is set up very constructively, as I said. And over the last couple of years, I mean, a big thing has been the industry has been incented to build inventory and has really struggled in that regard. And so here we sit, 2023, and inventories are very, very tight.

Yes, there's going to be capacity that's going to be coming on, but quite frankly, it's needed as demand growth for products worldwide will continue to grow. I would personally take the over on is that equipment coming on time or as expected? These are incredibly complex, very large additions in their own right, both in Mexico and Nigeria. My experience perspective is I think that probably takes longer. Tom O'Connor, would you make any other comments?

Tom O'Connor (SVP)

Yeah. Neil, I mean, I think in terms of what Matt was saying, I think the only one thing I would add certainly is big change in net-adjusted cracks year-over-year, right? Board cracks lower, but we've got a net basket that is $4-$5 lower if we start looking at year-over-year. So in terms of product realizations, that's meaningful. As Matt was talking about with the refinery additions that are coming on stream this year, probably part of it lends itself into being next year. A lot of that is coming in the form of the CDUs are starting up, and the secondary units are really much further out, right? I mean, in terms of when the FCCs and the Cokers and all those other nice secondary units come out, that actually can be quite helpful for the market, right?

I mean, the market is tight in terms of secondary feeds on feedstocks for the FCCs and for the Cokers. So I think we'll see that. It'll be sort of similar to things that we've seen in the past when there's been refinery expansions and the secondary units come afterwards, right? I mean, the VGO market in particular for 2023 was certainly a bit lower than what expectations were. And a lot of that was coming from some increases to CDU that took place in the Gulf Coast without increases to secondary units.

Neil Mehta (Managing Director and Senior Equity Research Analyst)

Thanks, Tom. Thanks, Matt.

Operator (participant)

Your next question comes from Paul Chang from Scotiabank. Please proceed.

Paul Cheng (Managing Director and Senior Equity Research Analyst)

Thank you. Good morning. Matt, if I look at on the I mean, since the pandemic, I mean, that the market condition is up and down and so a lot of volatility. So it's difficult for us from the outside to look at what is the sustaining CapEx and also including turnaround for the company now. Also, since 2019, it looked like the unit costs have gone up in each of the region maybe about in the 20% or so. Is this the new baseline that we should use, or that you think there's initiative that the company will be able to bring it down over the next couple of years? That's the first question. Secondly, that if we look at operationally, Toledo has been struggling for a number of years. What's the plan in terms of improving the operating performance over there?

And also outside Toledo, is there any other refinery in your system that you think, "Oh, we could do better and may have work to be done"? Thank you.

Matt Lucey (President and CEO)

Look, it's our job to continually improve. It's our job to offset inflation with efficiencies. In regards to Toledo in particular, if you go back to the first part of 2023, they had some operational upsets, much of it due to the weather and some of the storms from last year. Operationally, Toledo has run pretty reasonably and pretty consistently for the quarters two through four. In regards to OpEx, the single biggest thing that will drive OpEx will be running reliably and increasing throughput. Obviously, California didn't do that last quarter. So you'll see that putting aside incremental expenses because of some of the downtime, your OpEx is going to go up on a per-barrel basis when you don't operate well. I'm encouraged.

It's obviously out of our control, but we're heading into 2024 with natural gas prices that are certainly better than they have been over the last couple of years. So that should be a bit of a tailwind. In regard to capital, we've put out guidance, I think, earlier in the year. And that guidance included about $50 million of discretionary projects, return projects at each of the refineries. That's the full extent of our. We don't have any other big projects at the moment. So I believe we put out a number of $800 million-$850 million for the full year. And that's what it is this year. In regard to higher capital going forward, I still think, and we may yet still have it next year as well.

You had a three-year period, which was just very, very odd, where incredible lows and incredible highs, and capital programs were tweaked as a result, appropriately so. But then that result is you have to end up paying the piper at some point. And indeed, this year, we see higher than normal turnaround activity. And I think to a great degree, that was impacted by the previous three or four years. Karen, would you make any other comments on capital?

Karen Davis (SVP and CFO)

No. Just other than to point out when we look at history, Martinez is new to the system, and this is really kind of the first year we've had a full complement of CapEx there, so.

Paul Cheng (Managing Director and Senior Equity Research Analyst)

Hey, Karen, do you have a number, over the long haul, what is the normal four-hour cycle average CapEx spending for the company based on your current asset mix?

Karen Davis (SVP and CFO)

I think it's probably in that 750-800 range. Again, remembering that looking back at history, we used to talk about a normalized range of 600-650, but that was pre-Martinez.

Paul Cheng (Managing Director and Senior Equity Research Analyst)

Right. Thank you.

Operator (participant)

Our final question comes from Jason Gabelman from TD Cowen. Please proceed.

Jason Gabelman (Director and Equity Research Analyst)

Yeah. Hey. Thanks for taking my questions. First, I wanted to ask one of your peers discussed a large project on the West Coast related to compliance with Rule 1109.1 in the South Coast Air Quality Management District in Southern California. I'm wondering, is that something that you have to spend money on to comply with, or are you already in compliance with that?

Matt Lucey (President and CEO)

I would not project any capital above the numbers that Karen just shared. We're always spending some money to comply with rules, but there's nothing extraordinary for PBF.

Jason Gabelman (Director and Equity Research Analyst)

Okay. So I mean, whatever you're spending this year addresses that NOx emissions that you need to comply with in Southern California?

Matt Lucey (President and CEO)

Yes.

Jason Gabelman (Director and Equity Research Analyst)

Okay. And then my second one is just it looked like there was a proposal in California to require refiners to stockpile gasoline in order to address some of the market volatility. I believe the commission out there was having a hearing on that either yesterday or today. And I'm wondering if you have any comments around that. And then more broadly, any other liabilities we should be thinking about in terms of cash calls beyond the environmental liabilities that you mentioned?

Matt Lucey (President and CEO)

Just in regards to California, I think it's way too early to speculate. A paper was written, which was essentially a concept. I don't think it's particularly thought through at this point. I don't think there's any regulatory agency that can dictate or make demands on a private company on how much inventory it holds. The concept is, I don't think, fleshed out to any great degree. I think the regulators and the state government of California can evaluate any number of things. Obviously, they have to do it within the laws. In terms of impacting the market, I don't think there's a supply and demand problem in California. Supply has gone down, so the market is tight. The steps they've taken so far seemingly have not improved that.

The concept that was put to the California Energy Commission was that, but it hasn't been flushed through, and it's probably not worth speculating at this point.

Jason Gabelman (Director and Equity Research Analyst)

Got it. And then more broadly, yeah. Thanks.

Matt Lucey (President and CEO)

What was the second question?

Jason Gabelman (Director and Equity Research Analyst)

Just, are there any other liabilities beyond the environmental ones that you mentioned that we should be thinking about in terms of calls on cash for 2024?

Matt Lucey (President and CEO)

No. I mean, I joked earlier, and I think O'Malley even used the term 10 years ago at something where the lipstick on the pig from the fourth quarter was the reduced payout to Shell. And so where we were expecting that to be a much larger number, that declined to $20 million. So that's a net reduction on a capital call. But I don't see anything else major out of the ordinary.

Jason Gabelman (Director and Equity Research Analyst)

All right. Great. Thanks.

Operator (participant)

We have reached the end of the question and answer session. I will now turn the call over to Matt Lucey for closing remarks.

Matt Lucey (President and CEO)

Thank you, everyone, for participating in today's call. We look forward to speaking to you again next quarter, and we look forward to a prosperous 2024. Have a great day.

Operator (participant)

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.