Colin Murray - IR Tom Nimbley - CEO Erik Young - CFO.

Jeff Dietert - Simmons Phil Gresh - J.P. Morgan Blake Fernandez - Howard Weil Evan Calio - Morgan Stanley Paul Sankey - Wolfe Research Ed Westlake - Credit Suisse Roger Read - Wells Fargo Brad Heffron - RBC Capital Markets Chi Chow - Tudor, Pickering, Holt Paul Cheng - Barclays Fizal Khan - Citigroup.

Good day, everyone, and welcome to the PBF Energy Second Quarter 2016 Earnings Conference Call and Webcast. At this time, all participants have been placed in a listen-only mode. And the floor will be opened for your questions following management’s prepared remarks.

Please note this call maybe recorded and I will be standing by you if you should need any assistance. It is now my pleasure to turn the floor over to Mr. Colin Murray, Investor Relations. Sir, you may begin..

Thank you, Erika. Good morning, and welcome to today’s call. With me today are Tom Nimbley, our CEO; Erik Young, our CFO; and several other members of our management team. A copy of today's earnings release, including supplemental financial and operating information is available on our website.

Before getting started, I'd like to direct your attention to the forward-looking statement disclaimer contained in today's press release.

In summary, it outlines that statements contained in the press release and 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 described in our filings with the SEC.

As also noted in our press release, we'll be using certain non-GAAP measures while describing PBF's operating performance and financial results, as we believe these metrics are useful, but they are non-GAAP measures and should be taken as such.

For reconciliations of non-GAAP measures to the appropriate GAAP figure please refer to the supplemental tables provided in today's press release. It is important to note that we will discuss fully converted earnings information and results excluding special items.

Our GAAP net income or GAAP EPS figures reflect the percentage interest in PBF Energy Company LLC owned by PBF Energy Inc. We think adjusted fully converted net income and EPS are meaningful metrics to you because it represents 100% of the operations on an after-tax basis.

For the second quarter 2016, PBF energy reported a net income of $120.6 million and net income attributable to PBF energy INC. of approximately $103.5 million and earnings per share of $1.06.

As a result of rising hydrocarbon prices, during the second quarter of 2016, we generated a non-cash lower of cost to market or LCM, after-tax benefit of approximately $95 million. And our comments today will exclude this special item from the discussion of our results. I will now turn the call over to Tom Nimbley..

Thank you, Colin. Good morning, everyone and thank you for joining us on today's call. I would like to make a few general comments on the second quarter and then comment briefly on our specific regions. Our refineries ran better last quarter generating positive results but as you all know we faced several significant headwinds.

The flat price accrued increased to average of $12 or approximately 35% versus the first quarter. And other input such as gas-oil became very expensive in the quarter. Differentials for medium and heavy sour crudes contracted in large part due to the supply disruptions caused by the Canadian wild fires.

The wild fires also caused price spike in the synthetic crude market as supply we shut in and regional refineries sought alternative barrels. The result is that our refining systems saw increased input cost across the board while at the same time being negatively impacted by event driven contracting differentials.

On the product side as a result of the rising flat price realized margins on low value products at coastal system declined versus last quarter. This had a more pronounced regional effect on our coastal refineries with the heavier input plates.

Additionally, persistent above average gasoline distillate inventory levels continued to pressure product margins. Margins on chemicals and jet fuels were also particularly week in the second quarter. Before Erik provides our financial highlights I would like to briefly comment on our regions.

Despite some initial stumbling coming out of the first quarter the East coast delivered positive results. The gulf coast and the Toledo overcame minor operations to operate relatively well. Toledo was able to maintain throughput in part as a result of the installation of the new crude tank that we put into in 2014.

This incremental storage capacity and the installation of additional distorting capability allowed to lead out to reduce its intake of synthetic crude and process a blender crude that had not been previously possible. With that I will turn the call over to Erik to run through some financial highlights before I close out our prepared remarks..

Thanks Tom. Today, we reported second quarter operating income excluding special items of approximately $77 million, and adjusted fully converted net income of $14 million, or $0.14 per share, on a fully exchanged fully diluted basis.

Including in our results were net after-tax charges totaling approximately $6 million or $0.06 per share related to acquisition expenses and accelerated equity based compensation expense.

As Colin mentioned a moment ago these figures exclude the non-cash LCM benefit and the GAAP reconciliations can be found in the tables accompanying today's press release. For the second quarter, G&A expenses were $43 million. Depreciation and amortization expense was $51 million and interest expense was approximately $36 million.

PBF’s recorded effective tax rate for the quarter was approximately 38.8%. For modeling purposes, you should continue to assume a normalized rate of 40%. Our rents expense for the second quarter was $93 million bringing our year-to-date expense to $160 million. Refining and corporate CapEx was $95 million.

We are pleased to announce that our board has approved a quarterly dividend of $0.30 per share. Also of note today PBF will just announced the distribution increase to $0.43 per common unit. With the addition of Torrance several components of our previously issued guidance have changed.

We now expect CapEx for 2016 to be approximately $500 million to $525 million. General and administrative expenses are expected to be between $145 million and $165 million. And interest expenses also expected to be approximately $145 million to $165 million.

Full year depreciation is expected to be approximately $220 million to $240 million and wining operating expenses should be in the $5 to $5.25 per barrel range. Feed stock and production percentages that our refineries should remain broadly in line with their historical averages with some departures for turnaround activity.

Expected throughput rates are included in today's press release and reflect our current expectations for the remainder of the year including the impact of the FDC turnaround in Paulsboro. The turnaround should commence late in the third quarter and is expected to last approximately 35 to 45 days.

Shifting gears, Torrance has designed to process a slate of heavy high sulfur high, high crude oil and yield a high percentage of gasoline specifically we expect to run a slate that is approximately 80% heavy, 8% medium and 12% of other inputs.

Primarily this slate will be comprised of California heavy and medium crude delivered directly to the refinery via pipelines and supplemented with imported heavy and medium varieties delivered through the ports of Los Angeles and Long Beach.

This slate should result in the yield of approximately 70% gasoline, 20% distillates, 95% of which is comprised of jet fuels and marine diesel and approximately 13% other products which includes LPGs fuel oil and other low value products. As a reminder Torrance’s high complexity process and capacity generates a 3% volume gain.

The effect of prefunding the Torrance acquisition with the working capital related draw on our revolving credit facility resulted in quarter end liquidity of approximately 1.9 billion. Similar to the Chalmette transaction we intend to de-lever during this quarter through positive work and capital.

With that I will now turn the call back over to Tom for his closing remarks..

Thank you, Erik. Going into the third quarter our refineries are running well and we are focused on the parts of the business we can control. Through a combination of our East coast and gulf coast operation we have been successful in expanding into additional product market and increasing on net back pricing to the refineries.

On the East Coast, we are positioning ourselves to become an importer and distributor of ethanol in the region which overtime should reduce our own ethanol blending cost. On the Gulf Coast we continue to move into the export market as opportunities arise.

Consistent with our approach of investing in local as highly turned projects, we are moving forward with the construction of the new crude tank which will improve crude logistics, improve product export capability and reduce the merger cost.

Additional we are progressing with the project to restart the naphtha hydrotreater reformer and light ends recovering plan. This project will allow us produce high octane ultra low sulfur plant stock and chemicals from unfinished naphtha. We expect that both of these projects should be completed by mid to late 2017.

Moving on to our newest region at the some initial hiccups the Torrance refinery has run reasonably well averaging above historic throughput rates for the last four weeks or the four weeks under our ownership.

We are making significant headway and increasing our business and this should help us achieve higher clean product net backs for the refinery and also reduce our win exposure through increased blending.

With regard to [RINS] I should also point out that Torrance as Erik mentioned produces a significant percentage of gasoline which is being blended as I mentioned and Torrance as a distillate production is primarily jet and marine diesel which is not subject to a renewable obligation.

RINS continue to be a headwind for the refining industry and I would like to echo the sentiment of many of our refining peers. The RSS system is absolutely broken. The EPA has the point of obligation in the wrong place and the goals of the program are not being met.

While a complete overall of the statute is needed we feel that as minimum the EPA should move the point of obligation to where there is RIN is generated as is done in California with AB 32. These are the things we can control. Many of the market related challenges from the second quarter appears to be carrying over to the third quarter.

While demand continues to be reasonably strong and there appears to be ample supply of medium and heavy sour crude oils, high utilization rates have resulted in persistent overhangs of both gasoline and distillate stock which in turns puts pressure on refining margins.

As we discussed in our press release we have lowered our throughput guidance for the third quarter. Refinery utilization rates have been bolstering inventory levels despite the best efforts of the driving public to travel more miles by road than ever. With market supply outpacing demand production is going into tanks and not being sold.

It is very difficult to realize margins on a product that is not being sold. We do expect that the market will re-balance from this state of oversupply. Operator we have completed our opening remarks and we are pleased to take questions..

Thank you. [Operator Instructions] Your first question comes from Jeff Dietert from Simmons. Please go ahead..

Good morning. .

Good morning..

Question is on Torrance, thanks for the discussion of feed-stock and yields in your opening remarks.

I realize it's early but I was wondering if you could share your impressions for the first 29 days of ownership anything that has surprised you relative to when you committed the purchase of facility last year?.

I think the fact that we have been able to move up the product disposition over the rack by some of the planning that our commercial folks has done, has not necessarily been a surprise but it's certainly something that we believe is going to be beneficial.

As we said before, the Torrance refinery at least it is my belief that this is all about running this plant reliably. And that is something that is we are singularly focused.

This is one if not the most powerful refinery in California certainly in a top two -- with this complexity and its ability to run relatively distressed at 16 degree API crude slate perhaps the heaviest crude slate in the country.

So we see the potential if anything were more enthused about some of the things that we can do the product yield as Erik said 85% -86% clean product field on a 16 degree API crude slate with the 3% to 4% volume gain this is toy kit that is very, very powerful. So we are comfortable. We are optimistic.

We believe that $360 million number that we gave you when we get a full year run rate on this thing is achievable and frankly as other things that inside depends that on management team that we put in place is now starting to identify which could have further upside basically self help opportunities..

Thanks and with regards to Chalmette, you highlighted the construction of the new crude tank and the restart of naphtha hydrotreator reformer and light end recovery plant to top priorities could you talk about the potential capital investments on these two projects and perhaps a ballpark on expected returns and perhaps talk about your decision to proceed on these projects first relative to some of the other units at the facility?.

Sure. Good question. Kind of take them in sequence. The crude tank which is a 450,000 barrel crude tank is going to cost about $29 million, notionally $30 million of capital and we have $24 million of EBITDA against that on an annualized basis.

The EBITDA contribution really comes from multiple factors first of all one of the upsides that we are pushing very hard in Chalmette, I think we have added 6 or 7 crude to the operating envelops since we have taken that we are not run, previously proven to be run there is benefits in crude optionality that is yet to be achieved.

But frankly we are constrained on logistics in Chalmette. So the crude tank will give us as we mentioned in Toledo another arrow to attack that. The second thing I said we constrained on logistics the stocks in Chalmette have a very high dock occupancy which leads to increased demerge, we have got significant demerge savings.

We have got significant demerge costs and there will be significant demerge savings associated with this project and very, very importantly we want to get into the export market.

We see the benefits of getting higher - getting to that channel trade both marine’s perspective and overall net back standpoint to do that we have to de-bottle neck the docks and by getting more collage to be able to pump off crude ships faster that will unload the docks effectively just look at simplistically putting a clean product shift at the dock to be able to export.

So those three things we think is a very resilient to project. One of the reasons we took that first is you can really count demerge, it's not mystery management. There is some big demerge builds there so they are very hard credits. But we remain very comfortable with that project.

The second project which is basically starting up an naphtha hydrotreater to take sulfur out of reformer and hydroreformer to turn that material as I said into high octane or low sulfur and a gas plant for those I don't want to get in the regions refining but Chalmette has only one gas plant operating now which means you have to put your gases from the cat cracker and in with the gases from the hydro cracker and you are mixing things that really cause you to lose margin.

By starting up this gas plant we will be able to separate that out and increase the amount of refinery great -- we make. So all of those benefits are there, this is a pretty simple project as well in terms of looking at the economics.

Right now we are forecasting that will cost about $70 million to bring the units back on line and is about $70 million a year of run rate EBITDA..

Thanks for your comments Tom. .

Okay thank you. .

And we will go next to Phil Gresh from J.P. Morgan. Please go ahead..

Hi, good morning. First question is this you gave the CapEx guidance for the year.

Could you help us think through how the normalized run rate will look in 2017 with the full year of Torrance and then maybe break that down between the sustaining number that you see the assets and then you are talking about investment capital at Chalmette for example so maybe break it down between sustaining and growth moving forward?.

I think what we would say Phil is consistent with the 475 to 500 that we previously guided to that was comprised really three buckets so call it $200 million of more or less sustaining maintenance CapEx, $200 million of turnaround and then roughly $100 million of discretionary.

Now included in that sustaining and maintenance we did have roughly $75 million to $100 million of environmental compliance related to tier three gasoline. With the inclusion of Torrance, we are assuming between $25 million and $50 million of implementable CapEx for the back half of the year.

That also includes CapEx that we are going to spend related to essentially integrating both Chalmette and Torrance into the PBF system, so it's essentially corporate CapEx. Going forward you should probable think that somewhere in that range is going to be consistent with what we are going to see.

It's unclear as to what type of environmental regulations will come down the pipe over the next few years but conceptually we really have been trying to help people understand that on a run rate basis we are probable circa $500 million all in some years there will be larger turnaround buckets in other corresponding years there could be much lower turnaround buckets and you have higher regulatory CapEx.

But across the board for our system think about the legacy assets over a multi-year period having between $80 million and $90 million including turnarounds. Chalmette is probably in the $90 million to $100 million a year and Torrance we expect between $100 million and $150 million..

Okay that's helpful.

And then could you give us your latest thoughts on what range would be on run rate basis including Torrance?.

I think as we sit here today, if we take the current price switch your guess I hate to say as good as ours in terms of what that RIN cost is going to be through the end of the year.

We are forecasting based off of what we have already spent which was roughly $150 million, $160 million probably a total bucket for the year including Torrance of between $400 million and $425 million..

Got it. Okay.

And then just the final question is around Torrance, how do you think about the potential EBITDA today? You have given a number while back but maybe just refresh us on that factor in the latest thinking around RINS there and what you see from an operating potential?.

Yes, we put out a number 360 million EBITDA on an annualized basis. We are certainly comfortable with that as I mentioned in my remarks I think we will some opportunities that could have some upside on that as to early to declare victory frankly we have only owned it before for four weeks.

It has lined out a little bit right now but you will know that the history that that plant has so as I said it's absolutely going to be a function of our ability to run the plant and save reliable and environmentally responsible manner that is priority one for the company to be honest there may be protecting the balance sheet.

But we are comfortable with the 360 and we think there is upside from there..

Okay. Thank you. I will turn it over..

We will go next to Blake Fernandez from Howard Weil. Please go ahead..

Guys good morning. Tom I was hoping you could maybe help me out with a little bit of macro question here.

it looks like as of late we have seen an increased exports into the East coast gasoline import in particular into the East coast and I am just curious if you think that's a structural phenomenon or something that is going to be prove to be a little bit more transitory?.

I don't believe it's structural. I do think there is some benefits some impacts associated with relatively cheap freight rates that have lowered the cost of transport, but I really don't think that's the structural change we remain in a position where the import market the people who are sourcing those barrels have some competitive disadvantage.

They narrowed some natural gas pricing between Europe and US etcetera. But I don't believe that is a structural frankly it's an interesting market. You all see that the gulf coast up to the East coast you shut to the mid West. It's kind of hopefully we are going to see some re-balancing.

I expect to see that but I don't think that's a structural and I think it is transitory..

Okay. Thanks. And then the second question maybe little more specific to PBF but I guess this is more 3Q related, but you mentioned the flat price being a headwind in 2Q now we are starting to see prices rollover.

So can you kind of confirm that that should turn into a tailwind in 3Q and I guess conjunction with 3Q you mentioned the guidance coming down, does that contemplate some of the economic rent cuts that the - that you guys could potentially be seeing?.

Yes, first of all yes, you are absolutely right. What goes up comes down. We have had a rather significant transmit here obviously in flat price to the extent that remains the case much as it did last year that becomes takes a headwind to a tailwind.

We do produce as you all know particularly in our coke and refineries which four to five coke and refineries. A significant amount of petroleum, coke, sulfur and carbon dioxide etcetera that just goes in and move it all with flat price so as the flat price comes down it's a margin benefit for us.

The throughput guidance has been reduced basically some of you have heard me pine on this before incremental economics is the bank of the refineries existence and in fact maybe come to the bank of the producers existence.

We had situations where people were looking at making some money on an incremental barrel and the barrels going into a tank and you’re not being sold you can pretty much guess that that will have a negative benefit on the forward market in terms of cracks.

We have actually cut maybe 6%-7% of our crude runs already and that guidance has been put into what we put out in the third quarter..

Thank you, appreciate it..

We will go next to the Evan Calio from Morgan Stanley. Please go ahead..

Hi, good morning guys. Thanks for the update on your assets. It was helpful. My question is follow-up on your income, in 2013 I know you guys were part of the solution and revert to that first real RIN care, pressure it’s in election here which is different here.

Any progress or do you kind of, you guys see a way out or answer or really a path for some solution here whether be VRFS or even alteration of the enforcement point?.

My own opinion is, let me say that there is a renewed initiative, my high school classmate and good friend Jack Lipinski said it very well yesterday the status of RINS and RFS.

And there is a renewed initiative between the AFPN particularly on moving the point of obligation the reality is we’re three months away from a presidential election and I don’t think it is going to be anything that is done in that interim. I hope on raw, but beyond that I think there will be something done.

It was rather interesting the individual who is actually running this program for the Whitehouse in conjunction with the EPA I can’t remember her last name Heather or something. She came out recently and said this program she is no longer in the run, this program has to be shut.

The first point I think that we love to see the whole thing be pre done or made over probability of that with this function that exist in Washington DC and likely will continue to exist is remote.

What we really need to focus on is getting to be a more equitable and fair program and as Jack said and others have said, we just set up a commodity here and people can take positions and drive the price that had nothing to do with gasoline.

So there is really concerted effort, Bolero and CVR and ourselves and others highly frontier all looking to say hey, let’s make this be fairer by getting the point of obligation at the rack, at the terminal as it is with AB32, very transparent program where you would actually see the course that are in invoice that goes to the deal of tank truck or tank wagon and frankly we move a lot of the volatility and lack of transparency that exist.

That has some potential, there has been some indications by Janet McCabe and Gina McCarthy that they, after initially saying they didn’t take - they wanted to do that perhaps that is something that they would entertain..

Okay that’s good.

My second question, on the last call you mentioned about a 50,000 barrel day swing capacity in your four refineries before Torrance between diesel and gasoline, how are you running today given price signals, are you still full gasoline and how quickly can you change, how quickly is going to that change given the right price signals?.

Yes, as we said before, the 50 is before Torrance, Torrance has some capability to swing between but not as much, it’s a gasoline machine. We can make those moves very quickly, it’s simply a matter of changing the cut points on various towers.

There is certain amount of material that comes out of cat crackers, hydrocrackers or crude units that can keep going into either products to a limit obviously based on product constraints and that simply a function of cutting the temperatures or increase in the temperatures. It's almost instantaneous.

The rest of surrounds putting distillate into gasoline we did that in the first quarter.

But I think the whole industry did because we obviously had this large overhang of distillate coming out of the warm winter and candidly where we created we took a distillate problem so at the end of the day when you - we can make those switches but the bottom line is there is too much clean prop and the only way you can solve that problem is by reducing the amount of cleaning products that you mix..

May be a good follow-up just one last from me if I could I mean how do you think about economic run cuts when you expect, we see the industry into -- and your regions and how do you assess whether you cut within your system?.

We have already assessed that we are going to cut within a system. I said I believe the incremental economic is the bank of refining existence, frankly probably the bank of commodity of business existence. So we have done that. I will leave it to others to really answer the question.

There had been some announce or at least indications by other people in peer one that they are taking some economic run cuts but the bottom line is we know we have had too much product and that's having a pressure points on the margins and we need to figure out to release it.

PBF has taken steps to reduce production as we speak and into the third quarter..

Appreciate it. Thank you. .

We will go next to Paul Sankey from Wolfe Research. Please go ahead..

Hi, Tom. It was enjoyable I guess and a painful way to recheck Jack’s comments yesterday. Tom, one interesting thing about you guys taking up the Torrance is that we get a little bit of insight into what is normally something we don't get lot of insights into which is Exxon mobile.

Was that refinery a good running refinery I mean I know it ended badly for Exxon in terms of these explosions and stuff but how a good record or liability that just became anomalous, so was it actually a refinery that's struggle to run over time? Thanks..

I will tell you that we know I don't want to necessarily comment on how Exxon ran, but it's self evident that they did have some issues I will take you back to our tracks on for 20 years and -- I spent working inside the Venetia refinery outside of San Francisco on each day that's updating myself.

That was in the 80s, [indiscernible] refinery which was a mobile refinery at the time as you know was widely viewed as one of the best if not the best refinery in California. And it ran well. And it made a lot of money.

It had some problems that's behind Exxon it is now our facility and as I said it is absolutely all dependent upon our ability to run it in the safe reliable environment in a responsible manner. We have resource stuff to do that.

We put extra talent in there and we are optimistic we are going to be able to do it but you should obviously hold us accountable for that and see if we perform over the time..

Understood.

The 16 degree crude you talk about that's in the Middle East stuff I guess is it?.

No, actually it's much of it is domestic crude. In fact the high percentage of it a lot of it comes from [indiscernible] valley and down by pipe SJV is heavy is what 13. SJV heavy is a very interesting crude and that it's 13 degrees API but low sulfur but high tan.

But some - most of the crude that we are running is domestic crude and obviously we get to work in capital benefits from that and as I said that is a very heavy crude slate and that's why you get a volume expansion basically the way you get a volume expansion in refinery because we sell things on gallons it take really heavy stuff and you break it up into lighter stuff and you get it an expansion..

Good and I don't want to annoy you but on the East coast is the whole rail thing done now?.

I don't think so. We are still bringing in I would say let me tell where we are on rail today.

Right now we are bringing in 40,000 barrels a day Baken by rail and that actually because of the carrying power on -- is another machine it runs a very heavy crude slate not 16 degree API by any stretch but some of the Venice crude we’re running South American crude very heavy and in order to make the place run with those heavy crude you need some light crude to balance it so we are drilling 40,000 barrels a day of Baken.

We are not bringing any heavy Canadian crude in recently. We have had better economics on these other crude that are referenced South American crude etcetera and middle eastern certainly Paulsboro.

As we go forward I think yes, other than the fact that we had the economics that carry Baken with the heavy crude you are not going to see us run likely 70,000 barrels a day of light crude, Baken crude, those economics are closed on a grassroots basis.

I don't think anybody else had - one is doing it and with the Dakota access pipeline and other orders being dealt you certainly can make an argument that it's difficult to get a major recovery of crude by rail on the light suite side.

I do think it's possible and maybe even probable that if the forecast is true on heavy Canadian growth that because of again limitations on distribution in Canada that that will come back and perhaps this time next year there is a chance that we will be running 35,000, 40,000 barrels a day at WCS. That's an option we want to keep..

Final one from me. Venezuela is a bit of a head scratch. What’s your perspective on the sustainability of supply there and any issues regarding the political situation on oil? Thanks..

We have had some minor I guess problems and delays but nothing so to speak. They are legibly refinancing their debt and trying to get some stability. We have not been impacted. We have some contingency plans in place to the extent that there is a problem but obviously on a macro basis that place is a mess.

So it's got to be watched very carefully but no impact as of this time..

Thank you Tom. .

[Operator Instructions] We will go next to Ed Westlake with Credit Suisse. Please go ahead..

Yes, just I guess question on financial, the PBF FX still trading that 7.8% yields and obviously you have got stuff recently purchased at Chalmette and Torrance maybe just talk a little bit about drop down stretch, could you yield that a little wide?.

We did the same yield that you see on the screen however, we did go out and raise some equity earlier this year when the yield was higher than where it is today. That's one potential lever that collectively the PBF family thinks that we still have to be able to pull as we go forward.

We now have $280 million of EBITDA that sits at the parent company that is logistic related that could be dropped down. We have got some great assets out on the West coast that are brand new into the system. We have some stuff that we acquired in conjunction with Chalmette as well.

So the math still points to while the yield may not be kind of circa 4% where it was that it kinds of its peak. Ultimately you still have arbitrage between where PBF trades and where PBF logistic trades. So ultimately logistic is trading is north of ten times trailing EBITDA and doing drop down still makes financial sense as we go forward..

And then, I mean obviously, doing the right thing by keeping runs under control and hope you follow. But the refining EBITDA itself is under-performing for the group.

So is there some kind of limits in terms of how much you want to drop into PBF FX perhaps given uncertainty over the refining outlook but then counter balanced by the cash that you have on balance sheet Torrance?.

I think we have to continue to weigh that as we go forward. We have got between $90 million and $100 million of legacy what historically would have been included in refining EBITDA that's now part of our logistic business. We think it's a great platform as we go forward.

We have guided to a long term growth rate at logistic that's over two to five year period. So a lot can change in that two to five years and ultimately our view is we are going to continue to grow logistics through drop downs and third-party acquisitions but fortunately it's a relatively small business today.

So any incremental growth is going to come probably in $20 million to $40 million EBITDA chunks near term..

And final one on the same thing just any logistical constraints in terms of getting the EBITDA that's within Chalmette or Torrance ready for dropdown in terms of paperwork etcetera?.

There is what we would say there is always an ongoing process related to getting essentially cost centers converted in the profit centers and getting the associated financial statements done. We have tackled it multiple times in the past two years and don't see any big obstacles as we go forward..

Thanks. .

We will take our next question from Roger Read from-Wells Fargo, please go ahead..

Good morning..

Morning..

Most of it has been pretty well hit maybe a way to think about the run cuts that you have indicated by guidance and then your flexibility to either trim more or if crack spreads move the other way to ram back up, should we think that as a one day, three day, ten day, 30 day kind of a event just if you have whichever direction it has to go?.

It's certainly not a 30 day event. These are steps that can be taken short order, short period of time assuming you add, if you take into the step to bring in gasoline if you wanted to run up obviously we have the -- but a week we can bake that switch either way.

I do think and I want to go back on it, it’s interesting John [indiscernible] had the integrated oil strategy and there was a reason that he had that.

We have I sit and I look at this thing a little stump speech time I tell the story that I pulled into my local retail store and my home town in New Jersey and I ask that the attendees to fill with crude, and he said well I am sorry so we don't sell that. We only sell gasoline and diesel and I think there is a point there.

The integrated model can make sense. But really when it comes to why are we entertaining run cuts so we don't work for producer. We work for shareholders. And it's in the best interest to shareholders for us to do to take steps to try to get the inventory overhang more in balance and we are doing that.

If it indeed the market changes the refineries will react I said incremental economics is the band of existence problem but it can be done in short order..

Okay.

Thanks and my follow-up Erik just kind of follow on Ed’s questioning there is there a pace of deleveraging that you would like to pursue at this point I mean I know the company overall would like to still grow through acquisition but presently their levels are getting to a point at least on debt cap where maybe you don't want to add a whole lot more so I am just sort of curious is there a target by year end 16 or 17 and the use of those dropdown proceeds to do so?.

Sure so we just conceptually in following the press release and the associated tear sheets ultimately what we did is we pre-funded the Torrance transactions. So you will see essentially the funds from drawing down $550 million on our ABL that show up in the form of cash on the tear sheets.

Ultimately we used the cash from the financing work that we did at the end of 2015 in conjunction with that drawdown to essentially spend just $500 billion for the assets and associated working capital.

As we go forward we are still very comfortable with circa $250 million of net working capital associated with Torrance so we expect to see and this is near term.

This quarter end into the beginning of Q4 we should see positive working capital generate anywhere from a $150 million to $250 million coming back to the PBF balance sheet exclusive of any financing work in or around dropdown. So ultimately our view is the $550 million on our ABL is 100% dedicated to working capital that's pre-payable debt.

The rest of the debt is essentially termed up with pretty hefty make alls, as we go forward though the goal is to try to use any access cash to pay down that $550 whether it's from positive working capital drop downs or any other leverage that we have to pull..

Okay and then if you did - what do you think total debt could go to or debt to cap if you were to pursue another acquisition at this point I mean just trying to understand what the flexibility of the company of balance sheet is at this point?.

Yes, look we are pro forma for our transaction we had our reported number were 630 on a net debt to cap basis adjusted for LCM charge was 23% pro forma for the transaction it’s circa 40%.

So consistent with what we have done in the past we still firmly believe that to finance hard assets that we are going to acquire at the refining company you need a fairly modest mix or conservative mix of debt and equity and to keep it very simple assume it something circa 50-50 debt to equity and then we would use just as we have done with Chalmette borrowing under the ABL to finance working capital and paying that down as we go what we have done with Torrance, we assume if it's a single asset that is exactly how we would plan on financing something as we go forward.

However, we have acquired two facilitates in less than a year now and we are in the process of digesting all of this. So from our perspective we are in good financial position today but ultimately there is a big focus on making sure that the balance sheet is safe as we potentially head into any type of headwind..

Great. Thank you..

We will take our next question from Brad Heffron from RBC Capital Markets..

Morning everyone. .

Good morning..

Something we can dig into the performance of Chalmette a little bit obviously you have had the EBITDA target out there and just the macro environment in general is not going to let you hit that I would think but I was curious if you could talk about the performance to-date maybe on a crack neutral basis if we have had the cracks, you expected would you be on pace to hit the EBITDA target or how comfortable are you with that EBITDA target in 2017?.

Yes, we remain comfortable I think your point is well taken. We are not going to hit from November to October period unless there is a market change in the market environment that great. But we remain comfortable with the 260 that number that we threw out.

We have - it's all about from our vantage point looking at competitive disadvantages and competitive advantages versus our peer group.

I have mentioned it's very important to us with this crude tank project to go ahead and de-bottle neck the logistics is a big piece of improving and getting higher, getting to that 260 is going to further penetrate the export market and net facts or range course are lower that's in the plan.

It's going to be 217 before we get that tank in but we are already taking smaller steps to try to increase exports. The people of Chalmette are doing things that we want them to do inside the defense line in terms of it's a heavy crude machine as well. It was run as part of the Exxon system, the gulf coast system. It's a merchant refinery now.

We are starting to see expansion of the crude envelop as they said there is 5-6-7 more crudes that we are running and that's the way we run the business. It really does look at hey what is the most economic crude. So I think we are still very comfortable with $260 million we are obviously seeing a headwind.

We saw the headwind in the second quarter when the crude differentials compressed because of mass and OOS getting bid up as a result of the wild fires and the crude impact supply disruption associated with that but in a normal basis, normal cracks and normal kind of differentials we are comfortable..

Okay that's great color. Thanks. And then on the RINS front Tom in your prepared comment you mentioned becoming an importer and distributor of ethanol in the East coast.

I was curious if you could just dig into that a little more what are the steps that are required for that, are we going to see you acquiring more terminals or something like that and what’s the potential impact on RIN cost from that initiative?.

I wouldn't put in there I don't really know the total RIN cost impact but let me talk about what we are going to do is we are going to it's got multiple benefits for us in the Delaware city refinery just as on the side. I mentioned that Chalmette has very high dock occupancy so does Delaware.

Delaware has some constraints with limited amount of draft capability so we are going to be bringing in ethanol by rail which has a benefit for us which will we reduce dock occupancy on the input side and then we are going to be able to ship it out we intent to ship it out by large over to maybe Paulsboro, new facility in plains terminal asset that we would Paulsboro and other assets and effectively become a merchant player.

That is going to - we are actually starting that. I think we are starting next week. We’re going to load notionally with 50 cars, rail cars with ethanol and get the process started. It's an incremental step that obviously helps us in RINS category, but you have any idea what the total number might be..

It’s going to improve our ethanol cost, our gross margin by $3 million to $4 million..

$3 million to $4 million gross margin improvement..

Okay. Thanks for that..

And we will go to the next line of Chi Chow from Tudor, Pickering, Holt, please go ahead..

Thanks, good morning..

Good morning..

Top most fascinating thing I think you said is more that you and Jack Lipinski were high school classmates, you would have....

I want to go on a record, he is older than me, he was a year ahead..

That two refining CEOs in the same home economics class that’s tremendous.

And just a follow up on the RIN offset strategies you got, so just understand the ethanol situation, so you are buying ethanol on the market railing it in, exporting it? That’s a plan here?.

No, the plan is to rail it in as I said, railing to Delaware where we have the rail infrastructure to be able to do that and we are buying some ethanol today well before that and we bring it into Delaware by barge. Delaware obviously has the demand for ethanol in the rack that we have in Delaware.

So, we will be placing the barge receipts with rail receipts to supply ethanol into the Delaware rack, but at the same time we have a rack in Paulsboro, we have plans with the plains facilities to try to improve our life there in terms of how much the moving over rack and that ethanol will effectively be brought in by rail into Delaware and then the intent is to barge it over the water, but it’s not exporting ethanol.

And then as the case we haven’t really been able to see whether or not how much money there is in this as to whether or not we could become a supplier, a more macro supplier in paid one in this particular area..

It sounds like couple of other efforts is to increase product exports to offset demands and then you have got your blending at Torrance, is there a target, I think you said full year RIN cost around 400 million to 450 million, is there a target to targeted that level to get that RIN cost down with these efforts?.

Yes, I wouldn’t write this on the wall next to holy grail, but I have seen some of strategic work that we have been doing here recently in are continuing recognizing that we are faced with headwinds of $400 million-$450 million, the management team has been as embraced an objective of reducing RINs costs across circa $550 million a year between now and 2 years from now.

So, if the price stable was we are going to try to get $100 million out of the system in two years, a lot of that is by export, a lot of that is by increasing the rack sales and that may mean that we go ahead and take an opportunity in your logistic side of the business to continue to do that, but that’s the goal, but there is we have to do a little bit more work to put more substance in respect the exact step beyond what we talked about to achieve..

Okay.

What percentage of gasoline produced at Torrance do you know when yourself through the rack effort?.

So, Torrance makes a little but 105,000 barrels a day gasoline when it’s running well and we are up right now almost 70,000-75,000 barrels a day moving through the rack together all of the year racks that we have acquired a positive facility, so as I said that's one of the areas that I think having our commercial organization and frankly having our whole management team be out there enjoying the lovely weather in California since November 1st, is paying some benefits because they had those plans in place and supposed to just showing up on July 1st and saying okay we only know what we are going to do with it.

So, we are up very high percentage already and that's a success story right now..

Yes. That sounds great.

One question back on Chalmette, you have outlined lot of these projects - improving projects in the works at the plant, is there any way you can outline the timing of when all these benefits will begin to flow through?.

Yes, I think, I said that mid to late 17 for the two big ones that we talked about which is the crude tank and the startup of the reform of block and gas plant. The exact date if you want them that I don't necessarily will lay into but it's going to be certainly by the end of 2017 and hopefully a little earlier.

We should be having these two projects on and as I said that's notionally $100 million in EBITDA improvement associated with that for the $100 million spent..

Okay.

What about ramping exports and the demerge savings are those kicking in sooner?.

Yes, we saw some ability to do that but recognize it's going to be limited by the base logistical problem that we have and our team is working pretty heavily fast and hard on trying to do something to unload the dock congestion that we have got and obviously give us an opportunity to bring more clean product shifts to the dock.

We will see some marginal improvement but the step change will take place when we really de-bottle neck the whole logistic system and that crude tank is a big part of it..

Okay great. Thanks Tom. Appreciate it. .

We will go next to Paul Cheng from Barclays. Please go ahead. Your line is open..

Hey guys, good morning. .

Good morning. .

Tom if we exclude on the new initiative that you are doing now which will come on stream until later next year for the next several quarters should we use the second quarter we saw as reasonable base line or that there is something you need in the quarter that we sell, your capture would be lower or higher?.

I think the big thing is obviously for our system ex-Toledo there is a very relatively high percentage of co-products that obviously don't move with the price, flat price crude.

The second quarter with the 35% run up and the price crude you effectively can say okay if you moved up $12 a barrel and there is margin on coke, the margin on sulfur, the margin on carbon dioxide pretty much the margin on LPGs decrease by $12 a barrel. That certainly was what happened in the second quarter.

As we start the third quarter I think someone has to question before that obviously prices are going other way and so we would actually expect to see an improvement in the impact on the capture rate from co-products irrespective of regardless of the - or regardless of the track..

And Torrance, just curious that if there is any data you can share in terms of what is the cash operating cost may look like and also that when you are looking at the improvement that you are going to do is it more cut rate related or it's the culture of the people?.

That's great question Paul. First question is we basically take in some of the plants that Exxon had and we are horning in mess we speak so we believe we are going to be - we have to get some cash operating cost out there.

We know how we are going to do that to a certain extend I don't want to go into it on the line because it's just - we haven't divulged all of our plans and we view them internally even with the people of Torrance, but we recognize that we got to get a fair amount of money $50 million or so out of Torrance on a go forward basis on cash side operating as merchant refinery.

Second part of your question this is a culture issue. I said this to the people of Torrance the hardware is unbelievably good. Exxon spent a ton of money fixing things that they did - they obviously had problems with.

As I look at Torrance, this is a facility that has somewhat under black clouds for a period of time because Exxon, I personally believe Exxon probably had made decision that they were not going to run a single refinery operation in the state of California.

And then if you go fast forward to February of 2015 when this explosion took place envision these performance going to work inside the fence line every day 12 hours trying to put that place back together and then going home and seeing their colleagues on the night news, getting blasted because of there being poor performance.

To a certain extent they were beaten down group of people. They are better than that. We know they are better than that. It's all about changing the culture to be merchant refinery to understand that this is a core asset for PBF.

If it wasn't core asset for Exxon, this was all day count in effect and get them to really gauge, so far would have been about it, the talent level is there, it’s just a question of changing the culture, so you are spot on..

Can you just tell us that -- what unique cash cost reserve assume for the next couple of quarters in Torrance?.

For the refining cash OpEx we are estimating it to be circa $8 a barrel, I think our long term target is consistent with what we have laid out on the acquisition call and kind of the $650 to $675 that’s an aspirational target but we like to set our goal aside as we go forward here through the second quarter or second half of the year since we just acquired the facility and soon what built into the guidance that we provided it’s roughly $8 a barrel at Torrance..

Very good. Thank you..

And we will go next to Fizal Khan from Citigroup, please go ahead..

Hi, thanks.

Erik just a question on liquidity that the $200 million to $250 million and sort of working capital you expect or cash you expect to generate from working capital is that excluding the working capital that you sort of allocate towards Torrance?.

That would come back from Torrance, so if we think about we had $1.9 billion of liquidity at quarter end, but while we prefunded through the ABL you don’t see any of the PPNE or any of the inventory on our balance sheet, so assume we used of the $1.9 we use roughly a billion of it to buy $527 million, $537 million of hard assets and another roughly $450 million of working capital, we think we will get back roughly $200 million of that working capital.

So, pro forma for the deal roughly $900 million of liquidity at quarter end..

Okay.

And then pro forma for the deal how much cash do you have in the books?.

Roughly $415 million..

Okay.

So, I just with that sort of liquidity in place, I mean you should be able to have on the ABL to lower enough level, but do you envision, do you see the need to issue common equity in PBF?.

I think at this point we are confident that that’s what the ABL is there in terms of financing working capital as we continue to buy assets and we feel pretty confident with what we have today and we are looking at the same forward cracks that everyone else sees but ultimately it’s a focus on CapEx, OpEx and deleveraging the balance sheet..

Okay. Got it. Thanks..

At this time we have no further questions and I would like turn the call back to Mr. Tom Nimbley for closing remarks..

Thank you very much for your attendance and attention during the call. We look forward to seeing you hopefully with better results at the end of the third quarter, everybody have a good day..

Thank you..

We would like to thank everybody for their participation on today’s conference call, please feel free to disconnect your line at any time..