PBFChalmetteDeal

Integrated Oils, Global (BI INTOG)

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Themes > Chapter: PBF Acquires Chalmette: Better Deal Than Believed >> Exhibit 1 of 12

PBF Energy May Have Reason to Celebrate Purchase of ChalmetteAnalysts: Vincent G Piazza & Gurpal DosanjhJun 19, 2015PBF Energy's $322 millionproposed purchase of Exxon Mobil'sChalmette refinery may be moreadvantageous than expected whenconsidering the opportunity todrop down logistics assets to itsmaster limited partnership (MLP),potential to optimize the crude slateby sourcing more lighter blendsand other cost synergies. MLP dropdowns would likely yield $300 millionof value, while sourcing lightercrude and maximizing the refinery'slight products yield could improveearnings beyond the estimated$0.72 a share.

Key Points (5 of 12):* PBF's Chalmette Deal Almost Pays for Itself With Logistics Gain* PBF Energy Feeds From Exxon's Scraps With ChalmetteAcquisition* PBF's Challenges Appear Manageable in Exxon RefineryPurchase* Exxon Mobil Sale of Chalmette Aligns With Downstream Strategy* Flexibility to Alter Oil Slate May Help Chalmette Yield, Margins

Integrated Oils TeamBloomberg Intelligence




PBF's Chalmette Deal Almost Pays for Itself With Logistics GainAnalysts: Gurpal Dosanjh & Vincent G PiazzaJun 19, 2015PBF Energy's $322 millionpurchase of the Chalmette Refineryfrom Exxon and PDVSA is almostfree when accounting for the valueof logistics assets that can be soldinto their sponsored MLP. PBFEnergy identified $30 million ofMLP-qualifying pretax earningsfrom the acquisition, which at astandard 10x EV/Ebitda multiplefor midstream assets values therefinery at just $22 million dollars.Excluding logistics assets valuesthe transaction similarly to MarathonPetroleum's purchase of TexasCity.

Chalmette Refinery Transaction Valuation





PBF Energy Feeds From Exxon's Scraps With Chalmette AcquisitionAnalysts: Gurpal Dosanjh & Vincent G PiazzaJun 19, 2015PBF Energy's acquisition ofChalmette demonstrates howrefiners could improve earningsand growth as larger integratedcompanies sell marginal assets.The refinery may have contributedless than 5% of Exxon's 2014Ebitda, though may add 20% toPBF's estimated 2016 Ebitda. PBFalso gains expansion opportunitiesas it will be sole-owner and maybe better able to make yield andrefined product improvements. It hasalready identified projects that wouldincrease finished products, includingdistillates.

Chalmette's Projected FY Earnings

Integrated Oils Team For interactive exhibit on Bloomberg, run:Bloomberg Intelligence DOCC CF SD000000002216309606 P10<GO>




PBF's Challenges Appear Manageable in Exxon Refinery PurchaseAnalysts: Vincent G Piazza & Gurpal DosanjhJun 19, 2015Though PBF's $322 millionacquisition of Exxon's Chalmetterefinery may offer opportunities forefficiency gains yielding improvedcash flow and earnings, somelegacy environmental liabilities mayburden PBF. In addition, Exxonwas driven to sell the facility giventhe lack of chemical processinginfrastructure, which may limitexpansion opportunities for PBF.Higher-than-estimated capitalspending and fewer opportunitiesto maximize the crude slate andoptimize product yields couldadversely impact the deal.

Chalmette's Estimates FY1 Free Cash Flow





Exxon Mobil Sale of Chalmette Aligns With Downstream StrategyAnalysts: Vincent G Piazza & Gurpal DosanjhJun 19, 2015Exxon Mobil's proposed saleof its Chalmette refinery andrelated assets for $322 million isconsistent with its downstream assetmonetization strategy. Chalmette,a high-complexity 189,000-barrelrefinery, was jointly owned byPDVSA, which may have limitedits expansion opportunities relativeto its larger, equally complexrefineries on the Gulf Coast. At avalue of $9 per complexity barrel,a valuation metric, the deal trailssimilar transactions. Exxon is alsoseeking to sell its Torrance refineryin California.

Exxon's U.S. Refineries





Flexibility to Alter Oil Slate May Help Chalmette Yield, MarginsAnalysts: Gurpal Dosanjh & Vincent G PiazzaJun 19, 2015PBF Energy acknowledged that theacquisition of Chalmette includedVenezuelan crude supply contracts,which may have hindered marginswhen the refinery was jointly ownedby Exxon Mobile and PDVSA.Exxon may not have been ableto switch crude to utilize cheaperdomestic blends. PBF's EastCoast refineries will also be ableto process the heavy Venezuelancrude, which may allow them toprocess price-advantaged EagleFord oil at Chalmette. This will likelyallow for margin improvementsunavailable to the prior owners.

Chalmette Crude Oil Imports (MBPD)





Inventory Accounting Means Timing Key for Chalmette Deal ClosingAnalysts: Gurpal Dosanjh & Vincent G PiazzaJun 19, 2015The timing of PBF's Chalmetteacquisition may be key as the lowoil price may allow the companyto book inventory values usingthe last-in, first-out method. LIFOaccounting means that companiessee increasing net income as oilprices, which constitute most of theinventory value, rise. Oil prices areunlikely to deviate much from $60 abarrel until 4Q, when the transactionis expected to close, though areprojected to rise substantially in thelonger-term, which should help PBFEnergy.

Additional Reading:* Refiners Using LIFO See Improved Net Income as Oil Falls* U.S. Refiners' Use of LIFO Accountancy Adds Advantage* LIFO Liquidations Add to Earnings Though Cut Cash Flow





Exxon's Chalmette Refinery May Enhance PBF's Crack SpreadsAnalysts: Vincent G Piazza & Gurpal DosanjhJun 22, 2015Maximizing a more diverse crudeslate at Chalmette may provide PBFwith more cost-advantaged crudeoil inputs, and optimizing refinedproduct yields will enhance its crackspreads. Sourcing incrementalEagle Ford barrels above the 40,000currently supplied will supportspreads, as will importing heavierblends from Canada, Colombia andother Latin American countries.Optimizing Chalmette's cokerand idled cracker for additionalgasoline and distillate yield willboost efficiency and crack spreads.

PBF Indicative Cracks and Gulf Coast Estimate

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PBF Has Ample Room to Fund Buy With Drop Down, Current LiquidityAnalysts: Vincent G Piazza & Spencer CutterJun 22, 2015PBF has ample liquidity and optionsto fund its $322 million acquisitionof the Chalmette refinery fromExxon. The potential drop down,or sale of logistics assets, into itssponsored MLP may provide about$300 million of funding. About $422million of other acquired assets,including working capital, wouldneed to be financed. That may bemanageable given PBF's existingliquidity and likely access to capital.The acquisition has the potential toboost Ebitda by $160 million, whichmay improve post-deal leverage.

PBF Energy Pro-Forma Leverage Figures





Opportunity for PBF to Close Gap vs. Peers With Refinery BuyAnalysts: Vincent G Piazza & Gurpal DosanjhJun 22, 2015With the Chalmette transaction,PBF will remain the fifth-largestU.S. merchant refiner with morediversified regional exposure thatmay offer opportunities to closePBF's discount to peers. Mostlyconcentrated on the East Coastwith more limited sourcing anddistribution opportunities, PBF willhave access to Gulf Coast blends.Those will diversify and optimize itsoverall crude slate and may offeraccess to other markets as well.A more regionally balanced, high-complexity capacity enhances itsoverall value.

PBF Energy Post-Deal Valuation Calculator

Integrated Oils Team For interactive exhibit on Bloomberg, run:Bloomberg Intelligence MMDL 205751706<GO>




Refiners May Seek Acquisitions as Peer M&A Prompts DivestituresAnalysts: Gurpal Dosanjh & Vincent G PiazzaJun 22, 2015After PBF's acquisition of Chalmettefrom a JV between Exxon andPDVSA, industry peers may eyeother possible acquisition targetsas integrated oil companies divestassets. Exxon's sale may have beenprompted by a lack of integrationbetween the refinery and thechemicals segment. Chemicalstend to be a higher margin businessthan refining and companies mayprefer to allocate more capitalto that segment. Chevron, BPand Petrobras could follow asimilar path, selling smaller, lower-complexity refineries.

Potential Refinery Targets from Simplification





Philadelphia Energy Lacking Logistics Assets Poses IPO HeadwindAnalysts: Gurpal Dosanjh & Vincent G PiazzaJun 22, 2015Philadelphia Energy Solutions isin the early stages of filing for anIPO, though its Philadelphia-basedrefinery's lower complexity mayhinder optimal pricing. The facilityproduces 330,000 barrels a day witha lower complexity than a PBF sitenearby and can't process heavycrudes, so it relies on crude-by-railshipments from midcontinent andCanada. A larger issue may be thelack of logistic assets that couldbe dropped into an MLP. SunocoLogistics may already own much ofthe infrastructure near the refinery.

Philadelphia Energy Solutions Proposing IPO

Integrated Oils Team For interactive exhibit on Bloomberg, run:Bloomberg Intelligence CACX 102790507<GO>

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