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PBF Energy (NYSE:PBF)
Q3 2020 Earnings Call
Oct 29, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, everyone, and welcome to the PBF Energy third-quarter 2020 earnings conference call and webcast. [Operator instructions] Please note, this call may be recorded. [Operator instructions] It is now my pleasure to turn the floor to Colin Murray of investor relations. Sir, you may begin.

Colin Murray -- Investor Relations

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

Before getting started, I'd like to direct your attention to the safe harbor statement contained in today's press release. In summary, it outlines that statements contained in the press release and on this call, which 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 described in our filings with the SEC. Consistent with our prior quarters, we will discuss our results excluding special items.

Noncash special items, including in the third-quarter 2020 results, which decreased net income by a net after-tax charge of $73 million or $0.62 per share, consisted of a net tax expense on remeasurement of deferred tax assets and impairment expense related to the PBF Logistics writedown of certain long-lived assets, offset by a lower-of-cost-or-market inventory adjustment, change in fair value of the contingent consideration associated with the earn-out provisions related to both the Martinez acquisition and the PBF Logistics CPI acquisition and a benefit related to the change in our tax receivable agreement liability. As noted in our press release, we will be using certain non-GAAP measures while describing PBF's operating performance and financial results. For reconciliations of non-GAAP measures to the appropriate GAAP figure, please refer to the supplemental tables provided in today's release. I will now turn the call over to Tom Nimbley.

Tom Nimbley -- Chief Executive Officer

Thanks, Colin. Good morning, everyone, and thank you for joining our call today. The challenges brought on by the global pandemic and ensuing restrictions imposed on the U.S. and global economies continue pressuring refining margins as a result of demand destruction.

Crude oil differentials remain tight as refineries are processing less crude, a return in demand across all products and in turn, a higher call on crude will result in improved market conditions. Through these challenging times, PBF's focus has been on managing the aspects of our business that we can control. We remain focused on safety, both personal and operational. As you will have noted in today's press release, we continue taking a close look at our refining portfolio and are determined to emerge from the current crisis as a stronger company with increased efficiency and lower cost at all of our assets.

In tandem with our ongoing systemwide cost reductions, the East Coast reconfiguration is another important step on the path to increasing our long-term competitiveness. We are putting all of our operations across the country under a microscope and committed to find additional efficiencies. We saw the largest opportunity and a rapid path to execution on the East Coast. We identified significant opportunities for further integration through preserving the greatest strengths of both Paulsboro and Delaware City refineries, while significantly reducing costs going forward.

Unfortunately, the positive effects of East Coast configuration will have an offset on our -- will come with a burden. It will directly impact the livelihoods of many of our employees here in New Jersey. The current crisis has necessitated difficult decisions for the company, and those decisions have consequences, which I do not take lightly. We are committed to assisting those impacted with their transitions and hopeful for better times ahead.

With our stated goal of increasing competitiveness, we continue to actively review all of our assets and all of our options. While the urgency of this is heightened given the current market conditions, the decisions will result in a stronger base business. On the positive side, we have seen demand incrementally increase over the last several months, and inventory levels have been trending down favorably. Product inventories continue to moderate, with gasoline well within the five-year average range, distillate inventory levels have come down, and while demand is still anemic, jet inventory levels are below the five-year average.

We think this is a positive backdrop for demand ultimately recovering. Maintaining operational discipline is key in preserving this tenuous path to improving fundamentals. We are seeing very few signals which would necessitate increased utilization rates. The market is rebalancing and will continue to do so until there is a widely available medical solution that allows greater freedom of movement, increase business and personal travel, resulting in a return of demand.

Lastly, I would like to thank all of our employees for continuing to unflinchingly rise above the current challenges and maintaining the safety and integrity of our operations, as well as for following our COVID-19 protocols. With that, I will turn the call over to Matt to provide an update on our operations during the quarter and the steps we are taking moving forward.

Matt Lucey -- President

Thanks, Tom. The current market reality requires us to take aggressive action to navigate the near term, but more importantly, to strengthen our position and maximize cash flow in the long term. In regards to the East Coast reconfiguration, which was highlighted in our press release this morning, I will make three important points: one, rationalization is necessary; two, the move creates significant savings in the current market without a decrement in a normalized market; and three, the reconfiguration creates a stronger East Coast system. As to the first point, in light of the current environment, PBF recognizes the need for rationalization across the industry.

The net result of the East Coast reconfiguration is effectively removing 85,000 barrels per day of refining capacity. Going to the second point, the reconfigured East Coast improves cash flow by about approximately $75 million to $100 million per annum based on today's market through reduced operating and capital expenses, which are offset by a reduction in gross margin associated with the lower throughput. Importantly, once the market normalizes, we do not believe there will be an economic debit to the historical earnings power with the new configuration. On number three, we believe we have strengthened our East Coast system as we have isolated Paulsboro's most profitable businesses; at the same time, we increased utilization on Delaware City's secondary units.

For the Paulsboro refinery, we are maintaining our lubes and asphalt operations while significantly reducing fuel production. We will be increasing the interdependence of the two refineries and promoting higher utilization and efficiency from the remaining units. Delaware City will produce -- will process the intermediate feedstocks that Paulsboro will continue to produce. Essentially, the East Coast will be shedding its least economic crude and its lowest netback products.

Historically, we have purchased intermediates on the East Coast which will no longer be required post reconfiguration. Specifically, we'll be shutting down the smaller Paulsboro's two crude units, the FCC, the reformer, the alkylation unit and the coker. We will be lowering our East Coast operating expenses by over $100 million annually and reducing our capital requirements by approximately $50 million per year versus historical averages. Again, the East Coast reconfiguration will result in a refined system that will be stronger by isolating Paulsboro's strengths and increasing Delaware City's utilization.

We are beginning to reconfiguration work as we speak and expect to be complete by the end of 2020. With regards to our refining operations in the third quarter, we ran our refining system at approximately 70% of capacity or approximately 706,000 barrels per day in total. Until demand picks up and inventory levels come down, we will likely continue to operate at reduced rates. We are on track to exceed our previously announced expense reduction targets for 2020.

Operating expenses have come down in part as a result of lower throughput, but also through a meaningful and targeted reductions, we plan to convert to long term savings. In July, we guided toward $140 million of operating expenses for the year, which breaks down to $40 million related to lower throughput and $100 million of expense reductions. Our current estimates are to achieve $280 million for the year or twice our previous guidance. The $280 million consists of $125 million associated with the reduced throughput and deferrals and $155 million of expense reductions.

Going forward, assuming normal throughput, we expect to maintain $115 million to $130 million of expense savings, excluding the changes at Paulsboro, then and in addition to, the East Coast reconfiguration provides an incremental $100 million of operating expense savings, which brings the total opex savings on a run rate basis as of January 1, 2021, to $215 million to $230 million. We continue to be focused on the items within our control. In the months ahead, we are committed to crystallizing our current operating cost reductions into permanent savings and generate incremental margin through unit level optimization. Now I'll turn the call over to Erik.

Erik Young -- Chief Financial Officer

Thanks, Matt. Today, PBF reported an adjusted loss of $2.87 per share for the third quarter and adjusted EBITDA of negative $229.7 million. As Tom and Matt outlined, we are taking aggressive steps to reduce our cost structure and continue to focus on shoring up our balance sheet. Our current liquidity is approximately $2 billion based on a cash balance of $1.3 billion and available borrowing capacity under our ABL.

As a result of commodity market volatility, we have seen significant working capital swing since the beginning of the year. Assuming no material change to current commodity prices, we expect our working capital to continue to normalize and generate incremental cash in the fourth quarter. Additionally, as we complete our East Coast reconfiguration, we expect to see a one-time cash benefit of approximately $35 million as a result of a reduction in inventory. This is partially offset by roughly $15 million in expected legal and severance costs associated with the reconfiguration.

Consolidated capex for the quarter was approximately $56.7 million. The consolidated capex includes $55 million for refining and corporate capex and $1.7 million for PBF Logistics. Consistent with our prior outlook and guidance, we expect to incur roughly $15 million of capex per month in the fourth quarter, and our full-year refining capex should be approximately $360 million. We are still finalizing our 2021 capital program and expect to have a flexible plan that will be responsive to market conditions.

Importantly, we have no planned turnarounds for significant major maintenance activities scheduled for the first half of 2021. Our initial capex estimate for this period is $125 million to $150 million. We will be adjusting our plan as we go, depending on market conditions, similar to the flexibility we've demonstrated thus far in 2020. Operator, we've completed our opening remarks, and we'd be pleased to take any questions.

Questions & Answers:


Operator

[Operator instructions] We'll go first to Roger Read with Wells Fargo.

Roger Read -- Wells Fargo Securities -- Analyst

Yeah. Thank you. Good morning. I understand the tough decisions being made here.

I guess, along those lines, as we think about the East Coast reconfiguration, how long did you have something like this planned. I mean it's not like a secret the East Coast has been one of the more competitive markets out there. So I was just curious as we think about the savings and the reconfiguration here, is this the step? Is there more that can be done? Is it the kind of thing that improves as you go along and typical with this, as you kind of learn the processes, you see additional opportunities for improvement?

Tom Nimbley -- Chief Executive Officer

It's a great question, Roger. The kind of the answer is all of the above, to be honest. We've contemplated this in the past. We actually did, obviously interact or put Delaware City and Paulsboro together earlier in our formation of the company.

We did that in order to be able to use the assets in a way that allowed us to get Paulsboro to produce ultra-low-sulfur diesel, 15 parts per million diesel without a significant capital investment, and that's by moving some intermediate stocks from Paulsboro over to Delaware and vice versa. As we got into this situation, we realized, hey, there's an opportunity for us to step that up. The physical distance of 30 miles between the two locations is an opportunity. As Matt alluded to, we then put everything under the portfolio.

By the way, that -- it is a true statement for the entire logistics and refining systems, so this is the first step, but we will look at everything. But what we did in Delaware and Paulsboro, I'd love to say it's one plus -- one plus one equals three, I don't think that's the case. But I do think it's one plus one equals two and a half. What we set up is a smaller footprint, clearly, 80,000 barrels a equivalent refinery, but it is a refining complex that has moved production capability; asphalt, which has been a high-margin product and probably will be in the future because of stimulus.

Delaware produces chemicals, and Delaware has the strongest fuels capability of the two refineries because of its hydrotreating, hydroprocessing and hydrocracking. So it was the obvious first step for us to go. To your last point, I want to make this because I absolutely believe this. While we have looked at this thoroughly and we know that we're doing the right thing, I personally believe that there would be more opportunities to improve the market as we get -- the operation, as we get into the position where we're looking at the sites running this way.

So I think it's absolutely the right thing to do, but I think there's upside potential over what we've advertised.

Roger Read -- Wells Fargo Securities -- Analyst

OK. Great. Thanks. And I guess the follow-on question kind of open-ended to whichever you all want to take it.

As we think about further cost reductions, I mean, obviously, you've got the highlight here of up to $230 million as we think about kind of '21 versus '19, I guess. But where else as you're looking across, do you think you can eke out some additional savings or are we looking at a situation where there's only so much that can come out? And at this point, it's hang on and wait for, let's call it, the turn in demand and turn in the market here?

Tom Nimbley -- Chief Executive Officer

Yeah. Absolutely, it's not the latter, it's the former. Obviously, we're looking forward to the turn in the market. If we get some continued progress in the medical front, we would certainly be happy to see that.

But I want to go back to your point, we have multiple initiatives that we've had under way, which Matt has spoken to, that we did right off the bat when we saw that we were in the choice of the demand destruction we had. Major effort on opex, major effort on capex, we put together a turnaround best practices team that are looking at ways to go ahead and reduce our turnaround cost by extending runs, taking squats on units to repair certain things to allow us to run longer. And importantly, we have every refinery looking at inside defense line for smaller margin initiatives, which we think -- I think is going to also pay dividends. That is going to be a north of $100 million outside of what we've already talked about before.

So there's a lot of things we're doing in the base business, the blocking and tackling of this business that are now giving us good results, but there's more that can be achieved. That being said, we go back to, are there opportunities to consolidate or look at the synergies between Torrance and Martinez in a different way, yes, there may well be. Nothing is off the table. Everything is going to be looked at and put under a microscope.

Roger Read -- Wells Fargo Securities -- Analyst

Yeah. I guess, just as a quick follow-up on that. And I was sort of looking here -- and I know some of these quarters aren't totally comparable because of work that's been done, like turnaround work and stuff. But I mean you go back to in Q1 of 2019, you had cash opex expenses $453 million, this quarter, $458 million, and that's obviously the addition of Martinez is in there.

So I mean, there's an ability to bring costs down. I guess I really was just trying to get at, is there anything else you expect you'll identify in terms of cash opex savings for us as we think about the other four units across the country?

Matt Lucey -- President

Roger, it's Matt. Look, we have not gone pencils down. We have taken concrete steps already, where we've reduced the amount of people within the refinery. That includes our employees, as well as significantly reducing contractors.

Those steps have been taken. But in addition to that, there are over 25 major initiatives within the refining operations team looking at reducing expenses. I've highlighted what we've captured so far. We think it's a positive step, but by no means is it complete, and we'll continue to work it.

In regards to managing the business that is within our control, it's pretty simple. It's managing expenses, managing capital, as Erik laid out. The turnaround team has done an exceptional job of managing its business, taking squats where otherwise turnarounds were necessary; elongating turnaround cycles, which has a major impact on the cash flow. So it's managing operating expenses, it's managing our capital expenditures, but it's also increasing the optimization of each of our refineries, which Tom alluded to, which we're doing actively as well.

Operator

[Operator instructions] And we can go next to Theresa Chen with Barclays.

Theresa Chen -- Barclays -- Analyst

Good morning. Wanted to touch upon what the outlook for the East Coast is in a more normalized environment as we haven't had a real summer driving season since PES closed last year. And with the Come By Chance refinery also down, which seems to be more permanent, given that it's not going to be sold for now at least, and the reconfiguration of your assets, how do you think these dynamics play out in the path to normalization, and what can happen as far as margin and demand goes?

Tom Nimbley -- Chief Executive Officer

I think we've given out a lot of thought. Obviously, if Come By Chance is permanently off the line, they are a refinery that sold their products into the harbor, moves it down here. Obviously, us taking capacity off, which really is in the Philadelphia area, would perhaps give us a benefit at Laurel or in the Philadelphia area. But the other thing that we're actively looking at and watching, and I believe it will happen, is the rationalization is under way.

And as bad as the margins are in the United States, they're better in the United States than they are in many parts of Asia, Singapore and in Northwest Europe or the Mid. Those refineries are under significant pressure. We have seen indications of rationalization starting, and I think that will continue. Obviously, Europe has got a different mindset in how they want to transfer from traditional fossil fuels at the pace that they're doing that's been well announced by BP, Total, Shell, etc.

So we would expect that there will be less product being produced as Europe, as you know, is typically one of the major sources of imported products into the U.S. East Coast or Northeast. So we're watching that very closely, and we do realize, everybody realizes there's a huge short in this part of the country, we are where the people eat the stuff. And so there's a need for imported gasoline, but the fact that you're going to have this rationalization, there's no economics really for them to run barrels and then have to pay the freight to move here.

So we're going to watch that pretty closely, but we're somewhat optimistic that we'll see some benefit. Tom, do you have anything you would add?

Unknown speaker

No. I mean, I think -- just we look -- well, I will add just in we are talking about, as you mentioned, the higher cost to conveyance to replace the barrels that have been lost.

Theresa Chen -- Barclays -- Analyst

Got it. And Erik, if I can ask you about the liquidity options from here, and clearly, there's no imminent concern in the very near term, but if it is a lower for longer period of uncertainty, how much more can you do in the secured market? How much assets can you sell as far as MLP-able assets go? And is there more room in terms of inventory remediation?

Erik Young -- Chief Financial Officer

So just going in kind of reverse order there. On the inventory intermediation side, that's always an option that I think we've laid out for investors. We do have, call it, free and clear anywhere from 25 to 30 million barrels of inventory, so that could potentially free up cash. There are assets for both the MLP that I think, in a normal way environment, you could say -- you could sell, but ultimately, for PBF Logistics to suddenly do some type of drop down more than likely would require equity.

I don't think that's something that near-term seems to be a viable option. I believe we did lay out, back in the summer, something similar to, and I think we're going to continue to explore this. However, we don't have anything that's imminent. But similar to what we did with the hydrogen plants, we do have assets that are part of our refining system throughout the United States that ultimately, you could do some type of sale-leaseback system or structure that would free up cash.

But as a result of the freeing up cash, you would have incremental burn that has been put on your refining system on a go-forward basis. And then from a financing standpoint, we've got $250 million carve out available for incremental first lien secured debt. We have another basket, circa $500 million roughly in second lien capacity that's there. What I would tell you is, right now, your point is absolutely spot on.

There is no near-term issue for us in terms of liquidity. We feel very firmly -- very strongly that we are on firm ground right now. What we are dealing with ultimately is what's going to happen in the future. And I think liquidity for us, we just go back to cash is king, liquidity is the most important thing that we're trying to manage right now.

Theresa Chen -- Barclays -- Analyst

Thank you.

Operator

And we can take our next question from Brad Heffern.

Erik Young -- Chief Financial Officer

Brad, if you're asking your question, we cannot hear you.

Matt Lucey -- President

Operator, let's move to the next.

Operator

Our next to Neil Mehta with Goldman Sachs.

Neil Mehta -- Goldman Sachs -- Analyst

Good morning, guys. Can you hear me OK?

Erik Young -- Chief Financial Officer

Yes.

Tom Nimbley -- Chief Executive Officer

Yes, Neil.

Neil Mehta -- Goldman Sachs -- Analyst

All right. Great. The first question is just on capital spending. You've done a good job getting capex lower in 2020.

I'm sure you're doing a lot of planning here for 2021. What do you view as sort of sustaining capex levels? And if we are in a tougher environment as the curve implies for next year, how low can you drive capital spending without compromising the quality of your assets or reliability?

Erik Young -- Chief Financial Officer

I think excluding any major planned turnaround and planned downtime, if you took kind of an LTM look from the second half of 2021, so what we've laid out for you in terms of $150 million for the first six months of next year combined with the roughly $150-ish million for the second half of 2020, $300 million is probably a reasonable sustaining number when we think through general maintenance. We do have regulatory spend that we are obligated to incur. There's clearly an element of safety that needs to be incurred as well. So that's probably a pretty good number, and then we layer on top of that, turnarounds and major maintenance.

And I think, to Matt's point earlier in terms of flexibility, that is something that we have really been working behind the scenes. And I think we've now seen all of the hard work kind of pay off as these refiners have each been able to come back to us at corporate and say, we have the capability to essentially extend run life and be very flexible from a capital plan standpoint.

Neil Mehta -- Goldman Sachs -- Analyst

All right. Great. And Erik, this follow-up is for you, as you know, I'm no credit analyst, but we could spend a lot of time with your credit investors about the pressure, the bonds have been under here, really over the last two weeks. Can you help unpack that for us a little bit? What's going on in the credit markets? And then what do you think is being misunderstood?

Erik Young -- Chief Financial Officer

To be completely honest with you, Neil, I think our focus has been a bit more internally focused. We have been very much -- we pay a ton of attention to what goes on in the market and try to talk to as many people as possible to get some color on what's going on. We do spend time with our fixed income investors. What at least we can see based on hearing different things is that we still have very strong support from our large long-only holders in the fixed income structure.

And ultimately, the fixed income market is very unique. It does not have the same level of transparency that we see on the equity side of things. We have absolutely paid attention to across our structure, all of the bond price reductions over the past, call it, four to six weeks. Clearly, the trajectory has accelerated here of late.

Don't have any real tidbits for you. I think we would probably push back on -- back to the market and ask them what exactly is going on since they are the market experts. But ultimately, we are paying attention. I think our message is very firmly rooted in liquidity, is the No.

1 priority for this business. We took some steps back in the spring. We were in triage mode. We did exactly what we were supposed to do, raising $1.5 billion of capital.

As we sit here today, we've got $1.3 billion of cash, ample liquidity under our ABL. We are focused on operating these assets, reducing and optimizing our cost structure and making sure that we do all the right things that are ultimately in our control. And I hate to say it, but the bond price is somewhat out of our control right now.

Neil Mehta -- Goldman Sachs -- Analyst

Yeah. Very clear. Thanks, guys. Appreciate the time.

Operator

We'll go next to Phil Gresh with JP Morgan. Please go ahead.

Phil Gresh -- J.P. Morgan -- Analyst

Yes. Hi. Good morning. Just a follow-up on the '21 capex.

Erik, on the last call, I think you said $500 million to $600 million is a good starting point for next year, but now you've referenced the ability to kind of extend the run life and the $300 million of sustaining and the incremental cost out from the East Coast. So are you at this point thinking roughly that it might even be below that $500 million to $600 million at this point?

Erik Young -- Chief Financial Officer

I believe the $500 million to $600 million that we gave, was assuming that everything returns to normal, whatever the new normal will be, but let's just say in a better refining macro environment than what we see today. So I think that goes back to regular way throughput. It sure doesn't feel like we're going to be there effective on a run rate basis, January 1, 2021. So we really have tried to approach this from a monthly, quarterly, six-month, nine-month view on a go-forward basis, and we're trying to respond to different things that we see in the market.

I think our message right now is, we don't have the final capital budget approved by our board of directors, but we do feel very firmly that the refineries that we have and the teams at the refineries have all done a pretty good job, and we feel very strongly that $150 million is ample capex to incur during the first six months of the year. We're going to have to be responsive. I do believe we will have an update, a more fulsome update for you, on our February Q4 call. We'll also have a lot more clarity on what 2021 kind of looks like and the medical advances, that sort of thing in response to this pandemic.

Phil Gresh -- J.P. Morgan -- Analyst

Got it. OK. That's fair. I understand.

My second question would be, I guess, for Tom. With the actions that have been taken by the industry on the West Coast, your actions here in the East Coast and some other smaller things, I mean how are you viewing what amount of capacity you think needs to be rationalized in the United States? Moving forward, recognizing it's a global challenge and the U.S. Gulf Coast is lower end of the cost curve, do you think the United States needs to contribute a lot more in terms of refining capacity out and specifically on the Gulf Coast?

Tom Nimbley -- Chief Executive Officer

First of all, we've said, I think before that, we're looking a need for somewhere in the area of probably 5 million barrels a day of rationalization across the globe and perhaps 2 million, 2.5 million from North America. There has been a fair amount that has even been shut down already. And I include PES in that because, obviously, tragic situation, or could have been tragic situation, took 340,000 barrels a day capacity out of the East Coast. So I think we're going to see more rationalization.

I think we will see -- obviously, we have Martinez in the West Coast. We'll see what happens when -- and P66 has announced they're going to do a renewable plant. There may be more rationalization on the West Coast. There are some refineries out there that are not that strong, especially if we get -- when we get back to a more normalized market condition, I think we'll see rationalization in the Gulf Coast.

Obviously, you're not going to see it in the gorilla refineries. You're not going to see from Beaumont or Baton Rouge, but there's a lot of smaller refineries, TI-based refineries. And again, you've got some majors who have announced that they want to get out of this business, the European majors who may, in fact, take some steps. So 3 to 5 -- or 5 million barrels, maybe north of that, and that includes some of the Chinese teapots and 2 million, 2.5 million in North America, not -- that's probably realistic.

Phil Gresh -- J.P. Morgan -- Analyst

Got it. So in North America, accounting for what's already been announced, it still sounds like you think we need another 1 million to 1.5 million, perhaps.

Tom Nimbley -- Chief Executive Officer

Maybe 1 million, yes. There's been -- in North America, we've come by chance. And again, I use -- if you just take a look at what I said, and I did have PES in there, you got 340,000 from PES; you got 160,000 from Martinez; you've got 130,000 from Come By Chance; you've got the Holly refineries; you're already up around -- Calcasieu, I can't say that. So we're pretty high up there already.

Now Calcasieu may not be permanent, but they did issue a WARN notice. So they're obviously contemplating that. And you take R80, and you're already up north of 1 million, I think, and maybe another 1 million.

Phil Gresh -- J.P. Morgan -- Analyst

Very helpful. Thank you.

Operator

Matthew Blair with Tudor, Pickering, Holt. Please go ahead.

Matthew Blair -- Tudor, Pickering, Holt & Co. -- Analyst

Hey. Good morning, everyone. I was hoping you could talk about RINs. Do you think the recent move up in D6 RINs is due to lower ethanol inventories? How much rent expense are you projecting for 2020? And do you feel that, just the overall looser environment, does that make it tougher to pass-through any RIN cost to the end consumer?

Matt Lucey -- President

As far as RINs, I would truncate the discussion analysis to there's going to be election in five, six days, whatever it is. And that so dramatically influences the dynamics around the risk program, and you have a number of different outcomes depending on who wins. Is there a lame duck period, what happens after, like, -- so to get into what's driving it, I think there were some concessions that were directly related to the vote that's going to happen next week, and I think there will be some more movements after the election, and it's really as simple as that at this point. And I don't think anything has changed between the whipsaw that the RIN market has been aligned between.

And so it's not in one direction, can go one way. What goes up, goes down; what goes down, goes up, but it's continual. But the biggest thing is the election next week, and nothing that's going to happen. The EPA is essentially frozen until we know which direction the country is going to go.

Erik Young -- Chief Financial Officer

And from an expense standpoint for the year, think a reasonable number is probably in the $250 million to $300 million range. We still have a couple of to go for the fourth quarter. But ultimately, we've incurred year-to-date about $185 million of expense hitting the P&L, roughly $85 million of that was expense during the third quarter. So we'll just have to see how things unfold from that point.

Matt Lucey -- President

And our rent obligation will go down in '21 with the reduction on the East Coast.

Matthew Blair -- Tudor, Pickering, Holt & Co. -- Analyst

Right, right. OK. Thanks. And then it seems like there could be a lot of renewable diesel entering the California market, so much so the potential for existing petroleum diesel to get pushed out.

I was wondering if you'd looked at that. And if that were the case, what are the options for Torrance and Martinez? Could you export diesel to like Singapore or Mexico? What kind of options do you have?

Matt Lucey -- President

I would caution some skepticism on the amount of renewable diesel coming on the market. Obviously, we'll react as things come online and even if we can see it coming online. But I think there's been a number of initiatives that are being studied and being analyzed, but I think we're a long way from coming to fruition. And obviously, with the reductions that Tom mentioned earlier on the West Coast, it's still a net reduction of distillate supply once you get to that point.

So there's a number of initiatives that have been mentioned, but there's also a number of headwinds that stand in the way. So we'll see how that develops over the next couple of years.

Matthew Blair -- Tudor, Pickering, Holt & Co. -- Analyst

Sounds good. Thanks, guys.

Operator

We'll go next to Doug Leggate with Bank of America.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Good morning. Thanks for taking my questions. Fellows, I hate to beat on this issue, but when you wrap everything together, the working -- the potential working capital release, the lower maintenance level, lower capital and so on. When you look at the current futures strip, what do you think your rate of expected cash burn would be on an annual basis looking out to 2021?

Erik Young -- Chief Financial Officer

I think directionally, obviously, depending on what curve you're actually looking at and then break it down by region, you're probably including interest and capex. We're in the -- for the next, call it, six to nine months, we're probably in the $50 million to $75 million at times. Again, things are kind of moving around with the curve, but up to $100 million a month. I think we'll start to see the benefit of the East Coast reconfiguration really hit in the first quarter, so I think our target is in that $50 million to $75 million a month range, assuming no change and assuming that nothing else that we are doing and that we've kind of tried to outline for you in terms of things behind the curtain that our team is really working on, assuming none of that is actually coming to fruition.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

OK. That sounds really help -- go on, Tom.

Tom Nimbley -- Chief Executive Officer

Just Doug, just an aside, while we're obviously preparing for the worst and the activities we've laid out, with that in mind, there are some green shoots, if you will, in that, obviously, the margins have been terrible. And they need -- they were terrible because there was too down much inventory. And particularly, first, it was gasoline, and then it was diesel. And I don't expect to see significant improvements in margins until that inventory overhang has been cleared, but there is evidence that it has been cleared.

Since the end of July to yesterday's EIA numbers, 50 million barrels of distillate gasoline and jet has been drawn down in the next three-month period. And we have gasoline right around the five-year average, distillate still got another 20, 22 million barrels to go. Jet demand is going to stay low because people aren't flying, but the refiners have done a good job with lower utilization in keeping jet production, such that we're actually below last year's level on jet inventories. I think once we get the inventories cleared, this -- and you're not sitting there supplying your sales out of inventory and you actually have to increase production in order to meet your sales commitments, we will get some support in the marketplace.

We won't get full support until we can get the demand all the way back, but we will start to see some improvement, at least, that's my view.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

You mostly got zeroes, Tom.

Tom Nimbley -- Chief Executive Officer

Yeah, indeed, Doug.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

So let me just ask one quick follow-up, fellows. I know it's something of a sensitive topic, but I just want to make sure we're clear on this. What, if any, are the covenant issues you have on debt? And I'll leave it there, please.

Erik Young -- Chief Financial Officer

We don't have any covenant issues at all. We are very much covenant-light across the board, both including our ABL, as well as obviously, each of the indentures has its own set of related restrictions. But I think at this point, we are well clear of all covenants, both at PBF, as well as at PBF Logistics.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

And that's what I thought. I just wanted to check. Thanks again. Good luck, guys.

Tom Nimbley -- Chief Executive Officer

Thank you.

Operator

We'll go next to Paul Cheng with Scotiabank.

Paul Cheng -- Scotiabank -- Analyst

Hey, guys. Good morning. Tom or Matt, you're saying that there's no planned turnaround for the first half of the year. In the second half, is there any major turnaround you have to do?

Tom Nimbley -- Chief Executive Officer

I'll ask Paul -- Paul Davis, who runs the West Coast. We have a turnaround in the second half planned for the West Coast.

Paul Davis -- President, Western Region

We have some turnaround working on the West Coast, but it's not major.

Tom Nimbley -- Chief Executive Officer

Not major. And previous question, Herman Seedorf, who runs the refining system for us -- we had some sessions earlier as we're getting ready to do our business plan. The 2021 capital plan, as Erik laid it out, it's back-ended. If it's $500 million to $600 million because we got to return to normalcy, it's back-ended into the second half.

No major turnarounds -- no turnarounds, really, period, in the first half and really no major turnarounds, but there is some incremental smaller units. But this is a flexible plan. We will respond to the market. And if the market continues to be in this type of situation, the $500 million to $600 million is going to go down.

Paul Cheng -- Scotiabank -- Analyst

OK. Maybe this is for Erik, for the $100 million of the cost savings you expect from the reconfiguration of the East Coast, can you break down for us that between the personnel costs and other benefit?

Erik Young -- Chief Financial Officer

I don't think we're going to get into that level of detail across the board, but you should start to see the benefits from the cost savings run through in Q1 of 2021 in the East Coast segment of our financials.

Paul Cheng -- Scotiabank -- Analyst

OK. All right. Thank you.

Operator

We'll go next to Benny Wong with Morgan Stanley.

Benny Wong -- Morgan Stanley -- Analyst

Hey. Good morning, guys. Thanks for taking my question. My first one, I think, is for Erik, and I apologize if this was covered already and I missed it.

Just want to get a sense if you can give me a little more color of your current liquidity situation and the capacity of your ABL. Just trying to bridge your cash position quarter over quarter, as well as your ABL capacity there. Thanks.

Erik Young -- Chief Financial Officer

So it's essentially -- it's slightly increased from our Q2 position. So we have, as opposed to kind of $1.2 billion of cash, we got closer to $1.3 billion of cash as we sit here today. And ultimately, we've got more than $700 million available under our ABL, which is consistent with where we were at the end of the second quarter.

Benny Wong -- Morgan Stanley -- Analyst

OK. Thank you. And --

Erik Young -- Chief Financial Officer

And so just to confirm, total liquidity of roughly $2 billion as we are sitting here on the 29th of October.

Benny Wong -- Morgan Stanley -- Analyst

OK. Thank you. And just wanted to get your thoughts around Alberta curtailments, which are lifted by year-end. Do you guys have any anticipation of that having any impact on crude differentials on the Canadian side and if it affects your crude sourcing abilities or improves it for the Canadian barrels?

Erik Young -- Chief Financial Officer

Thanks, Benny. I mean, yes, I mean the curtailment being -- going away is certainly a positive development. But I mean Canada has had economic shut-ins and then had maintenance or unplanned issues going throughout the second quarter and into the third quarter. So while it's going away, it is certainly a positive development, and we're starting to see the market not trading in quite as strong as the single digits discounts WTI that we had seen throughout the second and third quarter.

And traditionally, you would probably would expect for production to increase in the fourth quarter and the first quarter and differentials to be a little bit wider. So we're consuming a little bit of WCS-related stuff right now, and we'll basically be assessing it as the market changes.

Benny Wong -- Morgan Stanley -- Analyst

Great. Thanks, guys.

Operator

We'll go next to Jason Gabelman with Cowen. Please go ahead.

Jason Gabelman -- Cowen and Company -- Analyst

Hey. Good morning. I wanted to circle back on the opex cuts that you've discussed. So I just wanted to clarify what the cuts are relative to your run rate right now.

So if I'm looking kind of year over year, it looks like SG&A is down $20 million, so annualized $80 million, and you're targeting underlying structural expense cuts of $155 million. So does that imply an additional $75 million of annualized cuts? And then specifically on the East Coast, so it looks like opex in total is down about -- on an annualized basis, $100 million versus 3Q last year. So is there an additional $100 million to go on an annualized go-forward basis? And then just to round out on the expense guidance, are these cost reductions inclusive of the higher costs related to the hydrogen sale and leaseback? And then I have a follow-up. Thanks.

Erik Young -- Chief Financial Officer

So there's a lot there to unpack. In regards to the $100 million, that's above where we are today. So as the cost expenses that are in the third quarter, we expect on a run rate basis for the fourth quarter to be similar to the third quarter and then getting the benefit of the incremental $100 million on the East Coast. In regards to the overhead, my suspicion is what you're referring to is, obviously, there was a bonus compensation in previous years.

We don't budget for that, but certainly, that will certainly come down in the year 2020. What else did you have?

Jason Gabelman -- Cowen and Company -- Analyst

Just if the hydrogen -- if the higher expense from the hydrogen sale and leaseback, if that's incorporated into your expense reduction guidance or that's an offset?

Erik Young -- Chief Financial Officer

No, that's built in.

Jason Gabelman -- Cowen and Company -- Analyst

OK. Great. That's really helpful. And then I just wanted to circle back on the liquidity, which was asked a couple of times because it's not clear why -- so liquidity was flat quarter over quarter despite negative free cash flow.

So can you just clarify what happened there? Did you take more cash down on the ABL, but then the ABL capacity expanded or was there something else going on? Thanks.

Erik Young -- Chief Financial Officer

Round numbers, Jason, we ultimately had $300 million that went out of the system. Combined PBF and PBF Logistics, PBF Logistics paid down some debt. We borrowed $300 million, which is what we paid down during the second quarter under our ABL. The overall value of the inventory and receivables that we carry inside of that ABL went up.

And ultimately, we sold $50 million worth of precious metals through a sale-leaseback transaction, kind of regular way that we've done with all of our refineries. It's primarily the Martinez precious metals that we sold. So net-net, if you think through $300 million out the door -- $300 million in the door from the ABL and $50 million from the precious metals, that's your net increase in cash of about $50 million quarter over quarter.

Jason Gabelman -- Cowen and Company -- Analyst

Got it. Thanks a lot.

Operator

Over to Jason Mandel with RBC Capital Markets. Please go ahead.

Jason Mandel -- RBC Capital Markets -- Analyst

Hi. My question was just asked and answered. Thank you very much.

Operator

We've reached the end of today's call, and I'd now like to turn the call over to Tom Nimbley for closing remarks.

Tom Nimbley -- Chief Executive Officer

Thank you, everyone, for joining the call today. We, again, are looking at our system relentlessly, and we hope to show you further improvements and you'll see a better market when we have our next call. Thank you.

Operator

[Operator signoff]

Duration: 60 minutes

Call participants:

Colin Murray -- Investor Relations

Tom Nimbley -- Chief Executive Officer

Matt Lucey -- President

Erik Young -- Chief Financial Officer

Roger Read -- Wells Fargo Securities -- Analyst

Theresa Chen -- Barclays -- Analyst

Unknown speaker

Neil Mehta -- Goldman Sachs -- Analyst

Phil Gresh -- J.P. Morgan -- Analyst

Matthew Blair -- Tudor, Pickering, Holt & Co. -- Analyst

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Paul Cheng -- Scotiabank -- Analyst

Paul Davis -- President, Western Region

Benny Wong -- Morgan Stanley -- Analyst

Jason Gabelman -- Cowen and Company -- Analyst

Jason Mandel -- RBC Capital Markets -- Analyst

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