Yield-chasing is everywhere nowadays, and that includes within the midstream space. Retail investors have seemed a little bit flummoxed on why PBF Logistics (NYSE:PBFX) has experienced such negative results, particularly as corporate sponsor PBF Energy (NYSE:PBF) has performed moderately well. Since the IPO of its midstream assets back in 2014, PBF Energy has been volatile, but is now flat on its performance over that time frame, in spite of having significant ownership of PBF Logistics. That firm, meanwhile, has lost 28% of value in its common stock, despite increasing its distribution from $0.16/quarter to $0.48/share as of the last declaration. What gives?
Monitoring PBF Energy Health, Overall Production Volumes
Before I get into exactly why PBF Logistics has had such a rough go of it, it is worth exploring PBF Energy’s business model, since substantially all of PBF Logistics’ revenue is sourced from its corporate sponsor. PBF Energy relies heavily on being able to purchase and process heavy, sour crude oil feedstock – most of PBF Logistics’ assets revolve around supplying that product, or transporting products refined from that base. While it may not seem intuitive, the sour crude the company sources from mid-continent plays (such as North Dakota sour) and from Canada are generally priced based on West Texas Intermediate (“WTI”), which is a light/sweet crude. The Toledo facility is the exception as it processes less heavy grades of crude, but both PBF Energy and PBF Logistics generate only a small portion of their revenue from the Toledo refinery, which was acquired from Sunoco in 2010. As a result, PBF Energy benefits quite heavily when the spread between North Sea Brent crude oil (which is what is most international refiners price on) and WTI, as well as the regional discount (how far below WTI can the company acquire feedstock from producers). From a competition standpoint, the wider the differential between Brent and WTI, the more cost-advantaged U.S. refiners are when it comes to global competition, particularly refiners like PBF Energy that source nearly all of their oil feedstock domestically.
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