Q1 2020 Earnings Call
Greetings and welcome to the CVR energy Inc. first quarter 2020 conference call.
All participants are they listen only mode. A brief question answer session with all the fall presentation, if anyone should a fire operator systems. During the conference. Please start your and your telephone Keypad. As reminder, this conference is being recorded and it's now my pleasure to introduce your host Mr. casing, Vice President Finance and Treasurer. Thank you you may begin.
Thank you Michelle and good afternoon, everyone.
Very much appreciate you joining us this afternoon for CVR energy first quarter 2020 earnings call.
We did or didn't lab or Chief Executive Officer, Tracy Jackson, our Chief Financial Officer, They lender as our Chief commercial officer and other members of management.
Prior to discussing or 2021st quarter results. Let me remind you. This conference call may contain forward looking statements.
That term as defined under federal Securities laws.
This purpose any statements made during this call that are not statements of historical facts may be deemed to be forward looking statements.
You are cautioned that these day mess maybe affected by important factors set forth in our filings with the Securities Exchange Commission and in our latest very shortly.
As a result actual operations or results may differ materially from the results discussed in the forward looking statements.
We undertake no obligation to publicly update any forward looking statements whether it as a result of new information future events or otherwise except to the extent required by law.
This call also includes various non-GAAP financial measures.
The disclosure it all related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures are included in our 2021st quarter earnings release that we filed with the FCC and form 10-Q for the period. It will be discussed during the call, but that said I'll turn the call over to Dave. Thanks.
Good afternoon, everyone and thank you for joining our earnings call.
Hopefully you've had the opportunity to listen to the CVR partners earnings call earlier today.
Yesterday, we reported first quarter consolidated net loss of $101 million and a loss per share of 87 cents.
EBITDA for the quarter was a negative 38 million.
The combination of dramatic decline in crude oil prices lower crude.
Lower lower throughput volumes as a result of the plan Coffeyville turnaround and the collapse in product demand due to the cobot 19 pandemic all severely impacted our results for the quarter.
Enlighten in light of these funds in light of the uncertainty space in the global economy, and the U.S. industry refining industry. Our board has elected to reduce the first quarter dividend to 240 cents per share.
Well our balance sheet remains strong and we have sufficient liquidity available. The board felt it was prudent to preserve cash given the uncertainties around the return or refined product demand and the future of RIN prices.
The Board also believes there is there are higher shareholder Robert return opportunities in the current market environment, including the potential for industry consolidation.
This decision relates only to the first quarter do dividend at this time.
The board will continue evaluate their appropriate level of dividend going forward.
The first quarter dividend will be paid on May 26, this stockholders of record as of the close of market may 18th.
For our petroleum segment.
The turnaround at Coffeyville began last week of February was completed in April.
Wynnewood ran well during the quarter with no meaningful downtime.
Become the combined total throughput for the quarter.
First quarter of 2020 was approximately 157000 barrels per day as compared to 213000 barrels per day of the first quarter of 2019.
The group to one one crack spread averaged $12.21 per barrel in the first quarter of 2020 as compared to $17 in 26 cents per barrel in the first quarter of 2019 domestic crude differentials were tighter in the quarter compared to last year, primarily due to the startup of new pipeline.
And from West, Texas to the Gulf Coast, Brent Ti differential averaged $5.04.
Per barrel in the first quarter of 2019 as compared to $8 at 94 cents per barrel in the first quarter of 2019.
The Midland to Cushing differential was six cents per barrel under WT I in the quarter compared to $1.18.
Per barrel under tea in the first quarter 2019, the WCS differential.
Was $17 and so 77 cents per barrel as compared to $10.51 per barrel in the same period last year.
Like product yield for the quarter was 101% on crude oil processed.
Our distillate yield as a percentage of total crude oil throughput was 43% in the first quarter 2020 compared to 44 in the prior year period impacted by a hydrocracker catalyst change out at the Wynnewood refinery in February our distillate yield consistently ranks as one of the highest among the U.S.
As refiners.
In total we gathered approximately 130 36000 barrels per day of crude oil during the first quarter of 2020 as compared to 120000 barrels per Boe per day for the same period last year with the recent collapse in crude oil prices us production is declining as a result.
So our gathering volumes have fallen and will likely continue to fall in the near term.
However, given our location of our refineries and our access to crude oils from cushion in West, Texas, We have a variety of economic up options to supply our system.
In the fertilizer segment third party outages at the Coffeyville refinery fertilizer plant led to 10 days of unplanned downtime during the quarter, resulting in utilization of the ammonia unit at 86% for the quarters compared to 96 for the first quarter of 2019 at East Dubuque the ammonia play.
In operated at a 101% utilization for the quarters compared to 69% utilization for the prior period.
Stable year over year sales volumes and lower natural gas prices.
Resulted in a fertilizers positive the positive EBITDA contribution to CVR Energys consolidated financial results.
EBITDA diversification that the fertilizer segment provides the company was a clear benefit.
Fertilizer segment has been a positive cash flow contributor to our business historically in the near term outlook as good as we have seen a strong start to the spring fertilizer application and planting season.
Given the underperformance of its units recently the board.
The board of the CVR partners General partner.
Has authorized a unit repurchase program of up to $10 million.
Now, let me turn the call over to Tracy to discuss additional financial highlights. Thank you, Dave and good afternoon, everyone as Dave mentioned for the first quarter at 2020, we reported consolidated net loss of 101 million and a loss per diluted share of 87 cents. This compares to net income of 102 million and diluted earnings per share.
One dollar for the first quarter of 2019, our consolidated results for the first quarter of 2020 include a mark to market gain of 30 million and dividends of 1 million related to our investment in Delek inventory evaluation impacts of 78 million and an inventory write down of 58 million.
Excluding the unrealized gain on down like any inventory impacts our first quarter 2020 loss per diluted share would have been approximately nine cents.
The effective tax rate for the first quarter 2020 was 27% compared to 26% for the prior year period, we expect that our full year 2020 effective tax rate will be between 25% and 30%.
Petroleum segments EBITDA for the first quarter of 2020 was a negative 77 million compared to a positive 209 million and the same period in 2019, the year over year EBITDA decline was driven by the dramatic decline and the value of crude oil and refine products lower throughput volumes as a result at coffeyville planned turnaround and lower product demand.
Excluding the inventory impacts our petroleum segment EBITDA would have been 59 million.
In the first quarter of 2020, our petroleum segments refining margin, excluding inventory impacts of 136 million was $11 in six cents per total throughput errol compared to $14.87 in the same quarter of 2019.
The decline in crude oil and refined product prices through the quarter generated a negative inventory valuation impact and an inventory write down of $9.54 per barrel. During the first quarter. This compares to a $1.68 cents per barrel positive impact during the same period last year the capture rate, excluding the inventory revaluation impact.
And the inventory write down was 91% in the first quarter 2020, as compared to 86% in the first quarter of 2019.
Derivative gains for the first quarter 2020 totaled 46 million, which includes unrealized gains of $12 million associated with open commodity derivative instruments and open purchases of Canadian crude oil that are scheduled for future delivery.
The first quarter 2019, we had a total derivate games, a 16 million, which included 7 million of unrealized losses.
Rins expense in the first quarter 2020 was 19 million compared to $13 million in the same period last year the year over year increase in Rins expense was primarily driven by an increase in ethanol RIN prices offset somewhat by lower biodiesel ran prices and a lower RBL due to the coffeyville turnaround.
Based on recent market prices of Rins and the current production plan. We now estimate that our rent expense will be approximately 65 to 75 million in 2020.
The petroleum segments direct operating expenses were $5.87 per barrel at total throughput in the first quarter 2020, as compared to $4.74 per barrel in the prior year period on a per barrel basis direct operating expenses were higher due to lower throughput volumes in the quarter as a result at the plant turnaround at copies.
Total direct operating expenses for the first quarter 2020 declined by approximately 7 million from the prior year period, primarily due to the lower utility lower utility expenses.
For the first quarter of 2020, the fertilizer segment reported an operating loss of 5 million and a net loss of 21 million or 18 cents per common unit.
This is compared to first quarter 2019 operating income of $9 million on a net loss of 6 million or five cents per common unit EBITDA was 11 million in the first quarter 2020, compared to 26 million for the prior year period year over year decline in EBITDA was primarily due to lower prices for ammonia and UAN.
CVR partners did not generate cash available for distribution in the first part of 2020.
Total consolidated capital spending for the first quarter 2020 was 48 million, which included 40 million from the petroleum segment and 6 million from the fertilizer segment of this total environmental maintenance capital spending comprised 43 million, including 37 million in the petroleum segment and 4 million in the fertilizer segment, we estimate total consolidated cash.
Capital spending for 2020 to be approximately 95 to 105 million of which approximately $80 million to $90 million environmental and maintenance capital. This excludes planned turnaround spending, which we estimate will be approximately $140 million to $150 million for the year, our capital spending for the year focused only on projects that are critical to safe and reliable operation or a critical path.
For future required work.
Cash flow from operations for the first quarter 2020 was the use of 58 million and free cash flow in the quarter, which we define as cash flow from operating activities less capital and turnaround expenditures wasn't use of 115 million.
Turning to the balance sheet, we completed a $1 billion senior unsecured notes offering in January allowing us to refinance 500 million of CVR Refinings senior unsecured notes and adding approximately $500 million cash for the balance sheet.
At March 31, our debt to EBITDA. The CVI level was approximately two time, excluding CVR partners standalone debt to EBITDA on a trailing 12 month basis, our net debt to EBITDA was approximately 0.6 times. We ended the quarter with a strong cash balance of approximately 805 million on a consolidated basis, which includes 50.
8 million in the fertilizer segment as of March 30, Onest, Excluding CVR partners. We had approximately 892 million of liquidity, which was comprised of 747 million of cash securities available for sale of $140 million and availability under the ABL at 392 million less cash included in the borrowing base a 387.
1 million.
We continue to feel confident our strong balance sheet liquidity position looking ahead for our petroleum segment, we estimate total throughput for the second quarter of 2020 to be approximately 130 to 150000 barrels per day. This estimate is dependent on grew three product demand. It will modify Ron based on the economics and Magellan inventory levels, we expect total direct operating.
<unk> expenses for the second quarter to be approximately 75 to 85 million and total capital spending to range between 30 and 40 million.
Turnaround spending is expected to range between 20, and 25 million for the fertilizer segment, we estimate our money utilization rate to be between 95, and 100%. We expect direct operating expenses to be approximately 35 to 40 million, excluding inventory impacts and total capital spending between six and 10 million without Dave I'll turn the call back to you.
Thanks Tracy.
The first quarter of 2020 presented challenges to our industry that has never been seen before and we're doing everything we can have managed manage the business through this difficult environment.
The market isn't complete disarray and the horizon over which we see a recovery of refined product demand is unknown.
Our focus continues to be.
Operating in a safe reliable manner controlling our costs and maintaining a strong balance sheet and liquidity position. So we can be positioned to take advantage of the eventual market recovery.
To that end, we've taken a number of steps to preserve cash and the available and maintain adequate liquidity.
As I mentioned earlier, the board headed elected to reduce the first quarter dividend to 40 cents per share or $1.60 per share on annualized basis.
Capital projects that are not critical to safe reliable operations or required for future work.
We'll be canceled or deferred to later date.
This includes deferral of the when you would ice on project and the Coffeyville crude Optionality project.
We are operating our refineries near crude throughput minimums in order to preserve optionality as we wait for the return of demand.
We are targeting 50 million reduction and operational and SGN a expenses across our facilities in corporate office.
We are deferring plan the plan turnaround at Wynnewood refinery from the spring of 21 to the fall of 21. In addition, CVR partners. This pushing the planned turnaround the coffeyville facility from the fall of 20 to the summer of 21.
The East Dubuque Turner planned turnaround.
For the fall of 21 is also being moved to the second half of 22.
Despite current challenges.
We also believe this market will present, some unique opportunities as evidenced by our recent filings disclosing the purchase of 14.9% interest and Delek Us holdings.
At this time, we do not have any any new anything new to report on this front and we believe there are number directions. This opportunity could ultimately go so far this has been an attractive investment for CVI.
Looking at the second quarter of 2020.
Quarter to date metrics are as follows.
Group 3211 cracks have averaged $10.51 per barrel.
With the Brent Ti.
Spread at $9.52 per barrel and the Midland to Cushing differential at 18 cents per barrel over Wi.
The WGCL differential has averaged $1.38 under the Cushing price.
The WCS differential has averaged $12 a nine cents per barrel under W.
Prompt group 321 credits.
We're at $8.48 per barrel yesterday, Brent WTI.
It was at $5 in 73 cents per barrel and WCS was $4 in 70 cents under Tia.
In the near term were bearish on crude oil prices refined products prices will be dictated by the return of demand as a country reopens and consumption of transportation fuels rebounds.
In our markets gasoline demand was hit hard the hardest and was down over 30% at the trough while diesel was relatively unchanged.
The refining industry, including CVI has responded to the loss demand through reducing crude oil runs and in some cases idling refineries entirely.
The run cuts a balanced gasoline supply demand, but diesel remains problematic, mainly due to jet fuel length.
Since the market low points, we have seen gasoline demand in our markets recover about 10%.
Current economics are supportive of us continue to run both refineries, but at reduced rates.
Quarter to date ethanol.
RIN ethanol rins have averaged 35 cents and biodiesel rins have averaged 52 cents. The recent decision by the 10th Circuit of Appeals Court of Appeals not to re here the panels decision on vacating three small refinery exemptions was disappointing we continue to believe the 10th circuit.
Got it all wrong. The next step is to seek review of this ruling by the Supreme Court and we believe small refineries across the United States will likely support such a review in some fashion.
At this point, we do not know if or how the ruling will affect previously issued small refinery exemptions.
We do expect the EPA to wait for all appeals to be exhausted before they adjust the RFS rules to comply with the 10th circuit ruling.
We continue to believe the ruling conflicts with the regulations as intended by Congress previous rulings by the 10th circuit as well as other circuits and sets national policy, which exceeds the 10th Circuit authority sentence circuits authority.
As we continue to explore ways to reduce or offset our RIN exposure.
We are looking at utilizing excess hydrogen capacity of both refineries and converting selected.
Existing desulfurization units to renewable diesel production.
We are still in the early phases of this project, but look forward to providing additional details we had further along.
With that operator, we're ready for questions.
Thank you we will now be conducting a question and answer session.
The question. Please press star one on your telephone keypad, a confirmation tell more indicate your line of question Q. You May proceed start to if you'd like to your questions in the queue for participants using speaker equipment, maybe necessary to pick up your hands that before passing the 31 moment. Please go for your question.
Our first question comes from the lineup for Shaw Ral with Citigroup. Please proceed with your question.
Hi, This is Joe on behalf of for Sean.
You previously talked about other assets that are being marketed for sale.
Rockies pitfall et cetera.
Even seeing as some of it's some part of Gulf coast assets being put up for sale.
I want to know your thought on the opportunities that today.
The current market, making expansion into the Gulf coast, possibly Pete as well and if the opportunity.
What would it take for the opportunity to be right in terms of the as features.
Key logistics capabilities et cetera, and energy, it's not in the Gulf Coast, what about lot of parts, let me comment. Thank you.
Sure as we free free previously stated before a main area that we were had the most interested in interest in just be considering our portfolio is mainly concentrated in the mid con.
As a pad for type of refinery or something of that nature.
We are our portfolio is really built around more around niche markets. Gulf Coast is if you don't have volume large volume capacity with very low operating costs with lot of crude Optionality, you really don't have much of a future.
So that's not an area, where we're really targeting.
There there are as I mentioned earlier, there's there's consolidation plays here that we think makes sense. This industry is is if youre not big enough and have enough scale is going to be very difficult to compete in future going forward and we still think those opportunities or our smart for all counter.
Parties, including ourselves.
That said you know our focus is more in PADD four and.
Valuating several opportunities there.
All which of our problem been delayed by the the grew on a 19 virus.
But more to come in the future.
Okay. Thank you.
And flick Capex on potential returns enhancing projects that you have mentioned for the next few years.
Fair to discount.
In the current and Baumann and give any changes to your strategic priorities, which now look like you're leaning more towards the M&A.
Yes, so I wouldn't.
Say were were discouraged on those projects. There is still think theyre. Good projects. They are just the at today's.
Market uncertainty, it's very difficult to see a path forward until things return what I'd call to the more of the norm whatever the norm may view in the future.
And that's the reason, we probably delay some of them. We just wanted to see what the mark to market signals are as the as the world recovers from this pandemic.
It's really hard to is there are just unknowable right now so until we get some clarity on that.
We will delay that the one that did mentioned that we are pursuing as of this renewable diesel which many of our peers are doing.
We think that has a lot a lot of potential even though it is completely dependent on government mandates and and taxpayer credits.
Which we tend to shy away from in general.
But.
The fact of the matter is we have existing assets and excess hydrogen.
That anybody building one of the grass roots are a greenfield with the would have five fold the capital costs, we'd have to convert some of our so.
We think we should be first in the line there as compared to others.
Thank you.
You're welcome.
Thank you. Our next question comes from the line of Manav Gupta with Credit Suisse. Please proceed with your question.
Hey, guys. So on your income statement VC at 31 million gain from investments that you are made.
And Delek I think about 140 million rescaling, because Meg and in a single Quaternary Rick Nice again up about 31 million. So that's a great for two question regarding in a single quarter of it's an excellent gain I'm just trying to understand it's a talk process Hector monetize that Jane.
Hi, Good morning films I thought you talked about industry consolidation like Rick how should we think about this investment you have made in delek.
Well as we said in prepared remarks, the the there's lots opportunities lots of different directions. This could go we're not prepared to discuss what those are but.
Consolidation is something that that's that's really important in this industry to get to get the scale in the and the the.
The niche the additional.
The critical mass to be able to compete in the future. So I think anything is an option here.
And we'll be pursuing all.
So I mean do you do see some foremost synergies on stuff, yes. If you one delek no eventually decide to come together is that that I'd like to think about that.
Certainly there are synergies two public companies go into one.
Leads to some synergies there is some overlap not very much in our markets, but not the there is going to be something there im sure and in our operations and the and how we market our product and how they market the product.
But that's too early to say.
Paul and then just one follow up the final mentioned that the dividend.
Has been lower but that's a quarter or if you will continue as needed viewing yet so I'm just trying to understand let's see demand does improve in one or two quarters.
Some for some reason this strategic alternatives don't work out is that a possibility that the dividend re bounce right back to 80 cents very quickly.
One thing I won't comment I'd make in may be Tracy has some other comments here, but the you know that a 22% yield or what we were earlier.
This than the first quarter I don't think the market really reward you much for that.
So that's one element of it.
The other side is the Weve really truly believe there's a lot of other opportunities out there that the cash on the balance sheet can be pretty valuable for.
So the board is considering all those factors.
Yes, I think if the business returns to what historically has been the I think you would see that dividend come back quickly.
Because we had a rather low.
Thank you so much for taking my questions.
Sure.
Thank you. Our next question comes from the line of Paul Cheng with Scotiabank. Please proceed with your question.
Thank you drop and then hi, guys.
Dave.
No doubt yet puppy difficult on but at that time line share, we made that two or what system that you're going to make about decay.
No I know that I can add that.
Yeah, I don't think I can give you any any color on it at all ball is unknown at this time.
Okay.
And that.
Given.
Great I think a month ago eribulin concerned about too much gasoline now everyone concern about two months, that's net of whats well effects that are they.
Our year to reduce the distillate yield.
And how you're going to do that.
Well typically typical refiner and we're no different can swing about 10, 10% to 15% between gas and diesel.
Yes, we the obvious that yet we do that then definitely become a problem okay.
Exactly right and that's the that's a dilemma I think thats, where you. The 10 trend is going to be here for for the distillate crack to be lower as a result of all the all the jet fuel it has to be dumped diesel.
And.
That that isn't going to change until airline star Flanagan.
As sandy plus dependent.
Stop say pushing it back to the gap and pooling is there any other every at that.
You can send some up at this led to the other part outside gasoline.
Well, we do make some solvents that that do go to.
To paid the pain industry in a few others that come out of that same cut a jet fuel.
But that's such a small volume, it's not going to impact that much I just there aren't many options ball.
So realistically that we've stopped and field.
At the mine, where they come back both for the Jeff feel the Ghasemi.
Thats right.
Okay.
And that just kill it that.
You're talking about that other opportunities that depends or you can use your cash quarter, Brian opportunity, how much you're willing to push your balance sheet.
Alibaba wanting to push.
[noise] Tracy you have any feel for them I think it's too early for us to say.
Yeah, it depends on the opportunity so much Paul it's a it's hard to be generic in the discussion.
Because you're going to do you going to do anything off of a pro forma.
Earning cheat anyway.
And it just so this so dependent on what what kind of deal you get you end up with.
No I guess my my question, there's more that I mean, how far that we feel.
But the goal what that at what point LPL bonds that no matter, how could be as the deals that move which has not feel comfortable.
Well I don't think were any different than any other refiner, one and a half.
Is kind of where we don't want to go any higher newer that's typically 30% of your of enterprise value. Yeah. We said, we said that two times debt to EBITDA would be as high as we really would want to go in a normal cycle.
In addition, weve historically talked about our minimum cash balance, which in the current market environment, probably comes down quite a bit given that crude pricing has dropped more than half of.
Where it was when we established that minimum cash balance. So we wouldn't want to be below our minimum cash balance we wouldn't want to be in a position, where we were highly levered above that two times for an extended period of time without an ability or a path forward to get back to that so beyond that we really can't comment.
Okay can you remind me what is the minimum cash balance.
When we talked about it we told the everyone. It was to 25 to 250 and I think we've recently ran it instead it was between 150 in 175, the differences $50 crude versus $20 right.
Okay and the final one on that.
At some point that we co pack, it's going to be behind us.
And but popped up this the bad when we fast forward into the future.
Process, that's sitting back and then you save a farm days that when you look at pit. That's one thing this home.
Capital Arlo case and the project.
At the quite Jvs on your comments at Nic pitch is that in any shape up on that change your view on those.
Yes.
Fourth I'd note that this is such that.
Ben Swomley event that doesn't really change, we all feel about that seems here.
Well I don't think and changes a lot of the view of the future Paul but it does make in all that much more important for consolidation to occur in the industry.
I think thats the trend that is there anyway.
I talked about this this renewable diesel what's driving that is the is the low carbon fuel standard that California in Oregon have embraced.
I think most of the of the industry out there feels that that is probably going to overtake the United States at some point.
And be the norm.
In some form or fashion that may not come in that way, but what that tends to mean as is the is drifting away from the fossil fuel molecule.
Anything you do if you don't have scale and you don't have multiple sources of EBITDA from with different drivers, it's going to be difficult to compete in this business.
And Thats why its so important to to consolidate into.
And to to build that have diversified EBITDA portfolio that allows you to.
To manage through the demand destruction that ultimately comes through with a with a low carbon fuel standard.
My final question Ben that's it for move that we had big event that you do not fond of writing.
Hi, Ken or that you could not get other people to come deems to to accrete. That's if you will you go sell be willing.
Two tcf potential.
Okay.
We always have been and always stated that the we either consolidate or or be a consolidated fee.
I think the ours I think there's value digital to another company to have us or for us to consolidate up so they can go either way.
Okay. Thank you.
You're welcome.
Thank you. Our next question comes from the line of Matthew Blair with Tudor Pickering, Holt and company. Please proceed with your question.
Hey, good morning, Bhavan, Tracy glad to hear you guys are safe and sound here.
I had a question on the Q2 utilization guidance I think it's showing mid point below 65% utilization, which seems pretty low but of course, you had the m. coffeyville turnaround in April.
So I guess, what kind of impacted that did that turnaround have on the fourth quarter and maybe another way to ask this is what kind of utilization will you be running at in May and June.
Well our guidance is you're right is mostly impacted by the fact that the coffeyvilles down for most of the month of April.
And that you'd take that.
That zero in there and it makes a make sure your utilization come down a lot, but even that said you know with our demand only improving by about 10% here just lately and that when I say demand I'm looking at the Magellan racks, specifically if you want to look those numbers up I think it's a public number you can find.
You know the gasoline demand has improved about 10% in the last week and we will tend to go with wherever that number goes.
And that's and usually the cracks will respond if we get too far ahead of that the cracks are going to go down if we get the we go up whether the you know that it'll tend of at least stay there be higher.
So that's kind of where where it ends up and what we get we gave his guidance is is not not knowing its unknowable at this point, how how it's going to recover so there's really no way, we can give anything guidance, but except where we are today.
Sounds good makes sense and then Dave I was curious on your thoughts on.
Inland crude differentials if you as crude production starts to decline in 2016, when this happened Brent WTI averaged about 83 cents a barrel.
Futures curve is now closer to.
$4 per barrel in 2021, so just curious you know where you stand on this.
What your experts expectations are for Brent Ti.
Next year.
Well my in my answer to that is usually low price the best cure for low prices is low prices.
And.
Thats.
Obviously, the the world demand for oil is.
As of does not impaired forever with this pandemic, it's going to come back to what level nobody knows but the fact of the matter is with the energy mix. That's out there. The oil is still a very was 85% of the of the consumption.
That's what the world needs for energy and I don't think Thats going to change and I don't think.
$20 crude is sustainable in that environment.
It has to come back something higher and.
So I well that will the shale oil forever more be dead.
No way.
We'll come back.
And usually the low the lower the price goes the higher it swings the other way so.
How long that will take I don't know, but.
I don't see the Permian basin, or the Anadarko basin, Vienna being shut in anytime soon.
And it will recover and it'll still be an export market because the refiners are tool to run the volume that they're they're capable of producing.
And that export market means a Brent ti spread to me in any way shape or form you do it.
So differentials are upside down and every which way right now, but they'll come back.
Makes sense then last question.
Subsea me a contango is talking about a four dollar and 60 cents benefit.
Two refiners so far in the second quarter from a modeling perspective, do you capture 100% or this or 80% or can you just give us any thoughts on that.
Well and we buy a lot of our barrels on CMH and part of that equation is the role and the role as the front month to the to the back month than that that we capture on every barrel we run.
And anything we store is kind of moves around because that volume goes up and down so yes, whatever that that the that role is tended to be captured in our capture rate.
As as normal adopted right now it's down to about a Buck 50, so that the role is not nearly what it was before.
Right right, Okay, great. Thanks, Dave.
You're welcome.
Thank you. Our next question comes from the line of Neil Mehta with Goldman Sachs. Please proceed with your question.
Thanks, so much in Dave and team hope everybody is doing well.
First question just want to build back up on the M&A topic and on pad for which as you as we've indicated thats continues to be the sweet spot and certainly there number.
Logical assets that also has some.
Peeling things like retail that you're interested in.
From a logistics standpoint, I would imagine with the with the current and virus.
It's difficult to actually inspect assets to actually advance through deal processing is you just talk about sort of the challenges that actually pursuing potential transaction in PADD four and the time words, it's hard to actually do pull due diligence.
Yeah, Neel, you kind of summarized it well there's not a lot you can do right now, it's just the everybody's hunker down and starting to come out but the.
A lot of today in the electronic version deal electronica age you can.
Do a lot virtually also so nothing comes to a hall.
But.
It's definitely a slowdown that makes it more difficult to get things make things happen, but the.
There are still there's still opportunities out there and we continue to look at all.
And then.
But as it relates to M&A as well.
Obviously your sponsor your price your largest stoner has the ability to provide support when it comes to an M&A transaction to I would imagine I believe correct me, if I'm wrong with the Delek.
Did did or the Delek initial.
Acquisition of shares that was done on your balance sheet.
That's right.
Is there that the capacity for the REIT transaction.
It has.
Key get involved as well.
It's interesting you call him a donor I don't think you'd consider himself.
Ed.
As a shareholder and that in an important measure Oh, Oh, no or I'm, sorry, [laughter], you said owner not donor, okay and that data yet [laughter].
I think.
That is one advantage we have as we have a somebody that very interested in the business and looks for the right opportunity too.
To invest money. So it's a competitive advantage, we have versus everyone else I believe.
And we plan to use that every way we can.
It's probably within the longest since we've talked about Rindom conference call over the last couple of years, So I thought it bring it up here.
And.
What's your outlook for for de CIX price in particular, and how do you see.
How do you see that impacting your business.
Well the 10th circuit ruling as a as I think I've said a couple of times is very disappointing.
For the full for multiple reasons biggest one being that was not the intent of Congress and they pass this crazy RFS law in the first plus.
Even as crazy as it was a or at least smart enough to protect small refiners from certain do.
So I think the problem that we're in right now is what do they do with the.
With past trends that were waived.
How do they vacate those or how do they make that right.
And how many lawsuits are going to come out of that from the the renewable fuels Association.
And then the second piece is that the Rins have nowhere to go but up frankly.
To levels that youve that our scary.
So you know.
To us it's a fight for the life of one of our refineries, which is important to us so.
We're going to find it hard as we can and every which direction.
We continue to try to mitigate RIN exposure RIN exposure, which is still way too high.
And that's why we're looking at renewable diesel and others that you kind of force yourself into capitulated and with the with the this crazy law that the mandates noneconomic.
Solutions to the problems that you can argue whether they exist or not so.
That's kind of kind of the bottom line.
Okay. Let my last question for me is on WCS, you touched a little bit about the inland differentials WCS, that's tied up a lot because that's caused million barrels a day made in shutdown. How do you see it playing out from here and how does that affect your crude by.
Yes.
Okay, Yeah, we don't run much WCS, but we do have pipe pipeline space that we have historically.
Filled and then sold at resold in Cushing.
We are today, we're shipping some on there, but mostly we're banking.
Those credits and will continue to do that why the arbs closed.
But.
I think as far as the macro goes this is one of those crazy pieces that will cycle through.
The world needs the production of Canadian crude and.
It's a it's upside down right now, but it always correction comes back to where that becomes an economic source for the world.
When it needs more energy.
And that they will come.
Thanks, Dave.
Youre welcome Neil.
Thank you. Our next question comes from the line of Matt Vittorioso with Jefferies. Please proceed with your question.
Yeah. Thanks, Thanks for taking my question I guess just high level on liquidity.
Lots of questions around M&A and potentially bringing the dividend back just to take a step back you guys feel good about the liquidity you have today.
Maybe you can talk about that in the context with how you see cash flow shaping up over the next couple of quarters I understand the visibility is pretty diminished, but do you.
Anticipate that cash burn will sort of cycle down from here and again are you comfortable with the liquidity you have today just in the context, Missy PBF energy out there raising another $1 billion and liquidity just want to be sure that you guys feel good about where you are today.
Well remember our first quarter was hit and our second quarter, we'll be at buyer Coffeyville turnaround. So the numbers look a little weird right now, but that's our biggest thats by far largest refinery. So it had the biggest impact on our first quarter results and they'll be similar impact on the second quarter results and that was a cash burn for.
That said.
We did pick the probably the most ideal time to take a turnaround with one exception the virus.
The Mark the opportunity cost was probably reduced by $100 million roughly have taken a during this time.
Unfortunately, the virus showed up and made it more difficult to complete the turnaround, but we often they got through it.
But it was an ideal time to take it because the opportunity costs was as low as possible.
Yeah, I think just it's encouraging to see demand come up another 10% here in the last week I.
I think you know Oklahoma's opening up which is one of our markets, Kansas is thinking about it Texas as well on its way, Missouri, all the states, we serve our coming out of their shell So I.
I expect to see demand continued to increase.
And with the exception of jet fuel.
And that that should bode well for our for our cash burn or cash generation coming going forward.
Okay. So as of today I mean, you guys from again I'm sure it's hard to budgets in this environment right now you feel good about the liquidity.
Yes, we're early in pretty good shape, we again, we really didn't have to cut the dividend, but we're not getting any credit for the stock market and we see other opportunities to return to shareholder sure Cat returned cash to shareholders that could be two three X that so we think thats the right moved to date.
Okay, and then I guess just one.
Big Picture question again on on sort of how you guys source and.
The cost advantage, you've had from premier on gathering system and picking up cheap shale crude in the past I mean.
Given the struggle that some of the MP. Some of those producers are going to have given the current environment. I mean, you see any of your significant suppliers going away or or just generally how does how do you see that impacting the way you source crude going forward. If some of these guys just don't make it.
Yeah, I think you know that I think what's happened so far as most of them have just walked in and so we're going to keep it in the ground wait for prices to improve and even in the last week, we've seen some of that come back a little bit so.
I think as prices.
Drift up.
We also continue to drift up a little have another hammer down because there's a lot inventory out there floating inventory everywhere.
That's got to be worked off so.
I think most of them well, we'll manage to a two a cash return if they can't make money, they're going to leave it blocked in.
But.
We didn't quote any numbers on where we've seen production, but we were gathering a 130 330000 barrels a day plus.
We're down to probably 30.
Total right now.
That's how dramatic it's been.
But we do have we have other supply lines and the Theres a lot of people than worried about Cushing filling up.
They are starting to were the other direction now Cushing is going to grain.
And I think thats going to ultimately mean, some differentials have to change again to the force that to change but.
But it's going to be it's going to be messy here for another year, probably the rest of the year they'll things come back to equilibrium.
Yeah, all right. Thank you.
You're welcome.
Thank you we reached the end of our question and answer question I'd like to turn the call back over to management for any closing remarks.
Again I'd like to thank you all for your interest in CVR energy. Additionally, I'd like to thank all our employees for their hard work and commitment toward safe reliable environmentally responsible operations.
I would like to point out that are both of our refineries were recognized by our trade group the AFPM.
For their 2019 safety performance, both refineries had no lost time accidents at all in 90, and our Coffeyville refinery had no recordable incidents for the entire year, we really appreciate their hard work and making that happen.
With that we look forward to reviewing our second quarter results.
Our next earnings call. Thank you.
Thank you. This concludes today's teleconference. You may disconnect. Your lines. This time. Thank you for your participation have a wonderful day.