Q2 2020 CVR Energy Inc Earnings Call
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Greetings and welcome to be CVR energy Inc. second quarter 2020 conference call. At this time, all participants are any listen only mode.
Brief question and answer session on all the oral presentation and he wants you to fight radar systems. During the conference. Please press Star Zero, one your telephone keypad. As a reminder, this conference is being reported it is now my pleasure to introduce your host Mr., Richard Roberts Investor Relations manager. Thank you Sir you may begin.
Thank you Michelle good afternoon, everyone.
We very much appreciate you joining us this afternoon for our CVR energy second quarter 2020 earnings call.
With me today, or Dave lamp, our Chief Executive Officer, Tracy Jackson, Our Chief Financial Officer, Dave Landry, Our Chief commercial officer and other members of management.
Prior to discussing our 2022nd quarter results. Let me remind you that this conference call may contain forward looking statements as that term as defined under federal Securities laws.
Its purpose any statements made during this call that are not statements of historical facts may be deemed to be forward looking statements.
Caution that these statements may be affected by important factors set forth in our filings with Securities and Exchange Commission and they're already latest earnings release.
As a result actual operations our results may differ materially from the results discussed in the forward looking statements.
Undertake no obligation to publicly update any forward looking statements, whether 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 disclosures related to such non-GAAP measures, including reconciliations to the most directly comparable GAAP financial measures are included in our 2022nd quarter earnings release that we filed with the FCC and form 10-Q for the period and will be the costs during the call.
With that I'll turn the call over there.
Thank you Richard Good afternoon, everyone and thank you for joining our earnings call yesterday, we reported a second quarter consolidated net loss of 32 million and a loss per share of up five cents.
EBITDA for the quarter.
68 million.
There are old crack spreads tighter crude differentials and lower throughput volumes all interrupted impacted our results for the quarter.
The board of directors did not approve a dividend for the second quarter 2020 in light of both ongoing challenges to our business presented but go ahead.
18, pandemic and potential opportunities for higher return uses of cash in the near term.
This includes major projects like the when he would renewable diesel project that I will discuss shortly as well as good potential acquisition opportunities. The board felt it was prudent to preserve liquidity, while we wait for refined product demand return and as we work towards final decision on or other potential use uses.
Cash.
For the petroleum segment the turnaround at Coffeyville was completed in April although the plan restarted later than we originally planned due the impacts of Cobot 19, we did avoid some of the weakest product cracks in the quarter wont Coffeyvilles down.
After completing the turnaround in April we ran the plant at reduced rates until mid June.
What do you want to operated in a similar.
Operator at similar reduced rates for much of the quarter before returning to full operations in mid June the combined total throughput for the second quarter 2020 was approximately.
Hundreds to 56000 barrels per day as compared to.
260000 barrels per day for the second quarter 19.
The group three to one one crack spread averaged $8.75 in the second quarter 2020, as compared to $20.67 per barrel in the second quarter 19.
The Brent Ti I averaged $5.39 per barrel than second quarter compared to $8.56 per barrel in the second quarter 90.
The Midland Cushing differential was 40 cents per barrel over WCS.
In the quarter compared to $2.27 per barrel under WT, the second quarter of 90.
The WCS differential to WTI.
Was $9.45 per barrel as compared to $12.63 per barrel the same period last year.
Light product yield for the quarter was 98% on crude processed our distillate yield as a percentage of total crude oil throughput was 42% the second quarter for 2020 compared to 44% the prior year.
Product prices favorite gasoline over diesel at times during the quarter.
In total we gathered approximately 82000 barrels a day of crude oil during the second quarter of 2020 as compared to 120000 barrels for the same period last year with the collapse in crude oil prices during the quarter, we saw a dramatic declines production volumes in our gathering regions.
As prices began to rebound.
We saw those volumes coming back our current gathered volumes are over 120000 barrels per day.
And the fertilizer segment, we had strong utilization at both of our facilities during the quarter Coffeyville utilization of the ammonia unit.
It was 98% for the quarter and at East Dubuque, The ammonia plant operated at a 101 utilization for the quarter.
Weather conditions were favorable for spring fertilizer application and planted corn acres increased.
The an acre as compared to last year.
Nitrogen fertilizer prices.
Currently remains soft due to ample supply of the market and lower natural gas prices, although cheap natural gas lowers our feedstock cost as well.
Now, let me turn the call over to traces discuss some find additional financial highlights.
Thank you, Dave and good afternoon, everyone.
As Dave mentioned for the second quarter 2020, we reported a consolidated net loss of 32 million and a loss per diluted share a five cents. This compares to net income of 128 million and diluted earnings per share of $1.16 for the second quarter 2019, our consolidated results for the second quarter of 2020 included a non.
Cash goodwill impairment of 41 million in the fertilizer segment and in Mark to market gain of 18 million and dividends and 3 million related to our investment in Dallas.
As well as favorable inventory valuation impact to 46 million.
Excluding these impacts our second quarter 2020 loss per diluted share would've been approximately 44 cents.
The petroleum segments EBITDA for the second quarter 2020 was 54 million compared to 216 million in the same period in 2019, the year over year EBITDA decline was driven by Nemertes crack spreads and tighter crude oil differentials as well as lower throughput volumes, excluding inventory revaluation impact to 46 million our petroleum.
Segment, EBITDA would've been 8 million.
In the second quarter 2020 are between segments refining margin, excluding inventory impacts with $7, an 18 cents per total throughput barrel compared to $15.68 in the same quarter 2019, the increase in crude oil and refine product prices through the quarter generated a positive inventory valuation impact at $3.25 per Boe.
During the second quarter 2020. This compares to a two cents per barrel negative impact during the same period last year the capture rate excluding inventory revaluation impact was 82% in second quarter 2020, as compared to 76% in the second quarter 2019.
Derivative gains for the second quarter 2020 totaled 20 million, which includes unrealized gains of less than half a million dollars associated with open commodity derivative instruments and open purchases of Canadian crude oil that are scheduled for future delivery in the second quarter 2019, we had total derivative game 4 million, which included 3 million of unrealized gain.
Rins expense in the second quarter 2020 was 16 million compared to 21 million same period last year the year over year decrease and rent expenses due to our rins purchasing strategies trading activities and RBL decrease offset by increased rins prices based on recent market prices are friends and current production plans. We now estimate that are indexed.
This will be approximately 95 to 105 million in 2020.
The petroleum segments direct operating expenses were $5.52 per barrel, a total throughput in the second quarter 2020, as compared to $4.40 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.
Total direct operating expenses for the second quarter 2020 declined by 7 million from the prior year period due to our efforts to lower cost as we work to phase in our 50 million targeted savings and operational and us DNA expenses. The reduction in the second quarter 2011, 2020 was driven by a combination of lower personnel costs utilities and repairs and maintenance expenses.
For the second quarter 2020, the fertilizer segment reported an operating loss of 26 million a net loss of 42 million or 37 cents per common unit and EBITDA negative 2 million.
Reported results for the second quarter included non cash goodwill impairment at 41 million. This is compared to second quarter 2019 operating income of 35 million net income of 19 million or 17 cents per common unit and EBITDA 60 million the year over year decline is primarily due to the goodwill impairment and lower prices for ammonia and UAN in.
During the quarter CVR partners repurchased approximately 890000 of its common units for approximately 1 million the partnership to not declared distribution for the second quarter 2020.
Total consolidated capital spending for the second quarter 2020 was 26 million, which included 22 million from the petroleum segment and 3 million from the fertilizer segment.
This total environmental and maintenance capital spending comprised $19 million, including 16 million in the petroleum segments and 2 million in the fertilizer segment. We estimate total consolidated capital spending for 2020 to be approximately 95 to 105 million.
Which approximately $80 million to $90 million environmental and maintenance capital. This excludes planned turnaround spending, which we estimate will be approximately 150 to 160 million for the year total capital at turnaround expenditures year to date were 153 million primarily related Coffeyville refinery turnaround completed in April.
Cash flow from operations for the second quarter, 2020 was 9 million and free cash flow in the quarter was a use of 158 million total cash turnaround expenditures year to date were 147 million, including 125 million in the second quarter.
Turning to the balance sheet at June 30, our debt to EBITDA. The CVI level was approximately 2.8 times, excluding CVR partners Standalone debt and EBITDA on a trailing 12 month basis, we ended the quarter with a strong cash balance of approximately 606 million on a consolidated basis, which includes 33 million in the fertilizer segment our net.
EBITDA was probably 1.3 times as of June Thirtyth, Excluding CVR partners. We had approximately 831 million of liquidity, which was comprised of approximately $574 million of cash securities available for sale of $140 million and availability under the ABL up approximately $393 million less cash included in the borrowing.
They have 275 million.
Looking ahead for our petroleum segment, we estimate total throughput for the third quarter of 2020 to be approximately 190 210000 barrels per day, we expect total direct operating expenses for the third quarter to be approximately 75 to 85 million and total capital spending is range between 15 and 25 million.
For the fertilizer segment, we estimate our ammonia utilization rate to be between 95% and 100%. We expect direct operating expenses to be approximately 37 to 42 million, excluding inventory impact and total capital spending to be between three and 6 million would that Dave I will turn the call back to you.
Thanks Tracy.
Impacts of the stay at home orders across the country as well as the result of Conan 19 pandemic continue to weigh heavily on crude oil and refine products and the second quarter 2020.
We continue to continue to do everything we can to manage the business through this difficult environment.
Our focus continues to be arms on operating in a safe reliable manner, while controlling our cost and maintaining a strong balance sheet liquidity position. So we can be positioned to take advantage of the eventual market recovery.
Inventories for crude oil.
Gasoline diesel and diesel in the U.S. are all well above five year averages and we think refine product inventory levels must come down significantly before we will see crack spreads materially improve according to data from the a us refined product demand remains.
Approximately 1 million barrels per day below pre cobot levels for each of gasoline diesel and jet fuel and re refinery utilization remains under 80% on average we do not expect the situation to change significantly anytime soon.
Inventories in the mid Con are more in line with a five year average we have said seeing steady increases in gasoline demand since the low lows in April.
As product demand has recovered we have increased rates are at our refineries accordingly.
Crude differentials currently favor running very light crude slate and we are running our system to Max maximize light crude throughputs as limited by lighten up the processing Cape capacity.
With this light crude slate our gasoline sulfur levels are in the five to six parts per million range well below the tier three standard of 10 PPL.
Although we saw a decline in our crude oil gathering volumes in the second quarter production on our gathering at various has rebounded and we're currently gathering over 20000 barrels per day, we expect that to go higher if crude prices continued to increase.
As we continued to navigate the challenging environment, we remain focused on controlling.
And reducing costs wherever possible second quarter spend on maintenance materials and supplies and other costs. The facilities were down approximately 15% from the second quarter 2019.
We made the difficult decision to reduce our overall headcount in June which should result in an additional analyze annualized savings of approximately 10 million.
And we successfully reduced our sustaining capital needs with our full year sustaining capital currently forecasted 109.
On our last call I mentioned that we were looking at utilizing excess hydrogen capacity of the Wynnewood refinery Ferrari renewable diesel project I'm pleased to announce that our board of directors has authorized engineering studies.
And the preparation of a final cost estimates for the project to produce renewable diesel at the Wynnewood refinery. This project would convert an existing hydrocracker to allow for the production of renewable diesel and also includes tanks or rail terminal staging facility.
We will retain their flexibility to return.
The new to hydrocarbon processing should the economic support doing so.
Initial design includes to six to 7000 barrels per day of processing cable capacity.
Which currently estimates to complete all components of the project.
Current estimates to complete all components of the project of approximately $100 million on a per gallon basis, we estimate total capital costs between the dollar and $1.20 per gallon of renewable diesel capacity.
The final approval is received renewable diesel production could begin as soon as of June Thirtyth of 21.
We also we are also looking at the potential of $50 million investment to revamp the existing hide diesel hydrotreater to regain approximately 9000 barrels of crude oil processing capacity capacity.
Well producing renewable diesel if approved this project could also be complete.
Could also complete approximately one year after the completion of the hydrocracker conversion to renewable diesel or as soon as the third quarter 2022.
We will be making the decision on the renewable diesel project in September, but expect the diesel hydrotreater revamped decision to be delayed and depended on further crack spread improvement.
Looking at the third quarter of 2020 quarter to date metrics are as follows group three to one one cracks have averaged $8.81 per barrel with the Brent WTI spread of $2.48 per barrel and the Midland Cushing differential of 39 cents per barrel over Wi.
WGCL differential has averaged five cents per barrel under Cushing.
WPS and the WCS differential as averaged $8.69 per barrel under WPS.
As of yesterday grew three cracks were at $7.74 per barrel, Brent Ti I was $3 in 14 cents per barrel and WCS was $10 in 13 cents under wtf.
Quarter to date ethanol Rins have averaged 47 cents and biodiesel rins have averaged 60 serves well refined products have been compressed market volatility rins remain significantly overpriced and now represent an even greater negative impact to capture rates as I've said before we believe the 10 Sir.
Got it all wrong when they rule to vacate three small refinery exemptions earlier this year and we intend to appeal. This mid mid misguided 10th circuit.
RFS ruling to the United States Supreme Court.
With that operator, we're ready to take questions.
Thank you we all know.
My question and answer session. If he would like that's a question. Please press star one on your telephone keypad a confirmation.
Your line is another question.
Sorry, Q, if you'd like to move your question from the Q.
Hi, Justin Bieber equipment may be necessary to pick up your hands that support presence with Barclays.
Hello, and thanks for your question.
Our first question comes from the line of course shop Ral with Citigroup. Please proceed with your question.
Hi, This is Joe on purpose Sean.
Consolidated debt to capital ratio was in the mid Fiftys and the list in the mid Fortys excluding Duane.
Levels are you comfortable with and how should we think about de leveraging.
I think that right now we're comfortable with where we're at given the economic circumstances that we're facing and we're going to work to maintain our cash and liquidity positions and stabilize and wait to see when demand will recover and then we'll address delevering if necessary.
Okay.
You also mentioned that the gathering volumes averaged 82000 barrels per day in the second quarter, how did it change during the quarter and what's your long term outlook for the gathering volumes from Scoop and stack. Thank you.
Well I think it's very dependent on absolute crude price for number one but.
Volumes come back week before the pandemic hit we were we the highest number we had reached its about 150000 barrels per day of gathered crude.
We're estimating that the next next quarter, which should be in the 120 million bear a 120000 barrel range and we see no reason why that isn't sustainable to some degree.
You do have depreciation tour.
The.
But basically wells basically age and they start to lose some of their capacity.
That I don't think will will probably not going to keep up with new drilling to maintain those rates. So there might be a slight decline in those barrels over the next year or two years of crude price doesn't recover.
Thank you I'll turn it over.
Thank you. Our next question comes from the line of Manav.
Credit Suisse. Please proceed with your question.
Hey, Dave a question more on that dividend side I'm trying to understand the talk process scrapping the dividend was it more a function of and looking at the solid cracks and saying, okay, the not generating enough cash.
So thats, we do stick Ashburn automotive function also can you had this renewable diesel project.
Also we are seeing might find is being shack here, so and just distressed asset majesco moderate so let's just because of the gas just engaged to get a great deal in the kind of environment I'm, just trying to understand what really drove the process of scrapping the division.
Well I think you summarize it very well.
I think as I said in my prepared remarks, you know that with demand down a 1 million barrels a day each of gasoline diesel and jet fuel.
The the cracks are just sitting here floating on op costs to basically if you look at where they've been the last month as have just been.
Right at the People's operating costs, frankly, and generating very low income and I think the board looked at that as a as a until we can get a better feeling of what demands going to be and I truly believe it's probably changed a bit.
We will it ever come all the way back to 9.5 million barrels a day of gasoline I don't know.
There's a lot of companies that are working from home and now stated there are going to work for home permanently and you get to remember that 40% of the us demand of gasoline is commuting.
Back and forth to work or some variation of that so.
A little bit impact there can can make a long time offsetting that to some degree as there's been some announcements of shutdowns of some refineries, which I expect there to be more of just because when you have to make a decision to spend 100 million on a turnaround.
You want to have some idea that youre going to recoup some of that in the next four years of that turnaround blood.
So I think the board was.
As appropriately cautious and they were pretty excited about renewable diesel and that will be a fast spend if we do it.
And and just some of the other M&A opportunities that are out there.
I think our teed up quite well and we want to being positioned the.
To jump on those should they should we be able to kind of deal.
And a quick follow up on more than you ladies inside the first question on that for all information on the second annual diesel. Despite this time do you want to believe all alone you open to partnership and the only going to be organic can you add to look at somebody who was already pulling this gorilla glass.
At this time I understand the thought process ongoing would it be then on is going to be sold inorganic all your open to everything.
Well I think we're open to everything but the practicality of it is we're on such a short timeframe to get it done there's not a domain. The main part of this this project really is installing the facilities to be able to bring in bean oil and take out renewable diesel to California. So, it's all rail tankage and and.
Loading unloading systems for the most part there are a couple of modifications to the process unit, but not a whole lot.
So thats why we think we can do it at year end, we'll probably have multiple phases of it just because the bean oil is probably the net shoe the worst CDAI or the.
Carbon index.
Credits that are available, but it is readily available feedstock and something you get your hands on quick.
And it's a if its washed and refined and cleaned up.
It's just that much less complexity you have to do on on getting going in our real strategies around the the dollar blenders credit which.
If you look at it if we can get 18 months worth of 6000 barrels basically pays for the investment plus zone.
And gives us optionality.
In this case, we were able to run the refinery and process being oil to renewable diesel and there's varying degrees of opportunity costs there.
Depending on what credits do we like that we like that Optionality also.
Good day.
They had some calling thank you so much David.
Youre welcome.
Thank you. Our next question comes from the line of Neil Mehta with Goldman Sachs. Please.
Good.
Hey team. Thanks, Thanks for taking the questions that the first one.
Is that it's just to build on my comments made around M&A can you just talk about the landscape I think you've been pretty public in your long term intentions around delek can extend.
That that opportunity does materialize, but your latest thoughts there and then you've also through the years talked about pad for M&A as well what is the balance sheet capacity.
To to transact and any latest thoughts around that.
Yes.
Well I think Neil you pretty well know the story there.
The Delek us as an opportunistic case something may come of that they may not.
You, probably know might well my recommendation would be more to a pet for asset.
That.
Gives us EBITDA diversity.
And.
Different set of crack spreads and crude spreads to to add to our portfolio, which is probably our greatest weakness.
So I would tell you a much more focused on that that I am on on anything with Delek, but but you never know what can come up on the other hand so.
We're trying to read maintain all optionality and keep it opened as far as the balance sheet goes I think we'd have to approach the market. If we did some kind of deals how we do it until we get there it's hard to worry about too much.
But.
I think we'd we'd we'd have to do something to that that area or the partner take a significant.
Number of shares but.
No that we'd want to do that either so I think we keep in all our options open and.
We'll take the opportunity presents itself will deal with the finance side.
And then the follow up around that would be just timeline around M&A, it's really hard and especially hard right now 'cause it must be very difficult to physically evaluate assets, but how do you think about the timeline of execution of M&A do you view this as a longer dated priority or is this something you're focused on in 2020.
Well I'd tell you I think the competitions, but narrowed by the current environment, which may play to our advantage.
And.
While we're not.
Rate of this business in any way.
We think it as a future that people are going to drive their cars and megawatts. So.
They need gasoline and diesel and that would be true for the next at least 30 years if not longer.
So I think the current environment presents a bit of an opportunity for a company like ours that has the wherewithal capability, we have and for that reason that we're keeping all our options open.
And then Dave last question for me would just be around the dividend as follow to my next question as you think about the third quarter based on the information.
That we get that you have now you're kind of halfway through.
Yeah the quarter at this point.
Is it fair to assume that there would likely be no dividend paid in in next quarter in the fourth quarter as well because market conditions are still really challenging recognizing it's a board decision, but any early thoughts stuff.
Yes, I think you summed it up it as a board decision the board looks at this every quarter nothing's automatic in our business.
And I think that the board what the time make the appropriate decision based on the current environment at that time.
Where we are probably more flexible our dividend and other companies have been in the past.
And Thats, just the nature of our shareholders and our structure.
And I think it's it depends on what other higher opportune higher return opportunities there are out there for the cash and that's about as simple as the decision goes.
Great I might have a follow up Q Bakken.
Okay.
Thank you. Our next question comes from the line of Matthew Blair with Tudor Pickering Holt. Please proceed with your question.
Hey, good morning, Dave.
Good morning.
Just wanted to circle up on I am renewable diesel side, the capital costs of one dollar to dollar 20 per gallon.
Really good compared to some competing projects were showing kind the 250 per gallon that 330 per gallon range.
So can you maybe circle back and why why is it such a low capital costs is that because of the excess hydrogen and if so like why do you have excess hydrogen at the plant.
Well you hit a primarily the.
We have an existing hydrogen plant that's idle today about 10 million skus, but we also have a CCR that generates a lot of hydrogen that we burn today and fuel.
So part of the reason to so cheap is that all availability of that hydrogen, but also add that the other piece of it is that we have up fairly large hydrocracker.
And Thats, if you look at Wynnewood its complexities around 11, which is pretty complex for a small as the refinery as is and taking that out.
The and putting it in an alternative service fees. We don't have we have enough cutting crude rate to some degree, but not near you still feasible as as a refiner.
So that keeps the cost down it's just it's a hell of a piece of hardware that sits there.
For what we're doing whether it running a light sweet crude we can make more money whether it was the renewable diesel.
And the other piece of the third piece I'd say to that is that we're also keeping the complexity down here by going after Washington refined soybean oil.
Which gives you probably the lowest CDAI.
Carbon intensity index, but.
But it also gives you the ability to get up and running quick you don't have to put treat treatment. Then you don't have to do much of anything except off loaded and charge it right to the hydrocracker.
So those three things really make it like a cheap.
And on that last point would you have to flexibility down the road to run different feedstocks like used cooking oil or is this pretty much just going to be a soybean oil plant.
No. We've we've retained it just takes longer so what we're after as the blenders credit.
Which expires at the end the 22, so get it getting to market quick and fastest is what we're after and but we would leave provisions for additions to other revamps to the to the hydrocracker to get that rate up even higher.
And the initial rate up even higher but also to add pretreatment that allow us to run virtually any stock out there.
Sounds good and then the final question just on rent. So the Rins expense I think you said 95 to 105 million previously I want to say that was closer to 65 to 75 could you just walk through the moving parts here. So RIN prices have moved up ever since the court decision.
I would've thought that your your volume obligation might have gone down just with lower demand and lower Throughputs lower production and then also I guess the third part would be how much are you saving year over year due to your own internal actions to increase blending.
Well, we've we've increased our blending to about 25% that was from probably 18 17 somewhere in that neighborhood and that's through buyout biodiesel blending the 5% in our base based volume, but you're right our ratios down some but cost Brent cost of basically doubled.
Since the beginning of the year so.
That is the main driver.
Got it okay. Thank you Sarah I said their way overpriced and they are so.
Thank you are welcome.
Thank you. Our next question will be coming from the line of Paul Cheng with Scotia Bank.
Hey, guys good morning.
Vault.
Hey, I want to reconcile what you said a deal.
It looks like Youre fourth quarter full put yes go into one at full capacity based on the guidance that you call wise.
And at the same time, saying that.
Most important for the industry, bringing down the call documents relating to a more normal deadline by now we have way too much inventory and we also have seen new Saul.
Some icap.
We starting up in you called them.
So and you also said that in the margin has nothing to spectacular so what's the reason behind why do we designed to one such a high Bombay.
Well, Paul I think.
The bottom line in our markets. If you look at pad, two and particularly the Magellan system.
And Tories are pretty normal.
In demand is there.
We're going to fulfill that need as best we can we're also competitively advantage because of the gathering system. We have in the light crude we process.
As you look at the crude differentials there just nonexistent.
A lot of lot of analyst or I'd say in the Gulf coast is better than that.
Inland refiners I beg to differ and say when there is no crude this there is no difference.
So.
I think the the.
The fact that light crude is so profitable and we're running as much like crude as we can that is that is still meeting we're not at our 215 or the numbers. We have reached in the past, we're still cut back from that but thats, what a light slate does to you.
So I think we have we have variable mark we have incremental margin than even on a full cost today and we'll continue to run to too.
To meet the cuss, our customer needs as as they dictate.
Second question that.
I think earlier you mentioned that you will be while the PK that pets for us at San Juan Dk has.
Purchase the share.
Very nicely and.
And a very low price so that that congratulation on that.
That's the call and in Whitehall onto this fall.
In India.
Hi, Mike.
Hey, guys may decide what you're going to do with that or that is just going to hang on to add pull a very very extensive uptime and best when a low except panel et cetera.
Hi, Mike.
How should we welcome that investment.
Well today, the timing as I believe we have six months that we have two to at least hold the stock to avoid.
Short sale short sale loss, which is I think September mid September the call at the mid September 15th that expired rise.
So I think you'll see us take action, neither one way or the other around that time.
I think.
A favor of AD for for the reasons. I stated is really is we need diversity of EBITDA more than we need additional concentration of of what I would call with Delek is largely mid con or very similar to midcon, even sometimes Gulf coast.
That does really not do a lot to move our to move our equation on the other hand consolidation in the industry, we think theres opportunities around that so I think we're keeping all options open in each and every direction. So but September 15 mid September will be the pivot point.
And.
Did you mention that pop up the devaluation into that.
We know about these old you could also.
I'd say that whether you do you are not that also another project and window, what that you may be able to do on the hydrotreating and be able to expand.
Full capacity off that we finally, so just curious that that thought process. Because you asked is already a net.
Paul X Paul Thanks, Paul to on all pull ups.
And gasoline is already in structural decline and globally. They look like we would be law.
We finding capacity so is there any ways on that all to expand the capacity.
We haven't yet it pretty cheap.
Well remember, we're losing capacity by by doing the reduce renewable diesel project and the way we look at the economics as we assigned an opportunity cost of that lost production against the renewable diesel project.
If that goes to zero and where it is today I think our opportunity cost was like 13 cents a gallon on a renewable diesel basis is very low that's where I said, we would not make that 50 million dollar investment to expand the distillate hydrotreater to get crude capacity back on the other hand of crack normalize and come back.
To where they were 1918 to 19, we'd be all over it it'd be a great project.
Yes, no problem that we were they don't know right and that.
But that decision and that that everybody is that.
The macro trend, yes, not looking good for the next maybe five years.
On the byproduct side.
I don't I cant disagree with your logic and Thats, why we defer that that decision as long as possible.
And we're not going down per se.
And then also that David how you looked at the when they were both things Hess assets.
I understand why that this may be very attractive people when they would.
Thanks Ben.
The long long call do you have begins by region one to Mig is a much like the business and maybe even a stand alone decision set on location.
Given that the margin is actually very good.
But on the other hand that take into consideration both at the moment margin up basically pick up a mandate tend to battery up entries as you can see from your decision going then you can be pretty quick is quite low so how should we look at yet the long haul for use in this business. It's just one.
Up opportunistic investment or that this that something far more than that.
I am very.
Similar thought pattern as you have Paul as the this is all government mandates.
If you look at the blenders credit of one dollar there there is nothing assured of it.
Anytime I don't know that will ever get assurity that you're going to get that every year.
Except that the last tax Bill did have it in therefore until 22 and our logic is what we can pay this project out the 100 million out by the in 18 months of gathering that that dollars blenders credit.
So it gives us optionality to play in this space.
And we have us, but we have the spare hydrogen with nothing to do with it on we're running a light crude slate at Wynnewood and we won't have we have very little future to use that in any way shape or form. So this monetize that asset a bit.
So I don't think if we can get it get it up by June Thirtyth of 21 make 18 months of the blenders credit we've got it paid off and we've got Optionality.
And the other piece of it is the low carbon fuel standard.
What will happen with that let a lot. Other refiners are very optimistic it's going to spread everywhere I guess, it depends a little bit on the election, and what happens though the election.
But.
The the the thought is that California penetration of or R&D right now is about 30%.
There's a lot of room for more.
And the first hitters, we'll get there first.
And our downsides protected by our investments recovered by the blenders tax credit so we've kind of unit.
Thank you.
You're welcome.
Thank you. The next question turned in line of Neil mentioned with Goldman Sachs.
Thanks, sorry to keep on by you guys that I want to follow up on the crude MACRA here, Dave you always have great perspective on crude differentials Brent Ti is very tight right now how do you see that playing out in the near term and then then the long term as well.
Well I think on the Brent WTI give you for four parameters that result in a tight Brent Ti low crude prices number one depress shale oil volumes excess pipeline capacity and normalize tanker rates.
You put all four of those together and you get a Brent hi, Doug very tight Brent.
I think a lot of those just all of them really depend on the price of crude and where it where it goes from here frankly, right now I think it's a little overpriced based on just demand for products worldwide.
But that has a way of correcting itself rather quickly to the.
They're drilling the whether it will pick up again.
All a function of that price and and Thats, where the Brent Ti has it has to for it to recover if something has to give.
Okay, and you think about a normalized level here based on transport economics, whereas that number for you guys.
Yes.
Well I think.
It's it's between 250 is really two bucks in three Bucks I think.
Neil just because of Theres, so much excess pipeline capacity out there that are not even recovering tariff and a lot of cases.
Hello out with US I think were scrapped your structurally the level. We're at now is the new normal for you.
I'd say until something give slow as I said you know.
Geopolitical event or the hurricane or whatever it might be all those things have a way of changing things quickly.
Okay and last one for me is WCS differentials.
Any thoughts on how it plays out from here.
Yeah, well I think of the the fact that demand us.
As as low as it is for crude.
On the Opex.
Curtailments as well as a heavy Canadian curtailment.
That the spread right now is not covering pipeline tariffs between the harvesting the Gulf coast.
All that leads to pretty tight differentials frankly the.
Canadian production is down and the government is interested in getting that share so that probably bodes to more curtailments even on their end.
And they haven't fully recovered from where they were pre cove at anyway. So.
I don't see that changing a whole lot either.
Look at those sales price in Cushing.
Around I think $3 today roughly.
Third we need probably $6 to really want to run it in our refineries.
But we could make money on the pipeline our pipeline space in any case.
Great.
Thanks, guys.
Okay.
Thank you at this time, if we see end of a question answer session and I'll turn the flow back to management for closing remarks.
Again, I would like to thank you all for your interest and CVR energy. Additionally, I'd like to thank all our employees for their hard work commitment toward safe reliable environmentally responsible operations, particularly during the spend.
We look forward to reviewing our third quarter 2020 results on our next earnings call. Thank you.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.