Q3 2020 CVR Energy Inc Earnings Call
Greetings and welcome to the CVR Energy third quarter 2020 conference call.
At this time, all participants are in listen only mode.
A brief question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Richard Roberts Senior manager F.D.N.A. Investor Relations. Thank you Sir you may begin.
Thank you Christine good afternoon, everyone.
Much appreciate you joining us this afternoon for our CVR energy third quarter 2020 earnings call with.
With me today are Dave lamp, our Chief Executive Officer, Tracie, Jackson, our Chief Financial Officer.
Landreth, our chief commercial officer, and other members of management.
<unk> discussing our 2023rd quarter results.
I remind you that this conference call may contain forward looking statements as that term is defined under federal securities laws.
For this purpose any statements made during this call that are not statements of historical fact, maybe deemed to be forward looking statements.
Cautioned that these statements may be affected by important factors set forth in our filings.
Cures and exchange Commission, and Norway <unk> earnings release.
As a result actual operations or results may differ materially from the results discussed in the forward looking statements.
Okay, 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.
Disclosures related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures are included in our 2023rd quarter earnings release that we thought the FCC and form 10-Q for the period and will be discussed during the call that said I'll turn the call over to Dave.
Thank you Richard Good afternoon, everyone and thank you for joining our earnings call yes.
Yesterday, we reported the third quarter consolidated net loss of 108 million.
Loss per share of 96 cents EBITDA.
EBITDA for the quarter was a negative three <unk> the negative 39 million.
No no no we're crack spreads elevated RIN prices and a decline in our investment on this and Delek all impacted our results for the quarter.
In light of the ongoing challenges to our business presented by the pandemic preserving the balance sheet remains a key focus.
As a result, the board of directors did not approve a dividend for the third quarter of 2020.
The board thinks the Wynnewood renewable diesel project that I will discuss shortly and potential acquisition opportunities could offer better returns to shareholders.
For our petroleum segment, the combined total throughput for the third quarter was approximately 201000 barrels a day as compared to 222000 barrels per day in the third COVID-19 react.
We experienced some weather related power outages at both facilities in August that modestly impacted our throughput rates for the quarter.
Total throughput was also constrained by Napa processing capabilities.
Yes tight crude differentials have favored running a very light crude slate.
Across the board the benchmark crack spreads in crude differentials deteriorated significantly from a year ago.
Group 3211 crack averaged $8.34 per barrel in the third quarter as compared to $18.30 per barrel in the third quarter of 19, a decline of nearly $10 a barrel.
The Brent Ti differential averaged $2.42 in the third quarter compared to $5.59 per barrel prior year period.
The Midland Cushing differential was 13 cents per barrel over Doug <unk> in the quarter compared to 26 cents per barrel under Ti in the third quarter of 19.
The WCS the WCS differential was $9.82 per barrel compared to $12.59 per barrel for the same period last year.
Or light product yield for the quarter was 99% on crude oil processed our distillate yield as a percentage of total crude oil throughputs was 43% in the quarter compared to 45 in the prior year period.
In total we gathered approximately a 124000 barrels per day of crude oil during the third quarter of 2020 as compared to approximately 127000 barrels per day for the same period last year.
Well production volumes in our gathering regions fell significantly in the second quarter with the drop in crude prices. Those volumes quickly came back as prices recover to rub $40 a barrel.
Current gathering volumes are over 120000 barrels per day.
In the fertilizer segment, we had strong normally low ammonia utilization at both facilities of 97% at Coffeyville and 99% at East Dubuque, Although fertilizer profit prices remained soft year over year sales volumes were higher for both ammonia and UAN ammonia and UAN.
And Weve made additional progress in our cost cutting cost savings initiatives weather conditions have been favorable and with the harvest largely complete we expect solid demand for ammonia for the ammonia fall right.
I would also like to highlight some of the environmental achievements achieve announced by CVR partners recently the.
Coffeeville fertilizer facility recently certified its first carbon offset credits for reducing nitrox offside oxide emissions at one of its acid plants. The east Dubuque facility has already invaded the majority of this nitric oxide emissions over the past five years between the two plants CV.
Our partners is now able to reduce its carbon dioxide equivalent admissions by over 1 million metric tons per year.
Now, let me turn the call over to Tracy to discuss additional financial highlights. Thank you David Good afternoon, everyone.
Our consolidated net loss of $108 million and loss per diluted share of 96 cents includes a mark to market losses 68 million related to our investment in Dallas and favorable inventory revaluation impact of 16 million.
Excluding these impacts our third quarter 2020 loss per diluted share would have been approximately 57 cents. The effective tax rate for the third quarter of 2020 was 22% compared to 25% from the prior year period.
Petroleum segment EBITDA for the third quarter of 2020, with 15 million compared to 228 million in the same period in 19, the year over year EBITDA decline was driven by significantly narrower crack spreads elevated rins prices and lower throughput volumes, excluding inventory revaluation impact of 16 million our petroleum segment EBITDA.
I would have been a negative $1 million.
In the third quarter 2020, our petroleum segments refining margin, excluding inventory impact was $4.61 per total throughput barrel compared to $16.37 in the same COVID-19, 72% decline.
The increase in crude oil and refined product prices through the quarter generated a positive inventory valuation impact of 86 cents per barrel. This compares to a three cents per barrel negative impact during the same period last year the capture rate excluding inventory revaluation impacts was 55% in the third quarter of 2020 as compared to 89% in the third.
Quarter, 2019, and most significant items impacting our capture rate for the quarter was elevated in RIN prices, which reduced margin capture by approximately 23%.
Derivative gains for the third quarter of 2020 totaled 5 million, which includes unrealized gains of 1 million associated with Canadian crude oil derivatives in the third quarter of 2019, we had total derivative gains of 18 million, which included $14 million of unrealized gains.
Rent expense in the third quarter of 2020 was 36 million compared to a 2 million dollar benefit in the same period last year the year over year increase in rent expenses due to an increase in rins prices during the third quarter 2020, and a reduction of our renewable volume obligation in the prior year period.
Based upon recent market prices and rents at current production plans, we now estimate that our rent expense will be approximately 110 to 115 million for 2020.
Despite lower throughput the petroleum segments direct operating expenses declined to $4.17 per barrel in the third quarter of 2020 as compared to $4.46 per barrel in the prior year period.
Total consolidated operating and SDN <unk> expenses for the third quarter of 2020 declined by approximately $25 million from the prior year period due to our continued efforts to lower costs.
For the third quarter of 2020, the fertilizer segment reported an operating loss of $3 million, a net loss of 19 million or 17 cents per common unit and EBITDA of 15 million. This is compared to third quarter 2019 operating losses of $8 million, a net loss of $23 million or 20 cents per common unit and EBITDA of 11 million.
The year over year, EBITDA improvement was primarily due to higher sales volumes and lower operating and turnaround expenses offset somewhat by lower prices for ammonia and UAN.
During the quarter CVR partners repurchased just over $1.4 million of its common units for 1.3 million. The partnership did not declare distribution for the third quarter of 2020.
Total consolidated capital spending for the third quarter 2020 was 23 million, which includes 17 million from the petroleum segment and 5 million from the fertilizer segment of this total environmental and maintenance capital spending comprised 16 million, including $12 million in the petroleum segment and 3 million in the fertilizer segment, we have.
Estimate total consolidated capital spending for 2020 to be approximately 125 to 135 million of which approximately 90 to 95 million is environmental and maintenance capital and 15 to 20 million is related to the renewable diesel project at Wynnewood.
Total capital spending excludes capitalized turnaround expenditures year to date of $154 million. We do not currently expect significant plans turnaround expenditures for the remainder of 2020 and turnaround spending in 2021 is expected to be less than 15 million in preparation for the turnarounds planned in 2022.
Cash provided by operations for the third quarter of 2020 was $111 million and free cash flow in the quarter was a positive 76 million working capital was a source of approximately $93 million in the quarter due in part to an increase in lease crude payables and an increase in accrued liabilities.
Turning to the balance sheet at September 30, we ended the quarter with a strong cash balance of approximately 672 million on a consolidated basis, which includes 48 million in the fertilizer segment.
On a trailing 12 month basis, our net debt to EBITDA at the CVI level was approximately 4.4 times, excluding CVR partners Standalone debt and EBITDA as.
As of September Thirtyth, excluding CVR partners, we had approximately $858 million of liquidity, which was comprised of approximately 624 million of cash securities available for sale of 118 million and availability under the ABL of approximately $393 million less cash included in the borrowing base of 277 million.
Looking ahead to the fourth quarter 2020 for our petroleum segment, we estimate total throughput to be approximately 200 to 220000 barrels per day, we expect total direct operating expenses to range between 75, and 85 million and total capital spending to be between six and 12 million for the fertilizer segment, we ask.
Meet our ammonia utilization rate to be between 95% on a 100% we expect direct operating expenses to be approximately 37 to 42 million, excluding inventory impacts and total capital spending to be between five and 8 million.
Corporate and other capital spending which includes investments in the Wynnewood renewable diesel project is expected to range between 12, and 15 million without Dave I will turn the call back to you.
Thank you Tracy.
The reduction in refined product demand due to the ongoing pandemic continued to weigh heavily on crude oil and refined products in the third quarter of 2020.
We continue to do everything we can to manage this business the business through this difficult environment.
Our focus continues to be on operating in a safe reliable manner controlling our costs and maintaining a strong balance sheet and liquidity position and.
In the near term our outlook remains cautious as market fundamentals.
As on market fundamentals that we see.
Crude oil differentials have tightened considerably with the decline in crude prices and domestic shale production.
We expect differentials to remain weak until show production recovers.
Inventory of drilled but uncompleted wells are expected to decline as well with depletion likely W.T.I. prices.
Under $40 a barrel.
Crude oil prices will lead to rise further to incentivize new wells to stem production declines.
US refined product inventories have benefited from product exports returning to pre co bed levels.
Gasoline inventories are now within a five year average, while distillate inventories remain elevated mainly due to weak jet fuel demand.
The loss of jet fuel demand is more than half of the total demand destruction.
Transportation fuels.
We need jet fuel demand to recover in order for oil to recover.
Commercial air travel made up primarily of business and leisure travel accounts for 75% of total jet fuel demand and remains depressed.
Ultimately.
We will likely need to see additional run cuts and or permanent refinery shutdowns for crack in crude differentials to improve.
As we work to maximize the profitability of our plants.
Under these conditions CVI is running a maximum light crude slate maximizing premium production maximizing RIN generation and selling a 100% of our WCS in Cushing will continue to reduce operating and corporate costs.
We continue to explore opportunities to diversify our business. We have received board approval to complete detailed engineering work.
And have ordered long lead equipment for the renewable diesel project at the winning with refinery. We are currently evaluating a multiphase approach to our renewable diesel strategy with phase one to be in the conversion of the existing hydrocracker at wynnewood to allow for the production of renewable diesel with phase. One we was also read.
Tula refinery for maximum condensate processing.
We have submitted applications for all environmental threats to the state of Oklahoma for final approval pending.
Pending state approval State agency and final board approval.
We could receive feedstock as early as May of 2021 and have the unit online by January and July one of 21.
This would allow us to receive 18 months of the dollar per gallon blenders tax credit that is currently authorized through the end of 22.
Year 22.
We view phase one is providing us with optionality between the blenders tax credit low carbon fuel.
Standards credit and Rins generated by renewable diesel production. We believe we can recoup a significant portion of our initial investment in 18 months.
If market conditions change materially than we would have the option to return the unit to hydrocarbon service fairly easily at minimum cost on the other hand, if group three cracks remain low and these government incentives continue to be supportive we have an attractive mix of projects to grow our renewable do.
Diesel business.
In two additional phases phase two would involve the installation of a pretreatment unit at Wynnewood.
That would allow us to process lower carbon intensity feedstock slate inedible corn oil animal fats.
And used cooking oil.
Finally in phase three different proof.
We would pursue a similar renewable diesel project at the Coffeyville refinery. We currently have excess hydrogen capacity in an existing high pressure hydrotreater.
The Coffeyville refinery that we could re purpose for renewable diesel production similar to the project at Wynnewood.
In addition to an expanding into the renewable fuels market. We have stated many times that we believe further consolidation in the refining space as needed and we would like to be a part of that process. While we don't have anything new to report at this time, we remain interested in a number of potential opportunities including.
Our nearly 50% stake in Delek.
And potential assets.
And Pat for.
Looking at the fourth quarter of 2020 quarter to date metrics are as follows group 3211 crack spread averaged $6.97 per barrel with the Brent WTI spread of $1.98 per barrel in the Midland Cushing differential of seven cents over Wi.
The W. TL differential has averaged 22 cents under Cushing WT and the WCS differential has averaged $9.69 per barrel under WCS.
Corn and soybean prices have also increased by 30% since July and we believe fertilizer prices will follow.
Ammonia prices have increased to 202 five $250.
To $325 per ton, while UAN prices remain at $140 to $160 per ton.
As of yesterday group 3211 cracks were $7.04 per barrel, the Brent Ti I was $2.16 per barrel and the WCS WCS was.
$9.48 under WCS.
In this environment refineries are all competing on the cost curve.
Where we remain competitively positioned versus many of our peers.
Quarter to date ethanol Rins have averaged 53 cents and biodiesel rins have averaged 80 cents well refined product prices have been compressed.
Market volatility Rins remain significantly overpriced and now represent one of the single largest costs for the refinery aside from crude oil we were disappointed by EPA is recent blankets denial open get petitions with little basis, and as I have said before we believe that circuit.
Got it all wrong wouldn't rule to vacate three small refinery exemptions earlier. This year, we have sought to review this misguided 10th circuit.
RFS ruling by the Supreme US Supreme Court, and we believe this ruling conflicts with other rulings and sets national policy, which exceeds the 10th Circuit authority.
When the RFS regulation was passed Congress clearly intended that small refinery waver provision would protect small refineries fund it from financial device as a result of the RFS regulation, especially refinery serving rural areas.
Without redistribution of the waived ARVO.
With that operator, we are ready for questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
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Thank you. Our first question comes from the line of Phil Gresh with Jpmorgan. Please proceed with your question.
Hey, good afternoon.
First question I, just wanted to follow up on.
The Rins discussion obviously it sounds like is that a huge headwinds here.
Quarter.
Three.
Yes.
[music].
You're cutting out so.
I apologize can you hear me.
Now again, okay, sorry about that.
With with with Rins prices have gone up here in the fourth quarter how.
How are you viewing.
The potential headwind into 2021 relative to the 2020.
Once that you provide.
Well a couple of factors one is an election that depending on those results I think rents could go multiple directions.
I think the other thing I'd say on a longer term is there the.
Number of an announced renewable diesel projects.
Is that an astounding number of new rents to the market.
I'm not sure anybody is really analyze this very much but.
There is over about a 1 million gallons of renewable diesel been announced to the 20 and 21.
With several of them and then the process of starting up now, but that represents about $1 billion new brands to the market.
So I think longer term year, and you're starting to see that even in the forward rents.
Rins that are selling now for 2021 on the on the renewable diesel side, our our lower priced in the future than they are today.
But I think even further than that of that volume of Rins Cup hitting the market will bring parity between ethanol rins and.
Renewable origins and and all of them will trend down.
The only thing that I would add to that is that we anticipate with the Rd coming online mid year, well have a portion of brands that we generate ourselves. In addition to what we already generate that will offset that obligation also.
Right Okay.
I guess it did before my second question just to clarify.
When you back out.
The 23 percentage point capture it impact kind of a mid seventys capture is that what you would view as kind.
Fair capture rates and environment.
Hi spreads are in this $2 range.
Yeah, it's not far off from that Phil I think we were also hit with the the premium.
Was spread narrowed quite a bit almost 10 cents a gallon.
And now we're heading into the season, where Y grade comes in Thats number one ultra low sulfur diesel, which usually carries a 20 cents to 30 cents premium.
So all those factors will bring up I think it bring it back to normal levels.
Assuming rins moderate.
Got it okay.
Good question, but I guess, it's a little bit hypothetical but.
If we move into the situation here with the Biden administration I think people are focused on the shutdown risks with Apple.
I think you guys get barrels.
Pony Express on White cliffs to some extent I was just curious if there's any if we get into that.
Difficult situation the Bakken how much ability do you have to.
To that potentially capture those barrels and benefit from any spread widening.
Well I know we are pushing based so.
I think we're we're somewhat immune to that that situation should it occur although it would dry up barrels in Cushing to some degree.
But we get very little barrels off of white cliffs and most of our light crude comes from the Oklahoma gathering systems, we have and the Kansas gathering systems, we have so I.
I think I would tell you, we're pretty immune to that that impact.
Okay all right. Thank you.
Our next question comes from the line of Manav Gupta with Credit Suisse. Please proceed with your question.
Hi, guys I just wanted to get a categorization you mentioned that.
Deal, our first phase of a venue.
Well, Lisa project Beacon, making 100 million gallons of renewable diesel I think you get 1.7 times critic flowed to the full RIN. So I'm just trying to understand where you have gotten trend obligation is in terms of gallons and what that $200 million hundred million gallons of renewable or dot Vince dusted that Vietnam.
Jason once the plan actually comes online like how much shot brings what you'll be once that plant is up and running.
Yes, the renewable diesel at a 100 million gallon throughput would be would be about $170 million rents.
Our obligation today is around three tenthreetwenty somewhere in that neighborhood.
And we generate internally about 21, 22%.
So you can pretty much do the math from there.
I will tell you that we kind of view renewable diesel as a as a separate segment.
So we will account refining and we'll have to pay for its full amount of rent obligations and it will show up as a credit to the renewable diesel as a as another form of credit so Keith.
Keep that in mind, we don't.
We put all the all the incentive on the renewable diesel that the that arms.
So again I don't think so basically what you're saying is 66% coffee or.
RIN obligation.
Obligation gets mitigated, but this 100 million gallons off before wins coming in.
By mid July.
By media next up Middle of next year is that likely to think about it.
I think we're going from a nominally about two.
250 down to 135 somewhere in that neighborhood.
So net net across the whole company.
Okay perfect. That's it that's good news.
Onto.
Something which drag down your earnings 65 million or 68 million in marketing security losses associated with Delek I'm, just trying to figure out how you're thinking about the company at this point with all the investment opportunities you highlighted your newbuildings in phase one phase two phase three and versus spending capital in.
Getting additional interest in Delek would just kind of putting you back a little.
At this point of time definitely pull backup TQ learning so trying to understand how you're seeing the opportunity and renewables. These an expansion, let's just putting the same cabinet the words getting more interest in Delhi.
Well as I mentioned that we're entrust, we believe that the industry needs to consolidate more just.
Just to drive out fixed cost us typically in a commodity business.
Fixed cost is the is the enemy of everyone.
And separate private or public companies have significant costs associated with maintaining that scenario. So the more consolidation that happens the more efficient the the fleet is and we like to participate in that and that's that's what purchased it really made our investment in Delek.
To start and we still think it's a pretty interesting proposition getting getting even more interesting.
Every day with that with the current stock prices.
That said, we don't have any plans to do anything at this point than the.
We continue to watch the market and look at the other alternatives. We have had four and we'll make the decision at the appropriate time.
Okay. One last question the pretreatment unit as Subodh phase still with renewable diesel expansion that doesn't change the World Cup.
Pasadena still remains a $100 million, but what killed.
Basically going to do is modules more animal fat.
Use cooking light and maybe some other feedstocks losses. So you had been idle is that the plan for the phase two expansion.
Yes, I think we'd probably focus mostly on inedible corn oil is because the lot of the.
Used cooking oil there are spoken for today, but you know that I think this will end up being the transportation will drive a lot of it and we'll we'll have we'll be able to gather some of it.
But.
That.
That that's yet to be seen what is available is inedible corn oil.
We're really after a lower CDAI material carbon intensity material and that just makes you earn more credits in California.
That's the only other I did mentioned on the prepared remarks is we.
If we do this at Coffeyville, we will need a substantially larger size pre treater.
And we we may consider whether we build it the pre treater at coffeyville or at Wynnewood or some other location.
And were railing it in any any anyway and that.
I'm trying to do whatever is most efficient from a from a permitting standpoint as well as a as a cost standpoint, where we actually do that pretreatment.
No David the phase two and phase three sounds very exciting and we look forward to more details on those still future phases of the renewable diesel project as well as.
You hitting that July mark of getting the first season. Thank you.
You're welcome.
Our next question comes from the line appreciate it well with Citigroup. Please proceed with your question.
Hi, good afternoon, thanks for taking the question.
I wanted to talk about industry consolidation perched, but from a non delek angle Dave.
Maybe you could talk about if we could talk about the pad for opportunities and specifically thinking about your long WCS barrels and we're in a tight WCS environment.
There's some moving parts there within Alberta production quotas being lifted however, economic cuts were below what the quotas were anyway. So its arguable list of.
What that impact might be.
I wanted to get your view on.
How you're thinking about that WCS position that you have and how that maybe relates to wear a potential pad for asset the.
The bid ask spread is.
You know what how those two play with each other versus the other opportunities you have.
The portfolio in terms of capital investment and on budget.
To follow up on when it thanks sure.
I think again.
There's there's money to be had and the consolidation play you know our main drive in PADD four is really around diversification of EBITDA and.
In a well call a similar market to what we we have today, where there's a little bit of niche.
Competitive advantage too because the delivery cost is only three three to $4 a barrel compared to six to get to Cushing.
So all those kind of play into our portfolio quite well we've been successful today to date really recouping our pipeline tariff.
On the 35000.
Rate that we have secured in Keystone and.
And.
The other one spiro.
Spearhead.
And.
As far as what's happening in Canada, you know Theres I think last time I added up was about 4.2 million barrels a day of pipeline capacity out of Canada.
We Havent, Canada has not been producing that much WCS to date.
With the curtailment.
Being removed.
The thought is that we should this should result in production going up even at these prices because the cash cost is so low and Canada for incremental WCF, assuming there is Dale you want available but.
But that that fact.
Should go back to the price setting mechanism to be more related to rail than two pipeline tariffs.
And.
That.
That will make a big difference you know WCS really competes against mine on the Gulf Coast and we're selling it today at about $3.30 under WT in Cushing.
And it's landing in the Gulf coast at about $2.
So it's still very competitive with mine and food.
We'll probably be that way.
For the near term.
Thanks appreciate that.
And then on on on when you would on that on the renewable diesel project one specific aspect that I wanted to get a little more color on.
If the market dynamics dictate you mentioned the ability to switch between buyer.
By a renewable production and hand traditional fossil fuel.
Production could you maybe collaborate a bit more on what that would take to make that switch back and what's the time window and that's something that gets done within a within a short turnaround just sort of I guess a bit more of a mechanical question, but for mechanical question for non engineering Tommy is an analyst day, but if you could give us a bit more color there would be helpful. Thanks.
Sure, Yes, the basic difference between even though you upgrade some metallurgy and the hydrocracker unit. The unit is basically the same it's just metallurgy meddled up so to speak so its and then catalyst is a bit different so.
Really switching back to hydrocarbon service you just basically changed the catalyst, which is a 20 day outage period. So it's rather rapid that you can do it in and you know.
The real conditions that what matters here is due more states opt into the low carbon fuel standard gain.
What a RIN prices and what happens with the blenders credit.
You can paint scenarios were all those can go the wrong way.
And we would just view this as an option. We can we can jump back and forth fairly quickly in harvest whatever whatever's the best whatever makes the most money for CVI.
And considering all factors.
So.
Thats, what I would say as an option that's what it truly is within.
Let's say 30 days, one month, you can switch back and forth between the two services.
And would you be able to would you be thinking about some similar sort of optionality with with coffee will as well if you go forward with that.
It's actually the exact same scenario.
Yes.
And the Coffeyville is probably going to higher capacity than this $100 million, it's probably more in the 150 ranchers, it's a much bigger unit and much bigger hydrogen plant.
Okay excellent. Thanks for the time this afternoon.
Sure.
Our next question comes from the line of Neil Mehta with Goldman Sachs. Please proceed with your question.
Good morning, guys or good afternoon. The Ed. The first question I had for you David is that historically and I think the market historically viewed the business has as one of having one of the stronger balance sheets.
In the refining sector and I think it might be a function of a lot of technical dynamics too, but we have seen the credit sell off pretty hard here over the last couple of weeks I just want to give you an opportunity to kind of.
Talk about the way that you see balance sheet, playing out liquidity cash.
Cash flow burn and how you guys are getting how are you guys are comfortable about managing through this at this through this tougher period.
Well I think.
The the primary focus we have is to run safe reliable operations and reduce our cost and capital spending too.
To levels that frankly, we probably never see that's what it takes to survive in this in this environment.
Protecting the balance sheet is very important to us and the maintaining our cash for what we consider some great opportunities day, and frankly, when the markets on it.
On its rear end, it's the time to consider buying assets and.
And we want to be in that position as much as possible. So.
We actually generated a little cash. This this this quarter I don't know that we'll repeat that in the fourth quarter, but.
But thats.
Thats those are the kind of activities. We're doing it in is the amount of cost cutting we've done to date, I think dressy mentioned 25 million quarter over quarter.
And you do that on a run rate basis, you can see were coastal quickly approaching $4 or less a barrel operating cost and.
We'd be equally cut a significant amount of money out of the SG in a side too.
So I don't think those go away as they stay around for a while we really were trying to make sure. We don't defer any maintenance that's needed for safe reliable operations in any way or things that work, we're obligated to buy by the government or whatever it may be.
But.
We are really improving the competitiveness of our facilities, which are frankly pretty competitive anyway, considering our configuration and the kind of crudes, we can run and process.
So I'm not sure I got to what you were looking for Neal, but yes.
Yes.
Yes, I know, it's it's it's directionally very helpful. So just put some numbers around that as you think about 2021 capital spending I know, it's still early but any thoughts on on where where you can flex it down to if needed and it can maintain that safe and reliable.
Level and then just as you think about cash flow neutrality do you think as you look at the forward curve for both Brent WPS in refining margins recognizing that I think there are a lot of thats, who are skeptical that the forward curve is right, but you still think that you can minimize cash flow burn in that environment.
Yes, well I think the you know we'll do some hedging around forward cracks that we think are Evan Tejas, we'll we'll do all we can on crude crude buying and buying the best discounted crudes, we can with the highest value, which we since were direct coupled to the to the fields. We do have a lot of optionality there that others do.
Don't have.
And.
The really too we're trying to drive our who we don't have our budget done for 21, yet but we're.
We're trying to drive below $80 million on sustaining capital that doesn't include the R&D project, but.
But at those kind of levels.
We don't have any turnarounds planned immediately this and this next year.
As Tracy mentioned.
We think we can ride until.
Usually the end of 2001 without any problem.
And at that point than we are start making some other decisions but.
You know the forward curve is somewhat in a little bit in contango, but not enough for my liking and as I mentioned earlier and really it's all hinges on.
On the virus, what happens with the jet fuel demand to see end.
And a number of impairment in paired off or operations or other refineries or actual shutdowns.
Theres still a lot of those that need to happen in this environment I think they will if I did the math right. We're already at about 1.7 million barrels a day thats.
Thats been mothballed in some form.
If we even that includes us which were downgrading Winnie what if we when we do R&D, we're actually cutting crude coffeyville would be the same way.
And we are reconfiguring for a different crude slate that actually reduces costs, even more at both facilities.
So there's a lot to come and lot of knobs, we still have the term.
Thanks, Dave.
Our next question comes from the line of Paul Cheng with Scotia, Howard Weil. Please proceed with your question.
Hi, Thank you good afternoon, Hi, Dave can you remind me what's your opinion.
The preliminary capex for the phase one often we knew up open.
We are targeting $100 million for phase one.
John Goodman, and 400 million gallon and that fits stop.
Wait the side is it going to be sought be noise.
Yes, it's washed refined and bleached soybean oil.
And that I think you have said that but can you just remind me how much is when the what.
Full put will be we do supply and how that product is going to change.
Well, we have to retool the refinery for more condensate processing.
Paul and Thats, what that really means is we keep our reform or fall.
And the equipment around that and it basically.
Basically puts taking the hydrocracker out of the out of the.
Fuels processing means our cat cracker rate Directionally goes up and we but we make.
Similar type yields probably a little less diesel more gasoline, but not a lot.
Just on that shift.
And what is the total footings be change by.
Total throughput today is about 75 little under 75000 barrels a day and that will go to about 59000 barrels a day.
Between 55 and 59.
Okay, So again, well job by somewhere between 15 to 20 million and Pat Hi.
John D 8000 Boe per day, and that's right that's right when we're in R&D mode.
Okay.
And.
Maybe that I get it wrong on the map I think you're saying that assume that phase one yes on stream your net.
When exposed to I believe.
From three to 10 feet 20 down to about 135.
No.
You're close but you forgot our internally produced Rins, which is about 20 to 21, 22%.
Of our video.
Those were up 65 million.
50, I thought that would be about 60 70 because.
Yes, I mean, I'll make those and just 310 to 20 right. So 20% would be 60 to 70.
And as we knew what Boeing diesel plan will be 117.
On to it so should we be down to 80 on me.
On your net exposure.
And that's a that's pretty close.
Let's see.
Was it equaled 70, 780 range something less than 100 million right.
Right, Yeah, because I thought I heard you, saying that you as a higher number so I'm not sure that I thought I think I said 135, but the ARVO goes down with the crude rate cut to remember so.
You've got to address both numbers the top number in the bottom number okay.
Okay, I understand but I mean in theory that youre running at.
Because that was only dropped by about 10% on the on your obligation given that your full put for the total company, we only dropped by about 10%.
About 20000 barrels a day, so we already talked about to 70.
Ah So that's just still be.
Actually if that's if anything that it should be even less in terms of your obligation.
That's right the last may to usually be Mona into 16.
Yeah, I came up with 70 77, I think Paul.
Your your I think you are on the right numbers, Yeah I just got confused that when you say 135 so.
And Dave I was just curious that when you're talking about consolidation and and the benefit off the M&A or how should we look at the CVR partners given yes, that's been up all up her share in our per unit on the price and you also have the option that you can essentially by Oh.
It needs that that is a possibility that you can buy yet the cowen pie thought that posted that doesn't make sense that for you. It took you eliminate that MLP structure, given the outlook for the MLP structure going.
Going forward and how low yes, the equity value anyway already.
Yes, I think that's not bad that way, but that's that's how bad it was somewhere else and you're still not because on one hand that CV out.
Partly yes actually as you indicate that you are buying back some stock. So I would imagine that the board believe a devaluation, yes, I tracked it and so if that's the case why not just take it out profit and I'd say it and that you can.
I have some saving on the regulatory funds. So that you don't have to report it as a separate unit.
Well you laid out a pretty good case, there Paul but we continue to look at that at all times.
You know, we don't know that the times right right now, but it's something we evaluate all the time and it is an option for us to do it.
Well I think we're with the debt level that are expiring in 21 that.
We want to kind of see what we end up doing in that in 23, I guess of the death and 23.
So that's on the table and the way we view the fertilizer side of the business, it's kind of a.
It's a it's been a great performer for us this year frankly, and it shows the value of the diversified portfolio that that that can make sense now at the thing I'd say that may offset that a bit depending on who gets elected if taxes go up a lot of the MLP is may come back in favor again too so.
You know who knows so we evaluated all time, though it is a good idea.
Okay, and just parents that yep, that's a good offset the off offset that fit you.
With the write offs that what is the maximum their page you're willing to go to.
Well.
We're we're.
Always looking at that and if you did if you did do something of a major acquisition like that to you I think you do it on a pro forma basis.
Which would change the numbers a bit but I don't know that anything above two is anything we're interested in in terms of leverage.
And that kind of there now on our EBITDA basis, though.
So now that you said that that to you, but Tom Max.
Sure times.
Yeah, I don't think anybody in this space goes much above that.
Okay purpose hands.
Yes, sorry.
On purpose I meant they don't go much above it on purpose [laughter] a final question from me, maybe as opposed to chasing that.
How much of the tax refund you expect next year.
Okay.
Do you expect in the second quarter, we saved it and also what that the third quarter.
During the course of a good baseline to be used for the future a full cost or that or that they are.
Just one final one off items that we need to take into consideration.
So the first question I would just use our.
21% corporate average and when.
Anticipate that you should look at what we expect our full year production looks like with the curves and get a full year loss number our gain number whatever you're predicting unified corporate percentage rate to it and that is going to be a good proxy for what our cash return from the net loss carry back and were expecting.
Can you restate your second part of your question. Please.
For the third quarter.
Hi, Jon you any quality is very low if that's a reasonable level that we can use a S up I guess my two full cost into the future or at that that's a one off items.
What that post salt mine that says that we need to take into consideration that Jasmine.
I think you can look to our current operating cost run rate to be a new normal for us for the short term and certainly we will lift the whole cost at that level. It should we see an economic return we do have projects that are not related to safe and reliable operations that we are deferring that we will bring back.
At some point, but right now we don't need to be painting tanks.
So chase is that when you say that or are you talking about on a per unit basis or on the absolute Oh.
Let me know like are we talking about for 20 years that per barrel, yes, a reasonable baseline 77 men and yes that we definitely will be back for.
Or 20 barrels a reasonable baseline I think we're going to drift Paul more towards four core but.
But.
Yes, and we do have some more or like I said more ammo winner and our belt to that we can far should we need to from a cost saving standpoint.
So you know we don't really want to go there because as you know we've already we've already had a reduction in force.
And done quite a few things to conserve cash but we.
We think you know I really think a four dollar level is doable.
And they are is there any reason we should expect your full put in the fourth quarter will be much different than the third quarter given the market conditions.
No we're running basically 94% of capacity on a light slate, which is about all we can do.
And we're not having trouble moving any product or or or any other constraints. So.
We plan to to stay at the same rates.
Okay. Thank you very much.
[noise] Your wells are now our next question comes from the line of Matthew Blair with Tudor Pickering Holt. Please proceed with your question.
Hey, good morning, everyone.
Dave you mentioned that the crude slate reconfiguration looks like you're already making you know some changes here you know condensate up to 10% of your slate W.T. all up to 5% could you could you talk a little bit more about that is it possible to quantify the benefit in Q3 and do you expect to run a.
Pretty like play into Q4.
Well the the condensate spread was approximately 50 cents in Cushing under W. T.
So when we you look at our gathering system that is actually wider than that.
So you can kind of tell what we're after there.
And the yield on a on condensates is with our configuration.
As a as a high percentage of gasoline but.
But still makes significant diesel and really has a great volume yield. So it's just win win for us all the way around.
Sounds good and then I also wanted to ask about the BTC, So obviously something pretty hard to forecast, but in your internal modeling what are you assuming for BTC into like 2023. In 2024, you know there's some talk that you know it might get phase down or it might go away completely so what are you assuming in.
And do you think the election results, we would make a difference in that.
If you look at the history of the of the Blenders tax credit. It has always been there at a dollar level, it's been delayed for two as long as two years, but retroactive back to those two years.
I don't see that changing much I do think.
The state of the deficit and the other things is going to put pressure on us to reduce it some way but to eliminate it I mean, you are what happened with RFS is that created an industry degraded actually two industries, one on ethanol and ethanol production and one on biodiesel now renewable diesel on.
Top of it.
And when Congress creates industries that just can't abandoned though.
And it's a you know this is a bipartisan issue for a large part so I think you see it or is it kind of gravitating towards the renewable diesel more.
More than the biodiesel and that should naturally will happen I think the market forces will force that.
But you know I think they are going to have to support it somehow some way because they created in his industry around it.
Sounds good thanks.
Sure.
Our next question comes from the line of Matt Vittorioso with Jefferies. Please proceed with your question.
Hi, Thanks for taking my questions. Most of its been asked maybe just quickly on a fourth quarter cash flow.
And in the third quarter.
You got a big boost from working capital some of that was payables and accrued expenses do you expect that to reverse in the fourth quarter or any big movements in working capital for the fourth quarter.
Oh, we do expect working capital in the fourth quarter to continue to be a source of cash right.
And I don't really want to comment on that net cash position for the fourth quarter, but.
Specifically working capital will likely be a provision of cash.
Okay, Oh, it all the time.
But it all depends on crack so to some degree so.
We don't know we won't know those until it's over [laughter], Yeah. Yeah, and then you know I don't know how much you can say here, but <unk>, maybe just you've gone through where some of the benchmark differentials and and industry markers are here early in the fourth quarter I, how should we think about.
Just generic refining margin you did $4.60 in the third quarter based on sort of what you're seeing in the market today or are we kind of at that same level in the fourth quarter or any any big movements there.
Yeah, we haven't seen much change now, but I will say that the where these numbers where they're at or just not sustainable for the for the world frankly, both on crude price and cracks.
Your big city to your competing on the cost curve and you know that you know again, most people say I tend to say too is when you have to make a big decision like a turnaround is when you you really the rubber hits the ROE because again, we're not a who basically at these numbers you're not recouping.
Okay.
Your turnaround accrued costs you just do there's just no way at these numbers.
So something is going to have to give either on demand or on production.
Supply demand will come back as a it's just Oh economic fact.
You either have to increase margins or cut runs just no other way around it.
Yeah, all right. Thank you.
Good.
We have reached the end of the question answer session I would now like to turn the floor back over to management for closing comments.
[noise] 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 our recent environmentally responsible operations.
They have been on director of extra strain with the virus and have done a really good job of keeping our operations are running and successful.
And we look forward to reviewing our fourth quarter results. So that our next earnings recall the good day everyone.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.