Q4 2020 CVR Energy Inc Earnings Call
Greetings and welcome to the CVR Energy, Inc. Fourth quarter 2020 conference call.
At this time all participants are in a 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 of financial planning and analysis and Investor Relations. Thank you Sir you may begin.
Thank you Christine good afternoon, everyone.
We very much appreciate you joining us this afternoon for our CVR Energy, Inc. Fourth quarter 2020 earnings call with me today are Dave lamp, our Chief Executive Officer, Tracy Jackson, Our Chief Financial Officer, and other members of management.
Prior to discussing our 2024th quarter results. Let me 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 facts may be deemed to be forward looking statements.
You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release 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 as a result of new information future events or otherwise except for the extent required by law.
Let me also remind you that CVR partners completed a one for 10 reverse split of its common units on November 23, 2020, and he per unit references made on this call are on a split adjusted basis.
This call also includes various non-GAAP financial measures for disclosures related to such non-GAAP measures, including reconciliations for the most directly comparable GAAP financial measures are included in our 2024th quarter earnings release that we filed with the SEC and form 10-K for the period and will be discussed during the call with that said I'll turn the call over to Dave.
Thank you Richard Good afternoon, everyone and thank you for joining our earnings call.
Like to begin today's call with a brief discussion of our accomplishments in 2020, then discuss our operating performance for the quarter as well as for the year.
2020 was a challenging year for United States.
Our industry and our company.
That's the pandemic shut down the country and reduced demand for refined products, we were forced to adjust our strategy.
For the depth of the conditions, we were presented for <unk>.
Price. These changes these challenges of the year, we have a number of accomplishments worth highlighting.
We maintain safe reliable operations and back office functions during the Covid crisis we.
Successfully completed a $1 billion.
Notes offering in January of 2020, which provided us with additional cash and liquidity at attractive rates.
We completed a major planned turnaround at our Coffeyville refinery during the beginning of the Covid crisis, and deferred turnarounds at Westwood and bulk fertilizer plants.
We completed an ERP modernization project on time and on budget.
We realigned our business strategy with a focus towards sustainability.
With board approval with the board approved for.
Renewable diesel project that when he would we.
We plan to reduce refining capacity and retool for renewable diesel production. We're also transitioning to a lighter gravity gathered crudes at our refinery.
While we intend to maintain our crude capabilities in refining we are focusing new investments towards growing our renewable diesel business and reducing our carbon footprint.
We achieved significant reductions in SG&A operating costs capital expenditures companywide.
Exceeding our goal of $50 million annual reduction in SG&A and operating costs and operating expenses.
We announced the acquisition of Blue Nile energies.
Crude oil pipeline assets in Oklahoma.
Which closed in early February and ex.
Spans our crude gathering reach at the well.
We evaluated multiple acquisitions in pet for.
But maintained our capital discipline and refused to overpay for assets when we felt the bid ask spreads still too wide.
In our trucking business, we began hauling lpg's to our plants to reduce costs.
We appealed.
The misguided 10th circuit.
Court ruling to the Supreme Court, which has agreed to review the case.
Earlier today CVR partners.
CEO Mark pipe cost announced the following accomplishments for our fertilizer segment in 2020.
Record ammonia production of 852000 tons between the two plants posting a combined utilization of 95% for the year.
Certification of CVR partners first ever carbon offset credits as a result of nitrous oxide abatement efforts.
And our long term air separation contract with Messer was renewed favorable conditions, including the addition of a new oxygen search tank.
Which will further improve reliability of our gasifier and coffee.
Yesterday, we reported CVR for CVR Energy's full year and fourth quarter results for the full year of 2020.
We reported a net loss of $320 million and a loss and a loss of $2 54 per share for.
For the fourth quarter, we reported a net loss of $78 million.
And our loss per loss per share of <unk> 67.
EBITDA for the year was a negative $7 million and for the quarter was a positive $1 million.
Weaker crack spreads as a result of demand destruction from the pandemic and dramatically higher RIN prices weighed heavy on our results for the full year and the quarter.
Yeah.
The market remains volatile and uncertain, particularly regard to RIN prices, which currently consume a significant portion of the refining margin.
Available in the market.
As a result, the board of directors did not approve a dividend for the fourth quarter of 2020.
On the last few earnings calls I have discussed our focus on preserving our balance sheet and liquidity position in light of the ongoing pandemic as well as potential acquisition opportunities that we were evaluating.
Although we got far down the path of a number of acquisitions that we viewed as attractive ultimately the bid ask spread proved to be too wide. At this time. There are really there are no ex <unk>.
<unk> discussions on these potential transactions.
We have also made it clear that we do not currently have any interest in acquiring delek, although as its largest shareholder we can still continue to see the stock is undervalued and have some suggested actions delek should take to improve its business.
We also notified delek of our intent to nominate three directors for election to <unk> board and its upcoming annual meeting.
Okay.
As we get more visibility into the sustained rebound in the refining market.
We continue our discussions with the board around the appropriate level of cash returned to shareholders and in what for.
At current trading levels, there could be more value in buying back our own shares.
For the petroleum segment, the combined total throughput for the fourth quarter of 2020 was approximately 219000 barrels per day as compared to 213000 barrels per day for the fourth quarter of 2019.
Both the facilities ran well during the quarter.
Though the total throughput remained constrained by light naphtha processing capabilities as narrow crude differentials continued to favor running light very light crude slate.
Across the board benchmark cracks and crude differentials deteriorated significantly from a year ago group.
Group 3211 crack spreads averaged $8 44 per barrel in the fourth quarter of 2020, However, rens consumed 40% of that at approximately $3 50 per barrel.
The group 3211 averaged $16 65 per barrel in the fourth quarter of 2000 2019, when Rins were only at $1 15 per barrel.
The Brent Ti differential averaged $2 49 per barrel in the fourth quarter compared to $5 55 in the prior year period.
The Midland to Cushing differential was 37 <unk> over <unk> in the quarter compared to <unk> 90 for over <unk> in the fourth quarter of 2019.
And the WCS <unk> differential was $11 44 per barrel compared to $18.
<unk> 89 per barrel in the same period last year.
Light product yield for the quarter was 103% on crude oil processed our distillate yield as a percentage of total crude oil throughput was 44% in the fourth quarter of 2020 consistent with prior year period.
In total we gathered approximately 117000 barrels per day.
During the fourth quarter of 2020 as compared to 148000 barrels per day for the same period last year. Our current gathering volumes are approximately 130000 barrels per day, including the volumes on the pipelines. We have recently acquired for Blue Nile.
In the fertilizer segment, we had a strong ammonia strong ammonia utilization at both of our facilities during the quarter at 99% at Coffeyville and 103% at East Dubuque.
Although fertilizer prices remained soft in the fourth quarter year over year production and sales volumes were higher for both <unk> and ammonia.
With the rally in crop prices over the past few months farm farmer economics.
Have improved considerably and this has driven higher demand for crop inputs.
As a result, UAS and ammonia prices have increased significantly since the beginning of the year and the outlook for spring planning currently looks favorable.
Now, let me turn the call over to Tracy to discuss our financial highlights.
Thank you, Dave and good afternoon, everyone.
Our consolidated fourth quarter net losses of $78 million and loss per diluted share at <unk> 67 include a mark to market gain of $54 million related to our <unk> investment and favorable inventory valuation impact of 15 million.
Excluding these impacts our fourth quarter 2020 loss per diluted share would have been approximately $1 18, the effective tax rate for the fourth quarter of 2020 was 23% compared to 40% for the prior year period as a result of our net loss for the full year 2020 and in accordance with the NOL Carryback provision of the cares Act we currently.
Anticipating income tax refund of $35 million to $40 million.
The petroleum segment's EBITDA for the fourth quarter of 2020 was a negative 66 million compared to a positive $135 million and the free.
Same period in 2019, the year over year EBITDA decline was driven by significantly narrower crack spreads and elevated rents prices, excluding inventory valuation impact of $15 million. Our petroleum segment EBITDA would have been a negative 81 million.
In the fourth quarter of 2020, our petroleum segment's refining margin excluding inventory valuation impact.
56 cents per total throughput barrel compared to $11 86 in the same period in 2019, the increase in crude oil and refined product price it through the quarter generated a positive inventory valuation impact of $76 per barrel. During the fourth quarter of 2020. This compares to <unk> 61 per barrel positive impact during the.
Same period last year ex.
Excluding inventory valuation impact and unrealized derivative losses, the capture rate for the fourth quarter of 2020 was approximately 20% compared to 79% in the prior year period, unless significant items impacting our cash rate for the quarter was elevated rents prices, which reduced margin capture by approximately 71%.
Derivative losses for the fourth quarter of 2020, total $15 million, including unrealized losses of $23 million associated with Canadian crude oil and crack spread derivatives in the fourth quarter of 2019, we had derivative losses of $19 million, which included unrealized losses of $24 million.
<unk> expense in the fourth quarter of 2020 with $120 million or $5 97 per barrel of total throughput compared to $13 million for the same period last year, our fourth quarter rent expense was impacted by $64 million from net mark to market impact on our crude RFS obligation, which is mark to market at an average Brent price of 89.
At year end and other market activity for full year 2020 rent expense was $190 million as compared to $43 million in 2019.
For 2021, we forecast a net obligations from refining operations of approximately $280 million Rins adjusted for our expected internal blending volume.
We also expect to generate approximately $90 million for ramps from renewable diesel in the second half of the year, bringing our net rent obligation for 2021 to approximately $190 million rent.
Rins expense for 2021 is expected to be comprised of the cost of this anticipated $190 million rent obligation as well as any necessary mark to market on any remaining accrued RFS obligation subsequent to year end, we have reduced our 2020 RIN obligation by approximately 8%.
The petroleum segment's direct operating expenses were $3 99 per barrel of total throughput in the fourth quarter of 2020 as compared to $4 63 per barrel in the fourth quarter of 2019 for the full year 2020, we reduced operating expenses and SG&A costs in the petroleum segment by approximately $62 million.
To the full year 2019, the reduction in full year operating expenses and SG&A costs were a direct result of our cost savings initiatives most of which we believe should be sustainable going forward for the fourth quarter of 2020, the fertilizer segment reported operating loss of $1 million and a net loss of $17 million or $1 53.
Per common unit and EBITDA of $18 million.
This is compared to our fourth quarter 2019, operating loss of $9 million and net loss of $25 million or $2 20 per common unit and EBIT for half of 11 million the year over year EBITDA improvement was primarily due to higher sales volume and lower operating and turnaround expenses offset somewhat by lower prices for you an ammonia.
For the full year 2020, we reduced operating expenses and SG&A costs in the fertilizer segment by over $23 million compared to the full year 2019.
During the quarter CVR partners completed a one for 10 reverse split and repurchased nearly 394000 of its common units for approximately $5 million and total CVR partners repurchased over 623000 of its common units for $7 million in 2020, and the board of directors of CVR Partners' General partner has approved an additional.
<unk> $10 million unit repurchase authorization.
Total units outstanding at the end of 2020 were $10 7 million of which CVR energy owns approximately 36%. The partnership did not declared distribution for the fourth quarter of 2020.
The total consolidated capital spending for the full year 2020, 121 million, which included $90 million from the petroleum segment $16 million from the fertilizer segment and $12 million for the renewable diesel project at one.
Of this total environmental and maintenance capital spending comprised $92 million, including $77 million in the petroleum segment and $12 million in fertilizer segment.
Actual spending for the year came in at the low end of our expected range as a result, and canceling our shipping certain products into the future.
We estimate the total consolidated capital spending for 2021 to be $215 million to $230 million of which 115 to 125 million is expected to be environmental and maintenance capital and 95 to 100 million is related to the renewable diesel project, our consolidated capital spending plan excludes <unk>.
Turnaround spending, which we estimate will be approximately $11 million for the year in preparation for the planned turnaround at Coffeyville in 2022.
Cash provided by operations for the fourth quarter of 2020 was $28 million and free cash flow in the quarter was 4 million.
Working capital was a source of approximately $105 million in the quarter due primarily to an increase in our accrued RFS obligation for.
For the year cash from operations was $90 million in free cash flow was a use of $193 million. In addition in January 2020, we refinanced and Upsized, our notes, which generated a net $489 million of cash.
Turning to the balance sheet, we ended the year with approximately $667 million of cash flow.
<unk> increased from the prior year.
Our consolidated cash balance includes 31 million in the fertilizer segment as of December 31, Excluding CVR partners, we had approximately $929 million of liquidity, which was comprised of approximately $637 million of cash and securities available for sale of 173 million and availability under the ABL of approximately.
Six $365 million less cash included in the borrowing base of $246 million.
Looking ahead to the first quarter of 2021.
Our petroleum segment.
For our petroleum segment, we estimate total throughput to be approximately 185.
Excuse me to 190000 barrels per day due to the extreme winter weather and natural gas and power curtailments over the past two weeks.
Our coffeyville and when he would refineries both ran at reduced rates.
We currently anticipate resuming normal operations at both facilities by the end of the month.
We expect total direct operating expenses for the first quarter to be $95 million to $105 million in total capital spending to range between 65 and $75 million.
For the fertilizer segment, despite reducing operating rates at east Dubuque last week due to the extreme weather conditions and natural gas pricing, we estimate our ammonia utilization rate to be greater than 90 per cent for the quarter. We expect direct operating expenses to be $35 million to $40 million, excluding inventory impacts and total capital spending to be between.
For <unk> 7 million with that I will turn it back to you.
Thank you Tracy.
In summary, 2020 was a very challenging year, but we were able to navigate through this difficult environment and we believe we are well positioned to capitalize on any eventual upswing in the market.
Our mission remains to be a top tier north American refining and fertilizer company as measured by safe reliable operations period of financial performance and profitable growth.
Looking at.
Looking at 2021 cracks have improved to start the year, although most of the increase is being consumed by other control prices for Rins.
While vaccines are encouraging so far we've not seen any meaningful increase in demand for refined products domestic.
Inventories are generally balanced, but utilization is still low and starting to increase without a corresponding pickup in demand.
In the near term our outlook remains cautiously optimistic based on market fundamentals that we see.
Starting with crude oil we've drawn down about 50% of the excess crude oil inventories worldwide.
Oh for the shale.
<unk> oil production is still declining but drilling is starting to increase.
Crude differentials are still narrow, but Brent ti spread.
The Brent Ti spread has widened so.
And backwardation is firmly in place supported by declines in inventories and the action takes but taken by the Saudis.
Moving on to refined products gasoline demand is down approximately 1 million barrels per day in vehicle miles traveled are showing declines jet.
<unk> demand remains low mainly due to a little international travel.
Domestic demand is approaching five year averages.
U S inventories are near five year averages, but still high overhaul, while inventories and demand in the Magellan system are.
Near normal.
Exports are weak and imports are high rents for a ridiculous approaching $5 per barrel, putting <unk> cost above operating costs.
Looking at cracks cracks have been trending up but barely keeping up a threat.
Diesel cracks are in contango and the domestic refining utilization still.
Still low at 83%.
We believe cracks will remain relatively weak until demand supports utilization in the 90% plus level. The question is what happens to reserves going forward.
Right now the industry is not generating sufficient free cash flow from refinery operations at these conditions, considering sustaining capital requirements and turnaround spending.
Crack spreads and RIN prices are unsustainable.
These levels over the long term.
We believe we need to see more rationalization of capacity in order to see sustained moving sustained move higher cracks.
To date, we have seen approximately 5 million barrels per day and announced.
Between permanent shutdowns temporary idling and potential closures worldwide.
With $1 $1 million of that in the United States.
While we remain cautiously optimistic on the market in the near term we continue to focus on what we can control to put us in the best position to take advantage of any improvement in margin.
Safe reliable operations remains a key focus for us as a company. We will continue to work to minimize capital spending on our refining system other than what we consider critical to safe reliable operations and remain compliant with applicable regulations.
We are in the process of integrating our crude oil pipeline assets, we acquired for Blue Nile.
And working to maximize our value to our system by reducing our purchases of Cushing common.
We are executing on our renewable diesel strategy.
Our primary focus now is on getting phase one mechanically complete.
We're currently in construction, we have everything ordered.
Generally on schedule, although it is tight.
As we move through construction, we will focus on completing soybean oil procurement and renewable diesel marketing agreements.
Next we will begin development of phase III.
Involve adding pre treatment. We are currently evaluating different technologies, and considering where we could build the unit.
And what capacity.
We could potentially have a pre treatment units installed by the end of 2022 or sooner. If we go through a third party subject to board and other approvals.
We will also we will also begin planning for the potential phase III at Coffeyville.
We will most likely wait until the first wave of large renewable diesel projects are completed to see where the market goes before making the final decision on phase III.
We continue to believe that renewable diesel will become a commodity over time.
There is a clear advantage for being an early mover.
For the fertilizer segment, we were more optimistic on the near term outlook corn corn prices have rallied over 50% since October significantly improving farmer economics, and driving demand for crop inputs are we.
We believe prices for nitrogen.
Fertilizers likely bottomed in 2022, and we're currently expect demand for ual on ammonia to be strong in 2021.
The NOLA urea price has continued to increase as LNG and natural gas prices overseas have surged.
As the business has improved and as credit markets have strengthened we intended to.
To focus on potential refinancing of CVR partners senior notes at much lower cost.
Looking at the first quarter of 2021 quarter to date metrics are as follows grew.
Group 321 group 3211 cracks have averaged $12 77.
<unk> per barrel.
With the Brent Ti spread of $3 11 per barrel and the Midland Cushing differentials or the dollars five over W.
WTS WTS differential has averaged 71 per barrel over <unk>.
And the WCS differential has averaged $12 60 per barrel under WTO corn and soybean prices have increased significantly and fertilizer prices have responded.
Ammonia prices have increased to over $400, a ton, while UAS prices or $250 per ton.
Renewable diesel margins have averaged $1 31 per gallon.
Quarter to date based on soybean oil with the carbon intensity of 60.
And includes rens blenders tax credit and low carbon fuel standard credits.
As of yesterday group 3211 cracks were $17 77 per barrel, Brent Ti was $3 67, and WCS was $12 85 under WTS.
Although benchmark cracks have improved as I mentioned earlier most of this move associated with increased RIN prices.
Year to date ethanol Rins have averaged $4 94, and biodiesel rins have averaged a dollar for us.
In January of 2020, ethanol Rins averaged 16 and biodiesel Rins averaged 40.
And nearly six fold increase in the.
And the price of ethanol Rins in one year should be clear evidence that the RFS program is broken.
EPS refusal to rule on outstanding small refinery waivers for 2019 and 20, while failing to issue a renewable volume obligation for 2021. Despite their legal obligations are significant factors in driving what we what we've seen over the past year the rins market.
We are encouraged that the Supreme Court to started decided to hear the appeal of the misguided 10th circuit ruling and.
And we do not believe they would've taken the case that they did not have serious questions about the ruling.
The original intent of the RFS regulation was the small refinery waiver could be applied for at any time.
We had an accrued RFS obligation at the end of 2020, which approximates our 2019 and 2020 obligations that when you award for which waivers have been applied.
Without the Mark to market effect of this position our capture rate would have been higher by 38% for the quarter.
With that operator, we're ready for questions.
Thank you we will now be conducting a question and answer session.
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One moment, please while we poll for questions.
Thank you. Our first question comes from the line of Prashant Rao with Citigroup. Please proceed with your question.
Hi, good afternoon, thanks for taking the question.
First one Dave.
RIN prices are high as you elaborated quite in detail.
We've been getting indications from the Biden EPA press release yesterday that.
They're going to change course on Fsrus versus the Trump administration, so it looks like.
First we could be in the higher end price situation structurally.
For the near term I wanted to ask so with respect to your renewable diesel expansion are these prices are these price levels, we're seeing for us this exceeding.
Your expectations when you thought about the economics of those projects that is do they do they have more economic value.
Our current view of what the Rins market will look like over the next year or two years or is this sort of within the range that you that you thought.
Okay.
Well I think there are higher than what we originally approved the project under.
Net.
I think <unk>.
Most of US in this business don't I don't understand.
Stand in any way how are higher in price benefits anybody, including the renewable fuels Association and all of their members.
And.
Really if you look at past history, when they've gotten this high they tend to be knocked that down by some other change of approach just because essentially it is going to affect the consumer and the consumer is not going to like it.
So I think it is exceeding our expectations now, but my thoughts are it will come down at some point.
But given the short I mean, it seems like when he was given the low cost is it for sure. There's a fairly short payback period project, even under your original expectation. So I guess my next question is.
If in the short term and that time brands remain elevated.
As the project comes on line, there could be some excess cash generation.
Question would be with that excess cash what would be the priorities specifically.
Putting it.
More towards the pre treatment it sounds like that's early 2022, but maybe to get more aggressive there or would you be looking at.
Starting to pay down debt first or Brett address a little bit on the balance sheet, how would you take.
Access I guess savings or cash generation from the Winwood project in the back half for this year, if the current environment persists.
Well.
We mentioned in our prepared remarks that the board looks at this every every every quarter.
Will continue to do so.
They are evaluating right now, whether we should be buying back shares or doing something else with the cash.
Including buying down debt if that makes sense. So they consider everything every every quarter.
And decided to do nothing this quarter, but that doesn't guarantee that that will remain for the for the next quarter is if you look at our I think I would say that we have too much cash on the balance sheet, it's not optimum.
We think our minimum cash requirements at around $250 million. So so you can see we have excess cash, but we also have a lot of uncertainty in the marketplace. So.
We think cash is king in this environment to some degree.
Last question for me the pretreatment facility could you remind us.
And I think you've given us very clear numbers on how much the windward projects reduces your RVO and we can do the math on sort of the savings on that based upon our RIN price assumption, but how much more does the pretreatment add to that how should we be thinking about that in terms of cost reduction or just total net cash flows.
If there is anything incremental you could offer that would be helpful.
Yes, one other big.
The big advantage for a pre treaters getting the Ci down of the feedstock.
If you look at all the feedstocks to renewable diesel right now they are all up.
Including the waste oils are all up every single every single parameter is up but but the <unk> is the real price.
And Thats, what the free trade or will do for us.
Typically we are still penciling in about $50 million to do that project.
That's probably getting clean train in a dirty trained so we have a lot of optionality.
Really but if you really look at it they're really Holy Grail here is to get.
To get to.
Oils out of biomass of some sort.
They.
And really the the.
The values in that is really getting at the low carbon fuel standard credit.
And even a cheaper feedstock to some degree.
How much of a just one quick follow up how much of a Ci score improvement what does it for.
Free trade or add.
Versus when he would will be when it first starts up is there a ballpark range you could give us.
Yes.
I think I think we will probably end up with Washington and <unk>.
Bleached soybean oil being around 58.
And if you go to core or not just use corn oil as an example, that's about a 28.
So a substantial improvement.
Okay. Thanks, very much for taking the questions I'll turn it over.
Sure.
Our next question comes from the line of Manav Gupta with Credit Suisse. Please proceed with your question.
Hey, Dave.
To ask you about the letter you expense.
Dennis.
On January 14.
We have gone for the later I'll hop off based on what I understand from you.
Thanks, Dave.
What is the aim here, how you think physicians would actually help our delek and of course he will because.
Such a large portion of that next bill if you could walk us a little bit total net debt and what's the AML for later.
Well I think.
We took on the Delek investment is as an investment.
And we thought they were undervalued at the time and we still feel they are.
But there has to be some clean up so to speak.
There are activities in what Theyre doing.
The two refineries that we've suggested are marginal.
Our.
Krotz Springs in the El Dorado, and I think.
If my math is right they are probably going to present negative gross margins.
It really.
With that in mind as a big piece.
And as far as what.
The bottom line is what we're trying to shift them from us.
As a model of growth to our model of free cash flow.
Which I think is what CVI represents mainly mainly free cash flow generation as our main our main strategy.
That bodes well in a market, that's not necessarily growing but shrinking.
As far as what the letter says it says what it says.
I think you can read it just as well as I can so.
That's a fact.
Can you talk a little bit about the board members you have.
Linda and why you think those will be the right fit for Delek.
Well the board members. We have suggested are extremely experienced in this industry and.
Are all around.
And their entire careers has been basically in value creation and free cash flow generation.
And we think the refresh of the board will help a lot.
Okay. My last question here is when you talked about bending the deep deep linking.
Net.
Phase one kind of odd wheel a lot but of course, some obligation left Paul and Alan.
Just wondering if for any flexibility here.
And he can talk a little bit.
Thanks, Bob.
GAAP op to get too long ago, So CVR, which is.
Always been sufferings becomes along with them and then can benefit from higher prices and then just finally understanding for some flexibility here.
Anthony Good followed by a phase two will get asked me long items.
You don't know if it makes me more upset than having the capitulate with the government on Rins.
But.
For she went into it there is really no other option other than the grin and bear it so.
I think the way I would answer the question on Phase III is that if I do the math correctly I see announced almost 300000 barrels a day of renewable diesel has been announced.
How much of it gets built I don't know, but probably if I go down the list it looks like 80% of it will probably happen to me.
And some of it's already in construction some of it will not get permits some of it will have other problems.
Don't happen, but but 300000 is.
<unk> a whole lot of Rins number one, but there's also a whole lot of low carbon fuel standard credit and that market has to move everything has to move with it of course not to mentioned feedstock tightness is already occurring and probably will get even tighter.
So I.
I think our view or at least mine.
Our board sees it the same way is that we want to we want to get into here early and get get when he went up and then when you want to watch the market for a little while it will take us some time to develop the project anyway. So I don't think we are delaying it a lot by doing that but we're going to in another year. Another two.
Years, we're going to know a whole lot more about the renewable diesel.
Thanks for that all makes perfect sense. Thank you for Atlantic.
Yes.
Our next question comes from the line of Phil Gresh with J P. Morgan. Please proceed with your question.
Hi, This is Nick on for sale.
First question would just be around feedstock availability for Rd.
I guess, where you're standing at right now trying to secure the supply for spo for when you would how are things looking and then going forward how do you see the feedstock.
Mark it really developing.
Yeah, well I think.
This is a.
An area of concern for without a doubt for future projects coming on but.
Now theres still exports have been oil going offshore so I mean I think.
We really don't have a problem securing it in the short term we have to get after it though I mean, we're very close to agreements with how we're going to do that so I.
I don't think we have a problem secured debt in the short term.
Longer term as we move to more of a.
The more favorable so I think.
That's really a question net availability is there it's just a question of.
Of being able to get it in their timely and get it get it procured correctly and the right quality.
But but longer term I think this is as I mentioned there is really there is a gen three coming that's probably where the industry has to get to is this biomass. There is a lot of biomass out there. It's just how to convert it theres ways to do it its debt needs more research.
But it's the Holy Grail in this area, it's really taken biomass and converting it to liquid fuel that has basically a negative CPI.
And that that.
That will be.
The Holy Grail, so to speak.
Thanks, and a second question I know it was mentioned by Mad men came out yesterday with the SRV.
Do you think theres any possibility of further rent market reform coming under the admin, maybe limiting a RIN market participants or I guess ex <unk> is there any chance of a national L. CFS standard they've been hearing about.
Well I think anything is possible if the current administration.
And the shift in strategy is pretty dramatic and just by the.
The evidence of that letter you mentioned.
Yeah.
Normally EPA has to go through rulemaking on all of these things and this is a this is a 10 year history.
Of doing waivers and in interpreting the law, where they have now they suddenly come out and say well, we're gonna reinterpreted in say the 10th circuit was right.
Well that takes years of rulemaking to really get get through the process. So I'm not sure what in the world they're thinking but.
It's obviously confusing and I think that's half the reason the Supreme Court took the case, because it's just blatantly wrong.
But if you read the law, it's pretty darn clear, there's two sections of it but talk about waivers ones. The extension of the exemption. The other is at any time you can apply for a waiver I'll give you a for instance.
Just look at what we're doing at winning one.
We can probably run more barrels there we choose to keep it below the the.
The level, that's required for small refinery waiver well with renewed renewable diesel we're going to cut the rate by another 20000 barrels are going to be at around under 60000 barrels per day.
That's why that was put in there you could choose to become a small refiner in the future.
For multiple reasons.
And climate change could be one of them.
And that's the law was written to be flexible enough to allow you to do that so it's just really what is RFS has turned into a political football.
And Donald Trump did a great job for the first two years and then fell apart in the last two years.
Yeah on RFS.
Obama for for many years was a was the same no waivers.
No.
It's all political let's just.
That's no way to run a railroad a particularly a refining business.
Alright, I appreciate taking the questions.
Our next question comes from the line of Neil Mehta with Goldman Sachs. Please proceed with your question.
Thank you I appreciate the time. This afternoon guys. The first question is just around capital returns, Dave you alluded to it on the call in your script, but now how do you think about the reinstatement of the dividend does that is that dependent on getting clarity on demand.
<unk>.
What are the milestones that we should be looking for around capital return, especially as he alluded to you've got cash on the balance sheet and then how do you weigh buybacks versus debt and just kind of walk us through the framework as we think about it.
Okay.
I think you know I think our overriding principle deal is just as free cash flow is what we're all about so.
I think our shareholders are interested in cash coming back either through dividend or if the prices right.
Stock buybacks.
And Furthermore, they would be more interested in diversifying our business and coming up with the.
An acquisition at the right price.
With diversify our EBITDA, which we think would reflect in our stock price also.
So the priority is.
I'll tell you what it was last year. It was to do an acquisition that makes sense.
And then as it evolves through the year it kind of became renewable diesel.
And again, we are kind of backed into a corner with higher RIN prices to do something.
I call it capitulation with the government, but others would probably call it something else.
But.
I think.
It kind of tells a lot if we if we can't do any of those those others then.
And then it becomes excess cash and then either goes back because that's the latter two.
But whether it's a buyback or its infection dividend itself.
Yeah. That's the follow up is around M&A you can.
It gave us the hint that it but it sounds like you went down the path.
Pat for acquisitions, and then the bid ask wasn't there can you just sort of unpack what you can say in terms of.
Yeah that your acquisition strategy, what transpired and how do you think about <unk>.
Forward is there is there a scenario where you come back and do a deal or is that just off the table for the foreseeable future.
You never can predict the future Neil what are some of these deals may come back who knows.
We were we were.
There is a lead candidate for a while and.
And we.
We fell off the page.
So you never know it could come back at some time.
Okay.
Okay perfect.
Yes.
Sneak one more in there if I could is just.
I always value your view on the macro.
Talk about how you think the path.
Looks for distillate and margin in particular, where you have disproportionate exposure and then Brent Debbie Ti looking out over the next year.
Well I think I would tell you on this on the distillate side as I mentioned that the diesel crack is in contango.
With crude in backwardation.
And you see the distillate price continuing on the futures going up in crude to be falling falling and I think that bodes well I think that says a lot for the industry about rebalancing and I think we may actually be seeing some of the.
<unk> 2020 coming into effect.
Bunker fuel ever recovered it would demand more industrial it.
And so.
Cause if you look at inventories.
And demands right now its pretty good on distillate.
Worldwide, So I think that.
That's recovered or at least it's been rebalanced, let's put it that way as far as the Brent Ti goes I'm a firm believer that youll share of oil.
Reemergence I think the Brent Ti reemergence also.
Even with the pipeline capacity you have to drive more and more barrels offshore requires Brent ti to be higher and higher.
If you look at the WTO price Midland WTS and Houston, that's a premium to.
Two.
To Cushing.
It needs to remain that way too because it is a higher value crude Brent.
But.
That differential is driven by shale oil production.
Okay.
Thanks, Thanks, Dave appreciate it sure.
Our next question comes from the line of Matthew Blair with Tudor Pickering Holt. Please proceed with your question.
Hey, good morning, everyone.
I had a question on the outstanding RIN liability.
Sounds like it's from from when he was here. So I believe it was $86 million at the end of Q3.
Where does that stand at the end of Q4, and then do you also have a number on where that stands today I think Tracey you mentioned.
Yeah, you had cut that down by about 8%.
That is accurate that is what I said.
What.
Okay.
Okay.
Okay.
Yeah, the K that will be filed Tonight will have detail.
It outlines the accrued obligation specific line items.
Is it fair to say that you know I think RIN prices are up about 20% since the start of the year. So.
Cut it back by 8% is it fair to say that today's obligation is higher than than where you ended at the end of the year.
Yes.
Because we also would've happened okay obligation that built.
Right right Okay.
And then the I wanted to follow up on the pre treatment cost.
What was that $50 million and would that cover both the 100 million gallon when he would plant as well as the 150 million gallon Coffeyville conversion.
Well, that's one of the Windows, we have Matt is really what do we do do we build one common plant or build to pre treaters and we haven't made that decision yet, but the 50 million is really just to handle the winwood project.
Got it and then last question I think your share of regional crude fell to 45% of.
Of your total throughput, which was the lowest in more than a year and your share.
Share of WTS and moved up to 36%.
Was that just kind of like a temporary one time dynamic.
It seems like in general you've been moving more to the Covid.
For the regional crude so what explain the uptick in.
And more Cushing sourced barrels in Q4.
Mainly the pandemic as you know our gathering rates went way way down in March April may and they have been slowly recovering for a period of time and now they're starting to drop again as depletion occurs.
Without any drilling the shell oil barrels are the ones that falloff the quickest.
Youll see a slight uptick now with the Blue night pipeline system added that.
600 miles, we think could get us up to 25000 barrels a day, maybe even a little bit more once we get it up and fully running in all our crude procurement wind up and going.
But it's still it's still dependent on the current crude prices I think drilling will start again, although the e&ps are much.
You all know as E&ps are much more focused on free cash flow than they are.
While drilling.
The campaign, so how much.
Crude oil declined in the United States is anybody's guess at this point I think.
Sounds good thank you very much.
Youre welcome.
We have reached the end of the question and answer session I would now like to turn the floor back over to management for closing comments.
Again I'd like to thank you all for your interest in CVR energy. Additionally, I'd like to thank our employees contractors and the communities we operate in for their hard work and their commitment towards safe reliable environmentally responsible operations.
We look forward to reviewing our first quarter results 21 during the next earnings call.
Thank you.
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.