Q1 2021 CVR Energy Inc Earnings Call
Greetings and welcome to the CVR Energy first quarter 2021 conference call.
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A brief question and answer session will follow the formal presentation.
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It is now my pleasure to introduce your host Richard Roberts Senior manager of financial planning and analysis of 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 first quarter 2021 earnings call with me today are Dave lamp, our Chief Executive Officer, Tracy Jackson, our Chief Financial Officer and other.
Other members of management for.
Prior to discussing our 2021 first quarter results. Let me remind you. 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 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 for 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 to the extent required by law.
Also remind you that CVR partners completed a one for 10 reverse split of its common units on November 23, 2020 any per unit references made on this call around the split adjusted basis, let's.
This call also includes various non-GAAP financial measures the disclosure for the <unk>.
Non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures are included in our 2021 first quarter earnings release that we filed with the SEC 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. Thank you for joining our earnings call.
Yesterday, we reported the first quarter consolidated net loss of $55 million and a loss per share of <unk> 39.
Unplanned debt unplanned downtime and increased operating cost associated with the winter storm negatively impacted our first quarter results by approximately $41 million.
Our earnings for the quarter for further impacted by a non cash mark to market on our 2020 RIN obligation of $98 million.
Our board of directors did not approve the dividend for the first quarter of 2021. However, we recognize the absence of any major transactions, we have more cash on the balance sheet. Currently then we need to operate the business well.
We will continue our discussions with the board of around the best uses of our cash and the appropriate level of cash to return to shareholders and in what form.
For our petroleum segment the.
Combined throughput for the first quarter of 2021 was approximately 186000 barrels per day as compared to 157000 barrels per day for the first quarter of 2020.
Which was impacted by the planned turnaround at Coffeyville.
We experienced unplanned downtime at both facilities in February as a result of the winter storm, which reduced total throughput for the quarter by approximately 34000 barrels per day.
Both plants resumed full operations in March and are currently running at Max light crude rates.
Benchmark crack spreads have increased since the beginning of the year. However, elevated RIN prices continued to consume much of that increase in the cracks.
The group 3211 crack averaged $16 33 per barrel in the first quarter as compared to $12 21 for.
For the first quarter of 2020.
On the 2020 RVO basis rents prices averaged approximately $5 57 per barrel in the first quarter of 250% increase from the first quarter of 2020.
The breadth of your Ti differential averaged $3 18.
In the first quarter compared to $5 <unk> per barrel.
In the prior year period, the Midland Cushing differential was 80 487 per barrel over <unk> in the quarter compared to six <unk>.
Per barrel under <unk> in the first quarter of 2020.
And the WCS <unk> differential was $11 82 per barrel compared to $17 17 and 77.
For the same period last year.
Light product yield for the quarter was 100% of crude oil processed.
Current economics dictate maximizing gasoline.
In total we gathered approximately 112000 barrels per day of crude oil during the.
First quarter of 2021 compared to 136000 barrels per day for the same periods last year gathering volumes for the first quarter were negatively impacted by the severe winter weather in the Midwest in February.
With the Oklahoma pipelines, we recently acquired.
Our gathering volumes are trending higher we currently forecast our gathering volume volumes for the second quarter to be in the 125 to 130000 barrel a day range.
In our fertilizer segment, we experienced some unplanned downtime at Coffeyville due in an outage of the third party air separation unit in January at East Dubuque, we elected to shut shut in for several days as the result of the severe winter weather in February.
Ammonia utilization for the first quarter was 87% of Coffeyville.
89% at East Dubuque.
Along with the rally in crop prices. This year for the fertilizer prices have increased significantly which should be more evident in the fertilizer segment second quarter results with the USDA estimated corn planting this year of 91 million acres for 2020 inventory carry out could be at the <unk>.
Lowest level since 2014 this should.
Should setup for continued strength in crop prices, which would be of positive for the fertilizer demand and pricing as well.
Now, let me turn the call over to Tracy to discuss some additional financial highlights. Thank you David and good afternoon, everyone. Our consolidated net loss of $55 million and loss per diluted share of 39, Inc.
<unk> of Mark to market gain of $62 million related to our investment in Dallas and favorable inventory valuation impact of 66 million the effective tax rate for the first quarter 2021 was the benefit of 43% compared to the benefit of 27% for the prior year period, primarily due to state income tax credit.
We continue to anticipate an income tax refund related to the cares act of 35 of $40 million, which we expect to receive in the second half of 2021.
The petroleum segment's EBITDA for the first quarter of 2021 was negative 61 million, which included the inventory valuation benefit of 66 million. This compares to EBITDA of negative $77 million in the first quarter of 2020, which included unfavorable inventory valuation impact of $136 million excluding <unk>.
The Tory valuation impacts in both periods, our petroleum segment EBITDA would have been negative of 127 million for the first quarter of 2021 compared to a positive $59 million in the prior year period, the year over year EBITDA decline was driven primarily by the elevated RIN prices and our open ran position unrealized derivative losses.
An increased operating expenses associated with winter storm here.
In the first quarter of 2021 of our petroleum segment's refining margin excluding inventory impact was negative 88 cents per total throughput barrel compared to 11 of six in the same quarter of 2020.
The increase in crude oil and refined product price of three of the quarter generated an inventory valuation benefit of $3 93 per barrel. This compares to $9 54 per barrel of unfavorable impact in the same period last year.
<unk> inventory valuation impact of unrealized derivative gains and losses and the mark to market impact of our 2020 rent obligation the capture rate for the first quarter of 2021 was 46% compared to 86% in the first quarter of 2020. In addition rent expense reduced our capital range.
Our capture rate by 65 per cent and the first quarter of 2021, which includes the 36 per cent impact related to the mark to market of our 2020 rent obligation.
The random losses for the first quarter of 2021 totaled $32 million, which includes unrealized losses of $43 million, primarily associated with crack spread derivatives offset by gains on Canadian crude oil in the first quarter of 2020, we had total derivative gains of 46 million, which included unrealized gains of 20 of $12 million.
Rent expense in the first quarter of 2021, but the $178 million or $10 62 per barrel of total throughput compared to 19 million or of $1 32 per barrel for the same period last year, our first quarter rent expense was inflated by $98 million from the mark to market impact related to our 2020 accrued RFS obligations.
<unk>, which is mark to market in an average rent price of $1 39 at quarter end, our crude RFS obligation at the end of the first quarter continues to approximate our 2019 and 2020 obligations at anyway for which flavors has been applied we believe when he was the obligation for 2021 that should be exempt under the RFS.
Regulation for the full year, 2021% and forecast of net obligation of approximately $230 million rents without considering waivers yet inclusive of the rins, we expect to generate for the renewable diesel production in the second half of the year.
The petroleum segment's direct operating expenses were $5 89 per barrel in the first quarter of 2021 as compared to $5 of 87 per barrel in the prior year period on an absolute basis operating expenses increased approximately $15 million compared to the first quarter of 2020, primarily due to higher natural gas costs that are currently in the <unk>.
And additional repair and maintenance expenditures related to winter storm here.
For the first quarter of 2021, the fertilizer segment reported an operating loss of 14 million of net loss of $25 million or $2 37 per common unit in the EBITDA of $5 million.
This is compared to first quarter 2020, operating losses of 5 million of net loss of $21 million or $1 83 per common unit and EBITDA of 11 million the year.
Your over year decrease in EBITDA was driven by lower sales volumes of U a N of pneumonia and lower UAS sales prices.
During the quarter CVR partners repurchased just over 24000 of its common units for half a million of the partnership did not declare a distribution for the first quarter of 2021.
Total consolidated capital spending for the first quarter of 2021 was $68 million, which included $10 million kind of petroleum segment $3 million in the fertilizer segment of $55 million in the renewable segment.
The environmental and maintenance capital spending comprised of $12 million, including $10 million of petroleum segment, and 2 million in the fertilizer segment.
We estimate total consolidated capital spending for 2021 to be approximately $235 million to $250 million of which approximately $106 million to $114 million is expected to be environmental and maintenance capital and 123 to 128 million is related to the renewable diesel project at winning with Arkansas.
Holiday of the capital spending plan excludes planned turnaround spending, which we estimate to be approximately $9 million for the year in preparation for the planned turnaround at <unk> in 2022 in Coffeyville in 2023.
Cash provided by operations for the first quarter of 2021 was 96 million despite elevated natural gas and utilities cost increased capital spending and closing on the Oklahoma pipeline acquisition, we generated free cash flow in the quarter of 61 million working capital was the source of approximately $218 million in the quarter due to an increase in rins.
And an increase in lease trade payables.
Turning to the balance sheet at March 31, we ended the quarter with approximately $707 million in cash an increase of $40 million from the end of 2020, our consolidated cash balance includes $53 million in the fertilizer segment as of March 31, Excluding CVR partners, we had approximately 1 billion of liquidity.
This was comprised of approximately $655 million of cash and securities available for sale of $235 million and availability under the ABL of approximately $364 million less cash included in the borrowing base of $208 million.
Looking ahead to the second quarter of 2021, our petroleum segment for our Petroleum segment, we estimate total throughput to be approximately 200 of 220000 barrels per day, we expect total direct operating expenses to range between 75, and 85 million and total capital spending to be between 6% and $12 million.
For the fertilizer segment, we estimate our ammonia utilization rate to be greater than 95 per cent. We expect direct operating expenses to be approximately 35 of $40 million, excluding inventory impacts and total capital spending to be between $4 7 million.
Capital spending in the renewable segment is expected to range between 65 and $70 million without Dave I'll turn the call back to you.
Thank you Tracy.
In summary, the first two months of the quarter were challenging as crack spreads were narrow and the Warner storm caused unplanned downtime and elevated operating expenses.
We quickly recovered from the storm related shutdowns and with the increase in the group three cracks we observed positive EBITDA trends in March absent the.
2020, mark to market impact for Rins.
I would like to thank our employees for all of their hard work during the winter storm to quickly return both refineries.
Fertilizer operations to full capacity safely.
We continue to believe we are well positioned for the eventual upswing of the refining market.
Looking at current market fundamentals cracks of an increase of at the beginning of the year Didnt have largely largely sustained higher levels, although inflated RIN prices have consumed part of that increase.
The vaccine data is encouraging and we're seeing positive increases in demand for gasoline diesel and jet fuel.
Refinery shutdowns in February and March helped clean further clean up domestic inventories however fleet utilization is increasing.
In the near term, we remain cautiously optimistic based on the market fundamentals, we see starting with crude oil global inventories that are at or near five year averages and worldwide demand is projected at 96 million barrels per day for 2021. According to the OPEC of year over year increase of <unk> <unk>.
6 million barrels per day share.
Shale oil production is up slightly in the Permian basin, but down everywhere else and <unk> continued to decline.
E&P companies are currently focused on shareholder return and debt reduction and not on ramping up activities to significantly increase production volumes.
In backwardation is firmly in place supported by declines in the inventories and the action taken by the <unk>.
Taken by the Saudis.
Moving on to refined products inventories are largely normalized in the U S helped in part by the shutdowns after the winter storm.
U S gasoline demand was up significantly in March and held through April.
Refining product demand in pad two is back to 2019 levels, while well.
<unk> pad to gasoline or diesel inventory levels are both below five year averages.
Passenger count and TSA checkpoint check ins are higher but still down over 40% compared to pre pandemic levels and the imports of gasoline and diesel are higher while exports of both products are lower than a year ago.
Looking at the current spread crack spreads and crude differentials gasoline cracks were strong but diesel cracks are low due to depressed the jet fuel demand.
U S refinery throughput is down over 1 million barrels per day versus the five year average, although the I.
Hey.
Reported utilization stats are distorted due to permanent refinery closures and reduced operable capacity.
And rens remain high driven by government inaction and regulatory uncertainty.
For.
For the CVR refining system, we continue the run our refineries at Max rates on light on of light crude diet.
Our gathering system rates are increasing with the addition of the Oklahoma pipeline system, which provides more neat barrels to our refineries and route reduces our purchases of Cushing common.
We are maximizing the production of.
Of premium gasoline and the blending of Biofuels and we do not have any turnaround scheduled for 2021.
For the fertilizer segment, the USG of USDA is projecting 91 million acres of corn planted this year at.
The current yield estimates of the inventory carry out for 'twenty, one could be the lowest since 2014.
Crude inventories are already very low which has driven the price is higher the.
The recent win of our storm cleaned up.
Excess fertilizer inventories in the mid con as many nitrogen fertilizer plants had to shut we had to shut in.
The spring run has been run has been strong and NOLA urea price is around 200.
Excuse me 385.
Per ton with UA in at nearly $300 per ton, our netback prices have dramatically improved for nitrogen fertilizers by about 40% compared to the first quarter of 2000.
21 levels.
We are working hard on 45 acute tax credits for the Coffeyville facility, which could provide incremental cash for CVR partners to delever.
And we have of planned turnaround at Coffeyville in October.
Construction is underway of when he would renewable diesel unit, however, severe weather in February and delays in equipment deliveries.
We are now projected in the unit to be online.
By the end of the third quarter.
Costs are also being affected by weather delays of material Escalations.
We currently expect total cost of the project to be of $135 million to $140 million. We have made significant progress in the recently signed agreements for feedstock supply and Terminalling and we are in negotiations on product marketing.
Despite the recent increase in feedstock prices.
Higher prices for diesel and rents of partially offset the increase in the renewable diesel feedstocks. In addition, we now believe we will be able to run the wynwood refinery at higher rates post renewable diesel conversion that we previously expected.
As we work towards the completion of phase one we are close to selecting technology for a potential phase two.
Which would involve adding pre treatment capable capabilities for lower cost and higher and lower Ci feedstocks.
We are also starting to feasibility for study for phase III of developing a similar of renewable diesel conversion projects at Coffeyville, and we're exploring the opportunities to add biomass as of feedstocks to one or both of our refineries to aid in our sustainability efforts.
Looking at the second quarter of 2021 quarter to date metrics are as follows group 3211 cracks have averaged $19 48 per barrel.
With rents averaging $6.92 on a 2020 RVO basis, the Brent Ti spread has averaged $3 62.
With the Midland Cushing differential at 36, <unk> over <unk> and the WTO differential at 14 per barrel under WTS Cushing WTS.
And the WCS differential of $11 29 per barrel under WTO.
Ammonia prices have increased to over $600 a ton while uhm prices are over three of $325 per ton.
As of yesterday group 3211 cracks were $20 26 per barrel, Brent Ti was $3 seven.
And WCS was $11 90 under W. T.
2020, RVO basis rents were approximately $7 83 per barrel.
The Supreme Court heard arguments in our appeal of the 10th Circuit ruling last week we.
We feel our attorney was very effective in expressing the intent of Congress that no small refinery should go bankrupt from the impact of RFS compliance and the small refineries like ours with the high diesel output remote location lack of meaningful retail and wholesale infrastructure are entitled to relief at any time.
We expect to hear of ruling over the next few months after which EPA might finally provide of renewable volume obligations for 2021.
The EPA has also has also yet to rule on the 2019 for 2020 small refinery exemptions the lack of action by EPA regarding these issues is likely contributed to the dramatic increase in RIN prices over the past year.
Fortunately, our consolidated RIN obligation should become muscle lots of of burden with the completion of the Winnie would renewable diesel unit later this year.
With that operator, we're ready for questions.
Thank you we will now be conducting a question and answer session.
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Thank you. Our first question comes from the line of Manav Gupta with Credit Suisse. Please proceed with your question.
Hey, guys.
And my question here is again, you have been making a very effective case for small refineries.
And I mean, I think of lot of people understand the pain that small refiners in here, but for some reason it looks like EPA doesn't really want the even.
Even look at Dave I think a few days ago. There was a newest debt. They look for any small refinery exemptions given to Sinclair and EBITDA has gone back and said they were wide debt. So now they're going back and looking at some of the small refinery exemption of backlog given im trying to avoid those like I just wanted to your comments on this line.
Does this actually make any sense to think of it the saudis that have already been issued.
Well on all of I would say that EPA is doubling down on there the reversal for of 10 years of applying the RFS in one direction to a new direction now.
Do nothing but lead to higher gasoline and diesel prices for the for the nation and all consumers.
Hard to understand what the logic is other than the new green pushes.
It needs elevated prices for.
For the petroleum products to really make the substitutes more more attractive.
And I can't think of any other reason than that this is a totally unfair.
In my opinion the.
They would take away something that in the Sinclair cases kind of the special case from the standpoint that they had a settlement back win wins Sinclair sued because they were denied small refinery waivers of unjustly and won and now the EPA went back and reversed all of that in granting them the the way.
For us they were deserving.
And now a new administration come in comes in and changes it. It just shows that the whole RFS is the.
Political process that is out of control and needs to be revised in the change towards free it's fair for everyone.
So that's a very fair Dave I just had one for a follow up question here.
Obviously as you indicated looking good for you on renewable diesel facility of Phase one maybe can you still have some point.
We have seen some strong feedstock cost escalation and one of the feedstocks debt you are planning to run So Inc.
CVR looking to secure some of its feedstocks I've been looking at some art feedstocks I'll, let crops corn line is how will you try and mitigate the sovereign debt.
Edwin Index, we are seeing.
In soybean oil prices and I'll leave it there.
Sure Manav I think first I'd say in my prepared remarks, I mentioned that we have we're very close to selecting the technology for the phase two which is the pre treater.
And that.
That will be that will give us the flexibility to run just about anything.
Including corn oil tallow unused cooking oil, although there may not be much availability of that.
The still the big swing in all of these of these new units the large volume.
The soybean oil I think you've got to look at it from the standpoint of today a lot of soybean oil goes into biodiesel and that will be in my opinion, the reverted back to renewable diesel because of the fact that the.
Of the Ci and the.
Improvement as well as the the.
One seven rents compared to one five.
And it'll just be a take time for the market to adjust to that the that reality.
What happened in the in the last couple of months as you had several large are too large or day units come on.
The marathon Dickinson and then the Phillips 66 in California.
The market has not readjusted to those the that reality yet.
Look at the Bean oil futures in the very backward aided for two months I think of drops from in the mid <unk> to the.
For the low fifty's.
And that'll be the timeframe that we're looking at the start securing feedstock for this unit.
Thank you so much.
[laughter].
Our next question comes from the line of Poussaint ROE with Citigroup. Please proceed with your question.
Hi, good afternoon. Thanks for taking my question the follow up there Dave.
Now that phase one for one of your wood.
It looks like and if the re queue, but close to the picking of the technology provider for or how youre going to go about phase the phase two of the project phase one being moved to three Cuban now Youre looking at phase two.
Is there any.
Is there any way in terms of the timing to pull up the.
Pretreatment, especially in this environment, where you know.
We're at elevated rens and TV feedstock costs.
How should we think about timing of phase two I think originally the plan was sort of more towards the end of next year, but is there some flexibility in that in terms of accelerating that and then I had a follow up on the on the feedstocks.
Well the the technology. We're looking at is it's not particularly difficult to build it does take some certain amount of alloys type of metals, but the.
But we're thinking 18 months from the day, we say go we.
We should be able to have it up in the online. So it's still at the same timeframe, we talked about before.
But it's very doable in that timeframe.
Would you still do you project, so phase one phase two and when he would and then look at coffeyville or could there be some overlap given kind of the well when he when it's falling back by a quarter and where the economics are.
But you might want to startup Coffeyville before you you finished or out of your finishing up phase two sort of just kind of thinking about overall.
The overall timeline of the total asset base you know if there's a.
If there's if there's a way that we we put us ramp that up maybe a bit faster here.
Yeah as I am.
Mentioned the prepared remarks, we're starting the feasibility study, which is basically the process engineering for a conversion at Coffeyville kind of.
So that's a modest amount of money and that gives us a head start to have the design complete should we elect to do it I will caution, though on the other hand.
I think.
As most of you I think are quickly pointed out that the California's getting saturated with the stuff.
Although there are imports coming in.
Still the best and highest netback of anywhere in the World I believe on the from a low carbon standpoint, the low carbon fuel standard standpoint.
Even though Washington, just voted it in I believe in the Oregon starts in 'twenty, two we need something more to happen that's broader and more nationwide frankly, the two two with the number of new units that are coming on to really.
To really be able to place this material out of out of an advantage.
I think.
<unk> there is a reset on the RFS in 'twenty two.
P. A is asking for comments on that there are people that are supporting going nationwide.
On the low carbon fuel standard to replace that which is probably a more fair way to do it because it does it does look at Ci as opposed to ethanol blends and biodiesel blends of advanced Cellulosic that don't exist in other things so.
If you do it on a straight ci basis, it might be it might be a reasonable substitute of.
Of course, you have other people out there talking carbon tax of how this would look in a carbon tax I havent really thought through enough of.
For the smart on it yet and I don't think anybody else is either.
But.
Any of those would be positive moves that I think would help make a decision on coffeyville quicker.
The last question is specifically on the tallo market, given where the tightness in the feedstocks and I think going back to your comments on my previous call, Dave but that sort of is the the gold standard that you'd go to in terms of gave the low Ci scores of moving into some of the animal fats and tell us I just wanted to get a sense of you know availability here in the phase right now where you are.
Looking at feedstock supply of locking in some of those things getting closer to the securing that.
And the broader outlook.
You know all of you kind of a call on tallow oil.
All right.
Or is there some sort of.
Are there are the things the factors, we should be thinking about that maybe slowed that down a little bit of what are some of it maybe barriers for building that part of.
The accessing that resource of building that network.
I'll leave it there thanks.
I think the reality is if you look at the the total production of tallow unused cooking oil.
Any even corn oil that volume is much is dwarfed compared to what is available via the soybean oil.
That's just the reality of the of the balance even that's the that's the same thing worldwide.
Seeing some of the actions I think Belgium was the first country to say theyre going to outlaw the use of soybean oil and renewable diesel and theyre going to all of them.
The palm oil.
So those are just that.
When wide, that's obviously, a big impact, but the the magnitude of the numbers of the availability of soybean oil compared to the other three as.
They're dwarfed Theyre just small.
So that's just the reality of the situation.
Firmly believe there is another molecule out there thats, probably even better yet nobody really knows how to use it yet, but as just biomass, which is the wood chips the grass cuttings corn stover.
Stuff of that nature of that if you look in the Midwest, that's where most of it is concentrated at and Thats right, where we sit.
So.
I think we will have some advantages on something like that will also have advantage on some tall of Tel.
Hello.
Some degree of too because of our location Theres, a lot of embedded losses, Kansas and Oklahoma and.
There are a lot of slaughterhouses in those areas too so.
We'll have a transportation advantage if nothing else.
Okay. Thanks, very much for the time, Dave I appreciate it.
Welcome.
Our next question comes from the line of Phil Gresh with J P. Morgan. Please proceed with your question.
Yes, Hey, Dave so.
As you look at ramping up the production here on renewable diesel in the fourth quarter.
I think we have observed some others that have had some teething issues the startups.
So I was just curious.
As you kind of.
Track that.
Do your own ramp up how do you think about making sure you get the utilization, making sure of the product quality matches your expectations or any other factors that you would think about.
Sure Phil I think there is always risk when you start something new up and it does take time, usually two to two of center in on the on the sweet spot so to speak.
I don't think that we're going to have particular problems in that area. Because this is the conversion of a high pressure unit.
The pressure is your friend here.
Particularly on catalyst life, and just the forgiveness of the process.
So we've got that working for us.
The other piece of that I am more worried about is just feedstock quality in general not all bean oil is created equal and that is certainly true of all of the other feedstocks also.
So that's the part that I think we have to watch very closely and be on our game to protect the downstream equipment and make the material on spec as you as you as you pointed out.
Right. Okay. Thank you.
In terms of of the paint to you I think you said on the last call.
An estimate of $50 million.
I'm not sure if there's any update to that and have you said what the capacity is.
Of the Pizza you that youre considering.
No we haven't mentioned it yet but the.
At one point, we had talked about building of combined pre treater for both when you would and Coffeyville or let me put it this way of build one that's expandable.
To handle both both units.
And after doing the more research on the technology. They are really these these things are just there are 10000 barrel of Max per train.
And you just it gets too big and you have to go to a second train anything above that so that kind of plays pretty well into our hand.
If we get to 10 to 12000 barrels a day out of the Coffeyville conversion and have seven here.
Debt.
That matches the two train system.
Which also gives us a lot of flexibility in how we process of where reprocess the various feedstocks.
Okay kind of cost the cost is.
I will tell you that the material escalation.
Escalations is very real right now I think steel is up about 75%.
<unk> lumber probably up 300%.
Koppers of basically doubled or tripled.
And the last several months.
And so that's going to affect these costs I think we're we're penciling in about 60 for this first train.
Okay got it but the good news is the the inflation is transitory right.
Yeah.
No.
Yeah.
Last question, just your comments around returning more capital to shareholders or at least the staffing it.
Should I infer from that debt the M&A opportunities that you've discussed in the past.
It may not.
You know of BS.
As near term.
Thanks.
Well the as.
You've heard no announcements yet.
That's pretty much about all I can say on that subject.
The we've.
The pencils down for a period of time, but they seem to to reoccur or come back to life every so often.
So yeah.
You never say never in this business I think the bigger question for us is really.
Where do we want to put our capital these days and I think of.
I think with the the current trends in the and the things we're seeing the <unk>.
Investments in the refining is a tough row, they're just going to be there needs to be more closures in our opinion the noncompetitive refineries.
There needs to be more consolidation of.
The drive out fixed cost because frankly a.
A lot of the plans come come to be if you do go to a low carbon fuel standard there is going to be less refining required to meet the market needs the won't eliminate it but you'll need it the only year most competitive facilities will remain.
So of that in mind I think most of our dollars are going forward are going to be associated with the sustainability of renewables are some some form thereof, or biomass or some combination thereof is as the innovation.
<unk> to be we have the fixed assets that can process the stuff up.
With the proper pretreatment and the and convert it to a usable fuel that has a lower <unk>.
That that's where I think of lot of our dollars are going to go we do have too much cash on the balance sheet today.
For.
To run our business and our board is looking at debt very closely.
The the you should I mean, there should be some action taken here soon don't know exactly when but the board continually modify the it looks at this and we'll make a decision soon I think.
Great. Thanks for your thoughts.
Yep.
Our next question comes from the line of Neil Mehta with Goldman Sachs. Please proceed with your question.
Thank you so much Dave and team.
First question, you've been very vocal about the delek ownership position that you have.
I think your view has been that you don't want to consolidate the entity, but you want to see the equity appreciation, which it has so so talk a little bit about your latest thinking around that story and whether you see yourself as a long term investor and whether this can be part of accelerating the deleveraging and the <unk>.
Capital returns part of the business. The extent you didn't want him on the type of.
Well I think as you know Neal we're in the middle of the proxy fight right now we're trying to get three directors that we've nominated the onto the board, replacing three of the been there quite a long time.
And we are still active in that process that I think that meeting the shareholder meeting is in a couple of days.
You know, we'll see where that leads us where patient or not in a hurry.
I think there's still value there.
But we do think the Delek management needs to take action.
And like soup not in 10 years.
They're franchise has changed in the with the Permian basin, the changing with excess piping pipeline capacity coming out of there and they neither the deck.
And Dave can I ask you when you think about returning excess capital to shareholders net debt plus minus the $1 billion at the consolidated level.
How do you think about is there an absolute level of leverage or net debt net.
You would want to get to before you think about returning capital to shareholders.
As you think about your different options you have the capacity to do both buybacks.
Or are you where you could do it in the form of dividends, what you've historically done.
Do you have a preference.
I think Neil you know Thats really up to the board to make that decision.
They're looking at all of the above as you mentioned.
Without a doubt.
And I think of.
There are.
Some preferences by some but you know.
Any of them are perfectly acceptable.
Two of them from a shareholder return standpoint, we are big believers that you only buy back shares when the stock price is low.
And it is fairly low but that doesn't mean, that's the direction, we'll take it any way shape or form so.
Like I said of the board is reviewing this all the time.
In the hot on the trail and stay tuned.
Thanks, Dave.
Our next question comes from the line of Paul Cheng with Scotia, Howard Weil. Please proceed with your question.
Hi, good afternoon.
On the ball state.
Just trying to understand what's your approach on the current liabilities all of the 'twenty to 'twenty I'll deal.
You're sitting on your balance of that thing is puppy of violence $300 million.
So what did that you're looking at your 700 million the cash.
The darkness night, but it is 400, and obviously that Oh my God the.
The cash we tend to show with the.
Should we take that into consideration.
And also debt I mean, you're just going to sit on your not doing anything until you get the Supreme Court of law.
Pulling all of that.
Even with that.
As we have seen from the actions of the EPA.
Not necessarily means that you're going to get Glenn debt for the small refinery exemption. So I'm trying to understand that Wow. What's the approach that we're doing are we just basically sitting and waiting all of that you would take a more proactive perhaps start to flow chase the win.
At the insurance policy.
Yes, Paul Let me, let me make a couple of comments and Tracey will chime in but the Supreme Court has outstanding outstanding that ruling is a very important one from our standpoint.
Remember we have waivers.
Applications already in for 19 and 20.
For the Wynwood refinery, which are approximately $110 million to $120 million rins each.
So that alone should the Supreme Court and validate the 10th 10th Circuit's ruling.
Would the would consume most of our short position.
And okay, just because you get the Supreme Court ruling doesn't mean anything like you point out youre going to have the probably sue EPA, which I think the President's is there that we would have a very very good case too to say wrongly denied waivers.
Particularly in this environment.
So I.
I think when he was the classic example to me of a hardship refinery.
It meets all of the definitions.
It doesn't do.
Irreparable.
The damage to the local rule community that we operate in.
It makes a high percentage of diesel it has no chance to really blend the other than of what it sales across its own rack through the Magellan system.
And the fact that the the mandate is eight five and some change ethanol and the 5% diesel immediately puts you in a deficit position anyway.
So.
It's the Classic example, and I think we're banking on the one of the Supreme Court and we're banking on winning the of lawsuits on the on the.
The 19.
In the 'twenty and probably the 'twenty, one because it will take that long.
Of that application in soon and they will take that long to settle any any lawsuits. So.
Can I ask that let's say you're going to assume that the E. P.
That's the same.
Debt the Supreme Court coming in yes, Paypal the ruling and then you're going to shoot the.
And he is probably going to check on that beyond this year.
So that.
That the I thought the 'twenty to 'twenty aveo unit to settle before.
For the March of next year, so is that means that you're going to get the.
Yes, John sure.
And with that the.
The loss of your sofa or what that you actually they will end of the way to have two sets of what that for us.
I remember I.
If you remember we settled all of.
19th already so we have the right to skip the year shall.
Should we do it and we're estimating that EPA will have to extend the 2021 date.
They did the 2020, because they still haven't even issued the RVO.
So all of that added together, we can skip a year and we're into well into 'twenty three before we have to even think about that and what can happen in that timeframe.
Okay.
And that the in terms of how that lie of basically well Ian for it and so on your.
Potential cash per share.
With that of initiated that.
That being taking into consideration of all of that now.
Not really.
Paul there's too much uncertainty as Dave just outlined between not knowing what the 2020 of our 2021 RVO is going to be the <unk>.
The mission of the 2021 waiver that we anticipate the leading shortly and the fact that we believe that we are 19, 2020 one waivers that ethylene continue to produce that when he would and with the Rd unit coming online in a few short years of with the pre treater and potentially phase III of Coffeyville, we could be long.
<unk> rens and so when we look at that liabilities sitting on the balance sheet. It is a noncash impact for us for the foreseeable future.
Until we get some resolution from the EPA on the many things that they have outstanding.
Okay alright, thank you.
Youre welcome.
Our next question comes from the line of Matthew Blair with Tudor Pickering Holt. Please proceed with your question.
Hey, good afternoon, everyone I thought the comments on the 40 <unk> tax credit of Coffeyville, where we're pretty interesting. So I was hoping you could just expand on that I mean, it sounds like carbon capture on the fertilizer side would there be any potential benefits or any opportunity to doing something similar on the refining side.
And.
Would you expect any upfront costs or.
Just any more details on this it would be helpful.
Sure.
The Coffeyville is kind of the unique operation because it uses pet coke in the gasification process to produce the hydrogen for ammonia.
It also produces a lot of <unk> and that is recovered today by with the partnership we have with the oil.
Oil company that uses it for downhaul.
Flooding and basically of increases its all production via pipeline and compression system that was installed several years ago. So we've been doing this for a while there and.
And the 45 acute carpet of credits or it's a matter of doing the lifecycle analysis and all of this of the.
The proper documentation around the sequestration of the Cotwo in that end.
We're hot on that trail.
The second application in terms of fertilizer is really at our east Dubuque fertilizer plant, which is as methane based feedstock, but still produces.
Highly concentrated <unk> stream that the same St credits could apply and you've probably seen the valero announcement with navigator on the building of <unk> pipeline, which would then sequestered.
C O two in somewhere in the Illinois.
We're talking to those people, who are involved with them and and trying to figure out how we can do the same thing at east Dubuque.
From the standpoint of refining.
That's a whole lot different issue.
The streams, except for our hydrogen plants, which once the Rd units startup if if we do coffeyville.
Well will produce a concentrated C on two stream.
And the.
Well that has the potential to reduce the <unk> of the renewable diesel if we if we could recover of that piggyback off the existing system at Coffeyville and connect to the pipeline and put compression in at the winning one.
So it all has potential to be there you know our ultimate goal on fertilizer is really two to produce what's called blue of ammonia.
Blue for fertilizer, which is it's not green, but it's.
It is substantially reduced carbon.
<unk> produced a fertilizer of that we think of Wil will help us in our sustainability efforts also.
Terrific and just to clarify on Paul's question, what exactly was your open rent position entering the second quarter I think.
Starting in the first quarter it was $240 million and then you reduce debt to approximately $222 million.
What was it at the end of Q1.
$246 million rents.
246.
Yes.
Okay. Thank you.
Youre welcome.
Our next question comes from the line of Matt Vittorio <unk> with Jefferies. Please proceed with your question.
Yeah. Thanks for taking my question I guess, just a point of clarification. So.
Why do we think about first quarter EBITDA from the refining business.
Sounds like a lot of the reported negative 126, when you exclude the inventory adjustment is.
Just rens and but mark to market on the range, which don't have cash associated with them at least not today.
So could you tell us what first quarter EBITDA was excluding any impact from rins because of that.
I guess ultimately we're not sure you're even going to have to pay cash on line. It just it seems to be creating a situation where EBITDA is.
Very much of cash number anymore.
So I'm just trying to think about how the.
Like how the.
A more cash.
Oriented EBIT of the uptake there if that makes sense.
Matt.
And we're going to report for the refining segment, the 61 and a half for 16 I don't know if the round in the millions of Theyre not the 61 5 million of EBITDA losses, and Dave quoted Rens reevaluation on the Mark to market $98 million and will also I think we disclosed in the press release the unrealized.
The revenue losses of $43 5 million and so and we've quoted in the script the inventory valuation benefit that we received but what I would like to avoid is quoting an adjusted EBITDA number from all of those items. So that I don't create chaos for my accounting team.
But I tried.
Matt.
Right, but so just so I'm clear because the.
For like I'm trying to get straight.
Straight on all of the the Rins accounting, so there's the $98 million mark to market in the quarter that is just marking the open position.
The current market position is that the full expense that went through the income statement related to runs of debt.
The $178 million of rent expense in the margin for refining for the quarter and $98 million of that is associated with marking to market. The 2020 rent obligation right and the other is your quarterly obligation.
The current RIN prices.
And even that even that the non mark to market expenses that just goes and of crews to the liability and we'll see if you ever.
You get the exemptions you may not have to pay cash on that first of all that is correct and will continue to be transparent about what that rent number is and what that mark to market noncash component of it is because we do believe that we don't ultimately O that.
Yes, and to that point of view.
I do.
I don't know how hard it will be at the do this but to put those numbers into the.
The rest of it so I understand you don't want to create chaos, but it's meaningful to think about like what drove.
For the quarter because of I look at your EBITDA of negative $1 21, ex the inventory valuation it doesn't really tell me a whole lot, but if you tell me of the majority of that loss was related to rent, but that helps me out a lot, but that's all I'll say.
Thanks for the clarification. Thank you.
Youre welcome.
Our next question is a follow up from Paul Cheng with Scotia Howard Weil. Please proceed with your question.
Alright, Thank you Tracy I, just want to confirm that debt.
Ongoing when the expense that you charge did you actually purchased the win so that the cash already all of the bowl and you haven't yet or that you just book the expense, but that's no that's not the long yes, the long cash.
Expanse of that means that you're still building up the.
The obligation.
So Paul we don't get into the details of actual rens purchases or rents at transactional activity, but we will be disclosing what our overall short position is quarter over quarter and how much of that is mark to market on the short position.
The the way to think about that is that the remainder of the expense charging three of them is associated with current period operations.
Ah Okay. So that.
From a cash.
Obligations stand point, the short position I think youre, saying that so yes, the 246 million, yes. Your total net sort of vacation from a cash standpoint, we need to win at the end of the first quarter.
That's the number of brands that we own at the end of the quarter that we have accrued for on our balance sheet.
That's the.
That's not that all of that that's just the cannon.
240 seconds.
That's $246 million rents.
And then I guess of my question is that yes that $246 million or 246 million gallon plus the Q&A.
Yes.
The number of Ren total it is not a dollar amount.
Okay, great. Thank you.
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 all our employees for their hard work the commitment toward commitment towards safe reliable environmentally responsible operations, we look forward to reviewing our second quarter results.
Our 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.