Q2 2021 CVR Energy Inc Earnings Call
As a reminder, this conference is being recorded I would now like to turn the conference over to your host Mr. Richard Roberts Senior manager of F. P N E and Investor Relations for CVR energy. Thank you you may begin.
Thank you Melissa good afternoon, everyone. We very much appreciate you joining us this afternoon for our CVR Energy, Inc. Second quarter 2021 earnings call with me today are Dave lamp, our Chief Executive Officer, Tracy Jackson, our Chief Financial Officer.
Other members of management for.
When discussing our 2021 second 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 maybe 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 to the extent required by law.
Let me also remind you that CVR partners completed a 1 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.
Let's call. It 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 2021 second quarter earnings release that we filed with the SEC and form 10-Q for the period and will be discussed during the call.
With that 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 second quarter consolidated net loss of $2 million.
Loss per share for <unk>, adjusted EBITDA for the quarter was $666 million or.
For our facilities ran well during the quarter with both the petroleum and fertilizer segments.
Hosting increased.
Adjusted EBITDA year over year. However, once again rising RIN prices were considerable headwinds for our results, including a 58 million noncash mark to market on our estimated outstanding RIN obligation.
In may.
Our board of directors approved a special dividend towards totaling $492 million.
Brian is comprised of a combination of cash in our interest to Delek U S Holdings.
As I have stated over the past few quarters absent any material acquisitions, we had too much cash from the balance sheet that wasn't earning a return.
When we completed the senior notes offering in January of 'twenty.
We evaluated a number of acquisitions, we were evaluating a number of acquisitions.
Opportunities at a time and elected to raise additional cash to fund a potential transaction.
Since that time the market has changed significantly.
The bid ask spread for refinery acquisition remained too wide.
The U S and Europe are now in a position of excess refining capacity and we believe more refinery closures are needed.
And we are shifting our strategy to focus on more on renewables.
As a result in accordance with the provisions of the senior notes the board elected to distribute excess cash proceeds and.
In addition to providing shareholders with nearly $5 per share of cash.
And Delek stock. This structure also allowed us to recognize a net gain of $87 million.
Debt we made.
On our Delek investment, while providing us with an efficient exit.
With the continued uncertainties around rins and small refinery exemptions the board has elected not to reinstate.
The regular dividend.
We will continue our discussions with the board around the best uses of our cash in the appropriate level of cash to return to our shareholders.
For our petroleum segment, the combined total throughput for the second quarter of 2021 was approximately 217000 barrels per day.
As compared to 156000 barrels per day in the second quarter of 2020.
Which was impacted by a planned turnaround at Coffeyville.
Both of our refineries ran well during the quarter.
And we resumed processing WCS at Coffeyville due to the weak WCS price prices in Cushing.
Benchmark cracks have sets have increased since the beginning of the year. However, elevated RIN prices continued to consume much of that increase in cracks. The group 3 the group 3211 crack averaged $19.15 per barrel in the second quarter as compared to $8.75 from the second quarter.
For a 2020.
On a 2020 RVO basis, RIN prices averaged approximately $8.15 per barrel in the second quarter for 267% increase from the second quarter of 2020.
The Brent Ti differential at average $2.91 per barrel for the second quarter as compared to 5.
$5.39 in the prior year period.
The Midland Cushing differential was 24 <unk> over <unk> in the quarter as compared to <unk> 40 per barrel over <unk> in the second quarter of 2020.
And the WCS <unk> differential was $12.84 compared to $9.45.
Same period last year.
Light product yield for the quarter was 99% on crude processed we optimize crude runs to ensure maximum capture via maximizing premium gasoline production light product yield LPG recovery and Rins generation.
In total we gathered approximately 118000 barrels a day of crude oil during the second quarter of 2021 compared to 82000.
Barrels per day in the same period last year when production levels were disrupted by low crude oil prices at the onset of the Covid pandemic.
We have seen some declines in production production across our system.
Due to limited drilling activity, although additional rigs were added in both Oklahoma and Kansas during the second quarter.
In the fertilizer segment, both plants ran well during the quarter with consolidated ammonia utilization of 98%. The rally in crop prices has driven a significant increase in prices for nitrogen fertilizer. This year and prices have remained firm through the spring planting season and into summer.
Domestic fertilizer inventories are low following the shutdown from winter storm Yuri.
Earlier, this year and deferred turnaround activity from 2020 is now taking place.
SDA estimates for corn planting and yields continues to imply a 1 of the lowest inventory carry outs in the last 10 years.
With low fertilizer inventories and continued strong demand for crop inputs to setup remains positive for fertilizer demand as well as price.
Now, let me turn the call over to Tracy discuss some additional financial highlights. Thank you, Dave and good afternoon, everyone before I get into our results I would like to highlight that during the second quarter of 2021, we revised our reporting to include adjusted EBITDA, which excludes significant noncash items not attributable to ongoing.
<unk> that we believe named here are our underlying results and trends.
For the second quarter of 2021, our consolidated net loss was $2 million loss per diluted share was <unk> <unk> and EBITDA was $102 million.
Our second quarter results include a negative mark to market impact on our estimated outstanding rent obligation of 58 million.
Unrealized derivative gain of $37 million favorable inventory valuation impact of $36 million and a mark to market gain of $21 million related to our investment in Dallas.
Excluding these items adjusted EBITDA for the quarter was $66 million.
The petroleum segment's adjusted EBITDA for the second quarter of 2021 was $18 million compared to negative $1 million in the second quarter of 2020, the year over year increase in adjusted EBITDA was driven by higher throughput volume to increase product crack offset by elevated rents prices in realized derivative losses in the second.
For 2021, our petroleum segment's reported refining margin was $6.72 per barrel, excluding favorable inventory impact of $1.81 per barrel unrealized derivative gains of $1.87 per barrel and the mark to market impact of our estimated outstanding rent obligation of $2.92 per barrel I refer.
<unk> margin would have been approximately $5.99 per barrel.
On this basis capture rate for the second quarter of 2021 was 31% compared to 75 per cent in the second quarter of 2020 rent expense, excluding mark to market impact reduced our second quarter capture rate by approximately 30%.
Derivative losses for the second quarter of 2021 total of $2 million, which includes unrealized gains of $37 million, primarily associated with crack spread derivatives in the second quarter of 2020, we had total derivative gains of $20 million, which included unrealized gains of less than half a million dollars.
In total rent expense in the second quarter of 2021 was $173 million or $8.77 per barrel of total for but compared to $16 million per $1.12 per barrel for the same period last year, an increase of over 688% our second quarter rent expenses insulated by 58 million.
From the Mark to market impact on our estimated RFS obligation, which was mark to market at an average Brent price of $1.67 at quarter end.
Our estimated RFS obligation at the end of the second quarter approximates when he was obligations for 2019 through the first half of 2021 as we continue to believe when he was obligations should be exempt under the RFS regulation, we have applications for small refinery exemptions for winning with outstanding with the EPA for 2019, and 2020 and will soon.
Submit for 2021 for the full year 2021, we forecast an obligation based on the 2020 RVO levels of approximately $255 million rents. This includes rents generated from internal blending and approximately $19 million rents we could generate from renewable diesel production later this year, but does not include the.
As expected waivers.
The petroleum segment's direct operating expenses were $4.23 per barrel in the second quarter of 2021 as compared to $5.52 per barrel in the prior year period. This decline in direct operating expenses was primarily driven by higher throughput volumes and our continued focus on controlling cost for.
For the second quarter of 2021, the fertilizer segment reported operating income of $30 million net income of 7 million or <unk> 66 per common unit and adjusted EBITDA of $51 million. This is compared to second quarter 2020, operating losses of $26 million, a net loss of $42 million or $3.68 per common unit.
And adjusted EBITDA of 39 million the year over year increase in adjusted EBITDA was primarily driven by higher U a N and ammonia sales prices the <unk>.
<unk> declared a distribution of $1.72 per common unit for the second quarter of 2021 as CVR energy owns approximately 36% of CVR partners common units, we will receive a proportionate cash distribution of approximately $7 million.
Total consolidated capital spending for the second quarter of 2021 was 83 million, which included $9 million from the petroleum segment $4 million from the fertilizer segment and $69 million on the renewable diesel unit, environmental and maintenance capital spending comprised $12 million, including $8 million in the petroleum segment and $3 million in the fertile.
Is there a segment we estimate total consolidated capital spending for 2021 to be approximately 226 to 242 million of which approximately 83 to 91 million is expected to be environmental and maintenance capital. Our consolidated capital spending plan excludes planned turnaround spending, which we estimate will be approximately $7 million for the year.
<unk> in preparation for the planned turnaround at <unk> in 2022 in Coffeyville in 2023.
Cash provided by operations for the second quarter of 2021 was $147 million and free cash flow was 54 million working capital was a source of approximately $100 million in the quarter due primarily to an increase in our estimated rins obligation, partially offset by a decrease in derivative liabilities and increased crude oil and refined products inventory value.
Subsequent.
Subsequent to quarter end, we received an income tax refund of $32 million related to the NOL carryback provision of the cares Act.
Turning to the balance sheet at June 30th we ended the quarter with approximately $519 million of cash as a reminder, the cash portion of the second quarter special dividend paid on June 10 was $242 million. Our consolidated cash balance includes $43 million in the fertilizer segment as of June 30th Excluding CVR partners, we had.
Approximately $652 million of liquidity, which was comprised of approximately $483 million of cash and availability under the ABL of approximately $6.364 million less cash included in the borrowing base of $195 million.
Looking ahead to the third quarter of 2021 for our Petroleum segment, we estimate total throughput to be approximately 190 to 210000 barrels per day.
Total direct operating expenses to range between 75 and $85 million in total capital spending to be between 18 and $24 million.
For the fertilizer segment, we estimate our third quarter 2021, ammonia utilization rates from greater than 95 per cent direct operating expenses to be approximately 38% to $43 million, excluding inventory impacts and total capital spending to be between $9 million to $12 million with that Dave I'll turn the call back to you. Thank you Tracy.
<unk> increased nearly $3 per barrel during the second quarter RIN prices increased by nearly the same amount, leaving the underlying margin available 2 refineries mostly unchanged.
Demand trends have been positive for gasoline diesel and jet fuel, however, increasing neurocrine low utilization has driven an increase productivity tours as well we continue to believe further rationalization of refining capacity both in the U S and Europe will be required to drive further inventory tightening.
And sustained rebound of credit spreads looking at current market market fundamentals adjusted for Rins cracks have been generally flat since the <unk>.
Since the spring.
RIN prices peaked in the second quarter and have declined since the favorable Supreme Court ruling however room prices remained way too high.
Gasoline and diesel demand are within a few percentage points of pre debt.
MC levels, although jet remains well below which continues to weigh on the distillate correct.
The return on international travel is key to increasing jet fuel demand and this should come along with continued growth investments vaccinations and loosening travel restrictions, although the recent uptick in Covid cases from the Delta Varian may present, a near term risk. However, we remain cautiously optimistic.
On market fundamentals that we see star.
Starting with crude oil crude oil inventory draws weak domestic production and strong exports of light crude.
All costs of the Brent Ti spread to narrow.
Sour and heavy crude spreads have improved but are still weak, especially for WCS in Canada.
We believe European refiners have come to appreciate the quality of our quality advantages the U S shale oil and our point more imports from the U S further to pressure and pressure in the Brent Ti spread.
Looking at refined products markets are all oversupplied do the high runs in the face of weak just demand despite refinery closures in the U S gas.
Global refining capacity has actually increased in 2020 and more capacity is preparing to start up in 2021 and 'twenty 2.
More closures are necessary in the U S and Europe as these new chemical integrated refineries come online.
Brent prices remained too too high.
And continue to distort the crack spread for all refiners with Costa brands cracks are weakest best considering the season taken.
Taking into account RIN costs interest on debt.
SG&A sustaining capital and turnaround cost over the cycle most refineries in the U S and Europe are not generating free cash flow at these levels.
Construction on the Wynwood renewable diesel unit has been progressing as planned we've reached a point, where we're ready to bring the hydro cracker down to complete the final steps for the conversion process.
However, renewable diesel feedstock prices have increased considerably, particularly for refined bleached and deodorize soybean oil to a level, where the economics do not make sense for us to complete the conversion at this time.
We should be ready to take the unit down to complete the conversion in the September timeframe. However, the economics must be favorable based on available feedstocks before we proceed.
As we have continually stated 1 other key benefits of our project versus our peers is our ability to run the hydrocracker at either renewable diesel service our traditional portfolio service. Our current plan is to keep the unit from traditional petroleum service for now.
As we near the completion of phase 1 of our renewable diesel strategy. We can continue to develop phase 2 which involves adding a pre treatment.
Capable capabilities for.
Our low cost and lower Ci feedstocks.
We have started the process design.
Engineering.
PTU, which will take approximately 3 months to complete.
We are also completing the process design of a potential phase III of developing a similar renewable diesel conversion projects at Coffeyville.
The recent spike in renewable diesel feedstock prices, particularly for soybean oil.
Can likely be attributed to the recent startup of 2 new renewable diesel plant for the U S is more R&D plants are constructed in the U S. We expect the feedstock market to react to increasing demand and begin pricing. According to low carbon fuel standard credit values and freight economics.
We believe our day producers with feedstock contracts explorations coming up will be forced to give up some other margin. They currently enjoy.
With the installation of a free trading unit, we should have the flexibility to run any type of feedstock that we can access and we're talking to a variety of feedstock suppliers that are in our backyard.
Looking at for third quarter of 2021 quarter to date metrics are as follows. The group 3211 cracks have averaged $18.75 per barrel with <unk>, averaging $7.77 on a 2020 RVO basis.
The Brent Ti spread has averaged $1.72, with the Midland Cushing differential at 14th under WTO and the WTS differential at 68.
Under Cushing <unk> and.
For the WCS differential at $13.4 per barrel under WTO.
Ammonia prices have increased to around $600 a ton, while UA and prices are over $300 a ton.
As of yesterday group 3 group 3211 cracks were $20.84 per barrel, Brent Ti was $1.63, and the WCS differential was $14.45 sets under WTS.
On the 2020 RVO basis rents for approximately $8.40 per barrel.
For the June the Supreme Court ruled to overturn the 10th Circuit Court ruling on small refinery exemptions related to continuity as we have previously stated the intent of Congress was that no small refinery should go bankrupt from the impact of RFS compliance in that small refineries like ours with high day.
Output remote location and lack of meaningful retail and wholesale infrastructure.
Our entitled to relief at any time.
The winner.
Refinery was originally granted small refinery exemptions for 2017 and 18 and.
And we do not see any legal reason.
<unk> 2017 exemption should not be reinstated and why it should not be granted should why we why it should not be granted exemptions for 2019, 2020.1.
Excuse me in addition to failing.
To have timely rule on the pending small refinery exemptions EPA has yet to issue the renewable volume obligation for 2021, despite being more than 9 months past their deadline.
The recent <unk> ruling by the DC circuit makes epa's decisions around the RVO that much more important given the industry's inability to meet ethanol blending mandates and.
And the pressure that puts on <unk> RIN prices.
Of course, the best short term outcome for CVI is for EPA to.
Tuition small refinery waivers for calling final qualifying for your broad reach now without reallocation.
Other our alternatives are to issue a nationwide waiver substantially reduced the RVO.
Or cap this day.
<unk> RIN prices in place emphasis on D for reserves.
I think the best long term solution for.
For all stakeholders.
2 decoupled these fixes rens from D Force.
EPA should act now to reduce the ethanol mandate.
Increase the renewable diesel and biodiesel mandate.
Should also implemented 95 octane standard for all new ice engines internal combustion engines.
And should harden all ice and.
Internal combustion engines vehicles for E 30 or higher.
These actions will not only advance the reduction of carbon emissions now, but would also ensure the viability of liquid fuels in the future.
With that we're ready for questions.
Thank you if you'd like to ask a question. Please press star 1 on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
You May press star 2 if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up for handset. Please for questions Darkies.
Our first question comes from the line of Manav Gupta with Credit Suisse. Please proceed with your question.
Hey, guys I appreciate the comments on the renewable diesel side I understand that our RGB costs have been moving up pretty significantly I'm, just trying to understand like what would be a good breakeven until the hypothetical question is lets say you did have a pre treat and you could use the C DSO soybean oil.
Would that be enough for you to Don on the machine or you still need a feedstock prices to be for.
<unk> <unk> for any signs discount for <unk> DSO is trading today to be more on economic low side. If you could help us understand what kind of magnitude would bring you in debt, bringing versus a breakeven alright.
Sure. The biggest problem right now is the basis of bean oil.
And frankly, all other oils.
So you will be able to get the.
Refined bleached and Deodorize the bean oil.
We're paying another 28 cents per pound roughly.
To get it delivered and that that right. There is is really the problem of course, but if you had a free trade or you could buy untreated beans. The problem with that is is that all have been producers recognize that 28% advantage there and they are really not offering a lot of that debt.
Debt untreated being oil.
Yeah.
To the marketplace, because they can make more money by by refining.
I think what's really happening is that you are seeing all these all these feedstocks go up in value, they're all approaching the basically the raw bean oil price.
And.
The only thing that differentiates amidst the CR.
And that's when I say that.
We believe these things are going to all trade on their Ci ultimately in the producers of the feedstock are going to want to share in that.
Debt.
Low carbon fuel standard somehow through the Ci.
Well, yeah, that's standing in for me, Dave I had no idea debt holdings for your debt.
So and forcing people to buy IBD Oh, there's almost always wondering why there's such a big discount between the 2 so you've obviously P. DSO is not available then.
That's cleaned prices don't matter my quick follow up here is Dave you highlighted a number of possible fixes solutions to the RFS and in your mind, where you are what the most likely outcome with highest probability right now.
Is it <unk> is the saudis without reallocation like how confident are you debt do you will get that many would we were clearly the Supreme Court ruling is in your favor you should get it so like where you are sitting.
I understand the best guess outlook would be get rid all thought of you and stuff, but like what's the most realistic probability weighted thing you're looking at which would help you out.
Well I think there.
There are some easy streets, the EPA can take here and frankly, I don't know that the CPA I think it's really politics at this point and this is the problem with this regulation, it's easily manipulated by the politicians and as evidenced by our last 3 administrations administered.
So we're I think what we hear is that EPA and staffers are waiting for the politics to be decided before theyre going to take a course of action.
And it's been delayed again here we are in July.
August now.
And we don't have an RVO for 'twenty 1.
'twenty, 1 is almost half or more than half over.
And the due date is still officially March 31.2022.
The normal process for EPA has to have 16 months between from the declare the.
The army.
Your actual cashing in or having the retro the ribs.
So we're way off flat.
From a track here.
I think they've got the Supreme Court ruling gave them some cover.
With the with the other side I'll call it the core and lobbies in the <unk>.
RFS RFA groups.
To use the small refinery as a way to rebuild the bank.
The fact of the matter is we spent a year here not generating near enough rins as an industry to even supply the RVO that was a carryover.
From 2000.
2020.
2020 briefly RVO was way too high.
They have to do something to rebuild the bank somehow some way and I think for staffers no less.
Just what are the politics around it.
As I <unk> really for ways to deal with it.
1 day issue small refiners do it.
Without reallocation to us to do a general waiver, which they can do to all states, which is in the in the law.
And 3 is to decouple day.
<unk> from D for somehow.
Mandate of of over 10% on ethanol just does not work you have to dig into the day for us to meet the day 6 requirement.
That drives day 6 is up.
No.
Think the ultimate best solution them for for them to really decoupled the sixes from D Force Mike.
<unk> for is very low.
And will reduce the mandate on it, though we will do that or or to just capital somehow.
All of those will solve this problem and frankly, the emphasis of EPA should beyond D Force and day Threes, which really gives you the big Bang for the book on reducing carbon in fuels.
So I don't know what how it's so hard on that.
That last 1 really.
<unk>, everybody, including the corn lobby and the.
Our renewable fuels associations.
No. That's fair. Thank you. So so much information David Thank you so much.
Okay.
Thank you. Our next question comes from the line of Paul Cheng with Scotiabank. Please proceed with your question.
Hey, guys good afternoon.
Hey.
When you're talking about the wind market at all obviously debt 1 possibilities.
Looking to expand into maybe the brand wholesale market.
1 P just that long for a deal.
That's a debt part off.
Advantages that allowed them debt to canyons at that fits us and the price doesn't it seems to me that the expenses have you guys looked into what that option or that you don't think that that's fitting into your.
Paul we've been trying to do that for 3 years and debt.
To get any scale and it is difficult.
We really were looking at it from an acquisition standpoint is a key part of our acquisition strategies.
We bid ask was too wide, we could never ever get a deal done.
So we've kind of backed off that we are maximizing our internal generation is all we can.
There are talk of Magellan actually.
Revamping their system to allow for 5%.
Biodiesel blending.
And there and base diesel which would help us tremendously.
Other than that we just maximize rec sales.
All we can.
And.
And that's about <unk>.
About all we can do at this point.
And John.
I mean, Dave John I understand you have and you're trying to get into.
Retail.
Marketing home retail station Thats extremely expensive.
Wholesale marketing.
Brian I'll, let Bert jump on that 1.
It means that based on debt you announced this morning doesn't it seems to be that expensive.
I mean that they are of course that they are buying a bunch of things.
Collectively it doesn't it seems to be that expenses. So yeah, I do because I think that at 1 point you guys actively looking for and where you're finding and then you say, okay, you're no longer looking at refining, but where you can see the day that it's a combination of finding but also with the.
Chop on that quite well with that that's not really something that you wanted to you just wanted to get you from newco going into an M&A interest.
Going into a job for them that way.
And that's associated with finding.
Well, Paul we've looked at it.
In our current markets zone.
Yes.
If we if we tried to go into retail we're competing against are very customers, we sell to the number 1 a large volume of but too.
Looked at is just the wholesale model and the margins on that are our 1 to 3 <unk>.
Typical and you've got to have a pretty good size.
Ability to who.
2 to term up some of these stations, which means you have to have a brand for some sort generally.
Again, we're competing with are very customers, we sell to a large extent, which does present some some interest in issues, but we just haven't been able to make a deal happen. We've looked at several small wholesale people that.
That we've gotten close on but.
And the final analysis, we did we were unable to close the deals.
We'll keep looking but I can't I can't it's not as easy as it sounds as if you don't have a brand.
Mhm understand.
You think that you stopped processing some WCS at Costco for you how much do you plan to process.
The third quarter.
We don't typically guide on that.
We'll tell you it's in our slate, but we're not going to say how much free run.
Okay.
And Ken I mean, you're saying that you have.
To date, our economics are that some.
Hi, Ian in value.
You too.
And then on the renewable diesel pain, even though you are ready.
So that's for argument's sake, I'm, just trying to understand that one's debt that can come on stream. How your pulp for 30 day campaign to your P. S such as for that but it seems that they actually report and break it into a separate segment.
So if you have your.
The oil Pan is actually up and 1 thing and you have a P treatment unit.
And 1 for the entire second quarter, what would be your unique EBIT Paul.
Paul the light off that all plays out.
And the number.
And any insight you can say.
So that will have a little bit better understand what's at stake economic off your let's say T at all.
Well I think right now I'm, telling you the margins are negative.
That's why we're not we're not doing the conversion right now.
And what part of that is an overheated bean market I think it just has to rebalance. It takes couple of quarters for that to occur.
But I'll also tell you that all of these feedstocks even the.
Used cooking oil and all the way through tallo through yellow Grease White whiten <unk> are all up substantially almost double.
Yeah.
Following beans, just like they are.
The other day you know the.
The other issue is that.
Just look at the availability of the of the advantage Ci feedstocks.
You add them all up the total availability in the United States, it's half what the bean oil volume is there.
There just aren't very many of them. That's net includes corn oil that's tallo, that's that's a yellow grease white grease, they're they're just not that many of them.
Yes.
What I'm, saying is that the debt.
Ultimately this low carbon fuel standards going to price into those and the sellers of them are going to understand the value of them and they're going to extract some other value.
So the Valero is that.
They have a long runway of our feedstock I'm, telling you we're going after them.
We're going to we're going to look at those that are in our backyard and we're going to look at how we can go to get away from.
And based on what you just described you're still going to go ahead with the P.
Hey, Timna unit and also with the phase 3 expansion or debt to the appeal in a another 1 day parcel for you so you're still the plan or that you're going to take a pause.
Well I think we're going to take a.
We're going to do at least the initial engineering on the Coffeyville conversion, but we're not going to sanction the project yet until we see how these feedstocks sort out.
And get ourselves in a position to tackle those.
1 we've built already.
Oh, probably 10 million unit.
Well, we'll do a pre treater, however for the the winning would unit.
So anyway that you would go ahead, but you're not going to size. It so debt anyway, it would be sized for both windows and the cost of P. You.
Can you just from the slides here for Windows.
That's right.
And how much is that going to P. There's just fight to win the work.
Were predicting somewhere between 50 and $60 million.
And for that you're not going to you're not going to pass on that you've gone to move ahead as planned on deadline.
Yeah, We're we have board approval to.
So basically do the engineering and also by long lead equipment.
So that and then went.
I'm sorry.
That's moving ahead.
Okay, and when debt you'd think that that'd be trimmed non unit.
Indeed when you.
Expect that to come on stream.
Well the best dates we've heard all where we don't have the full scope done yet.
12 months and but we've advertised 60.16 to 18 months is what it will take to complete it.
They arent, particularly though it should be somewhere between 12 months 16 months I would say.
So are we talking about sometime in the second half of 2012.
'twenty 2.
Probably third quarter. This is safe bet.
Okay.
Thank you.
Hmm.
Thank you our next.
Next question comes from the line of Phil Gresh with J P. Morgan. Please proceed with your question.
Hey, Good afternoon day, it's always appreciate you being a straight shooter.
Thank you.
Wow I guess.
And then on all of this is.
If everybody is doing a pretreatment unit.
How does that end up being the same where when it gets to be startup time economics turned negative for something special.
About putting in a pretreatment unit debt well inherently make it more profitable.
Well the pre treater and allows you to to to do your pre treatment yourself I remember I said it was about 28 cents per pound basis Bill.
Built into soybean oil right now and frankly, it's in corn oil maybe to a little less degree, but pretty similar. So that's what you are attacking youre going to get some of that basis out assuming the bean oil producers will make available untreated b beano.
Which is an assumption that we're not sure of at this point.
If I was them I would make I would make refined.
Bleached the authorized all day long because the basis is 28 day pick up and it probably cost about <unk> <unk> to treat it.
So there the crush plants are making a fortune on it right now.
And I.
I think the bean oil market has got a rebalance.
You know beans are kind of critical here because they are the most available feedstock.
The biggest production.
And that may not be true worldwide, but it certainly is in the United States.
With our access to the to mainly to the mid con and not a not to the Gulf Coast West Coast or East coast.
We have a lot of feed lots of all of US we have a lot of rendering plants. We have we have a lot of ethanol plants not far from us. So you know we're going to be working on those feeds that.
Our in our backyard.
Right.
And I guess outside of the bean oil and just the feedstock P. I.
Adjusted guarantee that you're talking about.
Yeah, I guess it is that something that you would envision.
Even if its authority that the debt.
Positive EBITDA of over 8.
Okay.
The feedstock side like what we're seeing right now on being oil.
Well, it's kind of hard to say.
<unk>.
Where we're designing day run anything.
And obviously the more the advantaged feedstocks lower Ci you get the more profitability you have with the existing low carbon fuel standard.
Prices in California.
I do feel those are a little bit at risk also as more and more of these come on because we need that market to expand.
And that will all of those will enter in our decisions to do anymore renewable diesel in the future but.
But you know.
The market is is pretty you know theres, a lot of announced capacity coming on.
Lot of it doesn't have secured feedstock I'm pretty sure and we're all going to be facing the same same issues on the CDI and the <unk>.
Absolutely price.
Right.
Okay, Alright, thank you I'll turn it over.
Thank you.
Okay.
Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question queue. Please press star 1 on your telephone keypad.
Our next question comes from line of Neil Mehta.
Goldman Sachs. Please proceed with your question.
Hi, Good afternoon. This is carly on for Neil Thanks for taking the questions and the prepared remarks, you ran through the <unk> Brent Ti averages, thus far and things are still looking pretty tight there can you just talk about your views on how Brent Ti evolves in the back half of the year and then into 2022.
Sure I think it all depends on the price of crude and Furthermore, the.
New found.
Investment discipline that the E&P seemed to have.
<unk> incorporated into their business model.
Keep thinking at $70 oil, they're going to throw that out and say, let's drill but it hasn't happened yet.
And.
I think the Brent Ti really depends on they are becoming more and more crude coming out of the shale oils.
To force.
For the spread to increase to increase exports.
So I imagine it's going to stay on this $2 to $3 range, maybe book 50 to $3 range for.
For some time and it has had some volatility to it but I do strongly believe that the Europeans are figure it out with shell oil is and how to run it very effectively to not make any fuel oil.
And they're doing that in there and theyre exporting of crude for the or the products right back to United States.
Great. Thanks for the color there and then I guess just with the special dividend now completed can you kind of walk us through the framework around capital allocation and we know you're focused on building out the renewable side of the business, but can you talk about path for any incremental capital returns our balance sheet uses.
Sure I think.
Or are you know our model is really free cash flow returned to shareholders.
We're trying hard to generate free cash flow, except for the investments, we're making in renewable diesel, which we think is the new strategic direction of the company.
And really a.
For refining is probably may.
It may have peaked I don't know, but it sure feels that way if you need to do to trim a few more refineries here in a few more in Europe.
And these these monsters that are being built in Asia with the fully integrated with chemicals.
You know the non COVID-19.
Non competitive refineries need to frankly go away.
And our.
I think that's our ultimate solution to this.
The situation is there ex ribs.
It runs uncertainty just drives more momentum in the other direction too so.
So no I don't.
I don't think our capital allocation has changed its our model is returned to shareholders as much as possible whenever possible as evidenced by our <unk>.
22% yield on yesterday's stock price.
From the special dividend, we just did.
The business is by no means at all.
And as I've mentioned that.
And a large free cash flow generation with the RIN price.
But it.
It has the potential to be back there very soon if the EPA does the right thing.
Great. Thanks for the time.
Youre welcome.
Thank you and ladies and gentlemen that concludes our question and answer session I'll turn the floor back to management for any final comments.
Again I'd like to thank you for your interest in CVR energy. Additionally, we'd like to thank our employees for their hard work and commitment towards safe reliable.
Environmentally responsible operations.
We look forward to reviewing our third quarter results. During the next earnings call. Thank you have a great day.
Yeah.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.