Q3 2021 CVR Energy Inc Earnings Call
Okay.
Greetings and welcome to CVR energy incorporated third quarter 2021 conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to Richard Roberts Director of S. P. A day in Investor Relations. Thank you you may begin.
Thank you Carrie.
Afternoon, everyone very much appreciate you joining us this afternoon for our CVR energy third quarter 2021 earnings call with me today are Dave lamp, our Chief Executive Officer, Dan Newman, Our Chief Financial Officer, and other members of management.
When discussing our 2021 third quarter results.
Mind, you that this conference call may contain forward looking statements as that term is defined under federal securities laws.
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 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 boardroom 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 one for 10 reverse split of its common unit on November 23, 2020, and a per unit references made on this call are on a split adjusted basis.
This call also includes various non-GAAP financial measures the disclosures related to such non-GAAP financial measures, including reconciliation to the most directly directly comparable GAAP financial measures are included in our 2021 third quarter earnings release that we filed with the SEC and Form 10-Q for the period and will be discussed during the call.
I will turn the call over to Dave.
Thank you Richard Good afternoon, everyone and thank you for joining our earnings call.
Before I get into our results I wanted to make a few comments comments about some exciting developments.
While we believe fossil fuels will certainly be necessary for many years to come we recognize that renewable fuels are an important part of the future.
For this reason, we began exploring utilizing excess hydrogen capacity at our refineries for renewable diesel production nearly two years ago and have invested nearly $150 million.
On those initiatives.
We believe we are uniquely positioned given our transportation and logistical connection to the farm belt and we intend to be in the forefront of this green Revolution. We have made progress on several fronts since our last call and are accelerating our efforts with our boards recent approval of the feed pre treater at when he was at an estimated cost of <unk>.
<unk> million dollars.
I'll provide more details later on the call yesterday, we reported third quarter consolidated net income of $106 million and earnings per share of <unk> 83.
EBITDA for the quarter was $243 million, our facilities ran well during the quarter.
And.
<unk> strength in prices for refined products and nitrogen fertilizer led to both segments. Once again posting increases in EBITDA year over year.
For our petroleum segment, the combined total throughput for the third quarter of 'twenty. One was approximately 211000 barrels per day as compared to 201000 barrels per day in the third quarter of 2020, which was impacted by some weather related power outages, both refineries ran well during the quarter and we continued to process.
WCS at our Coffeyville refinery due to weak WCS prices in cushion bench.
Benchmark cracks increased through the quarter, despite elevated RIN prices.
The group 3211 crack averaged $20 50 per barrel in the third quarter as compared to $8 34.
In the third quarter of 'twenty.
Based on the 2020 RVO levels RIN prices averaged approximately $7 31.
Per barrel in the third quarter, an increase of 177% from the third quarter of 2020.
The Brent Ti differential averaged $2 71 per barrel in the third quarter compared to $2 71 to $2 42 in the prior peer period.
Light product yield for the yield for the quarter was 100% on crude oil processed we continued to optimize refinery operations to ensure maximum capture via maximizing production of distillate and higher margin products LPG recovery and rens generation.
In total we gathered approximately 112000 barrels per day of crude oil during the third quarter of <unk> 21, compared to 124000 barrels per day in the same period last year.
We continued to see some declines in production across our system due to limited drilling activity. Although our gathering rates have stayed ahead of overall decline rates across the <unk> basin.
Some rigs were added in both Oklahoma and Kansas over the past few months, but drilling activity has been slower to increase then we would have expected.
In the fertilizer segment, both plants ran well during the quarter with a consolidated ammonia utilization of 94% the rally in fertilizer prices that began earlier. This year continued through the third quarter with prices breaking normal seasonal patterns and continue to rise through the summer.
With low fertilizer inventories and continued strong demand for crop inputs the outlook remains positive for our fertilizer segment.
Now, let me turn the call over to David to discuss some of our financial highlights. Thank.
Thank you, Dave and good afternoon, everyone.
For the third quarter of 2021, our consolidated net income was 106 million earnings per share was <unk> 83.
And EBITDA was $243 million or.
Our third quarter results included a positive mark to market impact on our estimated outstanding rent obligation of $115 million unrealized.
Unrealized derivative gains of $22 million and favorable inventory valuation impact of $8 million as.
As a reminder, our estimated outstanding rent obligation is based on the 2020 RVO levels and excludes the impact of any waivers or exemptions.
Excluding the above mentioned items adjusted EBITDA for the quarter was $99 million.
The petroleum segment's adjusted EBITDA for the third quarter of 2021 was $43 million compared to breakeven adjusted EBITDA for the third quarter of 2020.
The year over year increase in adjusted EBITDA was driven by higher throughput volumes and increased product cracks offset by elevated RIN prices in realized derivative losses.
In the third quarter of 2021, our petroleum segment's reported refining margin was $15 three per barrel.
Excluding favorable inventory impacts of <unk> 41 per barrel unrealized derivative gains of $1 17 per barrel at the mark to market impact of our estimated outstanding rent obligations of $5 94 per barrel.
Our refining margin would've been approximately $7 51 per barrel.
On this basis capture rate for the third quarter of 2021 was 37% compared to 55% in the third quarter of 2020.
<unk> expense, excluding mark to market impacts reduced our third quarter capture rate by approximately 26% compared to 22% reduction in the prior period.
In total <unk> expense in the third quarter of 2021 was a benefit of $16 million or <unk> 81 per barrel of total throughput compared to $36 million or $1 96 per barrel of expense for the same period last year.
Our third quarter Rins expense was reduced by $115 million from the Mark to market impact on our estimated RFS obligation, which was mark to market at an average Brent price of $1 31 at quarter end compared to $1 67 at the end of the second quarter.
Third quarter Rins expense, excluding mark to market impacts was $99 million compared to $35 million in the prior year period.
Our estimated RFS obligation at the end of the third quarter approximates when he was obligations for 2019 through the first nine months of 2021 as we continue to believe when he was obligation should be exempt under the RFS regulation.
For the full year of 2021, we foresee we forecasted obligation based on 2020 RVO levels of approximately $270 million range, which does not include the impact of any waivers or exemptions.
Derivative losses for the third quarter of 2021 totaled $12 million, which includes unrealized gains of 22 million primarily associated with crack spread derivatives.
In the third quarter of 2020, we had total derivative gains of $5 million, which included unrealized gains of $1 million.
As of September 30, we have closed all of our outstanding crack spread derivative positions.
The petroleum segment's direct operating expenses were $4 52 per barrel in the third quarter of 2021 as compared to $4 17 per barrel in the prior year period.
The increase in direct operating expenses was driven primarily by a combination of higher natural gas costs and higher stock based compensation due to the increase in share price.
For the third quarter of 2021, the fertilizer segment reported operating income of $46 million net income of 35 million or $3 28 per common unit and EBITDA of $64 million.
This is compared to third quarter of 2020 operating losses of $3 million.
Net loss of $19 million.
Our $1 70 per common unit and EBITDA of $15 million.
There were no adjustments to EBITDA in either period.
The year over year increase in EBITDA was primarily driven by higher <unk> and ammonia sales prices.
<unk> declared a distribution of $2 93 per common unit for the third quarter of 2021.
As CVR energy owns approximately 36% of CVR partners common units, we will receive a proportionate cash distribution of approximately $11 million.
Total capital spending for the third quarter of 2021 was 38 million, which included $12 million from the petroleum segment $7 million from the fertilizer segment and $19 million on the renewable diesel unit.
Environmental and maintenance capital spending comprised $15 million.
Including $12 million in the petroleum segment and $3 million in the fertilizer segment.
We estimate total consolidated capital spending for 2021 to be approximately $280 million to $223 million.
Of which approximately 66% to 73 million is expected to be environmental and maintenance capital.
Our consolidated capital spending plan excludes planned turnaround spending, which we estimate will be approximately $4 million for the year in preparation for the planned turnarounds at when you look in 2022 and Coffeyville in 2023.
Cash provided by operations for the third quarter of 2021 with home $139 million and free cash flow was $76 million.
During the quarter, we paid cash taxes of $67 million, which was partially offset by the receipt of a $32 million income tax refund related to the NOL carry back provisions of the cares Act.
Other material cash uses in the quarter included $31 million for interest $15 million for the partial redemption of CVR partners 2023, senior notes and $11 million for the Noncontrolling interest portion of the CVR partners second quarter distribution.
Turning to the balance sheet at September 30, we ended the quarter with approximately $566 million of cash are.
Our consolidated cash balance includes $101 million in the fertilizer segment.
As of September 30, excluding CVR partners, we had approximately $680 million of liquidity liquidity, which was primarily comprised of approximately $469 million of cash and availability under the ABL of approximately $370 million.
Less cash included in the borrowing base of $160 million.
Looking at the fourth quarter of 2021 for our Petroleum segment, we estimate total throughput to be approximately 210 to 230000 barrels per day.
We expect total direct operating expenses to range between 90 and $100 million.
And total capital spending to be between 26% and $30 million.
For the fertilizer segment, we estimate our fourth quarter 2021, ammonia utilization rate to be between 90% to 95%.
Direct operating expenses to be approximately $45 million to $50 million.
Including inventory and turnaround impacts and total capital spending to be between 9% and $12 million.
With that Dave I'll turn it back over to you. Thank.
Thank you, Dan and summary refinery market fundamentals have steadily improved so the summer and the cracks responded accordingly.
We also saw some relief for the out of control.
Prices for Rins, although prices have risen as the market has continues to wait for EPA to act on settling land or revising <unk> for 2021 and 'twenty, two as well as issuing small refinery exemptions.
Looking at the current market remained cautiously optimistic based on the fundamentals we see.
Starting with crude oil OPEC is clearly in the driver seat from a crude price standpoint inventories have dropped in the U S and across the world and backwardation is firmly in place around $12 a barrel over the next year.
We expect to see shale oil production improving at $80 crude additional Canadian production has been slow to develop despite additional takeaway capacity.
Recently, we have seen a tightening of the Brent Ti spread as Cushing inventories decline due to shale oil production declines in the Bakken DJ basin in the Anadarko Basin.
We continue to believe the resumption of shale oil production growth will be key to a sustained widening the Brent Ti differential.
Moving to refined products demand has largely returned to pre COVID-19 levels, including demand for jet fuel, which has improved significantly over the past month.
Refined product inventories are generally near five year below five year averages partially due to some of the downtime on the Gulf Coast from Hurricane Ita <unk>.
Imports of gasoline and diesel remained high and gas gasoline exports are back above pre COVID-19 levels, although distillate exports remained low.
Looking at crack spreads distillate cracks are finally coming back and.
And the forward curve is in contango, despite backwardation of crude oil.
The question now is whether the benefits of IL 2020 will come back into play.
And that ultimately depends on the shipping which has been depressed.
One area of our business that generally does not get much attention, but is experiencing a significant improvement as our fertilizer business fertilizer market.
This year has seen a combination of supply and demand impacts that have had a tremendous effect on pricing on.
On the demand side of the equation low inventories for corn and soybeans have push grain prices higher this year and increased demand for crop inputs.
Meanwhile, domestic production of fertilizer has been lower than normal due to plant shutdowns during winter storm Yuri.
Heightening turnaround activity in the summer and additional facility shutdowns during the hurricane either.
Meanwhile, the energy Crunch in Asia, and Europe have caused fertilizer facilities to shut in further reducing available supplies across the globe. As a result, we saw our third quarter sales price for ammonia and <unk> more than doubled from a year ago levels and the prices have continued to increase through the fall.
At this point, we think customers are not so concerned not so much worried about pricing as they are about actually being able to get supply.
The outlook for the nitrogen fertilizer market is very positive through the next year and we're happy to have our 36% ownership in CVR partners common units.
Turning back to renewables as I mentioned earlier, we believe the location of our refineries and fertilizer facilities provide us with a unique benefits.
And we've made progress on several fronts since our last call first we are ready to complete the final steps of the conversion of the Wynwood hydrocracker to renewable diesel service.
Given the weakness in soybean.
Oil based renewable diesel margins over the summer we elected to keep the unit and traditional petroleum service as refinery margins had been.
Have been considerably higher with the recent increase in crude oil and diesel prices. The hobo spread has improved and the basis for our refining refined bleached and deodorize soybean oil and corn oil has subsided.
Our current plan is to move the plan to move the planned turnaround at when he would to the spring of next year during which we will finish the hydrocracker conversion.
With completion and startup of the renewable diesel unit expected in mid April.
Second we are progressing the development of a pre treater unit when he would that should allow us to run a wider variety of lower carbon intensity feedstocks that should generate additional low carbon fuel standard credits.
Long lead equipment for this pre treater unit is on order and it.
And it is critical path for the project to be completed.
The board has approved the project and we're currently estimating completion late in the fourth quarter of 'twenty two at a capital investment of approximately $60 million.
Third on the Coffeyville project schedule, a engineering is in process.
Further renewable diesel conversion with <unk>.
Andrew expected annual capacity of approximately 150 million gallons of renewable fuel per year with an option of up to 25 million gallons of that amount to be sustainable aviation fuels should regulations supported.
And fourth our fertilizer business is progressing its efforts towards monetizing 45, Q tax credits for carbon capture and sequestration through enhanced oil recovery activities that are already taking place that its coffeyville facility.
It also continues to explore the production of <unk>.
<unk> certified blue at both of its facilities.
In conjunction with all of this we are currently evaluating breaking out the renewable business as a separate entity.
This could potentially provide us with more opportunity to access a greater pool of investors and financing or potentially position us to take advantage of changes in law that benefits renewable.
Although we are still in the early innings of developing our renewable diesel business. We are taking a long term view and want to prepare for the future as we look to scale up the business with the potential production.
Renewable diesel at both refineries sustainable aviation production at Coffeyville carbon capture opportunities in other potentials for blue hydrogen production. We believe we have a fairly long runway for developing an impactful impactful business in the green energy space.
Our goal is to Decarbonize, our refining business by growing our renewables business, while supplying our customers with competitive fuels they need.
Looking at the fourth quarter.
2021 quarter to date metrics are as follows group 3211 cracks have averaged $19 24.
With <unk>, averaging $6 77.
2020 RVO basis.
The Brent Ti spread has averaged $2 52 with the Midland Cushing differential at 31 over <unk> and.
And the WTS differential at 19 per barrel over Cushing WTS and the WCS differential of $13 56 per barrel under WTO.
Forward ammonia prices have increased to over $1000 per tonne, while UN UA and prices are over $500 a ton.
As of yesterday group 3211 cracks were $15 65 per barrel the Brent Ti was.
60, <unk> 66 per barrel.
And the WCS was $15 <unk> under WTO.
On a 2020 RVO basis, <unk> were approximately $6 26 per barrel.
As I mentioned earlier, we saw some brief relief in RIN prices in September when rumors circulated about a potential reduction in the 2020 RVO in 2021, RVO that would be set below the original 2020 level.
The net effect of these actions if taken would decouple <unk> rens and immediately rebuild the RIN bank, which has been severely depleted.
We believe resetting the RVO a more realistic level. The RVO is it more realistically levels realistic levels. The deemphasizing <unk> six in favor of D Force, which actually goes much further to reducing carbon emissions is an appropriate step to make.
We also continue to believe that small refineries that faced disproportionate economic harm and complying with RFS are entitled to relief through small refinery exemptions.
We have submitted applications for <unk> for 2019, 2020, and 2021 and see no reason.
EPA should not grant those exemptions as they have in the past years.
With that operator, we're ready for questions.
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Our first question is from Carly Davenport with Goldman Sachs. Please proceed.
Hi, good afternoon, thanks for taking the questions.
The first one was just on the pretreatment unit congrats on the progress there can you talk about the scope of what was approved with the $60 million of capital does that cover 100% of the expected production at the unit and are there any early thoughts you can provide around feedstocks or Sci range that you're targeting for the unit.
Sure are correlated.
The units designed to match the capacity of the renewable diesel unit.
Which is about 7300 barrels a day.
That's about the little bit little under 100 million gallons a year of renewable diesel.
And it's designed to handle any type of feedstock that we can throw at it.
With some limitations not many but some.
What we're targeting right now is when we start the unit up in April will be running.
Fine.
To horizon, and bleached soybean oil plus treated corn oil that that's out in the market today that debt.
Is suitable for the for processing without pre treaty.
Once the units up we'll be we'll have a steady diet of soybean oil I'm sure.
Preferably raw and some raw corn oil with it as well as some of these treated material. But then we'll also look in our backyards for those those are waste oils that.
Makes sense.
And we have a long long runway to look on that whether it's so yellow grease white grease.
More tallow because theres many many of those type of AG operations right in our backyard.
We don't know exactly what the Ci will be but you can you can call we'd be looking to reduce it.
As we move forward.
Great. Thank you and then the second one is just around 2022 Capex. If you have any early thoughts there as we think about the turnaround activity that scheduled for next year as well as kind of pacing the pre treat or spend that seamless through 'twenty two.
We usually don't release that until the fourth quarter earnings call.
And we will defer to that timing to to to single that to the market.
Great. Thanks for taking the questions.
Our next question is from Phil Gresh with Jpmorgan. Please proceed.
Hey, good afternoon, Dave.
Yeah.
My first question I, just wanted to get your thoughts on.
A question, maybe beginning a lot about the Brent <unk> spread how its been tighter recently you made some comments about needing to see U S. Crude production picked back up I'm wondering how long do you think the duration of this kind of tightness might last and I think a lot of people are wondering is there a scenario where Brent could go above <unk>.
And I think you'd be pretty well positioned to provide your thoughts on that.
Sure I mean, as I mentioned in the prepared remarks I think.
Recovery of shale oil drilling in.
And production is as vital to that to that spread returning to reasonable levels.
As I mentioned on the profit number it's down below $1 right now and Cushing is still losing inventory.
If you look at the production of shale oil right now the only region thats really showing any kind of growth at all as Permian.
And that's directly tied to the golf and done generally tends to move barrels that way.
I do think the Permian is going to have to come to the Cushing Cushing and to keep it wet.
Assuming that production doesn't pick up in these other basins.
I don't under a completely understand the other than it's.
The current.
Feeling in the oil patch is is that this capital returns.
That shareholders are looking for but that's.
Obviously, there is a long runway of a very good wells and all of these locations that aren't being produced right now.
Fact, most of most of whats happening right now is just ducks are being harvested.
I.
I don't know that I see that trend changing until the world sees higher oil prices just.
Two to four people back to the to the market to see the see this growing.
That said I.
I don't think that there is any danger of Cushing running out there is plenty of oil there and exports will have to shut back a bit and that just means a tighter Brent ti spread.
Right. So you don't see Ti necessarily going.
Brent it's just we need to disincentivize the exports with the tightening that great that's exactly right.
Alright.
Okay.
<unk>.
Second question I guess, just on the results themselves I know there were a lot of moving pieces to the realized margin in refining.
Various adjustments and things one timers, but.
It did seem like the results on the gross margin.
A little bit light, even with those adjustments versus.
Maybe what I would have expected or is it appears we're putting up in their mid con.
Results was there anything in particular that you would highlight in the quarter or is it just.
Tight spreads and things like that do you think affected the result.
Well, we did have some derivative losses that I think contributed to the to what you're seeing is probably a little under $2 margin that came off from some crack spreads we did last year trying to protect against a reemergence of COVID-19.
But that really is the only special item in there if you put that two bucks back in there around nine nine bucks on an adjusted basis and Thats I think thats pretty close to what most people are going to achieve.
Great. Okay. Thanks, a lot.
Youre welcome.
Our next question is from Chris Schott with Citigroup. Please proceed.
Good afternoon, thanks for taking the question.
I wanted to circle up a follow up on <unk>.
The updates there on the conversion.
First on the feedstock.
I wanted to know we've seen a lot of announcements.
Coming out on Jv's.
Private partnerships with publicly traded entities.
Doing more of those and given that you are progressing and seem to be.
More confident on bringing that forward.
Just give us a little bit of comment on on where you are in terms of talking to the partners.
Partners, where those discussions are in terms of locking down a fixed source of feedstock for spying on the.
On the spot market.
A follow up on margin, but I'll leave it there for the first question.
Sure.
Got it.
We are looking at backward integrating and from a standpoint of soybean oil, we still think that soybean oil will be.
Important part of the mix just because of its abundant.
The basis on soybean oil has come in a lot compared to where it was when we were originally ready to make the conversion it was trading upwards of 30.
A pound it's now back in that 15 cents a pound range.
Not that in combination with the hobo spread improvement has brought the even without a pre treater.
Back to positive numbers on renewable diesel they are not very strong, but there is still positive.
And really dependent on low carbon fuel standard credits do and resins due and.
I think the blenders tax credit is fairly assured for at least the next year.
So I think we're going to we're going to look at more at backward integrating theirs.
Many cases out there for.
New crushers that need to be built in.
We think our location is a pretty good one for that and.
We will look for a call on the oil to take a position in those those projects.
And there.
There are some other alternatives out there that are also being looked at from a canola oils to endpoint and others.
Most people the canola oil for canola seed really produces about 40% of oil compared to soybeans only producing 20%.
So theres a lot of a lot of options coming on the table to secure that base supply for not only the winwood project, but even the Coffeyville project longer term.
David just a quick follow up before I ask about the margin is there would you be willing to put capital into this into some sort of a JV structure or something that.
You put a capital investment in order to secure the feedstock there.
Or is this just a.
On the off take contract that would renew.
That seems to be something that is getting more favored as we see these MLB using these releases and the panel and the headlines so.
Given all that you've got going on I'm, just wondering if there is room within the capital framework to think about that.
Yeah, I think thats on the table.
These these crushers looked like they're reasonable projects to us.
For our call on the oil I mean frac.
Frankly, one of the problems with the the whole waste market for these oils is it's a very thinly traded market and it just has no has no liquidity to it.
More and more refiners get into this business.
Think creating the options around that and be able to trade that back and forth between partners.
And our competitors is going to be important to have and the more we can do of that the better and getting the base supply of oil off of crusher is key to making that happen.
Okay.
So.
Last question is just on the margins there is a bit bigger picture.
A couple of things combined tier one.
Hobo spread looks better but as you pointed out part of that is also because we are getting this rally in oil price and diesel crack.
There will do you expect and I think all of US expect that there will be a supply response and we should see curve is telling us oil is going to come back down there should be some normalization on that side at the same time.
Theres more R&D or bvd supply.
Potentially have supply coming on stream, so all else equal that should be negative or a headwind for the hobo spread as we look out maybe past 'twenty into the back half of 'twenty carry past 'twenty. Two so when I think about sort of three cycle for <unk> and potentially for coffee Coffeyville here.
Q2 part of question within that first.
Breaking it out in a separate segment I mean, I know there is optionality that you can flip back to being a petroleum refiner given the scope and the way you think you've done the project Youre doing the project but.
How would that work in terms of breaking it out into a renewables segment should the margin structure not be good for a period of time, a revert where it's better to be a petroleum refinery.
And secondly.
Just bigger picture is that.
Do you how do you consider those factors of a compression.
And the hobo.
As we go out in terms of getting your capital return on the project now what's changed versus when you saw the high prices in the summer and took a pause.
Longer term.
Well I think the big the big changes this basis difference as a bean oil.
<unk> spread was it got us almost of why just $3 come back into two even below two a little bit but right now it's still trading in the low twos.
But.
The basis was the big problem before and that was just I think the trade flows had to rebalance to really bring in the <unk>.
Fact of two large R&D plant starting up at once.
That has subsided took two quarters really to make it happen, but it has subsided and.
Will that return I don't know if diamond Green is starting up now and supposedly is online.
The market saw very little impact from that maybe a little bit in some of the other oils prices but.
And margins, but it.
It seems to absorbed it okay.
I think ours will be the next one to startup. So I think we have that runway and then once we get the pre treater, we kind of.
We kind of move into the take the basis out of the equation.
Largely and move into more more in line with the economics, we originally envisioned with the project.
So that's something less than the dollar.
Per gallon.
On a soybean basis.
Throw a little corn oil there you get you get even a little bit more enhancement.
Okay. Thanks, that's super helpful. Thanks, Dave.
Youre welcome.
Okay.
Our next question is from Matthew Blair with Tudor Pickering Holt. Please proceed.
Hey, Good morning, Dave I was hoping you could expand a little bit more on the comment you made regarding the opportunities in carbon capture that youre looking at would that be.
Associated with your renewable diesel or is that something youre looking at for the refining side as well.
Well I think all around the table, Matt is his way I'd look at it I mean, the key to our renewables business.
We were previously just discussed was just having a portfolio that's more broad than just renewable diesel and if you look at our infrastructure. We have at Coffeyville for just for instance, we have a recovery system today coming off the fertilizer plant that recovers about three quarters of a million tons a year.
Year of Cotwo that is then shipped I don't know 60, 70 miles away to a to an old oilfield that is used to sequester it and recover crude.
Crude oil.
And we since we have that infrastructure existing we have several other streams that exist in the refinery one is when renewable diesel starts up already running a hydrogen plant, which makes it which makes it a pretty concentrated cotr stream there.
We could pump into that same system.
With compression.
And then we also have other streams within the refinery that are concentrated cotwo that we could we could recover off of it and use it for the same purposes and collect 45 few credits that way.
And then we also can monetize it through renewable diesel because we would lower the Ci when we recover cotwo off the hydrogen for system for instance.
And then likewise you theres other the other avenues that you can do if we're going to make a significant amount of renewable propane and renewable naphtha that can be used to reduce the <unk> and again monetize through the renewable diesel.
At both refineries.
So there's a longer runway than just just plain the other angle that we'd love to look at us and we are to some degree is the.
Any synergies any synergies between our refinery and our carbon capture operation that.
That could be it could.
Be installed there is no doubt in my mind. These hard to hard to Decarbonize industries are going to require some kind of direct air comm.
Capture of <unk> and if there is synergies with low level here. The other things that we have at a refinery that it would be a logical place to build them and the regulatory structure doesn't exist today, but it's coming I think.
<unk>.
We want to be in position to do that it should it should it happen.
Great. Thanks for the details.
And then looking at your refinery throughput guidance for Q4, I believe the midpoint is up about four 4% quarter over quarter.
Some other refiners have also had a pretty pretty strong guidance.
For Q4.
I guess what.
What would you say to investors that they might be concerned that refiner discipline is potentially fading a little bit here.
Well I think I'd tell them that if you look at our operating history, we never really cut back that much during COVID-19, we did for maybe a quarter.
But then we were right back up into full production. So I think it depends on the competitiveness of your assets.
If you have marginal assets the on the margin.
The discipline applies to then you should you should be cutting back.
In our case we.
We tend to run our refineries wide open all the time.
And we have the margin improvement.
Great. Thank you.
Our next question is from Manav Gupta with credit Suisse. Please proceed.
Hey, Dave last.
Last year, you were looking to increase your refining footprint, obviously things didn't work out but now if you look at our own design.
Our refineries are available on the Gulf Coast West Coast, and I'm, assuming there would be highly discounted even with this couple of years ago. So just trying to understand are you still somewhat interested in raising your refining footprint and given that this place does take valuations in refining particularly out there.
Manav I think I think I've mentioned in the opening remarks is that we believe fossil fuels will be necessary for a long period of time.
On the other hand, I don't know that we had all our investment money going forward is really around the renewable space.
Rest of it is just sustaining capital to maintain what we have in refining.
Even we're probably taken a unique position in the industry, because we are cutting refining capacity to be able to make these renewable diesel.
And I think that tells you with.
That are our pivot is away from more refining and more towards renewables.
Going forward.
There are several refineries out there on the block and there are probably ones that should be on the blocks or should shut down in our opinion. There is still is.
Probably a million barrels of capacity that doesn't have any any reason to run.
Doesn't really free cash flow on a five year turnaround cycle basis.
And some more of those are coming up.
That you're hearing about today.
Okay.
We're focused on renewables.
Perfect. My quick follow up here is you are right you do.
You should be eligible for <unk> salaries, and everything would be kind of no EPA doesn't always at logically in the unfortunate event they.
They don't give you do you would you take the legal recourse as you did last time to get the Saudis is that something you would consider the game.
We're ready right now to pursue the legal avenues to the Supreme Court, if we have to.
Thank you thank.
Thank you so much Dave Thank you Youre welcome.
Our next question is from Paul Cheng with Scotiabank. Please proceed.
Hey, guys good afternoon.
Hey, Bob.
I don't know if that answer.
Is that a win.
Suppose that to get back to you on that.
Your application for the SRU.
They were supposed to get back to US 90 days when we submitted that they have they haven't done that.
In any cases.
We still I think they still have a few days left on the 'twenty one application.
But 19% and 20 year long long gone.
And in fact were.
Sure.
Debating litigation on them right now on those two issues also so I guess my question is that what's the next step because I mean that yes that governments don't come back to you and they jumped back on so whats the next step and what timeline that reshaping.
Okay Paul.
The next step is do what several other refiners have done is to if they don't act on them here soon.
Sue them over the not meeting their deadline for the per the law.
And there is already two refiners that I know of have done that.
One was supposed to rule on November on October 20 <unk>.
They had an agreement with EPA that they would either grant there waiver or deny it.
That got pushed in November 5th.
So that's the next date and.
And the other ones are just in the.
In the beginning throes of litigation.
So.
But it's getting to the point, where they have to do something.
Not only from a litigation standpoint, but.
I don't know how they serve the RVO is without addressing the small refinery waivers at the same time.
They have to take some position on it.
When you're talking about got something done.
Yes, I know.
Alright.
Hi.
For the prepayment unit.
Bill coming up on.
Pocketing now just what 2023 or late 2022.
We're thinking we'll have it done in late fourth quarter of 'twenty two.
So basically a year end.
'twenty two.
Right.
And how about for cost of steel.
Pat.
Assuming you do go ahead Dan.
When that is.
It's supposed to come on stream.
What can you say it again.
For cost of team that you're also looking at took on Brett.
One of the hydro treater to Audi.
So when that that.
You do have IP on that.
When that's supposed to come on stream.
The only thing we're doing right now on the Coffeyville conversion is just some engineering.
And defining the costs and getting our scope together.
I really think that before we proceed with Coffeyville, we need some more assurance of additional market for low carbon fuel standard expansion.
<unk> 12 states that are looking at it right now.
Two are in various stages of getting it on the ballot for approval.
Need a couple of those to happen to really have the coffeyville convergent.
Just look at the number of <unk>.
Gallons that are that are on the table now it's close to $7 billion.
And there's only about $1 billion of that's in service.
That would consume all the credits.
I think California, Oregon, and Washington have and we need to just some more demand to go in that program to really make that conversion.
We think that will probably happen is a good possibility that will happen, but when who knows.
Sure.
And.
Do you have an estimate yet.
In Q1 two at.
SA into winning.
Let's say call. It 50 50 in that capacity.
How much of the capital gains ball.
Well for sustainable aviation fuel as you really have to do is.
There's two avenues to it one is to put a fractionator on the backend and fractionated out of renewable diesel production.
There is about 20% of that that available in that with the right catalysts selections.
And then the second alternative if you wanted to make more is to add another reactor.
Which is a much more expensive option, but but could increase the yield to 80% 90%.
Sustainable jet.
Our kind of our position on sustainable jet right now is that the regulatory environment is not suitable to produce it again, you're taking a $6 oil and shove it into a $2 market.
And you've got to have subsist substantial subsidies to make that occur and the airlines with the ones. We've talked to are not interested in paying more for it. So it has to come with the with that.
The government subsidies of some sort.
Okay.
And then my final question is that.
Talk about the kind of volume.
Next year and cost of being in 2023.
You gave us say how long.
The situation at that time, along and what union on Whatsapp impacted that.
But doing the downtime and also you mentioned that you are no longer hedging you said.
I apologize did you say that as of September 30, or at the end of the year that you're no longer.
Precision.
Yeah, we put we put correct positions on four for second quarter, and third quarter and those of all expired.
So.
We have no hedge on crack going forward.
Okay. So as of September 30, right and that means that's right September 30, okay.
As far as the turnarounds turnarounds go Paul we do have <unk>.
Originally we were going to do when he was in the fall, but we moved it up to spring.
To match the renewable diesel conversion because theres some synergy between the two we can save on indirect cost by by combining those two together.
And that in that turnaround at when he would involve the cat cracker and alky and number one crude unit.
So it's.
Good.
A 40 day turnaround to turn those those particular units around.
In Coffeyville is in 'twenty, three but its just the coker basically in a crude unit so.
Okay. Thanks, a lot and looking at that for the spring.
Okay.
For Coffeyville will probably be the fall.
Paul.
How many days.
It's still about that 30 to 40 days somewhere in that neighborhood.
Thank you.
Youre welcome.
We have reached the end of our question answer session I would like to turn the call back to management for closing remarks.
Again I'd like to thank you all for your interest in CVR energy. Additionally, I'd like to thank our employees for their hard work and commitment towards safe reliable and environmentally responsible operations, especially during this COVID-19 period.
We look forward to reviewing our fourth quarter 2021 results in our next earnings call with you all.
Have a happy holidays, if I don't see you Simpson.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Yeah.
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Okay.
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Yeah.
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