Q4 2021 CVR Energy Inc Earnings Call
I'll turn the conference over to your host Richard Roberts, Vice President of SG&A and Investor Relations for CVR energy. Thank you Sir you may begin.
Thank you Melissa good afternoon, everyone. We very much appreciate you joining us this afternoon for our CVR energy fourth 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.
Prior to discussing our 2021 fourth quarter and full year 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 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.
Range 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 the CVR partners completed a one for 10 reverse split of its common units on November 23, 2020, and he per unit references made on this call are on a split adjusted basis.
This call also includes various non-GAAP financial measures the disclosures related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures are included in our 2021 fourth quarter earnings release that we filed with the SEC and Form 10-K for the period and will be discussed during the call that said I'll turn the call over to Dave. Thank you Richard Good afternoon, everyone.
And thank you for joining our earnings call.
This morning, we reported CVR Energy's full year and fourth quarter results for the full year of 'twenty one.
We reported a net income of $74 million inclusive of Noncontrolling interests were $25 million of.
Attributable to CVI shareholders earnings per diluted share were 25 for the full year of 2021.
For the fourth quarter, we reported net income of $25 million.
Inclusive of Noncontrolling interest and a net loss attributable to CVI shareholders of $14 million.
Loss per diluted share was <unk> 14 for the fourth quarter.
EBITDA for the year was $462 million and for the quarter It was $116 million.
While RIN prices remained stubbornly high.
And waited on our refining results fertilizer markets fundamentals continued to improve and drove another quarter of strong results for cvr's.
Fertilizer business.
Despite the challenges in the refining market in 2021, we continue to focus on safe reliable operations.
We continued to achieve significant year over year improvements in environmental health and safety metrics, including a 42%.
Year over year reduction in environmental events.
We are providing more ESG disclosures and we published our first internal ESG report for 2020 workers progressed progressing on a 2021 report that we plan to release publicly later this year.
We also returned capital to our shareholders through a significant special dividend in the second quarter totaling the equivalent of $492 million or $4 89 per share.
Turning to the fourth quarter results.
For our petroleum segment, the combined total throughput for the fourth quarter of 2021 was approximately 220200 22000 barrels per day as compared to 219000 barrels per day for the fourth quarter of 2020.
Both facilities ran well during the quarter and we increased WCS processing at the Coffeyville refinery due to widening spreads of WCS at Cushing.
Benchmark cracks have improved significantly from a year ago. The group 3211 crack averaged $17 per barrel in the fourth quarter of 'twenty. One however, rens consumed over 35% of the approximately $6 19 per barrel.
Group 3211 averaged $8 44 per barrel in the fourth quarter of 2021 2020, when rents were at $3 50, a barrel.
Brent Ti differential averaged $2 71 per barrel in the fourth quarter as compared to $2 49 in the prior year period.
The Midland Cushing differential was <unk> 63 per barrel over <unk> in the quarter compared to $37 per barrel over <unk> in the fourth quarter of 2020.
And the WCS to <unk> differential was $16 60 per barrel compared to $11 44 per barrel in the same period last year.
Light product yield for the quarter was 103.
Based on crude oil processed our distillate yield as a percentage of total total crude oil throughput was 44% in the fourth quarter of 2021 consistent with prior period.
In total we gathered approximately 113000 barrels per day of crude during the fourth quarter of 'twenty, one compared to 117000 barrels per day for.
For the same period last year, we continued to see a slight decline in production across our system due to limited drilling activities over the past year. However, we would expect to see in addition, the additional wells being drilled with current prices firmly above $80 per barrel.
In the fertilizer segment consolidated ammonia ammonia utilization was 90% during the quarter, which was impacted by some unplanned downtime at both facilities.
In October we completed the installation of an additional <unk> compressor and then ammonia pumped at our Coffeyville facility, which should increase <unk> production capacity by approximately 100 tonnes per day.
Fertilizer prices continued to increase through the fourth quarter and prices currently look firm.
Through the first half of the year.
Now, let me turn the call over to Dan to discuss our financial highlights. Thank you David and good afternoon, everyone.
Our consolidated fourth quarter net income of $25 million and loss per diluted share in 2014.
Includes a negative mark to market impact on our estimated outstanding RFS obligation of $9 million.
And favorable inventory valuation impact of $17 million.
Excluding these impacts our fourth quarter 2021, adjusted EPS was a loss of <unk> 20, and adjusted EBITDA was $109 million.
The petroleum segment's EBITDA for the fourth quarter of 2021 was $27 million.
Compared to a negative $66 million in the same period in 2020 a.
The year over year, EBITDA increase was driven by the significant increase in crack spreads.
Somewhat by elevated rents prices.
Excluding the mark to market impact on our estimated outstanding RFS obligation of $9 million and inventory valuation impacts of $17 million our petroleum.
<unk> segment, adjusted EBITDA was $19 million.
In the fourth quarter of 2021, our petroleum segment's reported refining margin was $7 13 per barrel excluding.
Inventory valuation impacts unrealized derivative losses, and the mark to market impact of our estimated outstanding rent obligation our refining margin would've been approximately $6 70 per barrel.
On this basis capture rate for the fourth quarter of 2021 was approximately 39% compared to 59% in the fourth quarter of 2020.
Our capture rate for the fourth quarter of 2021 was negatively impacted by elevated RIN prices and a less favorable crude differential mostly due to the steep backwardation in the crude oil market.
<unk> expense in the fourth quarter of 2021 was the $100 million or $4 89 per barrel of total throughput.
Third to $120 million for the same period last year.
As a reminder, our reported rent expense does not include the impact of any waivers or exemptions.
Our fourth quarter Rens expense includes a $9 million mark to market impacts on our estimated accrued RFS obligation included including a $2 million benefit from revising our 2021 obligation to the high end of the recently proposed 2021 renewable volume obligation.
Our estimated accrued RFS obligation was mark to market at an average rent price of $1 34 at year end compared to $1 31 at the end of the third quarter.
The full year 2021, <unk> expense was $435 million as compared to $190 million in 2020.
Our estimated RFS obligation at the end of the year approximates him. When he was obligations for 2019 through 2021 as we continue to believe when he was obligations should be exempt under the RFS regulation.
For 2022 based on the high end of the EPA has proposed 2022 RVO, we forecast a net obligation from refining operations of approximately $250 million to $260 million <unk> adjusted for our expected internal blending volumes were.
We also expect to generate approximately $100 million to $110 million before rents from renewable diesel, bringing our net rent obligation for 2022 to approximately $150 million rents. Our forecast does not include the impact of any waivers or exemptions.
Derivative gains for the fourth quarter of 2021 totaled $2 million.
Which were primarily realized gains associated with Canadian crude oil derivatives.
In the fourth quarter of 2020, we had derivative losses of $15 million, which included unrealized losses of $23 million.
Primarily associated with the crack spreads swaps that were closed at the end of the third quarter of 2021.
The petroleum segment's direct operating expenses were $4 84 per barrel of total throughput in the fourth quarter of 2021 as compared to $3 99 per barrel in the fourth quarter of 2020.
The increase in direct operating expenses was primarily a result of higher personnel expense and increased natural gas prices.
For the fourth quarter of 2021, the fertilizer segment reported operating income of $72 million.
Net income of $61 million or $5 76 per common unit and EBITDA of $93 million.
This is compared to fourth quarter 2020, operating loss of $1 million, a net loss of $17 million or $1 53 per common unit and EBITDA of $18 million.
The year over year, EBITDA improvement was driven primarily by higher prices for <unk> and ammonia offset slightly by higher feedstock costs and operating expenses.
The partnership declared a distribution of $5 24 per common unit for the fourth quarter of 2021.
As CVR energy owns approximately 36% of CVR partners common units, we will receive a proportionate cash distribution of approximately $20 million.
Total consolidated capital spending for the full year 2021.
226 million, which included $50 million from the Petroleum segment 26 million from the fertilizer segment and $148 million for the renewable diesel project and when he would.
Of this total environmental and maintenance capital spending comprised $65 million, including 47 million in the petroleum segment and $16 million in the fertilizer segment.
We estimate the total consolidated capital spending for 2022.
$222 million to $251 million.
Of which $136 million to $150 million is expected to be environmental and maintenance capital and $80 million to $90 million is related to the completion of the renewable diesel unit up when he would that construction of the pre treater.
Our consolidated capital spending plan excludes planned turnaround spending, which we estimate will be approximately $70 million to $80 million for the planned turnaround at winning with this year and preparing for the turnaround at Coffeyville next year.
Cash provided by operations for the fourth quarter of 2021 was $14 million and free cash flow was a use of $24 million.
During the quarter, we paid cash taxes of $37 million in interest of $22 million.
Other material uses of cash in the quarter included $15 million for the partial redemption of CVR Partners' 2023 notes and $21 million for the Noncontrolling interest portion of the CVR partners third quarter distribution.
Turning to the balance sheet, we ended the year with approximately $510 million of cash our consolidated cash balance includes $113 million in the fertilizer segment.
As of December 31, excluding CVR partners, we had approximately 584 million of liquidity, which was comprised of approximately $398 million of cash and availability under the ABL of approximately $361 million less cash included in the borrowing base of $175 million.
During the quarter CVR partners redeemed another $15 million of its 2023, nine and a quarter senior notes outstanding.
Subsequent to year end CVR partners redeemed the final $65 million of the 2023 notes that were outstanding.
With the debt refinancing completed in June of 2021, and the full redemption of the remaining 2023 senior notes earlier today CVR Partners' total debt on the balance sheet has been reduced by $95 million in annual debt service costs will be reduced by approximately $26 million per year, a reduction of over 40%.
Looking ahead to the first quarter of 2022 for our Petroleum segment, we estimate total throughput to be approximately 185 million to 200000 barrels per day as of when he would it will be running at reduced rates in March during the turnaround.
We expect total direct operating expenses to range between 90, and 95 million and total capital spending to be between 35% and $45 million.
For the fertilizer segment, we estimate our ammonia utilization rate to be between 92 and 97% for the quarter.
We expect direct operating expenses to be approximately $50 million to $55 million, excluding inventory impacts and total capital spending to be between $4 7 million.
With that Dave I'll turn it back over to you. Thank.
Thank you Dan and summary over the course of 2021, we saw a material recovery in the refining market fundamentals.
Between the reduction in refining capacity due to announced closures downtime associated with winter storms, and hurricanes and product demand, mostly returning to pre COVID-19 levels product inventories have tightened significantly which led to a sustained rebound in crack spreads.
Unfortunately rents remained stubbornly high.
<unk> continued to drag on refining margins and an unnecessary increase in the price of transportation fuels.
Fortunately for CVR, our RIN exposure should be reduced significantly in the near term as we complete the renewable diesel unit at when he would which we currently plan to have online by middle of April and at full rates during the second quarter.
Initially we plan to run a mix of pretreated soybean oil and corn oil and we currently have feedstock inventories on hand, as a reminder, we expect to generate approximately $170 million to $180 million Rins a year from this renewable diesel production, which should bring our net RIN exposure to under.
$100 million rins per year, assuming no waivers or exemptions.
On our last earning call I discussed our increased focus on renewables and Decarbonize de carbonization.
We are pleased to report that our board of directors has approved a comprehensive plan to reorganize our company to facilitate the segregation of renewables, including the formation of new entities and ultimately the transfer of assets. We currently.
We expect to.
Execute this plan over the next 12 months subject to any required authorizations and look forward to reporting on milestones as we progress.
This step significantly advances the focus on renewables, we outlined several quarters ago and once complete should provide significant optionality for maximizing value.
We also continue to advance various projects, we anticipate the startup of the when he would already you in April and expect to begin reporting our new renewable segment when appropriate.
We are currently processing other projects progressing other projects, including the expected installation of a pre treater at Westwood.
We also have engineering design work underway to evaluate a renewable project, the coffeyville refinery, which could be potentially larger than the wynwood refinery and could include sustainable aviation fuel production.
We are in discussions with a number of vegetable oil producers as we believe there could be a benefit in partnering with the feedstock supplier in order to have more control and potentially better economics.
Overall, our strategy around renewables will be focused on anything that decarbonize, our refining and fertilizer value chains.
We will be return focused and look for the most of the traffic attractive economics for recovering and sequestering cotwo from various sources, we have in our business today to determine how we can build a meaningful business around it.
We believe we are uniquely positioned to capitalize on our renewables projects given the synergistic relationship with refining.
And our proximity to the farm Bill.
Turning back to refining.
As I mentioned, we see a significant improvement in refining fundamentals over the past year gasoline inventories in the U S are currently 4% below five year averages of diesel inventories are 20% below five year averages.
Meanwhile, guest demand for gasoline and diesel is back to pre COVID-19 levels and demand for jet is within 15% of pre COVID-19 levels vehicle miles traveled in December of 2021, even surpassed levels during the same period of <unk>.
And the same the same month.
2019.
We continued to monitor the startup of new refinery capacity globally, which.
Which we believe should drive additional refinery closures in Europe , and North America over the next few years.
Moving on to fertilizer or.
Our last earning call.
Highlighting some of the improvements we've seen in the nitrogen fertilizer business.
And those strong market conditions have continued into 2022 last year, we saw a perfect storm of supply disruptions in both U S and globally in a period of strong demand for fertilizer that led to significant increases in prices for ammonia and urea in natural gas prices in Europe .
At nearly $25 per million Btu use a number of fertilizer.
Facilities remained shut in while China, Egypt, and Russia continued to restrict exports of fertilizers the.
The price increases we saw in the fourth quarter are looking firm into spring and we have a good order book on the first half of 2022.
That captured the higher market prices that developed in the fourth quarter.
Over the past three quarters CVR partners has announced distributions of nearly $10 per unit.
Which generates nearly $40 million of cash distributions net to CVI is 30, 76% interest.
With the financing and pay down of high interest debt CVR partners has significantly improved its balance sheet and reduced its annual debt service by $26 million.
Looking at the first quarter of 2022 quarter to Mark <unk>.
To date market metrics are as follows group 3211 cracks have averaged $18 90 per barrel with the Brent Ti spread of $2 93 per barrel and the Midland differential.
Dollar 14 overdub over W. T.
The <unk> differential has averaged <unk> 72 per barrel over WTS and the WCS differential has averaged $13 17 per barrel under WTS.
Fertilizer prices have held firm after increasing significantly in the fourth quarter ammonia prices with ammonia prices over $200 per ton and uhm prices over.
$550 per ton.
As of yesterday group 3211 cracks.
Were $17 47 per barrel, Brent Ti was $3 33 per barrel and WCS was $12 50 under WTO.
Assuming the high end of the proposed 2022 RVO returns were approximately $7.24 per barrel.
EPA is persistence failure to comply with its obligations under the RFS has led to current high RIN prices environment.
We are we're hopeful that EPA would capitalize on the opportunity to fix the situation and studying the 2021 and 'twenty two rvo's.
Unfortunately, they missed the Mark again as RIN prices rose after EPA issued the proposed RVO as of December .
Comment periods and in early February for both the proposed RVO and Epa's proposed denial of outstanding small refinery exemption requests.
Depending on the final rulemaking by EPA, we are prepared to false file suit if necessary to hold EPA accountable to the law.
In addition to pursuing small refinery exemptions we believe.
We believe when he was entitled to per the RFS.
Sure.
It is entitled to per the RFS. We also may pursue lawsuits regarding epa's unlawful activities, including its failure to rule on small refinery exemption request within the mandated time period.
Alea to provide 16 months settlement window from the time the initial <unk> are proposed.
And for damages caused by its unlawful actions.
And and associated impacts to the market.
These issues are once until these issues are resolved. It is likely we will continue to carry a RIN obligation on our balance sheet related to when he woods Ren.
RIN obligation as we believe they should be exempt under RFS. We also believe RIN prices will likely moderate in the future, possibly due to pressure from high gasoline prices or from a resolution of the issues I just mentioned.
With that operator, we're ready for questions.
Yeah.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
<unk> tone will indicate your line is in the question queue.
You May press star two if he'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Phil Gresh with Jpmorgan. Please proceed with your question.
Hey, good afternoon, Dave Thanks for taking my question.
I felt.
So just stepping back and kind of looking at the fourth quarter results. It seems that the Gulf coast.
An interesting pick up much.
Much better margins quarter over quarter, taking in Midtown.
And you talked about some of the factors that could be influencing that.
Just curious if you think.
Those transitory factors in your view.
Factors like Brent Ti.
Backwardation et cetera, Sir.
Just any thoughts you have there thanks.
Sure Phil well.
It's not uncommon for the mid Con to go long product during the winter.
Winter season is not only the effect of high RVP.
Which is allowed under the law, but also just the fact that the that what the Brent Ti at the numbers. It's at it's still has an incentive to everybody as an incentive to run wide open and demand typically falls, a little bit although not much but the production of gasoline goes up dramatically.
That and a little bit of the volatility in crude price you mentioned backwardation.
And the fact that there were no real significant refinery interruptions in our market.
The basis, just kind of blew out in and reduced our profitability appropriately.
Therefore.
So if you look at the Magellan inventories on gas they are fairly high right now and Thats seasonally.
Typical.
That's the reason we're doing are when he would turnaround in the first quarter, which is usually the weakest season.
I do expect it.
To recover once a day.
Manned picks up in the area.
The RVP.
Starts to go back down.
As far as the Brent Ti goes.
It's really related directly to the production of shale oil.
Which is increasing.
But not nearly as much as we would've expected that these kind of crude prices.
Got it that's very thorough thank you.
My follow up is just around capital allocation I'm, just trying to get my arms around.
You know where <unk> is headed here because you have the renewable objectives that could require more capital spending if you look at coffeyville or other opportunities. We also are talking about maybe segregating that business and then.
You think about kind of cash flow generation of the parent company.
The rins liability that's outstanding.
So could you just kind of walk through how you're thinking about capital allocation is there a scenario, where you would consider reinstating dividends or buybacks or do you feel like with these other things that you have on your plate now is not the right time to look at that.
Well I think.
From a capital allocation CVI has always been a cash machine and it's it's.
All about cash flow and that's what we're all about I.
I think you heard us mention that we spent $435 million complying with or.
Or at least booked it on our.
Our balance sheet.
Rent expense.
When you put that in the equation.
It kind of it kind of just takes our cash flow to two.
To a level, we don't really like so some rectification to rents has got to happen.
And we kind of outlined a lot of the things that we think we're going to take steps on but that 435, just kind of wiped out.
Wipes out anything we can do we our balance sheet is still strong however, and.
I think.
We are not far from a position of.
<unk> thinking about dividends again, and I know the board talks about it every quarter and that those conversations will continue.
As far as break it out the renewables business I.
I think.
The thought here is and I think we're all starting to see it in this business as anybody's in the fossil fuel businesses that.
Raising money going forward is going to be difficult and.
Not to mention that renewables, probably commands a little higher multiple.
Those two factors I think are a lot behind our strategy here of breaking this.
Changing our corporate structure and breaking it out where we can raise Monday money under the decarbonization.
Flag and have access to the capital markets, where there's a lot of them are being shut but by ESG concerns and other things.
Okay, great. Thanks for your thoughts.
Youre welcome.
Thank you. Our next question comes from the line of Manav Gupta with Credit Suisse. Please proceed with your question.
Hey, Dave.
Thanks for all the update on the renewable side I have a question here you know.
Some of your peers and others, what they're doing is they're building the renewable diesel business. They are bringing in some financial partners, who are offering the capex and you can see.
Some preferred equity other times that bringing in feedstock provider, who probably is not offsetting our capex alert offering.
Guaranteed supply of feedstock and then taking some part of the profits and I'm just trying to understand as you build this business out it does it will it be more like the yard.
Do it yourself or are you open to bringing in financial partners.
Feedstock partners like how do you plan to build this business alone or with partners.
Well I think we're not real good at sharing but but we probably could and some of these cases in there. We're not we're not shutting up that optionality is going forward.
Particularly in the in the oil in the area of bean oil supply or other feedstocks.
I think it is.
Having people without something.
A little more dollars.
And as skin in the game, if you want to say it that way.
Not a bad way to go and where we are evaluating several deals several crushers now that look very promising and not only that it's to help us break kind of the monopoly of bean oil or it's controlled by through the three big player AG players and it'll give us a lot more optionality than that more like you have with a.
With the refining business than you do with the vegetable vegetable business itself. So we're not opposed to it but we haven't found those deals yet.
Okay.
Question is you talked about a little bit help us understand.
Some of the factors driving these fertilizer prices. So high is it the fact that Europe is struggling to make fertilizers at natural gas prices what are the some of the reasons why this high nitrogen fertilizer pricing environment could last in 2022 or maybe even 2020.
Well I think you've got to start with the price of corn and soybeans Manav and then if you look at soybeans are approaching $60, a bushel corn over six bucks.
Farmers are pretty flush with the with the incentives to far and you know.
The RFS is is broken and continues to put a big demand on corn.
And if you look worldwide there is a drought in South America.
All factors are leading towards more demand for these two greens, which drives mainly drives fertilizer and even though the cost of fertilizers gone up most of our customers are more worried about getting allocated supply than they are the price.
And the other reasons that price has gone up so much as what I mentioned in the prepared remarks is the natural gas in Europe is made for making fertilizer they're unprofitable. So.
About 40% of the of the plants over there are shut down due.
Do the economics, and you have China, and Russia, and Egypt, basically hoarding, they're there.
They're usually exporters and theyre hoarding their production for their own use.
So all those factors together and not to mention.
<unk>.
Winter storm, Yuri and Hurricanes that shut down a lot of the U S production.
And the other factor is as there was a trade case against Russia and Trinidad.
That the U S, one and theres going to be tariffs on those those products, which are probably going to limit imports.
For the next year or maybe even five years.
Just because those tariffs are fairly steep.
So that's kind of the perfect storm I was referring to.
Okay and last very quick one I have asked you. This before it looks like EPA is tilting towards declining all that Saudis you have bought them before you even taken them to Supreme Court on one. So are you guys getting ready for a round two follow what you believe is rightfully ours.
Yes.
The comment period is up on the on their proposed denial of all small refinery waivers.
And I think the responses were pretty.
Pretty dramatic.
If I know Youll EPA, they'll basically ignore them all and just go like they want to.
And the next day, we'll as soon as they deny in the Federal Register all these small refinery waivers will be filing a lawsuit.
That minute.
Thank you so much.
Youre welcome.
Thank you. Our next question comes from the line of Carly Davenport with Goldman Sachs. Please proceed with your question.
Hi, good afternoon, thanks for taking the questions.
Just wanted to start on the de Carbonization strategy you mentioned in the prepared remarks, we've talked a lot about the renewable fuels piece, but wanted to get your thoughts on some of the other de carbonization efforts here considering is there anything to share on the Ccs side RSA ask that that you think would be a good fit for your process.
Early yet Carling, but you know what we what we're looking at is and I think we're uniquely positioned to once again for this because today, we do have in our fertilizer business, we do sequester cotwo for enhanced oil recovery and we have a pipeline system and the network.
Connected to our pipeline system is owned by a third party, but there isn't any reason we can extend that to both of our refineries and use recover available seal too.
That is out there today. So for example, I'll give you a couple of examples like the R&D unit. It at when he would that we're building requires the hydrogen plant to run which makes up $35, 40% concentrated cotr stream, which we can purify further and stick and then stick in either of that.
Pipeline or a new pipeline getting to it and sequester that recover 45, two credits not only that monetize it in the low carbon fuel standard credits through R&D.
And that's just one example, we also have a concentrated stream in our FCC stacks.
<unk>, we could recover those.
So there's a there's a slew of stuff there and there is also a real case to be considered them on using hydrogen as fuel instead of natural gas and natural gas itself within a refinery that it really hits scope, one and scope two.
We'd like to look at that in some detail and look at building our utility business around that to decarbonize the fuel refineries use.
So theres a lot of options here that that we think are exciting and will be pursuing over the next couple of years.
Great Thanks for that color and the context the.
The follow up was just around backwardation and you flagged some of the impacts on capture rates. There during the quarter is that something youre able to quantify them.
The impact Goldman capture in the quarter are there any kind of sensitivities you can provide as we think about go forward captures given the current curve structure.
Well, it's a it's pretty much a one for one proposition Thats comes right off of your crack.
So you know what right now or about <unk> dollars 20 dollar between $1 $28 50, a backwardation.
I would just make the assumption that that comes right off of crap.
Great I appreciate that.
Youre welcome.
Thank you. Our next question comes from the line of Matthew Blair with Tudor Pickering Holt. Please proceed with your question.
Hey, Good morning, I was hoping you could help us think about fertilizer pricing realization for for the first quarter here. It looks like in Q4, it was only about 60% or so of the benchmarks and normally youre closer to 80%.
So just wondering if you can pinpoint 80% for Q1 or if there are other some other moving parts, we need to take into consideration.
Well, we do have our industrial business, that's part of it.
One of our plants, that's fairly large so those those are formula prices that take a while to ramp up as far as the open book goes as you know most of the stuff that we've booked in the spring and the early first half of the year I should say are all at these higher prices.
So youll see it factor in largely in the first quarter and second quarter and then it's kind of a question word of the Mark where does the market go up from there.
Not atypical for fertilizer to see a drop in price post the summertime side dress.
And other activities that farmers do until the harvest occurs and then then they start to apply ammonia again so we.
We think it's pretty still pretty strong, but it's hard to say exactly what will happen in that second half just because we have the order book is pretty much complete on a vast majority of the ammonia, we're gonna make and you and we're going to make in the first half.
Right right, Okay sounds good and then on the.
On the R&D front.
Dave how would you assess that.
The ability of <unk>.
<unk> soybean oil for your upcoming startup.
We saw last year, where the.
The pricing really blew out relative to the crude soybean oil.
Has there been a material improvement in overall supplier.
Kind of kind of what's in that kind of careful on what youre startup might do to that <unk> market.
You remember, Matt that we postpone the we could have started this up last year and we postponed it because of the basis for bean oil was so hot is over 30 a pound.
It's down in the $40 <unk> now and it's kind of maintain their it took a while for all the trade flows to rebalance, but they have done that now and its pretty steady at that.
T.
I'll call it the.
14% to 20, <unk> somewhere in that range and at that point.
We're profitable where we're at now and that's why we're doing the conversion now so I don't see a real big problem with availability of it.
We'll have to look for other feedstocks as we've always said that with our pre treater gives us that option.
But we've also got a pretty good source of corn oil.
That is suitable to run without a pre treater.
It has a little higher basis than the than what.
Bean oil has but it's also a lower ci.
So with that mix, we feel we can make money in the short haul and offset a lot of items.
So if that basis closeout again after you start up your plant what do you do do you.
Your plant in response to economics or do you are you.
Just keep producing until your peer tutor comes on.
Well, we'd probably keep keep running but I don't anticipate that happening our move is not huge and <unk>.
Some of the others coming on are claiming they're easing.
Used oil and tallow and other things.
And the fact of the matter is we have about two months of feedstock.
Inventory, so we're not going to shop the market like it was seen last time.
Great. Thank you I think a lot of these are getting delayed to map. Some of them are coming on later and later so that just helps rebalance trade flows.
Right right. Good point, thank you for all the color.
Thank you. Our next question comes from the line of Paul Cheng with Scotiabank. Please proceed with your question.
Hey, guys good afternoon.
Hey, Bob.
Based on the how the you're saying that you're going to reorganize and that puppy done by early next year is that means that from a financial reporting you've gone to weigh in here with Dan before you start.
We bought <unk> perfect.
How do you resolve.
And the way you would go ahead and stop doing that beforehand.
You're talking about would that become a.
A different business.
Will you be looking at a merchant out the.
<unk> Oh, sorry, your refinery location.
And also that when you're looking at future what top paid back.
And IL al we climb and bottles.
Maximum.
Sure Paul.
The.
Probably the latter first because I think.
We would look at probably the same return we look at it and refining businesses you know I don't I don't view the I think the renewable business is going to be just as competitive as refining it's ultimately going to trade that way. So theres really no difference in that from from our approach standpoint of that.
Your other question on on what we were reporting as a separate segment, yes as soon as appropriate.
We'll have optionality with this restructuring we don't have to spin it off as a separate company we couldn't keep it under where we are or we have the option to do that if if the market dictates that that should be done again. The reason. We're doing this is we think renewables commands a higher multiple as well as.
We're worried as much as anything about financing going forward as.
As more ESG takes takes hard.
And we're already starting to see banks not want to want to participate in fossil fuel type businesses.
So that's what we're planning for the future.
And Dave when you were looking at.
Any anticipation, though out the plan I mean that makes one normally speaking you're looking at Costco team.
And after that are you guys looking how saia in refinery location.
Oh gosh wouldn't be a week.
Our D oar that that's all you're going to look at fall out D. And then you would be looking at Paul basically auto opportunity like what did you say you see at that time.
<unk>.
Well I think.
Thank you.
Lot of this day carbonation is going to turn into an opportunity of.
Of people that want to participate in that value chain.
It's potentially installing this for other plants and take it to an ownership it's no different than a hydrogen plants. Today are owned by third parties typically I can see de carbonization owned by third parties.
Just like it and that helps a refiner decarbonize as well as is monetizing that through our <unk>.
Through a separate corporation.
Uh-huh Dalton.
I'm a wide open space so.
And I just wanted to go back and you think that you could we put them out separately.
When it hits a popular because that means that this year that you're going to start up in the second quarter should we assume by the second quarter, you would start doing it or that it's going to take a number of quarters before you do that.
Well I think.
That would be an appropriate times, what I'd call. It is to start reporting that as soon as we can get our ducks in a row and to have that happen.
Okay and thanks.
It seems that your pan always on at least four win they win is that once you have the pen and you will have the flexibility for them to switch.
It depends on the amount of temptation go back into the conventional way finding.
Saudi making.
Hum.
How long is the lag effect.
As long as you take in order for you to make that switch.
Pat.
About 30 days to make the switch once you decide.
But the practicality of it is youre going to do it in some kind of a cycle.
Is the fact, the matter is you're replacing catalyst on the Rd every probably every year or or less.
That gives you the chance to look at it each time that that happens.
Once you cut it back and Hydrocracker service, you probably want to have a good runway to run it so.
Youre not going to do that without a lot of thought and a whole lot of.
Thought around what the market forward afford is on refining.
In practical matter, you're pumping not more than once a year.
And yet you do make the switch you end up that has to be convinced.
Over the subsequent 12 months.
<unk>, that's going to fall.
Paul.
Yes, that's right.
And also with that can you tell us that once that you stand.
Stand up the Audi outdoor.
Fine.
We need when we finally I think you would we deal with the capacity by 19000 BOE per day. So the full port and also the product it's going to change too.
Yeah.
That 18000 barrels is an old number we've really come back to about well run about 70. It when he would with R&D and we will go to a light feedstock to accomplish that so what we're after there is naphtha to make hydrogen to two to make a to make rd with and.
You know that we're uniquely positioned there because we can gather those kind of crudes in the field and bring them in.
With our proprietary pipelines.
Do you have an estimate what is gasoline and distillate.
Look like after you make the switch.
Yeah, well just to what you might go down and that's the main opportunity cost here is because we'll lose the hydrocracker, which is a big distillate maker.
So youre going to rely more on cat cracking post Rd than you do today.
And Youll see us switch youll, probably see a.
Loss of 15% or so of diesel yield as a result.
Thank you.
Youre welcome Paul.
Thank you, ladies and gentlemen that concludes our question and answer session I will turn the floor back over to management for any final comments.
Again I'd like to thank you for your interest in CVR energy. Additionally, I'd like to thank all our employees for their hard work and their commitment towards safe reliable environmentally responsible operations.
We look forward to reviewing our first quarter 2022 results during our next earnings call.
Thank you.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.