Q1 2022 CVR Energy Inc Earnings Call
Greetings and welcome to the CVR Energy first quarter 2022 conference call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Richard Roberts, Vice President of financial planning and analysis and Investor Relations. Thank you Sir you may begin.
Thank you Christine good afternoon, everyone at average I appreciate you joining us this afternoon for our CVR energy first quarter 2022 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 2022 first 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.
Caution that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and 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.
Except as required by law.
Let me also remind you that CVR partners completed a one for 10 reverse split of its common units on November 23, 2020, and he per unit references made on this call are on a split adjusted basis.
This call also includes various non-GAAP financial measures that are supposed to lead to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures are included in our 2022 first quarter earnings release that we filed with the SEC and Form 10-Q for the period and will be discussed during the call that said I'll turn the call over to Dave. Thank.
Thank you Richard Good afternoon, everyone and thank you for joining our earnings call.
Yesterday, we reported first quarter consolidated net income of $153 million and earnings per share of <unk> 93.
EBITDA for the quarter was $278 million, we posted higher results in both segments on a year over year basis as fundamentals in refining and fertilizer sector continued to improve during the first quarter.
We are pleased to announce that the board has authorized the first quarter dividend of <unk> 40 per share, which will be paid on may 23 to shareholders of record at close of market on May 13.
At yesterday's closing price this annualized dividend.
It would be $1 60 per share representing a dividend yield of over 6%, which is currently the highest annual dividend yield among the independent refiners.
For our petroleum segment, the combined total throughput for the first quarter of 2022 was approximately 197000 barrels per day.
With when he would undergoing its planned turnaround during the month of March. This compares to 186000 barrels per day for the first quarter of 2021, which was impacted by some weather related outages.
The planned turnaround and when he wouldn't began at the end of February and was completed on schedule in the first week of April .
We also completed the conversion of the hydrocracker to renewable diesel service the.
The renewable diesel unit has begun operations and is currently running at half rate as we work out the bugs.
And work towards certification of renewable diesel products.
Benchmark cracks increased through the quarter. The group 3211 crack averaged $22 20 per barrel in the first quarter as compared to $16 33 in the first quarter of 2021.
Based on the high end of the proposed 2022 RVO levels RIN price grid prices averaged approximately $6 11 per barrel in the first quarter, an increase of 13% over the first quarter of 2021.
The Brent Ti differential averaged $2 98 per barrel in the first quarter compared to $3 18 in.
In the prior year period.
Diesel cracks surged in March and averaged $39 25 per barrel for the month.
Light product yield for the quarter was 99% on crude oil processed our distillate yield as a percentage of total crude throughput was 42% and we continue to operate our refineries and Max distillate mode.
In total we gathered approximately 114000 barrels per day of crude oil during the first quarter of 2022 as compared to 112000 barrels per day for the same period last year.
As we have stated.
And we have excuse me, we have started to see an increase in drilling activities in our area and our gathering rates have been above 120000 barrels per day recently, although supply chain issues remain a hurdle and increasing production quickly. It is encouraging to see producers start starting to ramp up activity in the mid.
Com.
In the fertilizer segment, we faced some unplanned downtime at.
At both plants during the quarter with consolidated ammonia utilization coming in at 88% during.
During the upcoming turnarounds at both facilities. This summer we expect to address the issues that caused some of the unplanned Ed unplanned outages at the last two quarters over the last two quarters.
Realizations for the first quarter of 2022 increased again, reflecting the latest price increases that began in the fall with the onset of the energy Crunch in Europe and Asia.
The recent conflict in Ukraine has driven increased concern over global fertilizer and grain supply and has strengthened prices further in.
We increased our confidence in the longevity of this AG cycle.
Now, let me turn the call over to Dan to discuss additional financial highlights.
You, Dave and good afternoon, everyone.
For the first quarter of 2022, our consolidated net income was 153 million earnings per share was <unk> 93 and <unk>.
EBITDA was $278 million.
Our first quarter results include a negative mark to market impact on our estimated outstanding RIN obligation of $19 million unrealized derivative gains of $6 million and favorable inventory valuation impacts of $136 million.
As a reminder, our estimated outstanding RIN obligation is based on the original 2020 RVO. The high end of the proposed 2021 and 2022 RVO levels and excludes the impact of any waivers or exemptions.
Excluding the above mentioned items adjusted EBITDA for the quarter was $155 million.
The petroleum segment's adjusted EBITDA for the first quarter of 2022 was 48 million compared to $27 million for the first quarter of 2021 I.
I would like to highlight that within our adjusted EBITDA for the first quarter of 2022, we recognized a $12 million expense related to potential future legal obligations that shows up in the other expense line.
The year over year increase in adjusted EBITDA was driven by higher throughput volumes and increased product cracks offset somewhat by elevated RIN prices.
In the first quarter of 2022, our petroleum segment's reported a refining margin was $16 75 per barrel.
Excluding favorable inventory impacts of $7 51 per barrel unrealized derivative gains of 28 cents per barrel and the mark to market impact of our estimated outstanding RIN obligation of $1.08 per barrel refining margin would've been approximately $10 four per barrel.
On this basis capture rate for the first quarter of 2022 was 45% compared to 51% in the first quarter of 2021.
Rens expense, excluding mark to market impacts reduced our first quarter capture rate by approximately 22% compared to a 24% reduction in the prior period.
Rins expense for the first quarter of 2022 was $107 million or $6 per barrel of total throughput compared to an expense of $178 million or $10 62 per barrel for the same period last year.
As a reminder, our reported rent expense does not include the impact of any waivers or exemptions.
Our first quarter Rens expense includes a $19 million mark to market impact on our estimated accrued RFS obligation, which was mark to market at an average rent price of $1 37 at quarter end compared to $1 34 at the end of 2021.
For the full year 2022, we forecast an obligation based on the high end of the proposed 2022 RVO of approximately 175 million range, which includes approximately $105 million rents generated from renewable diesel production, but does not include the impact of any waivers are exemptions.
Great of gains in the petroleum segment totaled $8 million for the first quarter of 2022.
Which includes unrealized gains of $5 million, primarily associated with crack spread derivatives.
In the first quarter of 2021, we had total derivative losses of 32 million, which included unrealized losses of $43 million, primarily associated with the crack spread hedges that were closed at the end of the third quarter.
The petroleum segment's direct operating expenses were $5 57 per barrel in the first quarter of 2022 as compared to $5 89 per barrel in the prior year period.
On an absolute basis direct operating expenses were flat with the first quarter of 2021, primarily due to increased share based compensation and labor expenses offsetting other operating expense reductions.
For the first quarter of 2020 to the fertilizer segment reported operating income of $104 million net income of $94 million or $8 78 per common unit and EBITDA of $123 million.
This is compared to first quarter 2021, operating losses of $14 million, a net loss of $25 million or $2 37 per common unit and EBITDA of $5 million.
There were no adjustments to EBITDA in either period.
The year over year increase in EBITDA was primarily driven by higher U a N and ammonia sales prices and higher sales volumes.
Partnership declared a distribution of $2 26 per common unit for the first quarter of 2022.
As CVR energy owns approximately 37% of CVR partners common units will receive a proportionate cash distribution of approximately $9 million.
Total consolidated capital spending for the first quarter of 2022 was $50 million, which included 19 million from the petroleum segment 5 million from the fertilizer segment and $26 million on the renewable diesel unit.
Environmental and maintenance capital spending comprised $23 million included $18 million in the petroleum segment.
And 5 million in the fertilizer segment.
We estimate total consolidated capital spending for 2022 to be approximately 209 to 239 million.
Of which approximately $131 million to $146 million is expected to be environmental and maintenance capital.
Our consolidated capital spending plan excludes planned turnaround spending, which we estimate will be approximately $80 million to $85 million for the year for the recently completed plant turn around him. When he was in preparation for the planned turnaround at Coffeyville in 2023.
Cash provided by operations for the first quarter of 2022 was $322 million and free free cash flow was $280 million to $81 million <unk>.
Significant cash uses in the quarter included 41 million for Capex and turnaround spending 30 million for interest.
<unk> 5 million for the remaining redemption.
The remaining CVR Partners' 2023, senior notes $36 million for the Noncontrolling interest portion of the CVR partners fourth quarter distribution and $12 million for CVR partners unit repurchases.
Turning to the balance sheet at March 31, we ended the quarter with approximately $676 million of cash our consolidated cash balance includes 137 million in the fertilizer segment.
As of March 31, excluding CVR partners, we had approximately $755 million of liquidity, which was primarily comprised of approximately $539 million of cash and availability under the ABL of approximately $371 million.
Less plus cash included in the borrowing base of $155 million.
During the quarter CVR partners redeemed the remaining $65 million of $2023 nine and a quarter senior notes outstanding completing.
Completing its targeted $95 million debt reduction plan.
With the refinancing of the senior notes in June of 2021, and the $95 million debt Paydown. The annual debt service costs at CVR partners will be reduced by approximately 26 million per year, a reduction of over 40%.
Looking ahead to the second quarter of 2021 for our Petroleum segment, we estimate total throughput to be approximately 195 to 210000 barrels per day.
We expect total direct operating expenses to range between 95, and $100 million and total capital spending to be between 30% and $40 million.
For the fertilizer segment, we estimate our second quarter 2022, ammonia utilization rate to be between 92 and 97%.
Direct operating expenses to be approximately $55 million to $60 million, excluding inventory and turnaround impacts and total capital spending to be between 12 and $17 million.
For renewables, we estimate second quarter 2022, total throughput to be approximately 3500 to 4500 barrels per day and direct operating expenses to be between two and $4 million.
With that Dave I'll turn it back over to you. Thank you, Dan and summary, refining refining market fundamentals have improved considerably since the beginning of the year with the conflict in Ukraine further tightening what was already becoming a tight market.
In the United States refined product demand is essentially in line with five year average levels, while inventories for gasoline distillate jet fuel or nearly 10% below five year averages.
Exports of refined products have increased over the past month to over two and a half two and a half million barrels a day, an increase of over 1 million barrels per day from the beginning of the year.
As we approach the driving.
Summer driving season.
And a fairly heavy maintenance period for the industry in the second half of the year, we believe the near term outlook for our refined products is constructive.
The combination of natural gas a advantage of the U S versus Europe , and Asia, the loss of Russian distillate exports and the rationalization of global refining capacity has resulted in significant significantly improved cracks, particularly diesel cracks despite near record.
High RIN prices.
With the mid con demand for gasoline and diesel is in line with pre COVID-19 levels and inventories have tightened since the beginning of the year, which has significantly improved the basis in the group III.
Distillate inventories in the Magellan system are nearly 25% below the five year average levels pushing group III distillate cracks near $60 per barrel for the month of April .
We are also seeing a pick up in the drilling activity in our gathering area of supply chain issues remain a constraint on the faster ramp up new drilling, but we are encouraged to see the level of interest increasing.
As I have stated a number of times the key to sustained widening of the Brent Ti differentials as a as an increase in shale oil production United States.
With conversations starting to turn to the need for U S energy independence and a call for increased domestic crude production. We believe our assets are well positioned to benefit from higher shallow production.
The outlook for the fertilizer business continues to be.
Very positive also.
The conflict in Ukraine is further ton is tightening in the market that was already struggling with low inventories and supply issues since the fall.
With low fertilizer inventories in the United States ongoing export constraints from China, and Russia, and Europe continues to face high energy costs that are driving up the cost of fertilizer production, we do not see an easy fix for fertilizer supply issues in the near term.
Over the past four quarters CVR partners has paid down $95 million of high interest debt and bought back $12 million of units and announced the distribution of over $12 per unit.
Our net 37% interest in CVR Energy's share of the distributions for the past four quarters is nearly $50 million.
As I previously mentioned during the turnaround at <unk>, we completed the conversion of the hydrocracker to renewable diesel service and we continue to make progress on the pretreatment unit. We have ordered long lead equipment and are currently in the permitting phase due to the ongoing supply chain issues. We are now targeting an in service date for the pre treat or the SEC.
Quarter of 'twenty three.
We are also continuing to develop our overall renewables strategy beyond these two projects.
Including the reorganization of the company to segregate the renewables business as discussed in our last earnings call. The Reno organization plan has been approved by the board and new entities have been created for the various assets. We have completed scope definition on the potential when he would renewable diesel conversion project, which could be.
<unk> include it could could include the production of sustainable aviation fuel.
The future of that conversion will depend on among other factors the development of of expansion of the L. CFS program.
Two other states or the conversion of the renewable fuel standard to an L. C. F S type regulation.
Overall, we were looking at any economic opportunity within our existing refining and fertilizer business that can drive a reduction in carbon emissions and we believe our geographical location and the farm Bill provides us with a unique position long term.
Looking at the second quarter of 2022 quarter to date metrics are as follows group 3211 cracks have averaged $43.25 per barrel.
The Brent Ti spread with a Brent ti spread of approximately $14 19 per barrel and the Midland differentials 88 cents per barrel over W. T.
The WCS differential has averaged 27 under W. T I and the WCS differential has averaged $14 24 per barrel under W. T.
Fertilizer prices remained strong as well the ammonia prices are over $200 per ton in U M prices are over $550 per ton.
As of yesterday group 3211 cracks were $57 42 per barrel.
Brent Ti was $2 41 per barrel and WCS was $15 <unk> under W. T O.
Assuming the high end of the proposed.
2022, RVO rents were approximately $8 50 per barrel.
Group three diesel cracks are over $83 per barrel.
In April EPA made a made a seemingly symbolic yet unlawful announcement to revoke small refinery.
Exemptions for granted for 2018, however, you EPA is not requiring those refineries to purchase or redeem rents to meet the 2018 obligation.
This announcement has no impact on the price of rent rents, which remain stubbornly high as we continue to wait for EPA to rule on small refinery exemptions for 19, 2020 one as.
As well as finalizing the RVO for 2021 and 'twenty two.
We continued to be perplexed by how a federal agency can repeat repeatedly shortcuts obligations under the law.
To rule on small refinery waiver exemptions and issue RV OS in a timely manner.
As we have continually stated we believe <unk> obligation should be exempt under the RFS. We have filed petitions for small refinery exemptions for 2019 2022 excuse me 2020 in 2021 and will soon be filing for 'twenty two.
These outstanding issues.
Until these out these outstanding issues are resolved by EPA or the courts will continue will likely continue to carry on our on the RIN obligation on our balance sheet. As we believe we are legally entitled to relief and we'll continue to prepare to assert our rights.
Wherever and whenever possible.
The chaos caused by EPA is persistent refusal to comply with the RFS rule as intended by Congress does not only hurt small and merchant refiners.
We disagree with EPA on which to participants in the value chain are able to pass through the cost of the program. EPA has stated repeatedly that it is the driving public who ultimately foots the bill for higher prices at the pump.
We estimate this cost to be as much as $30 billion for 2021 alone.
As much as 30 per gallon, which isn't even paid to the government.
We believe high RIN prices help no one, but wall Street traders big oil and big retail blenders.
Some of who has publicly admitted to holding rents until prices rise and only selling the obligated part.
Obligated parties Opportunistically hope.
Hopefully consumers will take notice and demand that the EPA and the administration lower gasoline prices immediately by fixing the broken RFS.
Meanwhile, our focus is on safe reliable operation of our assets and environmentally responsible manner to ensure we are ready to capture market opportunities as they developed.
With that operator, we're ready for questions.
Thank you we will now be conducting a question and answer session.
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Right.
Thank you. Our first question comes from the line of Phil Gresh with Jpmorgan. Please proceed with your question.
Hey, good morning, Dave.
The first one.
Hi, Good afternoon, I guess first question is just on.
The announcement of the dividend here you talked about obviously the annualized.
Right, which would be pretty high. So is that is that to suggest that that dividend is going to be the the new kind of run rate from here or.
Just any thoughts on just the general return of capital framework that you're trying to achieve.
Well I think you've heard us say many times that.
Our our business model is to return cash.
To our shareholders in as many ways as we possibly can and any available cash and I think this just demonstrates that that strategy.
The board will look at it every month every quarter and make a decision but.
Obviously, we wouldnt have reinstated if we didn't have some confidence in the in the business.
You know the shape of the curve going forward looks very positive to us. So I think we went back to our original strategy of returning.
Money to shareholders.
Yeah understood Okay.
And then the second question I just wanted to ask you you gave the update.
On the P T U.
And the other does the delay there.
But I was hoping you could just talk a little bit more broadly about your view of fundamentals now as you start up the facility with without the P. T U.
Do you feel comfortable with.
With the margin environment here Theres, so many moving pieces right now between what's happening in diesel prices so that.
SPF prices L CFS.
Just curious what your latest thinking is on the fundamental picture.
Well I think it all it's a very interesting market you know when we made the call to make the conversion was a much different picture than what it is today.
On the other hand.
You know that.
Where the price of Rens are right now it appears to us that we can make money with the with the the the current structure we.
We are giving up an opportunity cost.
In refining because as you know we were cutting a little bit of crude rate to be to accommodate this.
The <unk>, but.
And in general it looks profitable to us.
You got to remember we bought a lot of this feedstock that we're running now several quarters ago, because we did delay that the conversion are probably six months.
And the original piece so.
A lot of what we're processing now has bought quite a while ago Hum of course, so how that will flow through the P&L is yet to be seen.
But you know the unit the good news is the units up and running and in very stable and we're very close to certification of all of the material is as as carbon dated is you have to do all of the various paperwork you have to file is almost complete whether we'll ramp up the rate or not is still is still on.
Open question and how fast we will do that but right now I think we're firmly in the camp that we're going to run it through this cycle of catalyst life in it.
And and then take a look at it again when are when we have to order and replace another load of catalysts.
Okay, Yeah that makes sense and I guess just to.
Kind of clarify as I think about.
Where else CFS prices are now obviously, they've come down a lot do you feel like the economics of running R&D effort.
Lately accounted for.
That lower L. CFS priced such that you felt aside from the <unk>.
The inventory that you are getting at the lower price that you feel good about the run rate potential of the business.
Well, it's a it's a lot better with the pre treater and in service. So I think.
You know Theres still you know we were projecting that you know between 10 and $30 million of something this year, you know exactly what it will be I don't know because the thing is moving around like a.
It's even worse in the oil business frankly.
It's just.
The swings in the market are just incredible and there's a lot of it is right now is driven by the diesel.
Differentials and what's happening there on the cracks but.
I will tell you that this business is commoditized, a whole lot quicker than I thought it would have.
It's you know youre looking at feedstock prices that are almost pricing just I don't it doesn't matter, which one it is there almost pricing with bean oil.
And <unk>.
And some of the D C I is being given up into those prices.
Is it what it appears to me and its low carbon fuel standard.
Credits go down you know what's happening is the basically the the D force values have gone up and kind of offset that.
What happens when the blender tax credit runs out of a whole other animal and whether that gets extended or not is still an open issue.
We're still positive on the business, we put a fair amount of money into it and we're going to give it a run and see how we do.
We were still very pretty confident we're going to be able to source. Some other feedstocks that are going to be advantaged, just because of our location.
And we're not ready by any stretch of imagination to throw up ready to throw in the towel on it.
Well I appreciate the volatility and the complexity.
And thank you for your thoughts Dave.
Youre welcome.
Our next question comes from the line of Carly Davenport with Goldman Sachs. Please proceed with your question.
Hey, good afternoon. Thanks for taking the questions I wanted to just touch briefly on kind of the cost environment Opex came in a touch higher this quarter than we had expected. So can you just talk a bit about what youre seeing from an inflation perspective out there whether that's on the Opex side are also on the Capex side, and how youre working to manage any of those cost pressures.
Yes.
Sure I'll make a couple comments and maybe Dan can elaborate some more than we did have a onetime charge.
And our Opex. This time that is not reoccurring.
Was about 12 million box you know other than that natural gas is a headwind if it I'll remind you it's about.
Every dollar's worth about $11 million to us in EBITDA on a run rate basis.
So we're up almost.
Almost double in the first quarter of what it was in the previous quarter.
And.
We also probably had some stock based adjustments that our stock has run up and particularly our UAS stock a unit prices drop has gone up quite a bit.
That runs through the P&L. They don't know if you have anything to add yeah ill just clarify the accrual that was made was another income line item. The escalation that we saw in Opex was primarily associated with the burn up of both UAS and CDI through $3 31, and Opex and SG&A.
Understood. Thanks for that color and then the follow up was just on kind of the operational side the guidance for volume for <unk> looks strong as you guys don't have yeah, the lack of the maintenance.
<unk> coming through <unk>. So can you just talk about how things are trending from an operational perspective at refining and ultimately to the extent that that you run well and can capture these strong margins that we're seeing on the screen kind of where you think EBITDA power could be as we think about the teekay <unk> setup.
Sure.
You know the as far as the operations goes.
We'll be running our plants wide open as much as we can subject to other things that are thrown at us like weather and other events, but yeah.
We do have we did build some inventory during the winning would turnaround that will have to work off before we are fully up a racer crude rates at a worthy one refinery.
But other than that there's nothing else planned going forward for the rest of the year. Our next turnaround there really in the 'twenty three.
Which is a smaller small turnaround at coffeyville and mainly on the coker.
So that is that's the only other impact that's there.
As far as.
You know I mentioned, where crack spreads are today, it's it's.
We're in an area that I haven't seen in my career in a long time, if ever I think I saw a couple of times during a hurricane in it.
The last two weeks or so.
But structurally the.
The.
The market is very constructive.
It appears were sharp refining capacity worldwide.
If you look at the margins in Singapore and in Europe . There are also equally wide. So it's pretty much a worldwide event.
And the world's short diesel big time, and eventually that's going to have a pull on gasoline as the driving season comes in it's going to have to pull out either you have to raise crude rates or our which I don't think that the world has the capacity to do.
Or you have to carbon to diesel to make more gasoline so.
It just looks very very strong.
For taking the questions.
Okay.
Our next question comes from the line of Manav Gupta with Credit Suisse. Please proceed with your question.
Dave first of all congrats for reinstating the dividend, it's good to see that the dividends, which had disappeared kind of pre pandemic, arguing the pandemic from the refining company got all coming back so thank.
Thank you Paul reinstating it just helps the overall sector.
My question here is for those of US a lot more refining analyst and lesser fertilizer analyst.
Help us understand it.
Every quarter, we are seeing fertilizer prices move up.
What's driving that how long can this super cycle and vitamins for fertilizer.
Remain in place and how are you guys benefiting from it.
Well you know I think you know.
Take the numbers and look at it you know prices are up over the first quarter of 2021 over 250% booked just about on UA.
On ammonia as well as UA and we make a fair quantity of ammonia and we make a even a higher quantity of UA N.
And that that margin is even higher than the ammonia margin. So.
They're really the structural thing that's happened here as you know plants in Europe have shut down because of the high natural gas prices are.
If you look at the price I think I looked at it yesterday with a natural gas where it is in Europe .
It's $500 a ton just in natural gas cost.
Ton of ammonia.
And.
That is what's basically driving that you also had some hoarding going on with China and Russia.
And basically and that was before Ukraine.
They are they are holding their own production to make sure. They they can feed their people and and have enough fertilizer for themselves.
They were both big export.
And so when you put those all together, it's just and you know the U S is an important market. So net import market. So the world's just short fertilizer frankly.
And you can look at crop prices.
Were very very strong.
Our World is also short green.
Soybeans corn and wheat.
So that's a it's kind of a perfect storm I'd call. It and it's a you know it takes probably five years now to build a new fertilizer plant and probably $5 billion or $3 billion to $5 billion, depending on where you build it.
You haven't heard 2 million announcements of too many of those happening but.
You know as well as I do the best cure for high prices is high prices. So you know this is a cycle that that tends to get salt eventually.
Oh perfect. My quick follow up here is on everybody yourself, obviously bullish on the Gulf coast and export potential and everything but when you look at the <unk> mine complex are incredibly good so.
I understand the bullishness on the golf course, but can you talk about that.
One thing the refining fundamentals as it does today.
It's to build midcon refiners that youre seeing right now and I'll leave it there. Thank you.
Yeah as I mentioned on the.
Your previous statements. The you know the demand is has not been and it's back to pre COVID-19 levels across the board in our markets.
Magellan inventories are on the low side.
We came out of winter with gasoline of.
On the high side and that's been whittled away.
So a very constructive on what the group looks like.
It all depends on what the turnaround cycles will be and who runs well and who doesn't.
And any other weather impacts that occur, but right now our market looks wonderful.
Thank you so much.
Welcome.
Our next question comes from the line of Matt <unk> with Jefferies. Please proceed with your question.
Yes. Good afternoon, I guess, just a couple of quick ones just on <unk>.
Progressed through the second quarter.
In the third quarter.
That 211 crack averaging 45 bucks so far obviously, it's going to be a solid second quarter. Just wondering if you could give us any sort of directional commentary on captures first quarter capture on that 211 was.
45% or so any sort of just high level guidance on sort of how that should progress in the second quarter.
Well I don't.
I don't have any reason to see it changing much.
The if you look at the basis on gasoline, it's still sub Nymex.
<unk> is above Nymex.
Premium moves around like Mad and those are the that's the way we really impact.
R.
Our capture rates as those of course are the big headwind is rents and that carves out 20% to 25% of the of the capture rate. There. If you put that back in we're in our historical range.
Typically.
We have done a lot to increase premium make and we will continue to capture that as going forward, which is a big change.
And we're also back in the jet business, a bit which is a which is not only in the military but and the AR AP and AR.
Commercial aviation area and those margins have been quite remarkable also for the year.
That's helpful. And then I guess just on the I think you mentioned in the press release that the sort of.
Corporate restructuring, that's going to carve outs or create.
Some new subsidiaries around the green stuff.
Just just from bondholders perspective, just want to confirm that you're not moving assets out of any restricted group are moving assets away from bondholders. This is just creating like realigning the existing asset set up is that fair.
Yes that is correct in terms of the notes all will be moved within the construct of the CVR notes, Okay, and then lastly.
And lastly for me just thinking about cash flow.
Given where cracks are today and just just.
What could be a very strong couple of quarters here.
You're also getting distributions from <unk>, who is also generating very strong cash flow just maybe if you could talk about your cash flow priorities have reinstituted, the dividend and I presume, you'll sort of assess what what size of that dividend should be each quarter, but.
Away from that any any capital allocation thoughts and.
On the back of that when you came with your bond deal you did a $1 billion to refi 500 with the thought that maybe you would do some M&A at some point I know you've kind of moved away from M&A. So I guess I'm thinking as those 25, yes, theres still a couple of years away, but as they get closer do you think about just a straight refi there is 1 billion.
Of that the right level for you guys.
Just how are you thinking about that that stuff.
Yeah, I think we're comfortable with the 1 billion dollar level of debt for the time being.
If we get to the refi point, we'll of course look for opportunities to look for green bonds, and maybe split some of that out between the various entities at that time, but for the time being we want to make sure that we're taking.
The advantage of the great funding.
As we can.
In terms of other other capital allocation that he said, what we'll assess it each quarter and then take a look at what's in front of us and determine what the best path is.
Alright, thanks, guys.
Yeah.
Our next question comes from the line of Paul Cheng with Scotiabank. Please proceed with your question.
Hey, guys good afternoon.
Maybe but I have to apologize came in or maybe late so maybe I didn't catch it correctly did you say that you guys are looking at the potential option.
Converting I feel conversion.
Into a renewable Pan Doug will also produce.
Yep.
No we were talking about coffeyville at that time.
I think we announced sometime ago that we that we were doing an engineering study to define the scope for.
Our coffeyville conversion of one of its hydro treaters to to renewable diesel and within that we have the option of adding a module to make sustainable jet fuel at the same time, okay. So so with that because that has been on the table for some time.
You guys going to make that decision.
As I mentioned in the prepared remarks, Paul we're not going to make that decision until some kind of expansion on the low carbon fuel standard.
Regulation to other states.
That market is getting oversupplied, the or will be soon and or the conversion of RFS to a low carbon fuel standard credit, which the EPA has been talking about a little bit I don't know I Hope My hope is very high that they'll do it but if.
If they were smart they would because that's really what the goal of reducing carbon is and the RFS is very inefficient at it compared to what the L. CFS is.
We witnessed Dakota Bawdyhouse.
Obviously your best market, even if we have a.
A large number of stay equaling to be bumping that keep them day in lung.
The under construction since May and we were going to be a.
Structural the law.
So under that circumstance.
What are you with that.
B.
When you guys looked at that and say, okay I mean.
One market its by because we believed that you Rob.
Tenant that'd be paid along the pace it that it's going to it.
At Bob some Kyle market like that so with such that that's a strong export market for all day. So when you make the conversion of all of that.
Cid apologetic that Taylor, all day spot market or that you're saying that this is really just if I can see.
Domestic demand is applying it in good shape I'm not going to be immediate.
I mean, how it but.
But oh my fundamental standpoint strategically how we look at.
The market.
Well I think Paul you know from our location to export would be a difficult at best I think you would see the coastal plants doing the exporting and the internal plants doing mainly the railing to wherever the L. CFS market is.
We'll point out if you look at our cost of rail to to the to the to to California's probably in that 30, a gallon range.
M L. CFS credits right now where they're priced depending on what feed you run a let's just do it on a soybean basis are about 38 credit.
So you're getting close to where it's the push to whether your rail it or just dump it into your euro based pool of tool and.
And that's.
But that's always a variable thats there.
Hi, I'm, sorry, I'm not referring to that you go into a <unk> south I mean, yes, the whole market. Other people exporting then you're going to tighten.
Domestic market. So that's why at that yeah.
You know what that's for the market to balance we.
We need to export a lot of I D.
That a condition that they will make you comfortable with J D.
Well I don't know I don't think to make a conversion to Coffeyville I think it's a you know we'd have to look at that specific point. It's unclear to me how you really monetize go into Canada at this point.
You lose the blenders tax credit there is no theres no rent that's associated with it. It's there I don't see a mechanism to make that happen at this point.
Even.
Two it.
So thank you.
The second question is for Dan.
Hi, Diane.
Pumping may have missed some of your keypad.
Mark did you talk about what it is today I'll be covering.
<unk> on your balance sheet and also that what you have been keeping parent pointed out 2022.
And then final eight that.
Let's assume that that the EPA essentially that is cole havent.
I haven't done anything.
To change their current programs in terms of ethanol.
That's part of it.
Yes.
By April 2020, 120 days at that point.
The company's thoughts are looking for a pathway to settle the obligation or that I mean, what is the next step for you guys.
So they the current RVO obligation on the balance sheet is $585 million keep in mind that represents a we have outstanding waivers for 19, 2020 one for when he wasn't and as I mentioned as Dave mentioned will be soon filing 22.
We've legally believed they were entitled to those waivers and as such we're comfortable carrying a balance sheet that liability on our balance sheet.
And your second question.
Yes.
Quite catch it.
Yeah.
No I think that what that for 2022, you guys have been carbon on Joel I'll deal with that that has been added to your balance sheet.
Yeah, we were.
We're still short a little 'twenty, two and 'twenty once.
Our plan is to settle Coffeyville.
And remained short on when he was in essence, because we believe we're entitled to the small refinery waiver at Westwood and.
It will be litigated.
As the EPA acts.
Right so take.
That's my final part of your question is that on June 30.
If the EPA again change so that makes that is that you guys going to Susan Mcgee.
Well it depends on what they do on June 3rd of course Oh.
Dissipate that theyre going to just based on what they did with 18 small refinery waivers resende knows what appears to be to be illegally.
And then try to apply a change in the way they are in tourist but that the the regulation.
It's something that's so far past what it was when it was.
Created it's kind of ridiculous the approach they've taken but that said you know I think we're still a fairly fairly certain then quite certain that we will be successful litigated.
The Winnie would exemption.
There's no reason for us to do anything more but the litigated at this point.
Alright, Thank you alright, thank you.
Youre welcome.
Our next question comes from the line of Matthew Blair with Tudor Pickering Holt. Please proceed with your question.
Hey, David Good morning.
Just trying to circle back to your comments that you.
Do you expect R&D to make I think it was $10 million to $30 million this year.
I was wondering if you can extrapolate that that 4000 barrel per day renewable volume guidance for Q2, if we can extrapolate that for Q3 and Q4 when I do so it looks like you'd make.
Round.
I guess 46 million gallons for the year.
$10 million to $30 million range should be anywhere from like 22 cents EBIT per gallon to 65 EBITDA per gallon in gist.
Just wanted to run those numbers by you and see if there's.
Is there anything else, we need to take into consideration or if that's a.
If that's the range that you are trying to guide to.
Well as you I'm sure you know Matthew the.
Where you buy feedstock here is usually a quarter ahead or even two quarters. So I'm, you know will and the volatility in the hobo spread has been incredible so it's somewhat of it it looks like an and equation for hedging strategies and other things that we're still working out how exactly we're going.
To do it but I don't think your numbers are far off.
Look at the margin today on an RVB soybean and we do run a mix of soybean oil and corn oil.
And varying percentages.
That you know that you would come up with those kind of margins that you mentioned you'd be very close.
Great great. It sounds good and then thanks.
Inviting the Opex Oh, Yeah go ahead yeah.
Yes, just one second on one other point I'd make to you is that.
That we haven't decided what exactly right, we'll run so whether it will be we'll ramp it up or not will depend on what those margins are.
Right right.
Volatile environment.
And then I just had a question on on SG&A. So for that 39 million in Q1 was that impacted by the stock comp expense.
Expense or that one time accrual and really what I'm trying to get at is that $39 million is that a good run rate for Q2 or do you expect to be.
Closer to like the low 30, or even high $20 million range like.
Like you used to be.
Yeah. So there was a stock based comp impact in the SG&A figures as well.
And then in addition to you know as we go about this restructure and we're picking up some ancillary cost there as well I, hoping in flight that but nothing that we see that would dramatically change what our typical run rates or asset that project at any volatility in the stock price.
Okay, so that means coming down.
The low 30 range for Q2.
Should be a pretty good number.
<unk> million dollars for sure was a one time charge.
But that was the other yeah right and that was another income, but it or are there expense, but you know that's never going to that's not going to repeat itself hopefully.
The rest of it is stock based you know tell.
Tell us what our stocks are going to do what we can tell you, where that's going to impact where and how it's going to impact but.
It should be one time unless it goes could continues up hopefully it does but but other than that you know the.
The restructuring does cost us a little bit of money, but that's.
That's the only other thing in there.
And then last quick.
So I would expect it to go back to where it was after.
After a couple of quarters.
Okay very helpful. And then last question. So yeah, a lot of focus on the current <unk>.
Cracks.
But I mean, the 2023 curve has really moved up as well and so just wondering if youre looking at any sort of product crack.
Hedging and how appealing that might be and whether you start to layer in any product crack hedges on.
When we look at that all the time and we have a we we do occasionally do a certain percentage of our volume and.
Some of the crack you know of course, if you would have locked them in the last week. They were you know they were low compared to where they are today, but it's heavily backward dated.
The first two months out your back down into that.
You said 23.
I think 23 was what about $43 you can do.
In the group actually not even Nymex.
And even looking at 'twenty four it was $38 and those are very strong numbers. So.
I don't know that we will do anything yet but.
I think Hum I always say the best cure for high prices is high prices, but those numbers are very attractive.
If you look at history.
Whether we will do that are great. Thank you very much.
Youre welcome.
We have no further questions at this time I would now like to turn the floor back over to management for closing comments.
Again I'd like to thank you all for your interest in CVR energy. Additionally, I'd like to thank our employees for their hard work commitment towards safe reliable and environmentally responsible operations.
We look forward to reviewing our second quarter 2022 results in our next earnings call. Thank you.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
Okay.