Q3 2023 CVR Energy Inc Earnings Call
Greetings and welcome to the CVR Energy, Inc. Third quarter 2023 conference call.
At this time all participants are in a listen only mode.
Brief 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.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Richard Roberts, Vice President of P. N E and I are.
Mr. Roberts you may begin.
Thank you Noah.
Afternoon, everyone very much appreciate you joining us this afternoon.
D R Energy's third quarter, and 23 earnings call with.
With me today are Dave lamp, our Chief Executive Officer, Dan Newman, Our Chief Financial Officer, and other members of management frankly.
Prior to discussing our 2023 third 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 are not statements of historical facts 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 Securities and Exchange Commission and in our latest earnings release as a result actual operations or results may differ materially from the results discussed in the forward looking statements.
We take 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.
This call also includes various non-GAAP financial measures. The disclosures later in such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures are included in our 2023 third 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 third quarter consolidated net income of $354 million.
And earnings per share of $3.51 EBITDA for the quarter was $530 million.
Our solid results for the quarter were driven by continued strength in gas and diesel crack spreads along with significant decline in the price of rents at quarter end.
We are pleased to announce the board of directors has authorized a special dividend of $1 50 per share. This is in addition to the regular dividend third quarter dividend of 50 cents per share both of which will be paid on November 20th to shareholders of record at the close of market on November 13th.
Our year to date declared regular and special dividends totaled $4 per share.
For total cash return to.
To shareholders approximately 13%.
In our petroleum segment combined total throughput for the third quarter of 2023 was approximately 212000 barrels per day and light product yield was 98% on crude oil processed.
Overall every fan for refineries operated well during the quarter with minimal unplanned downtime.
We also completed the repairs to the gasoline hydro treater, when he would which was impacted by a fire in the second quarter.
Benchmark crack spreads remain remained elevated during the third quarter was the group 3211, averaging $39.10 per barrel.
The third quarter average RIN price decline from the second quarter, but remains stubbornly high at over $7 per barrel.
As we discussed in previous calls we have filed lawsuits and received a stay in the fifth circuit Court of Appeals.
Related to the denial of when he would small refinery exemptions for 2020 and 21 and we have recently received to stay for 2022 as well.
In early October we were pleased to have our day in court as we presented oral arguments in front of the fifth circuit related to E. P. A S denial of small refinery exemptions.
As we have continually continuously stated.
The RFS regulation was written specifically to protect small refineries like Winnie wood from disproportionate economic harm caused by RFS and we continued to fight for the rights that we believed when he was entitled to.
Or what do you would refinery is the poster child for disproportionate economic harm and the industry as we believe.
Our relative cost of compliance with RFS is higher than almost all other refineries.
For the third quarter of 2023, we achieved record throughput rates at the Whitney would renewable diesel unit.
Processing nearly 24000 barrels.
Before at that 24000, 24 million gallons of vegetable oil feedstock in the quarter, the hobo spread widened from the second quarter.
With increased soybean oil prices. However, we generated another positive.
Other quarter of positive contribution from the argued unit due to increased throughput volumes and improved improvement in the California diesel price in the quarter.
As a reminder, our renewable diesel business is currently reported in our corporate and other segment.
And fertilizer segment, both facilities ran well during the quarter with a consolidated ammonia utilization rate of 99%.
Nitrogen fertilizer prices reset in July after which prices steadily rose through the summer driven by a combination of strong demand and reduced supply as well as a result of planned and unplanned outages across the industry.
We believe Martin market conditions have firmed in the fourth quarter, there will be have a good book.
Order book for the fall.
Let me turn the call over to Dan to discuss our financial highlights. Thank you, Dave and good afternoon, everyone.
For the third quarter of 2023, our consolidated net income was 354 million earnings per share was $3.51 and EBITA was $530 million.
Our third quarter results include a reduction to poorly rens expense due to a mark to market impact on our estimated outstanding RFS obligation of 174 million.
Favorable inventory valuation impact of 91 million and unrealized derivative losses of $48 million.
Excluding the above mentioned items adjusted EBITDA for the quarter was $313 million and adjusted earnings per share was $1.89.
Adjusted EBITDA in the Petroleum segment was 281 million for the third quarter driven by strong product cracks in the mid con.
Our third quarter realized margin adjusted for inventory valuation unrealized derivative losses and rent mark to market impacts was $20 73 per barrel, representing a 53% capture rate on the group 3211 benchmark.
Realized derivative losses of 44 million or $2.28 per barrel reduced our capture rate by approximately 6%.
Rent expense for the quarter, excluding the mark to market impact was $90 million.
Or $4.64 per barrel, which negatively impacted our capture rate for the quarter by approximately 12%.
The estimated accrued RFS obligation on the balance sheet was $413 million at September 30th representing 367 million Rins Mark to market at an average price of $1 12.
As a reminder, our estimated outstanding rent obligation excludes the impact of any small refinery exemptions.
Direct operating expenses in the petroleum segment were $5 39 per barrel for the third quarter compared to $5 53 per barrel in the third quarter of 2022.
The decrease in direct operating expenses was primarily due to lower natural gas and electricity prices and higher throughput volumes somewhat offset by increased personnel costs, partially related to stock based compensation expense.
Adjusted EBITDA in the fertilizer segment was 32 million for the third quarter with strong production and reduced operating expenses for the quarter offsetting the decline in nitrogen fertilizer prices relative to the third quarter of 2022.
The partnership declared a distribution of $1.55 per common unit for the third quarter of 2023.
As CVR energy owns approximately 37% of CVR partners common units will receive a proportionate cash distribution of approximately $6 million.
Cash provided by operations for the third quarter of 2023 was $370 million and free cash flow was $318 million to.
Significant uses of cash in the quarter included 151 million paid for the CVI second quarter regular and special dividends.
67 million for cash taxes and interest.
$2 million of capital and turnaround spending and 28 million paid for the Noncontrolling interest portion of the CVR partners second quarter distribution.
Total consolidated capital spending was 51 million, which included $26 million in the petroleum segment 8 million in the fertilizer segment and $16 million on the pretreatment unit for the RT U.
Turnaround spending in the third quarter was approximately $2 million.
For the full year 2023, we estimate total consolidated capital spending to be approximately $200 million to $225 million and turnaround spending to be approximately 55 to 65 million.
Turning to the balance sheet, we ended the quarter with a consolidated cash balance of 889 million, which includes $89 million of cash in the fertilizer segment.
Total liquidity as of September 30th excluding CVR partners was approximately 1.1 billion.
Which was comprised primarily of $800 million of cash and availability under the ABL facility of $251 million.
Looking ahead to the fourth quarter of 2023 for our Petroleum segment, we estimate total throughput to be approximately 205 to 220000 barrels per day.
Direct operating expenses to range between 95, and $105 million and total capital spending to be between 40 and $45 million.
For the fertilizer segment, we estimate our fourth quarter 2023, ammonia utilization rate to be between 90 and 95%.
Direct operating expenses to be approximately $55 million to $60 million, excluding inventory impacts and total capital spending to be between 10 and $15 million.
For renewables, we estimate fourth quarter 2023, total throughput to be approximately 15 to 20 million gallons.
Direct operating expenses to be between six and 8 million and total capital spending to be between 13 and $17 million.
That Dave I'll turn it back over to you.
Thanks, Dave in summary, we had another solid quarter driven by strong results in our refining segment, along with a positive contribution from the fertilizer segment as well as the renewable diesel business as we look ahead to the fourth quarter and in 2024, we are cautious about the near term outlook given the significant U political risk.
Risk currently facing the market.
Starting with refining crack spreads remain remained elevated in the third quarter of 2023 with gas and diesel cracks, both increasing relative to the second quarter.
Although U S refining product demand is down in general gasoline inventories are roughly in line with five year averages and distillate inventories are over 12% below the five year average.
Reduced refining capacity in the United States ongoing turnaround activity.
And a string of unplanned outages during 2023 have all helped keep refined product inventories in check.
Exports of gasoline and diesel has also continued to be strong consistently averaging over 2 million barrels per day, so far in 2023.
Gas cracks have recently decline, which is typical for this time of year as demand slows after the summer and supply increases with the RVP change.
Distillate crack sold sold off early in the third and the fourth quarter, but rebounded quickly as winter approaches.
Container shipments have increased recently for the first time this year, although rail and truck shipments remain lower.
The potential for a cold winter in Europe, and the and the increase in natural gas prices continued presents an upside for diesel cracks in the near term in addition to the significant geopolitical.
Risks we are currently experiencing.
As we have discussed in previous earnings calls, we continue to watch the startup of new refining capacity around the world.
Although many of these projects are delayed.
Turning to crude oil shale oil production continues to increase in the U S and we reached a new quarterly record for crew.
Crude oil gathering volumes in the third quarter of approximately 150000 barrels per day.
Export of crude out of the U S have averaged over 4 million barrels per day for the first nine months of 2023.
The Brent Ti differentials remained range bound at at.
At $3 to four $4 50 per barrel.
WCS differentials have widened with delays in the new pipeline takeaway capacity out of Canada, well the WCS price at Cushing has tightened relative to W. P. I recently.
We continue to make progress on some of the refined products that we have discussed in previous calls as an update for the alkylation project at the Wynwood refinery, we have ordered long lead equipment and are on target for completion in 2026.
In addition to the benefits of eliminating the use of H F acid catalyst. It when he would this project is expected to increase our alkylation capacity by 'twenty 500 barrels per day, which should result in increased premium gasoline production.
Regarding our diesel yield improvement projects, we have completed engineering work at when he wasn't confirmed our initial estimates.
We plan to complete tie ins during the when he would spring turnaround 2020 for a turnaround.
Our overall plan is to increase distillate yield from the two refineries by approximately 6000 barrels per day over the next two or three years, which would increase our total distillate yield on crude throughput by approximately 3%.
In the fertilizer segment.
Fertilizer prices have increased since the summer reset in July with harvest nearly complete we expect a strong fall ammonia application this year and have a good book of orders.
Looking ahead to 2020 for grain market conditions remain steady and bode well for nitrogen fertilizer demand.
And we believe prices for their spring pre pray season should be favorable.
Geopolitical risk continued to present, a wildcard for the nitrogen fertilizer business as well with meaningful fertilizer production capacity residing in countries across the middle East and North Africa.
Finally in renewables construction on the Pizza U S is progressing and we expect the unit to be mechanically complete in the fourth quarter of 2023.
Over the past few months RIN, Paul RIN prices have fallen dramatically, primarily due to EPA setting the RVO for for D for rents way too low in the face of all the renewable diesel capacity that has been ramping up and should be coming online over the next couple of years.
With deep for prices at these levels prompt renewable diesel margins are breakeven.
We continue to explore opportunities to modify our renewable diesel unit. It when you want to ship a portion of production from renewable diesel to sustainable aviation fuel.
We continue to have discussions with various parties interested in securing offtake of sustainable aviation fuel.
We also.
Continue to develop a potential renewable project with the option for sustainable aviation fuel production.
At our Coffeyville location the board recently authorized spending for scope definition.
And a detailed cost estimate which enables us to have more in depth discussions with potential partners.
Although the prompt market for renewable diesel is not favorable we continue to believe there will be a place in the market for renewable diesel and sustainable aviation fuel.
And we believe our Coffeyville location is strategically advantaged in the heart of the AG belt.
Looking at the fourth quarter of 2023 quarter to date metrics are as follows group 211 cracks have averaged $31.96 per barrel.
With the Brent Ti spread of $2 98 per barrel.
The Midland differential at 72 cents per barrel over W. T I.
Prompt fertilizer prices are approximately $700 per ton for ammonia and $2 85 per ton for U a N.
As of yesterday group 321211 cracks were $22.43 per barrel. The Brent Ti was $5.14 per barrel and WCS was $26.02 under W. T. I words were approximately $4 80 per barrel.
We continue to strive to operate our plants in a safe reliable and responsible environmentally responsible manner.
We continue to explore to grow or continue to explore opportunities to grow our renewables business.
We also continue to focus on maximizing free cash flow.
Which underpins our peer leading dividend yield.
Yield.
With that operator, we're ready for questions.
Thank you we will now be conducting a question and answer session.
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Our first question comes from the line of Manav Gupta with UBS. Please proceed with your question.
Hi, guys. My first question is more on the marine side.
Now the real you are positioned what he has done is actually benefiting you may have seen that in the RFS revaluation before is dragging v-six town. So usually you have a valid position for what.
<unk> has done in the near them, if you look and try and expand your renewable diesel capacity meaningfully from these levels.
And then you know Lee foundry.
Counting what he has done for you in in terms of the RFS obligations. So I'm just trying to understand these two balancing forces are there a lot of it is actually good for you, but you do want to grow our renewable diesel franchise in that scenario, you would like to see a higher value of domain.
Operator: Greetings and welcome to the CVR Energy Inc. 3rd quarter 2023 conference call. At this time, all participants are in a listen only mode.
Operator: A brief 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. As a reminder, this conference is being recorded.
At a higher margin. So if you can help us understand those dynamics.
Well manav. It we've always said that it was important for EPA to disconnect <unk> from D Force.
And if you really look at if you're really attempting to do something about climate change.
Richard Roberts: It is now my pleasure to introduce your host, Richard Roberts, Vice President of FPNA and IR. Thank you, Mr. Roberts. You may begin. Thank you, Neil. Good afternoon, everyone.
Renewable diesel is the molecule that makes a difference.
The ethanol blend up gasoline does really little to do anything to reduce carbon emissions.
Richard Roberts: We very much appreciate you joining us this afternoon for our CVR Energy 3rd quarter 2023 earnings call.
So it's still our position that the EPA should have disconnected these too and there's there's several legislation moves that are or are in the works to try to make that happen.
Richard Roberts: With me today, our Dave Lamp, our chief executive officer, Dane Neumann, our chief financial officer, and other members of management. Prior to discussing our 2023 third quarter results, let me remind you that this conference call may contain four looking statements as that term is defined under federal securities laws. For this purpose, any statements made during this call are not statements of historical facts, may be deemed to be forward-looking statements. Your caution that these statements may be affected by important factors set forth in our filings with the Security and Exchange Commission and in our latest earnings release.
Richard Roberts: As a result, actual operations or results may differ materially from the results discussed in the forwarding statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise, except for the exempt required by law. This call also includes various non-gap financial measures.
But they also should have increased the the D for to more in line with what the industry is building and is planning to come online.
So yeah I think it's just a misguided program still in its something has to has to break to fix it.
So in an ideal blend then you would like to before obligation to me, that's like eight or $9 billion.
Do you think do we said that <unk> been playing five that would be the ideal scenario, which you are hoping for right.
And everybody is allowed.
Richard Roberts: For the spokesperson's letter to such non-gap measures, including reconciliation to the most directly comparable gap financial measures, are included in our 2023 third quarter earnings release that we filed with the SEC and foreign 10Q for the period and will be discussed during the call.
Right.
And frankly E 15 should be allowed to so you know it's a you know you can argue whether it's 13.2 on the on the Desex or it's something higher like 14, but it certainly isn't 15.
Richard Roberts: With that said, I'll turn the call over to Dave. Thank you, Richard.
Which is above the blend wall and the demand of gasoline is a is up in question going forward and the EPA has to be flexible with that.
David Lamp: Good afternoon, everyone. And thank you for joining our earnings call. Yesterday, we reported third quarter consolidated net income of $354 million, and earnings per share of $3.51. You bid off for the quarter was $530 million. Our solid results for the quarter were driven by continued strength and gas and diesel cracks breads along with significant decline in the price of rent at the quarter end.
But I think my quick follow up here. If you mentioned this in the comment that you know the gasoline is down seasonally in the high view and you know our IBP has increased so I'm just trying to understand in your system said have you seen any real signs of concern of weaker gasoline demand, which could have an impact.
Going ahead or you believe what we are seeing right now is just basically seasonal and some older production and should correct itself as we move along next three or four months.
David Lamp: We are pleased to announce the Board of Directors has authorized the special dividend of $1.50 per share. This is in addition to the regular dividend, third quarter dividend of $0.50 per share, both of which will be paid on November 20th to shareholders of record at the close of market on November 13th. Our year-to-date declared regular and special dividends total $4 per share for a total cash return to shareholders of approximately 13%.
Well in our markets are Manav. It's you know our demand is really and I've said this since the about three months into the pandemic or demand really didnt move much and it still hasn't.
If you look at the seasonal lifting is out of the Magellan system there they're almost.
Right on spot to where they've they've always been even pre pandemic.
David Lamp: In our petroleum segment, combined total throughput for the third quarter of 2023 was approximately $212,000 per day, and light product yield was 98% on crude oil processed. Overall, our refineries operated well during the quarter with minimal unplanned downtime. We also completed the repairs of the gasoline hydrotrider when he would, which was impacted by a fire in the second quarter. Benchmark Crackspreds remained elevated during the third quarter with a Group 3211 averaging $39.10 per barrel. The third quarter average rent price declined from the second quarter, but remains stubbornly high at over $7 per barrel.
So I don't I attribute a lot of that to the growth in Oklahoma, Oklahoma City. If you've been there recently is really a growing place its always Kansas city to some degree and those are the main markets. We serve Tulsa also.
And are those all are lifting that our racks are actually up compared to pre that print pandemic.
And when I'm talking about the U S demand I'm really talking about the whole U S and and that's where we're seeing the main part of the decline.
Thank you so much.
Youre welcome.
Thank you. Our next question comes from the line of Matthew Blair with Tudor Pickering Holt. Please proceed with your question.
David Lamp: As we discussed in previous calls, we have filed lawsuits and received a stay in the fifth circuit quarter of appeals related to the denial of Winniewood Small Refinery Exemptions for 2020 and 21, and we have recently received a stay for 2022 as well. In early October, we're pleased to have our day in court as we presented oral arguments in front of the fifth circuit related to EPA's denial of small refinery exemptions.
Hey, Yeah. Good morning, Dave on WCS, what do you think is why didn't you know differentials to that 'twenty six 'twenty that you mentioned and what's your outlook next year with.
The Trans mountain expansion, what kind of impact do you think that'll have on deaths.
Sure well you know I think you know seasonally WCS, usually softens in the winter a bit you'd get more diluent.
Injected into it but a lot of it was just a built inventory that built and and hardesty.
David Lamp: As we have continuously stated, the RFS regulation was written specifically to protect small refineries like Winniewood from disproportion economic harm caused by RFS, and we continue to fight for the rights that we believe Winnie was entitled to. Our Winniewood refinery is the poster child for disproportionate economic harm in the industry as we believe our relative cost of compliance with RFS is higher than almost all other refineries.
And backed up the system to some degree what's interesting is as you know a trans mountain has been delayed but you know the cost of that thing is and what the terrorists gonna be it looks like to me that our you know the tariff to go to the Gulf Coast and it'll be the same as go into the West coast.
And or some some something very close to that.
So I don't know that it'll have a huge impact other than it does increase the takeaway capacity and does open the spigot for some more projects up there if if somebody would invest in them.
David Lamp: For the third quarter of 2023, we achieved record throughput rates at the Winniewood Renewable Diesel Unit, processing nearly 24,000 barrels, 24,000, 24 million gallons of vegetable oil feedstock in the quarter. The Hobo spread widened from the second quarter with increased soybean oil prices, however we generated another positive contribution from the RDA unit due to increased throughput volumes and improved improvement in the California diesel price in the quarter. As a reminder, our Renewable Diesel Business is currently reported in our corporate and other segments.
Your second part of your question was.
Okay.
Oh, I think you touched on it.
My follow up is.
On the product crack hedging book, if I caught that right I think it was a six percentage point headwind to capture.
In Q3 should we expect you know just kind of based on where the futures for Xyrem out should we expect that that impact would probably be less in the fourth quarter, just with lower gasoline cracks rolling through.
Yeah. So our open positions are around 15% for the fourth quarter, and then about 15% throughout 2020 for them, but it would be a fair assumption if if the market holds where it is is the bulk of the impact is behind us.
David Lamp: In fertilizer segment, both facilities ran well during the quarter with a consolidated ammonia utilization rate of 99%.
David Lamp: Nitrogen fertilizer prices reset in July after which prices steadily rose through the summer, driven by a combination of strong demand and reduced supply as well as a result of plan and unplanned outages across the industry. We believe market conditions have firmed in the fourth quarter and we'll have a good book, a good order book on for the fall.
Sounds good thanks, so much.
Youre welcome.
Thank you. Our next question comes from the line of John Royall with J P. Morgan. Please proceed with your question.
Hi, good afternoon, thanks for taking my questions.
So Dave you gave an update on the the court situation for the when he would've salaries, which was very helpful.
Dane Neumann: Now let me turn the call over to Dave to discuss our financial highlights. Thank you, Dave.
Dane Neumann: Good afternoon, everyone. For the third quarter of 2023, our consolidated net income was $354 million. Earnings per share was $3.51 and EBITDA was $530 million. Our third quarter results include a reduction to quarterly Renewable expense due to a marked market impact on our estimated outstanding RFS obligation of $174 million, a favorable inventory valuation impact of 91 million, an unrealized derivative losses of 48 million. Excluding the above mentioned items, the EBITDA for the quarter was $313 million and adjusted earnings per share was $1.89.
Do you have a timeline in mind for when do you think you could have a final answer there and.
If you get to the point, where you feel like it's.
You can't really find it any more or do you do you then start to close out your RIN short.
Well, you know that it's difficult to always predict what the court will do.
And this this cases, no except exemption from that.
There's two parts of that case first as the venue that the court has to decide which are whether it's stayed in the fifth circuit or go to the D. C circuit.
We think.
We're we're we're optimistic that they'll keep it but you never can be sure the.
Dane Neumann: Adjusted EBITDA on the petroleum segment was $281 million for the third quarter, driven by strong product cracks in the mid-con. Our third quarter realized margin, adjusted for inventory valuation, unrealized derivative losses, and Ren marked market impacts was $20.73 per barrel, representing a 53 percent capture rate on the Group 3211 bench. Mark. Realized derivative losses of $44 million, or $2.28 per barrel, reduced our capture rate by approximately 6%. Rinse expense for the quarter, excluding the marked market impact, was $90 million, or $4.64 per barrel, which negatively impacted our capture rate for the quarter by approximately 12%.
The second part of the cases, the merits of the of the Epa's argument on on denying all small refinery waivers and we feel very good about that piece. The question is how long will it take them to to rule and then how will they rule a lot of times in these cases, they just rule to remanded back to EPA to fix them.
We really aren't going to fight to try to get more definition on that should should we win that limits what EPA can do because if you look at history, they've just kind of invent something new.
To to deny it again and we're back in court, so it's very difficult to predict timing, but.
Dane Neumann: The estimated accrued RFS obligation on the balance sheet was $413 million, at September 30th, representing $367 million, marked a market in an average price of $1.12. As a reminder, our estimated outstanding ran obligation excludes the impact of any small refinery exemptions. Direct operating expenses in the petroleum segment were $5.39 per barrel for the third quarter, compared to $5.53 per barrel in the third quarter of 2022. The decrease in direct operating expenses was primarily due to lower natural gas and electricity prices, and higher throughput volumes somewhat offset by increased personnel costs, partially related stock-based compensation expense.
Hopefully before the end of the second quarter next year, we should have a ruling one way or the other at the latest so.
Then your second part of your question was would we liquidate them.
Whatever we do here is gonna be a structured settlement because none of those returns from the past years are available anymore or will be by that time.
And somehow it would have to be negotiated what what it would be should we lose I'm pretty optimistic that we won't so that that case may never come to be.
Understood. That's very helpful. Thanks, Steve and then.
You got a question on WCS diff. So I just had another differential question this one's on Brent Ti.
Dane Neumann: Adjusted even down the fertilizer segment was $32 million for the third quarter, with strong production and reduced operating expenses for the quarter, offsetting the decline in nitrogen fertilizer prices relative to the third quarter of 2022.
Which I think you addressed a little bit last quarter, but specifically Cushing inventories are meaningfully lower today and I think below five year ranges, but we haven't really seen a significant narrowing of rent to be T. I. So.
Dane Neumann: The partnership declared a distribution of $1.55 per common unit for the third quarter of 2023. A severe energy owns approximately 37% of CBR partners' common units will receive a proportionate cash distribution of approximately $6 million. Cash provided by operations for the third quarter of 2023 was $370 million, and free cash flow was $318 million. Significant uses of cash in the quarter included $151 million paid for the CBI's second quarter regular and special dividends.
Any color on why you think Brent Ti is is where it is and how you think about that going forward would be helpful.
Yeah, I think I've always said that you know continued growth in shale oil is important for the Brent Ti to maintain its position in this range bound between $3 and $4 50 that we mentioned and.
And it's really a it's it's really the forced the barrel offshore.
It requires that kind of differential to make up for shipping and wherever the destination point has to be competitive in the world market.
Dane Neumann: $57 million per cash tax is an interest, $52 million of capital and turnaround spending, and $28 million paid for the non-controlling interest portion of the CBR partners' second quarter distribution. Total consolidated capital spending was $51 million, which included $26 million in the petroleum segment, $8 million in the fertilizer segment, and $16 million on the pre-treatment unit for the RDEU. Turnaround spending in the third quarter was approximately $2 million.
And that's what's driving it to us so as show oil matures and continues to slowly grow which is probably the best scenario, there's still plenty of takeaway capacity.
We think that bodes well for the Brent Ti.
Great. Thank you.
Welcome.
Thank you.
Dane Neumann: For the full year 2023, we estimate total consolidated capital spending to be approximately $200 to $225 million, and turnaround spending to be approximately $55 to $65 million. Turning to the balance sheet, we ended the quarter with a consolidated cash balance of $889 million, which includes $89 million of cash in the fertilizer segment. Total liquidity, as of September 30, excluding CBR partners, was approximately $1.1 million, which was comprised primarily of $800 million of cash and availability under the ABL facility of $251 million.
We have reached the end of our question and answer session and now I'd like to turn the floor back over to management for closing comments.
Okay.
Again, we'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.
We look forward to reviewing our fourth quarter 2023 results during our next earnings call.
Thank you.
Yes.
This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.
Dane Neumann: Looking ahead to the fourth quarter of 2023 for our petroleum segment, we estimate total throughput to be approximately $205 to $220,000 per day. Direct operating expenses to range between $95 and $105 million, and total capital spending to be between $40 and $45 million. For the fertilizer segment, we estimate our fourth quarter 2023 ammonia utilization rate to be between $90 and $95 million. Direct operating expenses to be approximately 55 to 60 million, excluding inventory impacts, and total capital spending to be between 10 and 15 million.
Hum.
Yeah.
Okay.
Yeah.
Yeah.
Dane Neumann: For renewables, we estimate fourth quarter 2023 total throughput to be approximately 15 to 20 million gallons. Direct operating expenses to be between 6 and 8 million. And total capital spending to be between 13 and 17 million.
Yeah.
Yeah.
[music].
David Lamp: That day, I'll turn it back over to you. Thanks, Dane. In summary, we had another solid quarter driven by strong results in our refining segment, along with a positive contribution from the fertilizer segment as well as the renewable diesel business.
Yeah.
[music].
David Lamp: As we look ahead to the fourth quarter in 2024, we are cautious about the near-term outlook, given the significant geopolitical risk currently facing the market. Starting with refining, cracks spreads remained elevated in the third quarter of 2023 with gas and diesel cracks, both increasing relative to the second quarter. Although U.S, refining product demand is down, in general, gasoline inventories are roughly in line with five-year averages, and distillate inventories are over 12 percent below the five-year average.
Oh, Oh Oh.
Oh.
David Lamp: Reduced refining capacity in the United States, ongoing turnaround activity, and a string of unplanned outages during 2023 have all helped keep refined product inventories in check. Exports of gasoline and diesel have also continued to be strong consistently averaging over 2 million barrels per day so far in 2023. Gas cracks have recently declined, which is difficult for this time of year as demand slows after the summer, and supply increases with the RVB change.
David Lamp: Dislots crack sold off early in the fourth quarter, but rebounded quickly as winter approaches. Container shipments have increased recently for the first time this year, although rail and truck shipments remain lower. The potential for a cold winter in Europe and the increase in natural gas prices continue to present an upside for diesel cracks in the near term, in addition to the significant geopolitical risks we are currently experiencing. As we have discussed in previous earnings calls, we continue to watch the start-up of new refining capacity around the world, although many of these projects are delayed.
David Lamp: Turning to crude oil, shallow production continues to increase in the U.S., and we reach a new quarterly record for crude oil gathering volumes in the third quarter of approximately 150,000 barrels per day. Export of crude out of the U.S, have averaged over 4 million barrels per day for the first nine months of 2023, and the Brent TI differential has remained range-bound at $3.4 and $0.50 per barrel. WCS differentials have widened with delays in the new pipeline and take away capacity out of Canada, while the WCS price at Cushing has tightened relative to WPI recently.
David Lamp: We continue to make progress on some of the refined products that we have discussed in previous calls. As an update for the Alcalation Project at the Winniewood refinery, we have ordered long-lead equipment and on target for completion in 2026, projects. In addition to the benefits of eliminating the use of HF acid catalyst at Winniewood, this project is expected to increase our operation capacity by 2,500 barrels per day, which should result in increased premium gasoline production.
David Lamp: Regarding our diesel yield improvement projects, we have completed engineering work at Winniewood and confirmed our initial estimates. We plan to complete tie-ins during the Winniewood spring turnaround, 2024 turnaround. Our overall plan is to increase diesel yield from the two refineries by approximately 6,000 barrels per day over the next two or three years, which would increase our total diesel yield on crude throughput by approximately 3%. In the fertilizer segment, nitrogen fertilizer prices have increased since the summer reset in July.
David Lamp: With harvest nearly complete, we expect a strong fall ammonia application this year and have a good book of orders. Looking ahead to 2024, great market conditions remain steady and bowed well for nitrogen fertilizer demand, and we believe prices for the spring pre-price season should be favorable. Geopolitical risk continued to present a wild car for the nitrogen fertilizer business as well, with meaningful fertilizer production capacity residing in countries across the Middle East and North Africa.
David Lamp: Finally, in renewables, construction on the PTU is progressing, and we expect the unit to be mechanically complete in the fourth quarter of 2023. Over the past few months, RIN prices have fallen dramatically, primarily due to EPA setting an RVO for D4 RINs way too low in the face of all the renewable diesel capacity that has been ramping up and should be coming online over the next couple of years. With D4 prices at these levels prompt, renewable diesel margins are break even.
David Lamp: We continue to explore the opportunities to modify our renewable diesel unit at Winniewood to shift a portion of production for renewable diesel to sustainable aviation fuel, and we continue to have discussions with various parties interested in securing an offtake of sustainable aviation fuel. We also continue to develop a potential renewable project with the option for sustainable aviation fuel production at our coffee available location. The board recently authorized spending for scope definition and a detailed cost estimate which enables us to have more in-depth discussions with potential partners.
David Lamp: Although the prompt market for renewable diesel is not favorable, we continue to believe there will be a place in the market for renewable diesel and sustainable aviation fuel, and we believe our coffee available location is strategically advantaged in the heart of the ag belt.
David Lamp: Looking at the fourth quarter of 2023, quarter-to-date metrics are as follows. Group 211 cracks of average $31.96 per barrel with a Brent T.I, spread of $2.98 per barrel. The Midland differential at $0.72 per barrel over WTI. Prompt fertilizer prices are approximately $700 per ton for ammonia and 285 per ton for UAM. As of yesterday, Group 3211 cracks were $22.43 per barrel. The Brent T.I, was $5.14 per barrel and WCS was $26.02 under WTI.
David Lamp: We're into our approximately 480 per barrel. We continue to strive to operate our plants in a safe, reliable and environmentally responsible manner. We continue to explore and to grow our renewables business. We also continue to focus on maximizing free cash flow, which underpins our peer-leading dividend yield.
Operator: With we will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tool will indicate that your line is in the question queue. You may press star two if you'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.
Manav Gupta: Our first question comes from the line of Manav Gupta with UBS. Please proceed with your question. Hi guys, my first question is more on the rinse side. Right now, the way you are positioned, what EPA has done is actually benefiting you. We've seen that in the RFS revaluation, D4 is dragging D6 down. So in a way, you are very well positioned for what EPA has done in the near term. If you look at try and expand your renewable diesel capacity, meaningfully from these levels, then in a way, you're countering what EPA has done for you in terms of the RFS obligations.
Manav Gupta: So I'm just trying to understand these two balancing forces where a lower rinse is actually good for you, but you do want to grow your renewable diesel franchise. In which scenario, you would like to see a higher value of the rinse for a higher margin.
David Lamp: So if you can help us understand those dynamics.
David Lamp: Well, Manav, we've always said that it was important for EPA to disconnect D6s from D4s. And if you really look at, if you're really attempting to do something about climate change, the renewable diesel is the molecule that makes a difference. The ethanol blend of gasoline does really little to do anything to reduce carbon emissions.
David Lamp: So it's still our position that the EPA should have disconnected these two. And there's several legislation moves in the works to try to make that happen. But they also should have increased the D4 to more in line with what the industry is building and is planning to come online.
David Lamp: So I think it's just a misguided program still and it's something has to have to break the fix it. So in ideal world, you would like a D4 obligation to be set like eight or nine billion versus and a D6 to be set at 1313.5. That would be the ideal scenario which you're hoping for, right? And that's already allowed. Right. And frankly, E15 should be allowed too. So, you know, it's, you know, you can argue whether it's 13.2 on on the D6 or it's something higher like 14, but it certainly isn't 15, which is above the one wall. And, you know, the man to gasoline is up in question going forward and the EPA has to be Sir.
Manav Gupta: Perfect. My quick follow up here, as you mentioned this in the comment that, you know, the gasoline is down seasonally and the RVP has increased. So I'm just trying to understand, in your system, sir, have you seen any real signs of concern of weaker gasoline demand, which could have an impact going ahead? Or you believe what we are seeing right now is just basically seasonal and some over production and should correct itself as we move along next three or four months?
David Lamp: Well, in our markets, Manav, our demand is really, and I've said this since about three months into the pandemic, our demand really didn't move much and it still hasn't. If you look at the seasonal lifting out of the Magellan system, they're almost right on spot to where they've always been, even pre-pandemic.
David Lamp: So I don't, I've trimmed you a lot of that to the growth in Oklahoma. Oklahoma City, if you've been there recently, is really a growing place. So as Kansas City, to some degree, and those are the main markets we serve, Tulsa also, and our liftings in our racks are actually up compared to pre-depend pandemic.
Manav Gupta: When I'm talking about the U.S, demand, I'm really talking about the whole U.S, and that's where we're seeing the main part of the decline. Thank you so much. You're welcome.
Operator: Thank you.
Matthew Blair: Our next question comes from the line of Matthew Blair with Tudor Pickering and Holt. Please proceed with your question. Hey, good morning, Dave. On WCS, what do you think is widening now at differentials to that 26-20 that you mentioned? And what's your outlook next year with the Trans Mountain expansion? What kind of impact do you think that'll have on this?
David Lamp: Sure. Well, you know, I think, you know, seasonally, WCS usually softens in the winter a bit. You'd get more diluent and injected into it. But a lot of it was just the built inventory that built in the in-hardesty and backed up the system to some degree. What's interesting is, you know, Trans Mountain has been delayed, but you know, the cost of that thing and what the tariff's going to be, it looks like to me that, you know, the tariff to go to the Gulf Coast is going to be the same as going to the West Coast and there were some something very close to that.
David Lamp: So I don't know that it'll have a huge impact other than it does increase the takeaway capacity and does open the spicket for some more projects up there if somebody would invest in them. Your second part of your question was... Oh, I think you touched on it.
Matthew Blair: My follow-up is on the product crack hedges. If I cut that right, I think it was a six percentage point headwind to capture in Q3. Should we expect, you know, just kind of based on where the future screws are now? Should we expect that that impact would probably be less in the fourth quarter, just with lower gasoline cracks rolling through? Yeah, so our open positions are around 15% for the fourth quarter and then about 15% throughout 2024, but it would be a fair assumption if if the market holds where it as is the bulk of the impact is behind us. Sounds good. Thanks so much. You're welcome.
Operator: Thank you.
John Royall: Our next question comes from the line of John Royall with JP Morgan. Please proceed with your question. Hi, good afternoon. Thanks for taking my question. So Dave, you give an update on the the court situation for the Winniewood SREs, which was very helpful. Do you have a timeline in mind for when you think you could have a final answer there? And if you get to the point where you feel like it's, you can't really fight it anymore. Do you then start to close out your rinse short?
David Lamp: Well, you know, it's difficult to always predict what a court will do and this case is no exemption from that. There's two parts of the case. First is the venue that the court has to decide, which whether it's staying in the fifth circuit or go to the DC circuit, we think we're optimistic that they'll keep it, but you never can be sure. The second part of the case is the merits of the EPA's argument on denying all small refinery waivers and we feel very good about that piece.
David Lamp: The question is how long will it take them to rule and then how will they rule? A lot of times in these cases they just rule to remand it back to EPA to fix. We really are going to fight to try to get more definition on that should we win that limits what EPA can do because if you look at history, they just kind of invent something new to deny it again and we're back in court.
David Lamp: It's very difficult to predict timing, but hopefully before the end of the second quarter, next year we should have a ruling on where the other at the latest. Then your second part of your question was, would we liquidate? Whatever we do here is going to be a structured settlement because none of those rins from the past years are available anymore or will be by that time. And somehow to have to be negotiated, what it would be, should we lose pretty optimistic that we won't so that that case may never come to be. Understood. That's very helpful. Thanks, Dave.
John Royall: And then you got a question on WCS tips.
David Lamp: I just had another differential question. This one's on Brent WTI, which I think you addressed a little bit last quarter, but specifically pushing inventories are meaningfully lower today. And I think below five year ranges, but we haven't really seen a significant narrowing of Brent to BTI. So any color on why you think Brent to BTI is where it is and how you think about that going forward will be helpful. Yeah, I think I've always said that, you know, continued growth in the share oil is important for the Brent Ti to maintain its position in this range bound between $3 and 450 that we mentioned.
David Lamp: And it's really, it's really to force the barrel off shore. It requires that kind of differential to make up for shipping and wherever the destination point is to be competitive in the world market, and that's what's driving it to us. So as as show oil matures and continues to slowly grow which is probably the best scenario, there's still plenty of takeaway capacity. We think that boasts well for the the Brent TI.
John Royall: Great, thank you. You're welcome.
Operator: Thank you.
David Lamp: We have reached the end of our question and answer session and now I'd like to turn the floor back over to management for closing comments. Again, we'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 environmental responsible operations. We look forward to reviewing our fourth quarter in 2023 results during our next earnings call. Thank you.
Operator: This concludes today's teleconference. You may now disconnect your lines at this time.
Operator: Thank you for