Q4 2023 CVR Energy Inc Earnings Call
Greetings and welcome to the CVR energy fourth quarter 2023 conference calls.
Operator: Greetings and welcome to the CVR Energy fourth quarter 2023 conference call. At this time, all participants are in a listen-only mode.
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. It is now my pleasure to introduce your host, Richard Roberts, Vice President, Financial Planning and Analysis, Investor Relations. Thank you, sir.
A brief question and answer session will follow the formal presentation.
Speaker Change: 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.
Speaker Change: It is now my pleasure to introduce your host Richard Roberts, Vice President financial planning and analysis and Investor Relations. Thank you Sir you may begin.
Richard Roberts: You may begin. Thank you, Christine. Good afternoon, everyone.
Richard Roberts: Thank you Christine good afternoon, everyone. We very much appreciate you joining us this afternoon for our CVR energy fourth quarter 2023 earnings call with.
Richard Roberts: We very much appreciate you joining us this afternoon for our CVR Energy 4th quarter 2023 earnings call. With me today are Dave Lamp, our Chief Executive Officer; Dane Newman, our Chief Financial Officer; and other members of management. Prior to discussing our 2023 fourth quarter and four-year results, let me remind you that this conference call may contain forward-looking statements, as that term is defined under federal securities laws. For this purpose, any statements made during this call that are not statements of historical 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 the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from those discussed in the forward-looking statement.
Richard Roberts: With me today are Dave lamp, our Chief Executive Officer, Dan Newman, our Chief Financial Officer, and other members of management.
Richard Roberts: Prior to discussing our 2023 fourth quarter and full year results. Let me remind you that this conference call may contain forward looking statements as that term is defined under federal securities laws for this purpose any statements made during this call that are not statements of historical facts may be deemed to be forward looking statements.
Richard Roberts: You are cautioned that these statements may be affected by important 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 undertake no obligation to publicly update any forward looking statements, whether as a result of new information future events or otherwise except to the extent required by.
Richard Roberts: We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise, except to the extent required by law. This call also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliation and the most directly comparable GAAP financial measures, are included in our 2023 4th quarter earnings release that we filed with the SEC and Form 10-K for the period and will be discussed during the call. With that said, I'll turn the call over to Dave. Thank you, Richard.
Paul.
Richard Roberts: This call also includes various non-GAAP financial measures for disposals related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures are included in our 2023 fourth quarter earnings release that we filed with the SEC and Form 10-K for the period and will be discussed during the call with that said I'll turn the call over to Dave.
Thank you Richard.
David L. Lamp: Good afternoon, everyone, and thank you for joining our earnings call. For the full year of 2023, we reported a consolidated net income of $878 million, earnings per share of $7.65, and EBITDA of $1.4 billion. At the segment level, we generated $1.2 billion of EBITDA in the petroleum segment and $281 million of EBITDA in the fertilizer sector. Fourth quarter consolidated income was $97 million, and earnings per share were $0.
David L. Lamp: Good afternoon, everyone and thank you for joining our earnings call.
David L. Lamp: For the full year of 2023, we reported consolidated net income of 880 $878 million.
David L. Lamp: Earnings per share of $7.65, an EBITA of $1 4 billion.
David L. Lamp: At the segment level, we generated $1 2 billion of EBITDA in the petroleum segment.
David L. Lamp: $281 million of EBITDA in the fertilizer segment.
David L. Lamp: Fourth quarter consolidated income was 97 million and earnings per share were <unk> 90 91.
David L. Lamp: EBITDA for the quarter was $204 million despite year over year declines in cracks crack spreads.
David L. Lamp: EBITDA for the quarter was $204 million, despite year-over-year declines and cracks, crack spreads, and fertilizer prices in the fourth quarter. We posted another quarter of solid results driven by lower rent expenses, higher utilization of our assets, and reduced operating costs, mainly due to lower natural gas and electricity prices. We are pleased to announce that the Board of Directors has authorized a fourth quarter regular dividend of 50 cents per share, which will be paid on March 11th, 2024, to shareholders of record at the close of the market on March 4th.
David L. Lamp: In fertilizer prices in the fourth quarter, we posted another quarter of solid results driven by lower rent expenses higher utilization of our assets and reduced operating costs, mainly due to lower natural gas and electricity prices.
David L. Lamp: We are pleased to announce the board of directors has authorized a fourth quarter regular dividend of <unk> 50 per share, which will be paid on March 11, 2024 to shareholders of record.
David L. Lamp: At the close of the market on March 4th.
David L. Lamp: For the full year of 2023, the board authorized regular and special dividends of $4 50 per share for a total payout ratio of approximately 64% of free cash flow generated for the year.
David L. Lamp: For the full year of 2023, the board authorized regular and special dividends of $4.50 per share for a total payout ratio of approximately 64% of free cash flow generated for the year. In the petroleum segment, combined total throughput for the fourth quarter of 2023 was approximately 23,000. 223,000 barrels per day of crude oil. Crude oil utilization for the corridor was approximately 97% of nameplate capacity. And the likely product yield was 103 on the crude oil process. Benchmark PREX softened during the fourth quarter, with Group 211 averaging $23.66 per barrel.
David L. Lamp: In the petroleum segment combined total throughput for the fourth quarter of 2023 was approximately 23000.
David L. Lamp: 223000 barrels per day of crude.
David L. Lamp: Crude oil crude utilization for the quarter was approximately 97% of nameplate capacity and light product yield was 103 on crude oil processed bench.
David L. Lamp: Benchmark cracks softened during the fourth quarter with group 211, averaging $23 66 per barrel.
David L. Lamp: The bulk of the decrease was from the third quarter from the third quarter came from the decline in distillate crack which was driven in part by increased inventories in the U as the U S fleet refining fleet ran hard through the winter.
David L. Lamp: The bulk of the decrease from the third quarter came from the decline in distillate crack, which was driven in part by increased inventories as the U.S. refining fleet ran hard through the winter. Grid prices declined from extremely elevated levels we have seen over the past few years, averaging $4.67 per barrel for the fourth quarter, although they are still too high. We were pleased with our favorable ruling from the 5th Circuit Court of Appeals in November, holding that EPA's denial of the Whitney Wood Refinery Company's small refinery exemptions for 2017 through 2021 was permissibly retroactive, contrary to the law, arbitrary, and capricious.
David L. Lamp: RIN prices declined from extremely elevated levels, we've seen over the past.
David L. Lamp: Past few years, averaging $4 67 per barrel for the fourth quarter, although they are still too high.
David L. Lamp: We were pleased with a favorable ruling from the fifth Circuit Court of Appeals in November holding that EPA is denial of the windy wood refining companies small refinery exemptions for 2017 through 2021.
Where permissible lead retroactive.
David L. Lamp: Contrary to the law arbitrary and arbitrary and capricious the fifth circuit vacated those denials and remanded our small refinery exemptions back to EPA, which has yet to act.
David L. Lamp: The Fifth Circuit vacated those denials and remanded our small refinery exemptions back to EPA, which has yet to act. In addition to our lawsuits against EPA, we recently sent EPA a petition for rulemaking demanding they cure the violation of the Renewable Fuel Standard, which we believe clearly requires that only obligated parties who over-comply with their RFS obligations can sell those excess RINs to other obligated parties instead, unlike every other credit program in EPA history. The EPA allows anyone to buy, generate, and sell ribs, including non-obligated parties who exploit the rent market for profit. Allowing this activity harms not only small and merchant refiners but also the American consumer, who, by EPA's own admission, pay the ultimate cost of the RFS through higher prices at the pump. EPA has not responded yet to our petition, and if they don't, we will see them once again in court.
David L. Lamp: In addition to our lawsuits against EPA, we recently sent EPA petition for rule, making Dominion make sure the violation of the renewable fuel standard.
Which we believe clearly requires that only obligated parties, who oversee comply with the RFS obligations can sell those excess friends to other obligated parties and.
Instead, Unlike every other credit program at EPA history.
David L. Lamp: E EPA allows anyone to buy generate and sell ribs include.
David L. Lamp: Including non obligated parties to exploit the RIN market for profit.
David L. Lamp: Allowing this activity harms not only small small and merchant refiners, but also the American consumer who by EPA his own admission paid the ultimate cost of that.
David L. Lamp: The RFS through higher prices at the pump.
David L. Lamp: Tpa has not responded to our our petition and if they don't we will see them again once again in court.
For the fourth quarter of 2023, where we processed approximately 18 million gallons of vegetable oil feedstock and our renewable diesel unit at.
David L. Lamp: For the fourth quarter of 2023, we processed approximately 18 million gallons of vegetable oil feedstock in our renewable diesel unit at Winniwee. The hobo spread improved from the third quarter, primarily due to declines in soybean oil prices. However, this was more than offset by the decline in D4 rent prices and a weaker basis for the California DC.
David L. Lamp: The hobo spread improved from the third quarter, primarily due to declines in soybean oil prices. However, this was more than offset by the decline in <unk> for RIN prices and a weaker basis for California diesel.
David L. Lamp: In the fertilizer segment, both facilities around well during the quarter with a consolidated ammonia utilization of 94% relative to our prior period.
David L. Lamp: In the fertilizer segment, both facilities ran well during the quarter with a consolidated ammonia utilization of 94% relative to our prior period. Compared to the prior year period, fertilizer prices were lower primarily due to lower natural gas prices and the return of some European nitrogen facility production capacity that had been curtailed. Demand was strong for the fall ammonia application, and despite the softening in grain prices, we believe farmer economics remain favorable at these fertilizer prices. Now, let me turn the call over to Dane to discuss our financial highlights. Thank you, Dave, and good afternoon, everyone.
David L. Lamp: Our year periods fertilizer prices were primarily.
David L. Lamp: Were lower primarily due to lower natural gas prices and the return of some European nitrogen facility production capacity that had been curtailed.
Demand was strong for the fall ammonia application and despite softening in grain prices, we believe farmer economics remain favorable at these fertilizer prices.
David L. Lamp: Now, let me turn the call over to Dave to discuss our financial highlights. Thank.
David L. Lamp: Thank you, Dave and good afternoon, everyone.
Dane Newman: For the fourth quarter of 2023, our net income attributable to CVI shareholders was $91 million, earnings per share was $0.91, and EBITDA was $204 million. Our fourth-quarter results include an unfavorable inventory valuation impact of $90 million, unrealized derivative gains of $67 million, and a reduction to quarterly rinse expense due to a marked market impact on our estimated outstanding RFS obligation of $57 million. Excluding the above-mentioned items, adjusted EBITDA for the quarter was $170 million, and adjusted earnings per share was $65 million.
David L. Lamp: For the fourth quarter of 2023, our net income attributable to <unk> shareholders was $91 million.
David L. Lamp: Earnings per share was <unk> 91.
David L. Lamp: And EBITDA was $204 million.
David L. Lamp: Our fourth quarter results included an unfavorable inventory revaluation impact of $90 million unrealized derivative gains of $67 million and a reduction to quarterly rens expense due to a mark to market impact on our estimated outstanding RFS obligation of $57 million.
David L. Lamp: Excluding the above mentioned items adjusted EBITDA for the quarter was $170 million and adjusted earnings per share was <unk> 65.
David L. Lamp: Adjusted EBITDA in the Petroleum segment was $153 million for the fourth quarter with lower rent costs high utilization rates and reduce operating expenses somewhat offsetting the year over year decline in crack spreads.
Dane Newman: Adjusted EBITDA on the petroleum segment was $153 million for the fourth quarter, with lower rinse costs, high utilization rates, and reduced operating expenses, somewhat offsetting the year-over-year decline in cracks. Our fourth quarter realized margin, adjusted for inventory evaluation, unrealized derivative losses, and RIN mark-to-market impacts, was $12.91 per barrel, representing a 55 percent capture rate on the Group 3 2-1-1 benchmark. Marin's expense for the quarter, excluding the mark-to-market impact, was $65 million, or $3.19 per barrel, which negatively impacted our capture rate for the quarter by approximately 14 percent. The estimated accrued RFS obligation on the balance sheet was $329 million at December 31st, representing 362 million RINs marked to market at an average price of $0.91, down significantly from the RFS obligation on the balance sheet at the end of 2022 of 692 million, comprised of 397 million RINs marked at an average price of $1.74.
David L. Lamp: Our fourth quarter realized margin adjusted for inventory valuation unrealized derivative losses and rent mark to market impacts was $12 91 per barrel, representing a 55% cap rate on the group 3211 benchmark.
David L. Lamp: <unk> expense for the quarter, excluding the mark to market impact was $65 million or $3 19 per barrel, which negatively impacted our capture rate for the quarter by approximately 14%.
David L. Lamp: The estimated accrued RFS obligation on the balance sheet was $329 million at December 31.
David L. Lamp: Representing 362 million Rins Mark to market at an average price of 91.
David L. Lamp: This is down significantly from the RFS obligation on the balance sheet at the end of 2022 of $692 million comprised of 397 million Rins marked at an average price of $1 74.
David L. Lamp: In addition to the decline in the price of Rins. We also reduced the outstanding balance the RIN purchases blending activities and additional rent and additional RIN generation from the renewable diesel unit.
Dane Newman: In addition to the decline in the price of RINs, we also reduced the outstanding balance through RIN purchases, blending activities, and additional RIN generation from the Renewable Diesel Energy Fund. As a reminder, our estimated outstanding RIN obligation excludes the impact of any small refinery exemption. Direct operating expenses in the petroleum segment were $4.69 per barrel for the fourth quarter, compared to $5.52 per barrel in the fourth quarter of 2022. The decrease in direct operating expenses was primarily due to lower natural gas and electricity costs.
David L. Lamp: As a reminder, our estimated outstanding rent obligation excludes the impact of any small refinery exemptions.
David L. Lamp: Direct operating expenses in the petroleum segment were $4 69 per barrel for the fourth quarter compared to $5 52 per barrel in the fourth quarter of 2022.
David L. Lamp: The decrease in direct operating expenses was primarily due to lower natural gas and electricity costs.
Adjusted EBITDA in the fertilizer segment was $38 million for the fourth quarter with increased sales volumes and lower natural gas and electricity costs somewhat offsetting the decline in prices relative to the prior year period.
Dane Newman: Adjusted EBITDA on the fertilizer segment was $38 million for the fourth quarter, with increased sales volumes and lower natural gas and electricity costs, somewhat offsetting the decline in prices relative to the prior year period. The Board of Directors of CVR Partners, the general partner, declared a distribution of $1.68 per common unit for the fourth quarter of 2023. CVR Energy owns approximately 37% of CVR Partners' common units; we will receive a proportionate cash distribution of approximately $7 million. Cash used in operations for the fourth quarter of 2023 was $36 million of free cash flow with the use of ninety four. Significant uses of cash in the quarter included $201 million for the CPI third quarter regular and special dividends. $70 million in rent purchase.
David L. Lamp: The board of directors of CVR Partners' General partner declared a distribution of $1 68 per common unit for the fourth quarter of 2023.
David L. Lamp: As CVR energy owns approximately 37% of CVR partners common units, we will receive a proportionate cash distribution of approximately $7 million.
David L. Lamp: Cash used in operations for the fourth quarter of 2023 was $36 million and free cash flow was a use of 94 million Cigna.
David L. Lamp: Significant uses of cash in the quarter included $201 million for the CPI third quarter regular and special dividends.
David L. Lamp: $70 million of RIN purchases.
Dane Newman: $58 million of capital and turnaround spending, and $22 million of cash taxes and interest. Total consolidated capital spending for the full year of 2023 was $197 million, which included $108 million in the petroleum segment. $29 million in the fertilizer segment and $56 million on the pretreatment unit for the RDU. Turnaround spending was approximately $60 million in 2023. For the full year 2024, we estimate total consolidated capital spending to be approximately $225 to $250 million and turnaround spending to be approximately $60 to $70 million. Turning to the balance sheet, we ended the quarter with a consolidated cash balance of $581 million, which includes $45 million of cash in the fertilizer segment and excludes the fund's reserve for redemption of our 2025 net profit.
David L. Lamp: $58 million of capital and turnaround spending and.
And $22 million of cash taxes and interest.
David L. Lamp: Yeah.
David L. Lamp: Total consolidated capital spending for the full year of 2023 was $197 million, which included $108 million in the petroleum segment.
David L. Lamp: <unk> 9 million in the fertilizer segment and $56 million on the pretreatment unit for the <unk>.
David L. Lamp: Turnaround spending was approximately $60 million in 2023.
David L. Lamp: For the full year 2024, we estimate total consolidated capital spending to be approximately $225 million to $250 million and turnaround spending to be approximately $60 million to $70 million.
David L. Lamp: Turning to the balance sheet, we ended the quarter with a consolidated cash balance of $581 million, which includes $45 million of cash in the fertilizer segment and excludes the funds reserve for redemption of our 2025 notes.
During the quarter, we completed a 600 million senior unsecured notes offering with a five year term and an eight 5% coupon the proceeds of which were recently used to redeem the $600 million of senior unsecured notes due in 2025 at par.
David L. Lamp: Total liquidity as of December 31, excluding CVR partners was approximately $784 million, which was comprised primarily of $535 million of cash and availability under the ABL facility of $249 million.
Dane Newman: During the quarter, we completed a $600 million senior unsecured notes offering with a five-year term and an 8.5% coupon, the proceeds of which were recently used to redeem the $600 million of senior unsecured notes due in 2025 at PAR. Total liquidity as of December 31st, excluding CVR partners, was approximately $784 million, which was comprised primarily of $535 million of cash and availability under the ABL facility of $249 million.
David L. Lamp: Looking ahead to the first quarter of 2024 for our petroleum segment, we estimate total throughput to be approximately 190 to 205000 barrels per day, which will be impacted by the planned turnaround at when it wasn't in the quarter.
David L. Lamp: We estimate direct operating expenses to range between 100, 110 million total capital spending to be between 40% and $45 million and turnaround spending to be between 35 and $40 million.
David L. Lamp: For the fertilizer segment, we estimate our first quarter 2020 for ammonia utilization rate to be between 86% and 91%, which will be impacted by some planned downtime at coffeyville in the quarter.
Dane Newman: Looking ahead to the first quarter of 2024, for our petroleum segment, we estimate total throughput to be approximately 190 to 205,000 barrels per day, which will be impacted by the planned turnaround of Winning Wood in a quarter. We estimate direct operating expenses to range between $100 and $110 million, total capital spending to be between $40 and $45 million, and turnaround spending to be between $35 and $40 million. For the fertilizer segment, we estimate our first quarter 2024 ammonia utilization rate to be between 86 and 91 percent, which will be impacted by some planned downtime at Coffeyville and LaGuardia. We estimate direct operating expenses to be approximately $52 to $57 million, excluding inventory impact.
David L. Lamp: We estimate direct operating expenses to be approximately $52 million to $57 million excluding inventory impacts.
David L. Lamp: And total capital spending to be between 9% and $13 million.
David L. Lamp: For the renewable diesel unit, we estimate first quarter 2024, total throughput to be approximately six to 10 million gallons, which will be impacted by a catalyst change in the quarter.
David L. Lamp: We estimate direct operating expenses to be between eight and $12 million and total capital spending to be between 10 and $14 million.
David L. Lamp: With that I will turn it back over to Dan. Thank you, Dan and summary, CVR energy had another strong year with strong contributions from our petroleum and fertilizer businesses.
David L. Lamp: While the refining market was very strong for most of the year, we saw conditions softened towards the end of the year and we remain cautiously optimistic about the near term outlook.
David L. Lamp: Starting with refining overall refining product demand in the U S.
Is down.
David L. Lamp: Don to start 2024, compared to pre COVID-19 levels and five year averages.
David L. Lamp: Year to date gasoline demand is down approximately 7% and this will demand down almost 12% to.
Dane Newman: Total capital spending is expected to be between $9 and $13 million. For the renewable diesel unit, we estimate first quarter 2024 total throughput to be approximately 6 to 10 million gallons, which will be impacted by a catalyst change in the quarter. We estimate direct operating expenses to be between $8 and $12 million and total capital spending to be between $10 and $14 million. With that, I will turn it back over to Dan. Thank you, Dan.
David L. Lamp: Compared to the same period of 2019.
David L. Lamp: Meanwhile, inventories of refined products have increased with gasoline inventories up 2% and distillate inventories up 5% compared to year ago levels.
In group III as the demand trends are a little better with year to date gasoline demand down about 5% compared to 2019 and distillate demand up almost 8%.
David L. Lamp: However, gasoline and diesel inventories in group three have increased over 30%.
David L. Lamp: From a year ago levels, despite the weakness in gas cracks in the fourth quarter.
David L. Lamp: In summary, CVR Energy had another strong year with strong contributions from our petroleum and fertilizer business. While the refining market was very strong for most of the year, we saw conditions soften towards the end of the year, and we remain cautiously optimistic about the near-term outlook. Starting with refining, overall refining product demand in the U.S. is down in 2024 compared to pre-COVID levels and the five-year average. Year-to-date gasoline demand is down approximately 7%, and distillate demand is down almost 12%, compared to the same period of 2019. Meanwhile, inventories of refined products have increased, with gasoline inventories up 2% and distillate inventories up 5% compared to a year ago. In Group 3, the demand trends are a little better, with year-to-date gasoline demand down about 5% compared to 2019, and distillate demand up almost 8%. However, gasoline and diesel inventories in Group 3 have increased over 30% from a year ago levels.
David L. Lamp: Turning to blend butane over the winter drove refining fleet to run hard and led to a swell and inventory levels.
David L. Lamp: As we approach the change in RVP season, and the spring elevated turnaround activity across the fleet and low inventories of summer grade gasoline could drive a normalization of.
David L. Lamp: Tori levels and offer some upside for summertime gas cracks.
David L. Lamp: Although vehicle miles traveled in in 2023 increased year over year.
David L. Lamp: This was somewhat offset by increases in fuel efficiency is a new fleet.
David L. Lamp: Our new vehicle fleet miles per gallon has also increased.
David L. Lamp: The.
David L. Lamp: The EPA estimate new vehicle fuel efficiency increased by approximately 1.5 miles per gallon in 2023.
David L. Lamp: With additional increases inspected expected in 2024 and 25.
David L. Lamp: Real world gains will probably be lower but as the fleet turns over and we expect the increases in miles per gallon.
David L. Lamp: May further increase offsets and vehicle miles traveled.
David L. Lamp: Despite the weakness in gas cracks in the fourth quarter, the incentive to blend butane over the winter drove the refining fleet to run hard and led to a swell in inventory levels as we approach the change in RVP season in the spring. Elevated turnaround activity across the fleet and low inventories of summer grade gas could drive a normalization of inventory levels and offer some upside for the summertime gas crash. Although vehicle miles traveled in 2023 increased year over year, this is somewhat offset by increases in fuel efficiency as the new fleet, A new vehicle fleet miles per gallon have also increased. The EPA estimates new vehicle fuel efficiency increased by approximately 1.5 miles per gallon in 2023, with additional increases expected in 2024 and 2025. Real world gains will probably be lower, but as the fleet turns over, we expect the increases in miles per gallon may further increase offsets in vehicle miles traveled. On the diesel side of the equation, the reduction in supply that was expected from the Russian export ban never materialized, as trade flows adjusted and Russian volumes found homes in other countries.
David L. Lamp: On the diesel side of the equation the reduction in supply that was expected from Russian export ban never materialized.
David L. Lamp: Trade flows adjusted in Russian volumes found homes in other countries. The mild winter in Europe also led to a decline in natural gas prices, which contributed to an overall decline in gas cracks as well.
David L. Lamp: We continue to monitor the planned startup of several large scale refineries around the world expected. This year. Although historically. These these types of projects tend to come in slower and later than expected.
David L. Lamp: Further delays in startups and a pickup in economic and industrial activity, especially improvement of the Cass freight index.
David L. Lamp: Could provide upset upside for diesel cracks this year.
David L. Lamp: Looking at crude oil commercial crude inventories are near the bottom of a five year of the five year range. Although if you include the strategic petroleum reserves inventories continued to set new five year lows.
David L. Lamp: Oil production in the U S continues to increase with the average production volumes for 2023, increasing over 600000 barrels per day compared to 22.
David L. Lamp: The mild winter in Europe also led to a decline in natural gas prices, which contributed to an overall decline in gas cracks as well. We continue to monitor the planned startup of several large-scale refineries around the world expected this year, although historically these types of projects tend to come in slower and later than expected. Further delays in startups and a pickup in economic and industrial activity, especially an improvement in the Cass Freight Index, could provide upside for diesel cracks this year. Looking at crude oil, commercial crude inventories are near the bottom of the five-year range. Although if you include the Strategic Petroleum Reserve, inventories continue to set new five-year lows.
Crude oil exports remained steady around 4 million barrels per day, and we continue to believe the incremental barrel produced in the United States will need to clear the market via exports.
David L. Lamp: We think this dynamic along with elevated freight rates amid the ongoing conflicts in the east the middle East is supportive of a wider Brent Ti differential which has averaged over $4 50 per barrel for 2023.
David L. Lamp: Volumes in our gathering systems averaged over 140000 barrels per day in 2023, an increase of 18000 barrels per day compared to 2022.
David L. Lamp: We continue to see meaningful benefits on cost and capture rates in our system by buying crude at the wellhead and we continue to work to increase the volumes of our gathering systems and reduce our purchases of Cushing WTS.
David L. Lamp: Crude oil production in the U.S. continues to increase, with the average production volumes for 2023 increasing over 600,000 barrels per day compared to 22. Crude oil exports remain steady around 4 million barrels per day, and we continue to believe the incremental barrels produced in the U.S. will need to clear the market via export. We think this dynamic, along with elevated freight rates amid the ongoing conflicts in the East and Middle East, is supportive of a wider breadth TI differential, which is averaged over $4.50 per barrel for 2023. Volumes in our gathering systems averaged over 140,000 barrels per day in 2023, an increase of 18,000 barrels per day compared to 2022. We continue to see meaningful benefits in cost and capture rates in our system by buying crude at the wellhead, and we continue to work to increase the volumes of our gathering systems and reduce our purchases of cushy WTI. All that said, the U.S. refining fleet has the highest average complexity, the lowest natural gas cost, and, for inland refineries, the lowest crude cost relative to other refiners around the world.
David L. Lamp: All that said the U S. Refining fleet has the highest average complexity lowest natural gas cost and for inland refineries, the lowest crude cost relative to other refineries around the world.
David L. Lamp: As demand moderates for refined products in the U S. We believe product exports will grow and crude exports will continue to increase from the harvesting of shell oil formations.
David L. Lamp: Of course all of this requires the.
David L. Lamp: The government to allow free market store.
David L. Lamp: In our fertilizer segment production was strong at both facilities in 2023 as a result of the turnarounds completed in 2022, and we saw multiple new production and shipping records at both facilities.
David L. Lamp: While demand for ammonia ammonia application was the strongest we have seen in recent years.
David L. Lamp: Although grain prices have pulled back some with the recent decline in fertilizer pricing, we believe farmer economics remain attractive and we currently expect another period of strong demand in the upcoming <unk>.
David L. Lamp: As demand moderates for refined products in the U.S., we believe product exports will grow, and crude exports will continue to increase from the harvesting of shale oil formations. Of course, all of this requires the government to allow free markets to work. In our fertilizer segment, production was strong at both facilities in 2023 as a result of the turnarounds completed in 2022, and we set multiple new production and shipping records at both facilities. The fall in demand for ammonia application was the strongest we have seen in recent years.
David L. Lamp: <unk> planning season.
David L. Lamp: Our coffeyville fertilizer refine our coffeyville fertilizer facility.
David L. Lamp: At our Coffeyville fertilizer facility, we have been conducting engineering studies on the potential to utilize natural gas as an alternative feedstock, which would increase our purchases would reduce our our purchases of third party co. We believe by making certain modifications to the plant we could utilize either feedstock.
David L. Lamp: Produce nitrogen fertilizer.
David L. Lamp: Although grain prices have pulled back some with the recent decline in fertilizer prices, we believe farmer economics remain attractive, and we currently expect another period of strong demand in the upcoming spring planting season. At our Coffeeville Fertilizer Facility, we have been conducting engineering studies on the potential to utilize natural gas as an alternative feedstock, which would increase our purchases and reduce our purchases of third-party coke. We believe by making certain modifications to the plant, we could utilize either feedstock to produce nitrogen fertilizer.
David L. Lamp: If the projects approved by the board and successfully implemented it gives the ability to choose the optimum feedstock mix and we'll be the only Nash nitrogen fertilizer plant in the United States with that flexibility.
David L. Lamp: Our new pretreatment unit at our renewable diesel unit was mechanically complete at the end of the first quarter and we should begin processing feed through the unit in the coming days.
We plan to complete the next catalyst change at the renewable diesel unit over the next few weeks, while we undertake planned turnaround work at the window and refinery.
David L. Lamp: Our current plan for the balance of the year is to run at a slightly reduced throughput rate of <unk> in an effort to optimize catalyst life and increase product yields.
David L. Lamp: If the project is approved by the board and successfully implemented, it will give us the ability to choose the optimum feedstock mix, and we'll be the only nitrogen fertilizer plant in the United States with that flexibility. Our new pretreatment unit at our renewable diesel unit was mechanically complete at the end of the first quarter, and we should begin processing feed through the unit in the coming days. We plan to complete the next catalyst change at the Renewable Diesel Unit over the next few weeks while we undertake planned turnaround work at the Widdowin refinery. Our current plan for the balance of the year is to run at a slightly reduced throughput rate at the RDU in an effort to optimize catalyst life and increase product yield.
As we have talked in previous calls we are continuing to evaluate opportunities for renewables expansions, particularly into the Saf production at both <unk> and Coffeyville.
David L. Lamp: On the potential Winwood project, we plan to begin soliciting bids over the next few months.
For off take agreements that would support the potential conversion of the existing <unk> to a 100% SaaS.
David L. Lamp: On a potential larger project, we are evaluate at Coffeyville. We currently expect to have preliminary engineering and cost estimating were complete by the end of the first quarter.
David L. Lamp: Our current plan is to approach the market in the second half of 2024 to solicit bids for partners to invest in the construction of our renewable diesel and sustainable aviation fuel facility near Coffeyville with a capacity of up to 500 million gallons per year.
David L. Lamp: As we have discussed in previous calls, we continue to evaluate opportunities for renewables expansions, particularly into SAF production at both Wynnewood and Coffey. For the potential Wynnywood project, we plan to begin soliciting bids over the next few months for off-tech agreements that would support the potential conversion of the existing RDU to 100% SAF. On a potential larger project we are evaluating at Coffeyville, we currently expect to have preliminary engineering and cost estimating work complete by the end of the first quarter. Our current plan is to approach the market in the second half of 2024 to solicit bids for partners to invest in the construction of a renewable diesel and sustainable aviation fuel facility near Coffeyville with a capacity of up to 500 million gallons per year. We believe there is interest in the market for projects like this, and ultimately, our board approval of the project will depend on our ability to find partners willing to fund the cost of construction.
David L. Lamp: We believe there is interest in the market for this product.
David L. Lamp: <unk> like this and ultimately our board approval of the project will depend on our ability to find partners willing to fund the cost of construction.
David L. Lamp: We are also making progress on several margin enhancing projects at the refineries during the upcoming turnaround at <unk>, We plan to complete tie in work for the diesel yield improvement project with.
David L. Lamp: With final completion and startup expected in the first half of 2025.
David L. Lamp: For the diesel improvement project at Coffeyville, We currently plan to complete tie in work on on.
David L. Lamp: One half of the project in 2025 with completion and startup currently expected in 2026.
David L. Lamp: We are also working with a partner to utilize a trans load facility at the Coffeyville location.
David L. Lamp: That they are constructing to increase our capacity to send gasoline diesel and jet via rail due to higher prices in regions to the west.
David L. Lamp: You're also making progress on several margin-enhancing projects at the refinery. During the upcoming turnaround at Wynnywood, we plan to complete tie-in work for the Diesel Yield Improvement Project, with final completion and startup expected in the first half of 2025. For the Diesel Improvement Project at Coffeyville, we currently plan to complete tie-in work on one half of the project in 2025, with completion and startup currently expected in 2026. We are also working with a partner to utilize a transload facility at the Coffeyville location that they are constructing to increase our capacity to send gasoline, diesel, and jet via rail due to higher prices in regions to the west. And finally, the ovulatory project at Wynnywood remains on track for completion in 2026.
David L. Lamp: And finally, the alkylation project at <unk> remains on track for completion in 2026. Once completed this project is intended to increase gasoline production by 2500 barrels per day, reducing the sale of propylene and.
David L. Lamp: In addition to eliminating the use of hff's at it than when you would refinery.
David L. Lamp: If successful successfully completed we believe these projects combined would increase our overall margin capture by 4%.
David L. Lamp: Looking at the first quarter of 2024 quarter to date metrics are as follows group 211 cracks have averaged $16 35.
David L. Lamp: With the Brent Ti spread at five to $5 25 per barrel and the WCS differential of $18 63 per barrel under WTO.
David L. Lamp: Once completed, this project is intended to increase gasoline production by 2,500 barrels per day, reducing the sale of propylene, in addition to eliminating the use of HF acid at the Winnie Wood refinery. If successfully completed, we believe these projects combined would increase our overall margin capture by 4%. Looking at the first quarter of 2024, the quarter-to-date metrics are as follows. Group 2-1-1 cracks have averaged $16.35, with the Brent TI spread at $5.25 per barrel and the WCS differential of $18.63 per barrel under WTI. Prompt fertilizer prices are $500 to $550 per ton for ammonia and $270 to $280 per ton for UAM.
David L. Lamp: Prompt fertilizer prices are 500 to $550 per ton for ammonia and $2 70 to $80 per ton for UAS.
David L. Lamp: As of yesterday group.
David L. Lamp: Group 211 cracks were $19 55 per barrel, Brent Ti was $4 16 per barrel and WCS was $17 35 under WTO.
David L. Lamp: <unk>.
<unk> were approximately $2 93 per barrel.
Speaker Change: With that operator, we're ready for questions.
Speaker Change: Thank you we will now be conducting a question and answer session.
Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Confirmation tone will indicate your line of my question queue.
Operator: As of yesterday, Group 211 cracks were $19.55 per barrel, Brent TI was $4.16 per barrel, and WCS was $17.35 under WTS. Wins were approximately $2.93 per barrel. With that, operator, we're ready for questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would 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 key.
Speaker Change: You May press Star two if you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Speaker Change: Thank you. Our first question comes from the line of Neil Mehta with Goldman Sachs. Please proceed with your question.
Neil Mehta: Hey, Dave Hey team, thanks for taking the time.
Neil Mehta: Yeah.
Neil Mehta: Sure Neal.
Neil Mehta: First question is just around the return of capital.
Neil Mehta: Last year, you guys had a great year in terms of $4 50 in terms of cash dividends. How do you think how do you think about the role of a special dividend in 2024, and the context at the refining outlook that you outlined on the call.
Neil Mehta: Well.
Operator: One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Neil Mehta with Goldman Sachs. Please proceed with your question. Hey Dave, hey team, thanks for taking the time. Sure, Neil.
Speaker Change: It's hard to hard to predict at this point Neil.
Speaker Change: I think our regular is probably safe without without much doubt.
Speaker Change: Specials as we've said before is really it takes extraordinary cracks for us to generate specials and.
David L. Lamp: The first question I had is just around the return of capital. Last year you guys had a great year in terms of $4.50 in terms of cash dividends. How do you think about the role of the special dividend in 2024 in the context of the refining outlook that you outlined on the call? Well, it's hard to hard to predict at this point, Neil, but I think our regular is probably safe, without much doubt. Specials, you know, as we've said before, it takes extraordinary cracks for us to generate specials. And, and, you know, maybe they'll come back, maybe they won't.
Speaker Change: And maybe they'll come back maybe they won't.
Speaker Change: It's hard to say at this point.
Neil Mehta: Yes, understood and then.
Speaker Change: Just love your perspective on the crude market as we've talked a lot about the cracks here.
Speaker Change: Especially in the mid continent over the last couple of weeks, but.
Speaker Change: Just as you look at the underlying differentials whether it's.
Speaker Change: Ti Brent whether it's WCS.
Speaker Change: What are you spending time thinking about as it relates to crude spreads and how do you see that as a policy over the year.
Speaker Change: Well I think.
Speaker Change: Uh huh.
David L. Lamp: It's hard to say at this point. Yeah, understood. And then, you know, just from your perspective on the crude markets, we've talked a lot about the cracks here, especially in the midcontinent over the last couple weeks. But just as you look at the underlying differentials, whether it's TI Brent or WCS, what are you spending time thinking about as it relates to crude spreads? And how do you see those evolving?
Speaker Change: <unk> said this many times.
Speaker Change: The U S fleet is probably saturated with light crude and I don't see many investments too to really change that trajectory. There were a couple of condensate splitters built.
That could help or heavy oil refiner prop.
Speaker Change: Process more shale oil but.
Speaker Change: No new projects have been announced that I know and I think that bodes well for for exports.
David L. Lamp: Well, you know, I think, you know, I've said this many times, you know, the U.S. fleet is probably saturated with light crude. And I don't see many investments to really change that trajectory. You know, there were a couple of condensate splitters built that can help a heavy oil refiner process more shale oil, but no new projects have been announced that I know of.
Speaker Change: Bodes well for the Brent Ti.
Speaker Change: Especially in when you look at the freight rates have gone up substantially.
Speaker Change: With.
Speaker Change: The Red sea issues that are occurring in the middle East as.
Speaker Change: As far as WCS goes of course, we have no doubt there is a new pipeline coming on going west that substantially increase.
David L. Lamp: I think that bodes well for exports, which bodes well for the Brett TI, especially when you look at the freight rates which have gone up substantially with the Red Sea issues that are occurring in the Middle East. As far as WCS goes, of course, you know, we have no doubt there's a new pipeline coming on going west that's substantially increasing. I don't see that making a whole lot of impact on, at least our business. It will allow less rail to leave Canada, but the tariff out there is really large, and there are a lot of constraints on shipping and transloading going off the west coast.
Speaker Change: I don't see that making a whole lot of impact on on at least our business.
Speaker Change: It will allow more less rail to be too.
Speaker Change: To leave Canada.
Speaker Change: But.
Speaker Change: Tariff out there is really large and there's a lot of constraints on shipping and trans loading out.
Speaker Change: Going off the West coast so.
David L. Lamp: I still see it really not impacting us a whole lot. Thanks, Dave. Appreciate that. Our next question comes from the line of Matthew Blair with Tudor Pickering. Please proceed with your question. Hey, good morning.
Speaker Change: We'll see it.
Speaker Change: Not impacting us at a whole lot.
Speaker Change: Thanks, Dave I appreciate that you are welcome.
Speaker Change: Our next question comes from the line of Matthew Blair with Tudor Pickering. Please proceed with your question.
Matthew Blair: Hey, good morning, circling back to the return of capital question. It looks like you will start 2024 was some excess cash on the balance sheet.
David L. Lamp: Circling back to the return of capital question, it looks like you will start 2024 with some excess cash in the balance sheet. Do you think that that would help augment the special dividend outlook for 2024? Or do you need to save that cash for other uses, whether it's M&A or this potential coffee bill, RD, and SAF project? Well, Matt, I think our point of view is that we have a little bit more cash on the balance sheet just because we have a rent shortfall that's out there in the past. And our main strategy has been to keep our, you know, keep our rating where it is with the rating agencies, and that requires probably a little more cash just to compensate for it. But as rent prices drop, that liability is dropping rapidly.
Matthew Blair: Do you think that that would help augment the special dividend outlook for 2024 or do you need to save that cash for other uses whether it's M&A or potential Coffeyville Rd and SaaS project.
Speaker Change: Well, Matt I think our point of view is that we have a little bit more cash on the balance sheet, just because we have orin short that's out there in the past.
Speaker Change: Our main strategy has been to keep our keep.
Keep our rating where it is with the rating agencies and that requires probably a little more cash just to compensate for it but as RIN prices drop that that liability is dropping rapidly.
David L. Lamp: So, you know, we'll, the board will look at dividends every, every quarter. You know, we've always set a minimum cash to basically stay out of our revolver on crude days and other events that occur in the business, like turnarounds, around $500 million, $450,000, $500 million, and we plan to stay in that range. Sounds good. And then, on the potential Winniewood conversion to SAF, do you have a cost estimate for that project? I think one of your peers was in the $1.30 to $1.40 per gallon range.
Matt: So will the board will look at looks at dividends every every quarter.
Matt: We've always set our minimum cash of.
Matt: Due to basically stay out of a revolver on crude days and other other events that occur in the business like turnarounds.
Matt: Around $500 million $4, 50, $500 million and we plan to stay on that debt range.
Speaker Change: Sounds good and then on the on the potential when he would conversion too to staff do you have a cost estimate for that project I think one of your peers within like the $1 30 to $1 40 per gallon range do you think you'd be in a similar ballpark on that and then do you.
David L. Lamp: Do you think you'd be in a similar ballpark on that? And then, I guess, would you expect to be able to tap non-U.S. SAF markets if you did go through with that project? Looks like European SAF premiums are a lot higher than what we might see in the U.S., and so would that be an opportunity for you? Yeah, we're looking at all the above. I mean, we've had a lot of interest in this. A lot of people have approached us about this. And, you know, it's a conversion that can be done rather rapidly, although it does require another reactor to be added to the system. I would say we're in that ballpark of what you suggested in terms of capital, the dollar. I think ours would probably be in the dollar to a dollar forty range, somewhere in there.
Matt: Have.
Matt: I guess would you expect to be able to tap non U S stock markets.
Matt: If you did go through with that project looks like European Fab premiums are a lot stronger than what we might see in the U S and so.
Matt: Would that be an opportunity for you.
Yes, we're looking at all of the above I mean, we've had a lot of interest in this a lot of people approach us on this.
Matt: The.
Matt: Conversion that can be done rather rapidly although it does require another reactor.
To be added to the system.
I would say we're in that ballpark, what you suggested in terms of capital in the dollar I think ours would be probably a dollar to $1.40 range somewhere in there.
Matt: And yes, there is there's a lot of interest coming from Europe.
David L. Lamp: And yeah, there's a lot of interest coming from Europe, Canada, and the West Coast on SAF in general. You know, our approach to this is maybe a little different than others. We are kind of insisting we want to off-take agreements that, you know, negate the uncertainty of government subsidies.
Matt: Canada and West Coast.
Matt: Saf in general.
Matt: It's what our approach on this is maybe a little different than others.
Matt: We are kind of insisting we want off take agreements.
Matt: That negate the uncertainty of government subsidies.
David L. Lamp: So, you know, anything we structure will be such that we pretty much guarantee a margin that will justify the capital we would put in should we execute the project. As far as, you know, you mentioned a little bit of a capital reserve for the Coffeeville project, we do not plan on putting any capital in that project. If we can't find partners that are willing to fund the construction with us donating, or basically to the, not donating, but as part of the transaction, we would put our renewable diesel business at Winnewood into a joint venture. Sounds good. Thanks for the color.
Matt: So.
Matt: Anything we structure will be such that.
Matt: We pretty much guarantee a.
Matt: A margin.
Matt: That will justify the capital we would put in it should we should we execute the project.
Matt: And as far as you mentioned a little bit of capital reserve for the Coffeyville project, we do not plan on putting any capital in that project. If we can't find partners that are willing to fund the construction with us donating our basically to the.
Matt: Don any but.
Matt: As part of the transaction that would put our renewable.
Matt: Diesel business at <unk> into the into a joint venture.
Speaker Change: Sounds good thanks for the color.
David L. Lamp: You're welcome. Our next question comes from the line of John Royal with J.P. Morgan. Please proceed with your question. Thank you.
Speaker Change: Youre welcome.
Speaker Change: Our next question comes from the line of John Royall with Jpmorgan. Please proceed with your question.
John Royall: Hi, good afternoon, Thanks for taking my question.
Dane Newman: Thanks for taking my question. So my first question is on the hedge program for 24. I think you had previously said you're about 15% hedged throughout the year. Any more details you can provide on that? If that's still the right number? And is it more front half loaded, more loaded towards one product or another? Just any color you can give them on the 24 hedges would be helpful.
John Royall: So my first question is on the hedge program for 24, I think you had previously said you.
You were about 15% hedged throughout the year any more details you can provide on that if that's still the right number and is it more front half loaded more loaded towards one product or another or just any color you can give them the twenty-four hedges would be helpful.
Dane Newman: You got it, John. This is Dane. Yeah, in terms of volume, we're still around that 15% level, as you indicated, not much has changed on that front since last quarter. It is a little more front loaded and more weighted towards distance. We are adding some in 2025, too, John. And that's, I think, we're below 3%, 4% at this point. Yeah, very small number, yeah.
John Royall: Okay, you got it John this is Dan.
Dan Newman: In terms of volume, we're still around that 15% level as you indicated not much has changed on that front since last quarter.
Dan Newman: It is a little more frontloaded and more weighted towards disorder.
Dan Newman: We are adding some in 'twenty five to John So.
Dan Newman: And that's I think we're below three 4% various volume, but we still have the view that.
Dan Newman: As these these large merchant refiners come on around the world that the diesel cracks are going to be pressure and so most of what we're doing is around diesel.
Dane Newman: But we still have the view that as these large merchant refiners come on around the world, diesel cracks are going to be pressured, and so most of what we're doing is around diesel. Okay. Thank you. And then maybe just a housekeeping question for Dane, given we don't have the 10k at this point.
Speaker Change: Understood. Thank you and then.
Speaker Change: Maybe just a housekeeping question for Dan given we don't have the 10-K at this point.
Dane Newman: We see your CFO is negative, but looking at the working capital number, I think it's down from 3Q. So what should we think of as a driver of that cashflow flipping negative and what was pretty, you know, solid from an earnings perspective in the quarter? Not sure if it's deferred tax or some other item we may be missing, but any color there would be helpful. Yeah, I'll give you a couple things there.
Speaker Change: We see your CFO is negative.
Speaker Change: But looking at the working capital number I think it's down from <unk>.
Speaker Change: What should we think of as the driver of that cash flow flipping negative and what was pretty solid from an earnings perspective.
Speaker Change: In the quarter not sure if it's deferred tax or for some other items, we may be missing, but any color there would be helpful.
Speaker Change: Yes.
Just to give you a couple of items. There there are a lot of movers in the quarter, we were kind of expecting this this type of free cash flow draw.
Dane Newman: There are a lot of movers in the quarter. We were kind of expecting this type of free cashflow draw. You know, in our fourth quarter, we typically, we always settle our stock-based compensation payments in cash. We prepay insurance expenses in cash.
And our fourth quarter, we do typically.
Speaker Change: <unk>, we always said all our stock based compensation payments and cash we prepay insurance expenses and cash so well build those back up over the course of the next year.
Dane Newman: So we'll build those back up over the course of the next year. One of the other bigger moving items, as you recall, we had some record crude gathering at the wellhead in the third quarter as well as higher crude prices. As the winter months came on, that slowed a little bit.
Speaker Change: One of the other bigger moving items as you recall, we had some some record crude gathering at the wellhead in the third quarter as well at higher crude prices.
Speaker Change: As the winter months came on that slowed a little bit and as the prices fell liability.
Dane Newman: And as prices fell, liability dropped pretty dramatically quarter over quarter. And then also buried in that number, of course, is the correct spread swap, unrealized gain, which pulls that liability down, which is, you know, if the market stays where it is as a future cash savings or gain, depending on the settlement of those hedges. Lastly, on the fertilizer business, we had a pretty good deferred revenue in cash sitting on the books at the end of the third quarter. Subsequent to that, the customer buying pattern really started to change, and we're attributing that to the higher cost of carrying inventory. Our prepay value dropped pretty dramatically down to like $3 million, so more headwinds, but all relatively expected from our perspective.
Speaker Change: Liability dropped pretty dramatically quarter over quarter.
Speaker Change: And then also buried in that number of course is the.
Speaker Change: The crack spread swap unrealized gain Paul that liability down wishes, if the market stays where it is as a future cash savings or gain depending on the settlement of those hedges.
Speaker Change: Lastly.
Speaker Change: On the fertilizer business.
Speaker Change: We had a.
Speaker Change: Pretty good differed deferred revenue and cash sitting on the books at the end of the third quarter.
Speaker Change: Subsequent to that the customer buying pattern really started to change and we're attributing that to the higher cost of carrying inventory or prepay value dropped pretty dramatically down to like $3 million, so more headwinds, but all relatively expected from our perspective.
Speaker Change: Thank you.
Dane Newman: Thank you. Our next question comes from the line of Manav Gupta with UBS. Please proceed with my question. Hi guys, quick question: it looks like you are doing projects at both locations which will give you a higher diesel yield. So help us understand how much more diesel will you be producing on a combined basis from these value-enhancing projects, and I'm assuming these are high-return projects, but if you have a rate of return for these two projects that you are pursuing, which gives you higher diesel yield, Yeah, between the two plants, we're targeting about 6000 barrels a day for additional production, which would come from cat feed, and that, as you So, you know, the ultimate target there is really improving capture.
Speaker Change: Our next question comes from the line of Manav Gupta with UBS. Please proceed with your question.
Hi, guys quick question. It looks like you are doing projects at both locations between gives you a higher diesel yield so help us kind of understand how much more diesel will be producing kind of combined basis on these value enhancing projects.
Manav Gupta: I'm, assuming these are high return projects, but if you have the rate effect on these two projects that we're pursuing which gives us a higher <unk>.
Speaker Change: Yeah Manav between between the two plants, we are targeting about 6000 barrels a day of additional production, which would come from cat feed in essence.
Speaker Change: As you know typically a cap record does 70, 30 70 gasoline <unk>.
Manav Gupta: 70 gasoline, 30% diesel.
Manav Gupta: The ultimate.
The target there is really.
As improving capture.
Manav Gupta: And that that's all in that 4% number I kind of talked about earlier.
David L. Lamp: And that's all in that 4% number I kind of talked about earlier. Okay, perfect. And a second question we ask all other refiners: there is an asset package out there.
Speaker Change: Okay. Perfect second question, we ask all other refiners that is an asset package out there it doesn't make sense for many people, but it kind of makes a little bit of a sense for you you'll get to a 1 million barrels of refining capacity has more product dominoes pipelines would there be any sooner.
David L. Lamp: Now, it doesn't make sense for many people, but it kind of makes a little bit of sense for you. You could get to 1 million barrels of refining capacity, have more product terminals, and pipelines. Would there be any scenario in which you might look at Citgo assets for the right valuation?
Speaker Change: Ideally in which you might look at cyclical assets for the right valuation.
Speaker Change: Well Manav, we look at everything.
David L. Lamp: Well, Manav, we looked at everything. So, I think I'll just leave it at that. Thank you. Thank you, sir. You're welcome.
So I think I'll just leave it at that.
Speaker Change: Thank you Sir.
Speaker Change: Youre welcome.
Speaker Change: Our next question comes from the line of Paul Cheng with Scotiabank. Please proceed with your question.
David L. Lamp: Our next question comes from the line of Paul Cheng with Scotiabank. Please proceed with your question. Hi, good morning. I think it's still morning for you guys, or maybe it's already afternoon.
Paul Cheng: Hi, good morning.
Paul Cheng: Thank you.
Yes, Hey, good morning for you guys.
Paul Cheng: Well maybe afternoon already.
Paul Cheng: Okay.
David L. Lamp: Dave, when you're looking at your gathering system, uh... have you sensed that, or have you seen the activity level of your customers there? Are they increasing or about flat, or decreasing in recent months? I mean, anything that you can tell us in terms of, say, do you think that you are going to be able to get more or that it's going to be sustained at this level? Well, Paul, you know, as evident by our numbers, we've seen an increase in volume, and that's mainly due to a couple of big plays in the Anarcho Basin. Will they continue?
Paul Cheng: When when Youre looking at your gathering system.
Paul Cheng: Have you sensed that or have you seen that taper.
Paul Cheng: Lateral off in your customer there.
Paul Cheng: Increasing flat or decreasing in the.
Paul Cheng: Recent months.
Paul Cheng: I mean, one of the things that you can tell us that in terms of say do you think that you are going to be able to get them more on that and that's going to be sustained at this level.
Speaker Change: Hello, Paul.
Paul Cheng: As evidenced by our numbers, we've seen an increase in volume and that's mainly due to a couple of big plays in the Anadarko Basin.
Paul Cheng: Well they can continue I mean as far as as far as we know what we hear from producers is there is probably a slight gain going through 'twenty five 'twenty six.
David L. Lamp: I mean, as far as we know, what we hear from producers is that there there's probably a slight gain going through 25, 26, but after that, we don't have much visibility on what might occur. You know, a lot of the Anacarico Basin is fed by not only shale oils but just legacy conventional wells that just kind of sit there and produce. So, as we gain market share, you know, we'll get more and more of those, but the bigger volumes of new stuff are really, are really, the shale oil plays in the FRAC zones. And there are, there's several big projects that are, they're in development now.
After that we don't have much visibility on what what might occur.
Paul Cheng: A lot of.
Paul Cheng: Anadarko basin is fed by I'm, not only shale oils, but but just legacy <unk>.
Paul Cheng: Conventional wells that just kind of sit there and.
Paul Cheng: And produce so as we gained market share, we will get more and more of those but.
Paul Cheng: The bigger volumes of new stuff is really is really as the shale oil plays in the Frac practices zones. In there is there are several big projects that are in development now.
Paul Cheng: Alright.
David L. Lamp: Great. On renewable diesel, can you share what the EBITDA loss was in the quarter and what the growth margin was? And also, I mean, if we're excluding the market condition, what kind of self-help or initiative could we expand for that business? Well, if you look at 2023, Paul, going into the third quarter, we were pretty much on the profit side of the equation. The fourth quarter hit, and bean oil dropped like a rock.
Paul Cheng: On the renewable diesel can you share what is the EBIT loss in the quarter.
Paul Cheng: And what's the gross margin.
Paul Cheng: And also I mean, if we excluding the market condition.
Paul Cheng: What kind of sales have already initiated that.
Paul Cheng: We could expand that business.
Paul Cheng: Well, if you look at 2023 Paul.
Paul Cheng: Going into the third quarter, we were pretty much or I'd call and the profit side of the equation the fourth quarter hit and bean oil dropped like a rock we are unhedged on feedstocks so that.
David L. Lamp: We were unhedged on feedstock, so that took away most of that positivity we had in the first three quarters for the fourth quarter. So I think we ended the year slightly negative, but not too far from break-even. We really anticipate that the pretreater is going to make a huge difference, because most of the time in these catalyst beds that we have on untreated feed or even bleached, refined, and deodorized bean oil, the particulates and the other stuff that's in there just plug up the bed.
Paul Cheng: That took away most of that that positivity, we had in the first three quarters.
Paul Cheng: For the fourth quarter. So I think we ended the year slightly negative but.
Not too far from breakeven, we really anticipate that the that the pre treaters are going to make a huge difference because most of the time on these catalyst beds that we have on untreated feed.
Paul Cheng: Or even bleached refined and Deodorize bean oil.
Paul Cheng: The particulars and the other stuff that's in there just plugged up the bed.
David L. Lamp: So, with the pre-treater on, we're going to fix a lot of that, and that's going to lead to yield improvements and lower costs all the way across. But we're still, our unit is still challenged with a lack of catalyst and the high space velocity of the reactor. And that's the reason that we're going to hold the rates back and try to improve the yields and the run length by adjusting the rate until we can answer the question on SAF. Because if we did SAF, that would solve a lot of those problems, and we'd be all the way to the nameplate at that time. Thank you. Dave, can you help us to understand why the SAF will solve that problem for you? Well, we're a single reactor system today. This gets kind of technical, but I'm happy to tell you.
Paul Cheng: So what the free trade or on we're going to we're going to fix a lot of that we believe.
Paul Cheng: That's going to lead the yield improvements and lower cost all the way across.
Paul Cheng: But we're still our unit is still challenged with.
Paul Cheng: Lack of catalyst and the high space velocity in the reactor and that's the reason that we're going to hold the rates back and try to improve the yields and the run length.
Bye bye adjusting the rate until we can.
Answer the question on SaaS, because thats, if we did SaaS that would solve a lot of those problems and we back we'd be all the way to the nameplate at that time.
Paul Cheng: Uh huh.
Paul Cheng: Dave can you help us to understand why the Saf, we solve that problem for you.
David L. Lamp: Well, we're a single reactor system today.
David L. Lamp: This gets kind of technical but I'm happy to tell you.
David L. Lamp: Today, we are a single reactor we have the iPhone catalyst in with the regular.
David L. Lamp: Today, we're a single reactor. We have the ison catalyst in with the regular water removal facility. If we add another reactor, we separate those two. So, we'll have additional catalyst in the front end, which is really our constraint. And then the ISOM catalyst life will be vastly improved because you're stripping all the impurities away that tend to poison that catalyst. So that's how you do it.
David L. Lamp: I'll call water removal facilities.
David L. Lamp: If we add another reactor we separate those two.
David L. Lamp: So we will have additional catalyst in the front end, which is where our constraint.
David L. Lamp: And then the iPhone catalyst life will be vastly improved because youre stripping all the impurities away that that tend to to poison that catalyst.
Speaker Change: So that's how you do it.
David L. Lamp: I see. And a final one for me, you're talking about trying to improve the dissonant view and those projects. What might the capital cost look like and how long it takes for the project if you do sanction it? Well, we're still working on the numbers, but, you know, preliminary, it looks like Wynnewood's probably drawn $10 million, somewhere in that neighborhood, to do the entire project. Coffeeville will probably be a little bit more, but not by a whole lot, I'm anticipating because there are two units we'd have to do there, two on the vacuum towers and two on the hydrotreater side. So that one might cost a little bit more, but it also creates a lot more volume. I mean, the yield improvement sounds so great, so what's the catch? I mean, that it is so great. I would imagine you guys have done it in the past, so the fact that it has not been done, is there any reason why it has not been done in the past? Well, I don't know that I have a solid reason why we didn't do it.
Speaker Change: And a final one from me you're talking about that disconnect.
Speaker Change: <unk> posted this mcneill and those yes Jack.
Speaker Change: What is the capital cost may look like and how long it takes for the project you have mutually Samsung yet.
Speaker Change: Well, we're still working on the numbers, but.
Speaker Change: It looks like when he was probably drawn 10 million somewhere in that neighborhood to do the entire project.
Speaker Change: Coffeyville will probably be a little bit more but not a whole lot anticipating because theres two units, we would have to do there.
Speaker Change: Two on the vacuum towers and two on the on the Hydro Treater side.
Speaker Change: So that one might cost a little bit more but it also creates a lot more volume so.
Speaker Change: Yes.
So the helium Hoffman songs, so Greg so what's the catch.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Greg I mean, I imagine you guys haven't done yet.
Speaker Change: So the fact that it.
I have not been kannan.
Speaker Change: Is there any reason that Hawaii, yes have not been done in the past.
Greg: Well I don't know that I have.
Greg: A solid reason why we didn't do it I guess.
David L. Lamp: I guess, you know, brainstorming, looking at cracks, distillate cracks in 2022 and 23 kind of maybe woke up our creative juices to find more diesel. So we did some analysis and did some sampling of what is recoverable, and then we went to work to figure out how. And we found it. Okay, great. Thank you. You're welcome. Thank you. We have reached the end of the question and answer session. 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 and commitment to safe, reliable, and environmentally responsible operations. And we look forward to reviewing our first quarter results during our next earnings call.
Rain storms looking at cracks gas distillate cracks.
Greg: In 2022, and 'twenty three kind of maybe woke up our creative juices to to find more diesel.
Greg: So we did some analysis and did some sampling of what is recoverable and then we went to work to figure out how.
Greg: And we.
Greg: We found it.
Speaker Change: Okay, great. Thank you.
Speaker Change: Youre welcome.
Speaker Change: Thank you we have reached the end of the question and answer session I would now like to turn the floor back over to management for closing comments.
Well 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 environmentally responsible operations.
Speaker Change: And we look forward to reviewing our first quarter results during our next earnings call.
David L. Lamp: Have a great day. 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.
Have a great day.
Speaker Change: 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.