Q3 2024 CVR Energy Inc Earnings Call
Greetings and welcome to the CVR Energy 3rd Quarter 2020 4 conference call. At this time, all participants are an Alisson-only mode. A brief question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce your host, Richard Roberts, Financial Planning and Analysis in Investor Relations. Thank you, sir. You may begin.
Richard Roberts: Thank you, Christine. Good afternoon, everyone. We very much appreciate you joining us this afternoon for our CBR Energy Third Corps 2024 earnings call. With me today are Dave Lamp, our Chief Executive Officer, Dane Neumann, our Chief Financial Officer, and other members of management.
Richard Roberts: Prior to discussing our 2024 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 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 factors set forth in our filing for the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in the forward-looking statements.
Richard Roberts: We undertake no obligation to publicly update any forward-looking statements as a result of new information, future events, or otherwise, except to the extent required by law.
Richard Roberts: This call also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliation of the most directly comparable GAAP financial measures, are included in our 2024 3rd quarter earnings release that we filed with the SEC in Form 10-Q for the period and will be discussed during the call.
Speaker Change: That said, I'll turn the call over to Dave.
Dave Lamp: Thank you, Richard. Good afternoon, everyone, and thank you for joining our earnings call.
Dave Lamp: Yesterday, we reported third quarter consolidated net loss of $122 million and a loss per share of $1.24. EBITDA was a loss of $35 million.
Dave Lamp: Our results were impacted by unplanned downtime at both facilities during the quarter.
Dave Lamp: Partially due to external power supply outages, along with an unfavorable mark-to-market impact on our outstanding RFS obligation, and negative inventory readout validation,
Dave Lamp: impacts due to the declining crude oil price.
Dave Lamp: With the upcoming major turnaround that's planned at Coffeyville next year, maintaining adequate liquidity and a strong balance sheet is a primary focus as we navigate the currently
Dave Lamp: challenging refining market. In light of this, the Board of Directors has elected to suspend the quarterly dividend as we look to preserve cash on the balance sheet.
Dave Lamp: While this was a difficult decision, we believe it is an appropriate course of action given our near-term cash needs and the current forward strip for crack spreads into 2025.
Dave Lamp: In our petroleum segment, combined total throughput for the third quarter of 2024 was approximately 189,000 barrels per day and life product yield was 99% on crude oil process.
Dave Lamp: We had a very difficult operational quarter with multiple plant interruptions, some of which were related to or were the result of external power supply outages.
Dave Lamp: Crude oil utilization for the quarter was 85% compared to our third quarter.
Dave Lamp: of which approximately 13 million was related to external power issues.
Dave Lamp: Year-to-date, total lost profit opportunity was approximately $73 million.
Dave Lamp: Group 3 2-1-1 benchmark cracks averaged $19.40 per barrel for the third quarter of 2024 compared to $39.10 per barrel.
Dave Lamp: for the third quarter of last year. Average RIN prices for the third quarter of 2024 also declined from the prior year period and ended the quarter at approximately 74 cents on an RVO-weighted basis, although this was a 7% increase from last quarter.
Dave Lamp: regarding the RFS.
Dave Lamp: The situation remains incomprehensible.
Dave Lamp: who suffered disproportionate economic harm.
Dave Lamp: Both the 5th circuit and the DC circuits.
Dave Lamp: called EPA's denial of the most
Dave Lamp: of most hardship petitions, arbitrary and capricious, vacating those denials and remanding them back to EPA.
Dave Lamp: Incredibly, despite this express statutory obligation to rule on hardship petitions within 90 days, EPA has done nothing, even though almost a year has passed since the Fifth Circuit loss.
Dave Lamp: EPA's egregious conduct has left pending petitioners hanging in limbo for years, and the financial impact of their actions threaten the very existence of small refineries like ours.
Dave Lamp: that a U.S. federal agency can be allowed to flagrantly and repeatedly repeatedly violate the law without recourse shakes the very foundation of our government.
Dave Lamp: No one is above the law, including EPA, so I call you out, Administrator Regan. EPA has broken the RFS, violated the law, persistently ignores very clear direction from the courts.
Dave Lamp: to remedy the root cause of small rig firing harm.
Dave Lamp: EPA's decision to violate the RFS law allowing non-obligated parties to produce, buy, sell, trade, and hoard RINs resulting in manipulation of the RIN market.
Speaker Change: For the third quarter of 2024, we processed approximately 20 million gallons of vegetable oil feedstocks through the Renewable Diesel Unit at Winniewood.
Speaker Change: The hobo spread weakened slightly from the second quarter of 2024 with lower diesel prices, although this was offset by higher prices for D4 RINs and LCFS credits, which helped drive a positive result for the quarter.
Speaker Change: As a reminder, our renewable diesel business is currently reported in our corporate and other segments.
Speaker Change: In the fertilizer segment, both facilities ran well during the quarter with a consolidated ammonia utilization of 97%.
Speaker Change: Nitrogen fertilizer prices for the third quarter of 2024 increased relative to the third quarter of 2023, and we saw strong demand for ammonia and UAN over the summer.
Speaker Change: Now let me turn the call over to Dane to discuss our financial highlights. Thank you, Dave, and good afternoon, everyone.
Dane Neumann: For the third quarter of 2024, our consolidated net loss was $122 million, losses per share were $1.24, and EBITDA was a loss of $35 million.
Dane Neumann: Excluding the above-mentioned items, adjusted EBITDA for the quarter was $63 million and adjusted loss per share was $0.50.
Dane Neumann: Adjusted EBITDA on the petroleum segment was $24 million for the third quarter, with the decline from the prior year period primarily driven by lower product cracks in Group 3 and reduced throughput volumes due to the downtime at both facilities.
Dane Neumann: Our third quarter realized margin, adjusted for written mark-to-market impacts, inventory valuation, and unrealized derivative gains, was $8.23 per barrel, representing a 42% capture rate on the Group 3 2-1-1 benchmark.
Dane Neumann: We estimate the unplanned downtime in the quarter negatively impact that are captured by approximately 7% related to the resale of gathered crude oil and the purchase of refined products, while the backwardation in the market drove an additional 6% unfavorable
Dane Neumann: As a reminder, our estimated outstanding RIN obligation excludes the impact of any small refinery exemptions.
Speaker Change: Cash provided by operations for the third quarter of 2024 was $48 million, primarily driven by $87 million of cash flow from the fertilizer segment.
Speaker Change: Significant uses of cash in the quarter included $50 million for the CBI second quarter 2024 dividend.
Speaker Change: Turnaround spending is expected to be approximately 50 to 60 million.
Speaker Change: Thanks Dan. Although we saw a slight improvement in the Group 3 crack spreads from the second quarter levels, overall refining markets remain challenging.
Speaker Change: While the board's decision to suspend the dividend was difficult, we believe the key to surviving these downturns in refinery is maintaining adequate liquidity and protecting the balance sheet while we focus on areas we control, safe, reliable operations while reducing costs and capital spend.
Speaker Change: So far in the fourth quarter, we've seen utilization rates
Speaker Change: While this is encouraging, ultimately, we believe we need to see additional refining capacity rationalization in both the U.S. and globally in order for crack spreads to make a sustained move higher.
Speaker Change: In the fertilizer segment, we believe we are currently in more of a mid-cycle type environment.
Speaker Change: after the peaks we saw over the past few years and we are encouraged to see ammonia and UAN prices for the third quarter increase relative to the third quarter of last year. The fall harvest is ahead of schedule, nearing completion, and conditions look favorable for the fall ammonia application.
Speaker Change: Nitrogen fertilizer prices for the fourth quarter are up approximately $50 per ton for ammonia and $10 per ton for UAN compared to the fourth quarter of 2023.
Speaker Change: Finally, in renewables, we are pleased with the third quarter results from the Wynnewood
Speaker Change: Renewable diesel unit with this being the first full quarter of operations with the RD unit with a pre-treater our discussions with interested party counterparties related to
Speaker Change: The potential conversion of the Winnywood Renewable Diesel Unit to 100% SAF are ongoing. As we said before, we would not expect to move forward with a conversion without developing an offtake structure for SAF that would provide us downside protection and minimize our reliance on government credits.
Speaker Change: Rins were at $4.29 per barrel.
Speaker Change: The crack at these levels is well below mid-cycle and may remain this way through the next year. This creates an opportunity for us to focus on positioning our business for the long term so we are best equipped to take advantage of favorable market conditions when they return, as I believe they will. So here is our plan.
Speaker Change: 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 from the question queue. You may press star 2 if you would like to remove your question from the queue.
Speaker Change: So we're just being cautious. If you look at the turnaround we have coming up, it's our largest turnaround of the sequence.
Speaker Change: every five years it's around 180 million dollars is about half of our budget a little less than half of our budget for turnarounds in that cycle and we're just taking taking it very cautiously
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional both in the U.S. and Israel. His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered at www.profile-financial.com, or email him at profile-financial.com, or call 1-800-637-8443. He is a licensed financial professional both in the U.S. and Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE & SIPC, a Fidelity Investments company. His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered at www.profile-financial.com, or can be ordered at www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA,
Speaker Change: and Richard Roberts. Thank you. Thank you.
Speaker Change: Our next question comes from the line of Matthew Blair with Tudor Pickering. Please proceed with your question.
Speaker Change: Yes we have we have recovered some money from it you know I anticipate our cost from a PPI basis was somewhere in a neighborhood of 25 million so we have a deductible it comes off of that but but you know we don't we don't have an answer for it yet exactly how much we'll get out of that
Speaker Change: Our next question comes from line of John Royal with JP Morgan, please proceed with your question
John Royal: Hi, good afternoon. Thanks for taking my questions. I was just hoping for your updated thoughts on acquisitions. You've been pretty vocal about looking at acquisitions. One of the big assets that we knew publicly was out there was Citgo, which is now sold to another party. So how do you view the opportunity set today with that asset now off the market, and does the need to preserve liquidity today put any inorganic growth ambitions on hold for now?
Speaker Change: Well, as I mentioned in the prepared remarks, we're not going to turn down any accretive deals that come up.
Speaker Change: Our next question comes to light of Manav Gupta with UBS. Please continue with your questions.
Manav Gupta: Good morning guys, I just wanted to focus a little bit on the refining macro. You kind of made a number of comments, you did say, you know, we will need more refining capacity closures, you also said the margins.
Manav Gupta: you know, back to mid-cycle margins, what will it take to get there?
Speaker Change: Well, I think I characterize the market right now, Manav, as oversupplied, you know, it's not a demand problem as such, at least demand in the mid-con is as strong as it's ever been, even after COVID, it was, it hasn't really moved much.
Speaker Change: As far as the United States go, in general, demand is back fairly normal at five-year levels almost. Diesel may be a little bit behind, but not much.
Speaker Change: So, you know, I don't think it's a it's a it's a demand question. It's really a supply question. And there's just, you know, some of the refining capacity that shut down during COVID has been been added back.
Speaker Change: Lyondell is supposedly shutting down at the end of this year, but we'll see if that happens.
Speaker Change: hadn't happened yet.
Speaker Change: and you look at, you know, an announced project in California to shut down a LA refinery. But, you know, I think in general that we've almost added back as much as we shut down during COVID.
Speaker Change: And, frankly, there's penetration of EVs as it continues to accelerate. The efficiency of the overall fleet, therefore, is improving.
Speaker Change: So, even though vehicle miles traveled are up, it still looks like efficiency is keeping demand at about the same level.
Speaker Change: So, you know, I think there are still some topping units that are running, as evidenced by the diesel crack where it is today.
Speaker Change: And then there's just new capacity additions that have come in and a couple of new announced Chinese refineries that are going to be built in three or four years that will further impact the market.
Speaker Change: The good news is there's still growth in the market worldwide.
Speaker Change: and the LNG phase, because if you look at the gap between crude oil and LNG, it's huge. There's plenty of incentive to convert engines to LNG and other things on the industrial fleet.
Speaker Change: So it's going to take either either grow our way out of it or additional shutdowns to occur.
Speaker Change: Thank you. Bye.
Speaker Change: Thank you so much for taking my questions.
Speaker Change: You're welcome.
Speaker Change: Our next question comes from Paul Chang with Scotiabank. Please proceed with your question.
Speaker Change: Hey, guys. Good morning. Ah, good afternoon. Well, um...
Paul Chang: Dane, maybe I missed it, did you mention what is the 2025 CAPEX? If not, could you give us a...
Paul Chang: Q&A
Speaker Change: Paul, it'll cross over both quarters slightly. We'll start in late February and it's approximately 45 days oil to oil.
Speaker Change: But it'll cross over into first and second quarter, just slightly.
Speaker Change: Thank you.
Speaker Change: And what's the CapEx for next year currently that you have in mind given the market condition?
Speaker Change: Yeah, Paul, we typically don't disclose that until later in the year. We are going through our budgeting process and taking a real hard look at the capital in light of Dave's comments about focusing on spend in flight and focusing only on growth projects or projects critical to the operations of the refinery in a safe and reliable manner.
Speaker Change: So we are undergoing that exercise now and we will share the guidance when we have it prepared.
Speaker Change: Dane, can I ask that what is the minimum you need to spend? I'm not saying that you would just spend the minimum, just curious that what is the minimum given the major turnaround that you are expected for next year?
Dane Neumann: What is the minimum? I don't know that we've prepared something like that. We have a lot of projects that are in flight that take multiple years to complete. We are not proposing to stop those just because it costs more to stop them than restart them.
Speaker Change: But, you know, that number, I don't have it, Dane, do you? No, I don't have it. I don't have it accessible to me. We can probably look it up, Paul, and get back to you with it.
Paul Chang: That would be great. A second question. I think, Dave, in the past you have flowed the idea that you could even convert the RD plan in CAD.
Paul Chang: Kenny Wood, that Winnie Wood back into processing crude oil, one of your...
Paul Chang: peers down in Alabama that they have just done that. If you do not find a partner to allow you to convert that into FAF,
Speaker Change: What's the thought process and the timeline for you to make a decision whether you want to go the other way?
Speaker Change: Well, I think, Paul, it goes back to the discussion of how short we are on rent, and even with a small refinery waiver for Winnie Wood, we're still substantially short on rent.
Speaker Change: What the the Hydrocracker does in renewable diesel services provide us with relatively low cost RINs on the margin since the capital sunk.
Speaker Change: And I think, you know, that's a strategy we're going to continue to play out.
Speaker Change: We, you know, this quarter we did make money in renewable diesel and
Speaker Change: You know, I think with the setup we have and with the pre-trader now, you know, we're experiencing good yields. Our biggest issue really is catalyst life, and we continue to explore that. It'll probably take us another year or two to really understand that in full throw.
Speaker Change: But, you know, right now, where refining margins are, we actually make more money in R&D on per barrel basis than what we do in refining, so we'll probably stay on that service.
Speaker Change: Okay, we'll do it. Thank you.
Speaker Change: You're welcome.
Speaker Change: Thank you. We have no further questions at this time. I'd like to turn the floor back over to management for closing comments.
Speaker Change: Thank you all for joining our earnings call and your interest in CBR.
Speaker Change: Additionally, we'd like to thank our employees for their hard work and commitment towards safe, reliable, and environmentally responsible operations, and we look forward to reviewing our fourth quarter results with you on the next earnings call.
Speaker Change: Thank you and 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.