Q2 2025 CVR Partners LP Earnings Call
Christine: Greetings, and welcome to the CVR Partners' second quarter 2025 conference call. At this time, all participants are in a listen-only mode. 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 and Investor Relations. Thank you, sir. You may begin.
Greetings and welcome to the CVR partners second quarter 2025 conference call.
At this time all participants are in a listen only mode.
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 and Investor Relations.
Sir you may begin.
Richard Roberts: Thank you, Christine. Good morning, everyone. We appreciate your participation in today's call. With me today are Mark Pytosh, our Chief Executive Officer; Dane Neumann, our Chief Financial Officer; and other members of management. Prior to discussing our 2025 second quarter results, let me remind you that this conference call may contain forward-looking statements, and 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 findings 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.
Thank you Christine good morning, everyone. We appreciate your participation in today's call.
With me today are Mark My Gosh, our Chief Executive Officer, Dan Newman, Our Chief Financial Officer, and other members of management.
Prior to discussing our 2025 second quarter results. Let me remind you that this conference call may contain forward looking statements as that term is defined under federal securities laws for this purpose any statements made during this call that are not statements of historical facts may be deemed to be forward looking statements.
Caution that these statements may be affected by important factors set forth in our filings with 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 law.
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 to the most directly comparable GAAP financial measures, are included in our 2025 second quarter earnings release that we filed with the SEC for the period. Let me also remind you that we are a variable distribution MLP. We will review our previously established reserves, current cash usage, evaluate future anticipated cash needs, and may reserve amounts for other future cash needs as determined by our general partners' board.
This call also includes various non-GAAP financial measures the disclosures related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures are included in our 2025 second quarter earnings release that we filed with the SEC for the period.
Let me also remind you that we are a variable distribution MLP, who will review our previously established reserves current cash usage evaluate future anticipated cash needs and their reserve amounts for other future cash needs as determined by our general Partners' Board as.
Richard Roberts: As a result, our distributions, if any, will vary from quarter to quarter due to several factors, including but not limited to operating performance, fluctuations in the prices received for finished products, capital expenditures, and cash reserves deemed necessary or appropriate by the board of directors of our general partner. With that said, I'll turn the call over to Mark Pytosh, our Chief Executive Officer. Mark.
As a result, our distributions if any will there quarter to quarter due to several factors, including but not limited to operating performance fluctuations in the prices received for finished products capital expenditures and cash reserves deemed necessary or appropriate by the board of directors of our general partner with that said I'll turn the call over to Mark <unk>, Our Chief Executive Officer, Mark <unk>.
Mark Pytosh: Thank you, Richard. Good morning, everyone, and thank you for joining us for today's call. The summarized financial highlights for the second quarter of 2025 include net sales of $169 million, net income of $39 million, EBITDA of $67 million, and the board of directors declared a second quarter distribution of $3.89 per common unit, which will be paid on August 18 to unit holders of record at the close of the market on August 11. For the second quarter of 2025, our consolidated ammonia plant utilization was 91%, which was impacted by some planned and unplanned downtime at both facilities during the quarter. Combined ammonia production for the second quarter of 2025 was 197,000 gross tons, of which 54,000 tons net tons were available for sale, and UAM production was 321,000 tons.
Thank you Richard Good morning, everyone and thank you for joining us for today's call.
The summarized financial highlights for the second quarter of 2025, and net sales of $169 million net income of 39 million EBITDA of $67 million and the board of directors declared a second quarter distribution of $3 89 per common unit, which will be paid on August 18th to unit holders of record at the close of the <unk>.
On August 11.
For the second quarter of 2025, our consolidated ammonia plant utilization was 91%, which was impacted by some planned and unplanned downtime at both facilities during the quarter.
Combined ammonia production for the second quarter 2025 was 197000 gross tons of which 54000 tons net tons were available for sale and UAS production was 321000 tons.
Mark Pytosh: During the quarter, we sold approximately 345,000 tons of UAM at an average price of $317 per ton and approximately 57,000 tons of ammonia at an average price of $593 per ton. Relative to the second quarter of 2024, sales volumes were higher despite lower production volumes, driven by a combination of strong demand in 2025 and a larger shift of product deliveries from 2Q into 1Q last year as a result of favorable weather allowing farmers to plant earlier in the year. UAM and ammonia prices increased 18% and 14% respectively from the prior year period, driven by robust demand on increased corn plantings and tight inventories across the system. Overall, we had another good quarter, and we believe the setup is favorable heading into the second half of the year.
During the quarter, we sold approximately 345000 tons of UAS.
At an average price of $317 per ton and approximately 57000 tons of ammonia at an average price of $593 per ton.
Relative to the second quarter of 2024 sales volumes were higher despite lower production volumes driven by a combination of strong demand in 2025, and a larger shift of product deliveries from <unk> into <unk> last year.
As a result of favorable weather, allowing farmers to plant or earlier in the year.
In an ammonia prices have increased 18% and 14% respectively from the prior year period, driven by robust demand on increased corn plantings and tight inventories across the system.
Overall, we had another good quarter and we believe the setup is favorable heading into the second half of the year domestic and global inventories in nitrogen fertilizer remained tight and that has been supportive of pricing in the summer, which I will discuss further in my closing remarks, I will now turn the call over to Dan to discuss our financial results. Thank.
Mark Pytosh: Domestic and global inventories of nitrogen fertilizer remain tight, and that has been supportive of pricing in the summer, which I will discuss further in my closing remarks. I will now turn the call over to Dane to discuss our financial results.
Richard Roberts: Thank you, Mark. For the second quarter of 2025, we reported net sales of $169 million and operating income of $46 million. Net income for the quarter was $39 million or $3.67 per common unit, and EBITDA was $67 million. Relative to the second quarter of 2024, the increase in EBITDA was primarily due to a combination of higher UAM and ammonia sales pricing and volumes, along with lower PETCO feedstock costs. Direct operating expenses for the second quarter of 2025 were $60 million. Excluding inventory impacts, direct operating expenses increased by approximately $6 million relative to the second quarter of 2024, primarily due to higher natural gas and electricity costs. During the second quarter of 2025, we spent $11 million on capital projects, which was primarily maintenance capital.
Thank you Mark for the second quarter of 2025, we reported net sales of 169 million and operating income of $46 million.
Net income for the quarter was $39 million or $3 67 per common unit and EBITDA was $67 million realm.
Relative to the second quarter of 2024, the increase in EBITDA was primarily due to a combination of higher U a N and ammonia sales pricing and volumes along with lower petco feedstock costs.
Direct operating expenses for the second quarter of 2025 or $60 million.
Excluding inventory impacts direct operating expenses increased by approximately $6 million relative to the second quarter of 2024, primarily due to higher natural gas and electricity costs.
During the second quarter of 2025, we spent $11 million on capital projects, which was primarily maintenance capital.
Richard Roberts: We estimate total capital spending for 2025 to be approximately $55 million to $65 million, of which $40 million to $45 million is expected to be maintenance capital. We anticipate a significant portion of the profit and growth capital spending planned for 2025 will be funded through cash reserves taken over the past two years. We ended the quarter with total liquidity of $162 million, which consisted of $114 million in cash and availability under the AVL facility of $47 million. Within our cash balance of $114 million, we had less than $1 million related to customer prepayments for the future delivery of product. In assessing our cash available for distribution, we generated EBITDA of $67 million and had net cash needs of $26 million for interest costs, maintenance capex, and other reserves.
We estimate total capital spending for 2025 to be approximately 55 to 65 million of which $40 million to $45 million is expected to be maintenance capital.
We anticipate a significant portion of the proppant drove capital spending plan for 2025 will be funded through cash reserves taken over the past few years.
We ended the quarter with total liquidity of $162 million, which consisted of $114 million in cash and availability under the ABL facility of $47 million.
Within our cash balance of $114 million, we had less than $1 million related to customer prepayments for the future delivery of product.
In assessing our cash available for distribution, we generated EBITDA of $67 million and net cash needs of $26 million for interest costs maintenance Capex and other reserves.
Richard Roberts: As a result, there was $41 million of cash available for distribution, and the board of directors of our general partner declared a distribution of $3.89 per common unit. Looking ahead to the third quarter of 2025, we estimate our ammonia utilization rate to be between 93 and 98 percent, with some downtime planned to be for control system upgrades. We expect direct operating expenses, excluding inventory impacts, to be between $60 million and $65 million, and total capital spending to be between $20 million and $25 million. With that, I will turn the call back over to Mark.
As a result, there was $41 million of cash available for distribution and the board of directors of our general partner declared a distribution of $3 89 per common unit.
Looking ahead to the third quarter of 2025, we estimate our ammonia utilization rate to be between 93, and 98% with some downtime plant at east Dubuque for control system upgrades.
We expect direct operating expenses, excluding inventory impacts be between 60% and 65 million and total capital spending to be between 20 and $25 million.
Mark Pytosh: Thanks, Dane. In summary, despite some planned and unplanned downtime, we had a good quarter of operations with ammonia utilization of 91%. Demand for nitrogen fertilizer remained solid through the end of the planting season, and we are seeing the strength in demand continue for the second half of the year with favorable pricing. The spring planting season went well, and demand for nitrogen was strong. The USDA estimates that 95.2 million acres of corn and 83.4 million acres of soybeans were planted in spring 2025, a 4% increase for corn and a 3% decrease for soybeans compared to 2024. Yield estimates are 181 bushels per acre for corn and 52.5 bushels per acre for soybeans. Based on these planting and corn yield estimates, the USDA is projecting inventory carryout levels for 2026 of approximately 10% for corn and 7% for soybeans, which are below the 10-year averages.
With that I'll turn the call back over to Mark. Thanks.
In summary, despite some planned and unplanned downtime, we had a good quarter of operations with ammonia utilization of 91% demand for nitrogen fertilizer remained solid through the end of the planting season, and we are seeing the strength in demand continue for the second half of the year with favorable pricing.
The spring planting season went well and demand for nitrogen was strong.
<unk> estimates that $95 2 million acres of corn and $83 4 million acres of soybeans were planted in spring 2025.
4% increase for corn, and a 3% decrease for soybeans compared to 2024.
Yield estimates are 181 bushels per acre for corn, and 52, and a half bushels per acre for soybeans based.
Based on these planting and corn yield estimates the USDA is projecting inventory carryout levels for 2026 of approximately 10% for corn and 7% for soybeans, which are below the 10 year averages.
Mark Pytosh: Grain prices have softened some recently, driven primarily by expectations of large crop production in Brazil and North America in 2025 and potential trade disputes where the purchase of grains may be used as a negotiating tool when reaching trade agreements. December corn prices are approximately $4.15 per bushel, and November soybeans are approximately $10 per bushel. Geopolitical conflicts are continuing to impact the nitrogen fertilizer industry. In the second quarter, Israel attacked Iran and caused a natural gas disruption in the flaring of ammonia inventories in Iran, along with a disruption in natural gas flow to Egypt for an extended period of time. Fertilizer producers in both countries shut in capacity during that time and have only recently begun to ramp up production again. Additionally, Ukraine damaged two nitrogen fertilizer plants in Russia, which reduced product available for export.
Land prices have softened some recently driven primarily by expectations of large crop production in Brazil, and North America in 2025 and potential trade disputes, where the purchase of grains may be used as a negotiating tool unreached trade agreements.
December corn prices are approximately $4 15 per bushel in November soybeans are approximately $10 per bushel.
Geopolitical conflicts are continuing to impact the nitrogen fertilizer industry.
In the second quarter, Israel attacked Iran, and cost of natural gas disruption in the flaring of ammonia inventories and a ramp along with the disruption in natural gas flow to Egypt for an extended period of time.
Fertilizer producers in both countries shutting capacity during that time and have only recently begun to ramp up production again.
Additionally, Ukraine damage to nitrogen fertilizer plants in Russia, which reduced product available for export.
Mark Pytosh: It is currently unclear when these two plants will resume full production. In total, nearly 20% of global urea export capacity was offline for a period of time in the quarter, while India has been seeking to import urea for its planting season. All of these factors contributed to a tighter global supply-demand balance for nitrogen fertilizers at the end of the planting season, and the normal seasonal price declines for summer fill and fall prepay UAM and ammonia have been much narrower this year. In addition to the supply tightness across the fertilizer market, the potential for tariffs on Russian fertilizer exports represents another wild card that could have significant impacts on pricing in the near term. Natural gas prices in Europe have declined slightly since our last earnings call but remain around $11 per MMBtu currently, while US prices continue to range between $3 and $4 per MMBtu.
It is currently unclear when these two plants or is in full production.
In total nearly 20% of global urea export capacity was offline for a period of time in the quarter.
While India, it's been seeking to import urea for its planting season.
All of these factors contributed to a tighter global supply demand balance for nitrogen fertilizers at the end of the planting season and the normal seasonal price declines for summer fill and fall prepay UAS pneumonia had been much narrower this year.
In addition to the supply tightness across the fertilizer market.
The potential for tariffs on Russian fertilizer exports represents another wildcard that could have significant impacts on pricing in the near term.
Natural gas prices in Europe have declined slightly since our last earnings call, but remain around $11 per M. Btu currently while U S prices continue to range between three and $4 per M. M B to your <unk>.
Mark Pytosh: Europe has refilled its natural gas inventories at a slower rate than expected, and there are concerns about the ability to replenish the inventory to targeted levels before winter of 2025. The cost to produce ammonia in Europe has remained durably at the high end of the global cost curve, and production remains below historical levels, which has created opportunities for US Gulf Coast producers to export ammonia to Europe for upgrade. We continue to believe Europe faces structural natural gas supply challenges that will likely remain in effect through 2026. At our Coffeyville facility, we're working on a detailed design and construction plan to utilize natural gas and additional hydrogen from the adjacent Coffeyville refinery as alternative feedstocks to third-party PETCO, in addition to expanding nameplate ammonia capacity by approximately 8%. We expect to begin implementing the project this fall.
Europe is refilled its natural gas inventories at a slower rate than expected and there are concerns about the ability to replenish the inventory to targeted levels before winter of 2025.
The cost to produce ammonia in Europe has remained durably at the high end of the global cost curve and production remains below historical levels, which has created opportunities for U S. Gulf coast producers to export ammonia to Europe for upgrade.
We continue to believe Europe faced a structural natural gas supply challenges that will likely remain in effect through 2026.
At our Coffeyville facility, we're working on a detailed design and construction plan to utilize natural gas and additional hydrogen from the adjacent Coffeyville refinery as alternative feedstocks to third party pet Coke in addition to expanding nameplate ammonia capacity by approximately 8% we.
We expect to begin implementing the project. This fall to remind everyone. This project would give us the ability to choose the optimal feedstock mix between natural gas and pet Coke and this would make quality building only nitrogen fertilizer plant in the U S with that feedstock flexibility.
Mark Pytosh: To remind everyone, this project would give us the ability to choose the optimal feedstock mix between natural gas and PETCO, and this would make Coffeyville the only nitrogen fertilizer plant in the US with that feedstock flexibility. We also continue to execute certain debottlenecking projects at both plants that are expected to improve reliability and production rates, including the expansion of our DEF production and loadout capacity. The goal of these projects is to support our target of operating our plants at utilization rates above 95% of nameplate capacity, excluding the impact of turnarounds. We have water quality upgrade projects at both plants underway, and the electricity reliability upgrade project in Coffeyville is also progressing in partnership with the city.
We also continue to execute certain debottlenecking projects at both plants that are expected to improve reliability and production rates, including the expansion of our D E F production and load out capacity.
The goal of these projects to support our target of operating our plants at utilization rates above 95% of nameplate capacity, excluding the impact of turnarounds.
We have water quality upgrade projects at both plants underway and the electricity reliability upgrade project in Coffeyville is also progression progressing in partnership with the city.
Mark Pytosh: During the upcoming fall turnaround at Coffeyville, we plan to install a nitrous oxide abatement unit, after which we could have, we will have nitrous oxide abatement units on all four of our nitric acid plants. This would further our strategy of reducing the carbon footprint of our operations, and we are continuing our efforts to have Coffeyville certified as a low-carbon nitrogen fertilizer production facility. The funds needed for the 2025 projects are coming from the reserves taken over the last two years, and the board elected to continue reserving capital in the second quarter.
During the upcoming fall turnaround at Coffeyville, we plan to install a nitrous oxide abatement unit after which we could have nitrogen we will have nitrous oxide abatement units on all four of our nitric acid plants there.
Further our strategy of reducing the carbon footprint of our operations and we are continuing our efforts to have coffeyville certified as the low carbon nitrogen fertilizer production facility.
The funds needed for the 2025 projects are coming from the reserves taken over the last two years and the board elected to continue reserving capital in the second quarter.
Mark Pytosh: While the board looks at reserves every quarter, I would expect them to continue to elect to reserve some capital, and we anticipate holding higher levels of cash related to these projects in the near term as we ramp up execution and spending, which we expect will take place over the next two to three years. We have a planned 30-day turnaround at our Coffeyville facility starting in early October. In addition to the normal open cleaning and inspect of many of our units, we will be replacing the ammonia converter internals and installing the nitrous oxide abatement unit. The expense for the turnaround is expected to be approximately $15 million, and we have the cash to fund the turnaround expenses in reserves. The second quarter continued to demonstrate the benefits of focusing on safety, reliability, and performance.
While the board looks at reserves every quarter I would expect them to continue to elect to preserve some capital and we anticipate holding higher levels of cash related to these projects in the near term as we ramp up execution in spending, which we expect will take place over the next two to three years.
We have a planned 30 day turnaround at our Coffeyville facility starting in early October in addition to the normal open cleaning of Tibet inspect that many of our units, we will be replacing the ammonia converter internals and installing the nitrous oxide abatement unit.
<unk> for the turnaround is expected to be approximately $15 million and we have the cash to fund the turnaround expenses and reserves.
The second quarter continued to demonstrate the benefits of focusing on safety reliability and performance in the quarter. We executed on all the critical elements of our business plan, which include safely and reliably operating our plants.
Mark Pytosh: In the quarter, we executed on all the critical elements of our business plan, which include safely and reliably operating our plants with a keen focus on the health and safety of our employees, contractors, and communities, brutally managing cost, being judicious with capital, maximizing our marketing and logistics capabilities, and targeting opportunities to reduce our carbon footprint. Yesterday, our parent company, CVR Energy, announced that its CEO, David Lamp, would be retiring at year end. As part of the transition, I have agreed to take on his role starting on January 1, 2026, in addition to my role as CEO of CVR Partners. I will continue to focus on having our great team execute CVR Partners' mission to deliver safe, reliable operations and generate attractive unit holder returns. We aren't going to lose focus.
With a keen focus on the health and safety of our employees contractors and communities.
Prudently managing cost being judicious with capital.
<unk>, our marketing and logistics capabilities and targeting opportunities to reduce our carbon footprint.
Yesterday, our parent company CVR energy announced that its CEO, David lamp would be retiring at at year end.
As part of the transition I have agreed to take on his role starting on January one 2026. In addition to my role as CEO of CVR partners.
I will continue to focus on having our great team execute CVR partners mission to deliver safe reliable operations and generate attractive unit holder returns, we arent going to lose focus.
Mark Pytosh: In closing, I'd like to thank our employees for their safe execution during a few brief outages, achieving 91% ammonia utilization and the solid delivery on our marketing and logistics plans, resulting in a distribution of $3.89 per common unit for the second quarter. With that, we are ready to answer any questions. Christine?
In closing I'd like to thank our employees for their safe execution. During a few brief outages, achieving 91% ammonia utilization and the solid delivery on our marketing and logistics plans, resulting in a distribution of $3 89 per common unit for the second quarter with that we're ready to answer any questions Christy.
Christine: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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 keys. One moment, please, while we poll for questions. Thank you. Our first question comes from a line of Rob McGuire with Granite Research. Please proceed with your question.
Thank you.
We will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
It's all information tone will indicate your line is in the question queue.
Press Star two if you would like to remove your question from the queue.
All participants using speaker equipment, it may be necessary to pick up your handset before pressing Ms. Darkies one moment, please while we poll for questions.
Thank you. Our first question comes from the line of Rob Maguire with Granite Research. Please proceed with your question.
Rob McGuire: Good morning, Mark, Dane, and Richard.
Mark Pytosh: Morning, Rob.
Good morning, Mark Dayton and Richard.
Rob McGuire: Morning. Hey, so a couple of questions on UAM. Can you just comment on the timing of your UAM summer fill program? You know what your thoughts are in terms of getting out there, and are you seeing enough strength to hold pricing without needing to offer discounts?
Good morning, Robert.
So a couple of questions on <unk> can you just comment on the timing of your UAS summer fill program.
What your thoughts are in terms of getting out there and are you seeing enough strength to hold pricing without needing to offer discounts.
Mark Pytosh: So, Rob, we have not yet completed the summer UAM fill. We have completed the summer fill and fall prepay for ammonia, but the season was extended into July. You know there was a lot of demand for UAM at the end of the season, so that went into July, and inventories are very low. So the fill season got pushed back. We do expect it in the next couple of weeks, and the prices typically, and you've been through this before, Rob, but typically would see a pretty good, you know, maybe a 25 or 30 percent decline in price from the in-season price to the summer fill, and that percentage decline is going to be a lot less this year because of the, you know, the tightness in the supply-demand.
So Rob.
We have not yet completed the summer UA until we have completed the summer fill and fall prepay for ammonia.
But.
The season was extended into July.
There was a lot of demand for UAS and at the end of the season. So that went into July.
And inventories are very low so the fill season got pushed back we do expect it in the next couple of weeks and.
The the prices typically and you you've been through this before Rob, but typically we would see a pretty good maybe a 25% or 30% decline in price from the in season price too.
The summer fill and that percentage decline is going to be a lot less this year.
And.
Because of the tight tightness in the supply demand. So it's not not going to be at season prices, but it won't be at the big discount that it typically is.
Mark Pytosh: So it's not not going to be at-season prices, but it won't be at the big discount that it typically is.
Rob McGuire: Okay. I appreciate you getting me on track there. And then, is it safe to assume that the third quarter UAM pricing, I mean, it's going to drop, it sounds like, at some point, you know, given the seasonality you just discussed. But I guess, do you have an outlook on ammonia pricing through the fall application, and then would you be open to sharing that?
Okay. I appreciate you getting me on track there and then.
Is it safe to assume that the third quarter Union pricing I mean, it's going to drop it sounds like at some point given the seasonality you just discussed but I guess do you have an outlook on ammonia pricing through the fall application and then would you be open to sharing that.
Mark Pytosh: What I would tell you is that the fall pricing was, I'd say, relatively similar to the spring pricing. You know, it depends on the geography, but you know we expect the fall to look a lot like the spring. And again, typically, we would expect that to be a pretty good discount from the spring, but the ammonia will be priced around where the spring price was for fall.
What I would tell you is the default pricing was I'd say relatively similar to the spring pricing.
Yeah, it depends on the geography.
But but you know we we we expect to fall to look a lot like the spring and again typically we would expect that to be a pretty pretty good discount from the spring but.
Yes.
We'll be priced around where the spring price was for fall.
Rob McGuire: Okay. I appreciate that. And then just switching gears here, direct operating costs increased to $16.5 million in the second quarter, up from $54.5 in the first quarter, but the gross ammonia production was down modestly. Was there higher than usual maintenance and repair costs in the second quarter number, and you know, just sort of related to the new control systems installed at East Dubuque? Is there any background? Well, anything you can let me know along those lines?
Okay I appreciate that and then just switching gears here.
Direct operating costs increased to $60 5 million in the second quarter up from 54 five in the first quarter, but the gross ammonia production was down modestly was there higher than usual maintenance and repair costs in the second quarter number and you're just sort of related to the new control systems installed at East Dubuque.
There any background.
Let me now along those lines yes.
Mark Pytosh: Yeah, a couple of factors there. We did have a bunch of repairs go through in the quarter with the outages that we had, and we did draw on the inventory. So you know that would draw out more DOE because we we we sort of effectively made it in the first quarter and shipped it in the second quarter. So that that would tend to lift the DOE there.
Yes, a couple a couple of factors. There is the we did have a bunch of repairs go through in the quarter with the outages that we had and we did draw on the inventory.
No.
Yes.
That would roll out more because we we we'd sort of effectively made it in the first quarter and shipped in the second quarter. So that would tend to lessen the DIY E. There.
Rob McGuire: Got it. And then you guided the third quarter direct operating costs to $60 to $60.5 million. Can you give me an idea of what the breakdown there is? I think Dane might have talked about that, but just with regards to maintenance versus growth capex.
Got it.
And then you guided the third quarter direct operating cost of $60 million to $65 million.
Can you give me an idea of what the breakdown there.
Thank you might have talked about that.
With regards to maintenance versus growth Capex.
Mark Pytosh: Oh, that's for the year.
Rob McGuire: For the year. Okay. I'll let Dane answer. You're saying capex or DOE?
Oh, that's for the year.
I'll, let David answer here.
Richard Roberts: Yeah, I think we can cross the board there. Which one are we looking at?
Capex. So yeah, I think we crossed Martha which one are we looking at the.
Rob McGuire: The direct operating costs for guidance was $60 to $65 million, I thought.
The direct operating costs versus <unk>.
<unk> 65.
Richard Roberts: Yeah. So with the as it relates to the DOE, you know we're looking at $60 to $65 million. We're expecting, you know, to continue to see the elevated natural gas and electricity costs that we saw in the second quarter. In addition, we have the work on the Clark controls. There'll be some expense associated with that as well. Outside of that, nothing really abnormal that we would expect in our in our opex for the third quarter.
Yeah. So.
As it relates to the Doe.
We're looking at $60 million to $65 million were expecting.
Just continue to see the elevated natural gas and electricity costs that we saw in the second quarter.
In addition, we have the work on the Clark controls there'll be some expenses associated with that as well outside of that nothing really abnormal that we would expect at our at our Opex for the third quarter. Yeah. Yeah. One of the things that we've seen this year Rob in the summer in particular is elevated electricity pricing.
Mark Pytosh: Yeah. Yeah. One of the things that we've seen this year, Rob, in the summer in particular, is elevated electricity pricing. And we haven't had any brownouts or blackouts, but the pricing that we're seeing come through at peak demand periods has been higher this year than last year. And so that's lifted up our DOE a bit. And gas is higher year over year. That'll start to normalize in the second half, but it was higher in the first half. So all of those are kind of, they're all little pieces that add up to the total.
And we haven't had any.
Brown outs are blackouts, but the pricing that we're seeing come through at a peak demand periods has been higher this year than last year and so that's lifted up are a bit and gas is higher year over year that will start to normalize in the second half but.
It was higher in the first half so all of those are kind of there are all little pieces that add up to the total.
Rob McGuire: Thanks. I appreciate that. And then with regards to the unplanned downtime, is that is everything okay now, or is that part of your expectation of utilization running a little lower? I know you're going into turnaround as well, so.
Thanks, I appreciate that and then with regards to the unplanned downtime is that is there anything okay now or is that part of your expectation that utilization running a little lower I know you are going into turnaround as well so yeah.
Mark Pytosh: Yeah. The planned part was okay. We, and we had said on the last call, we're upgrading our control system for our compressors at our East Dubuque facility, and it requires us to take an outage on the compressor. So that reduces our rate for a period of time until the control system is installed and then tuned up and brought, you know, brought into operation. But the unplanned, we had a couple of outages, and we dealt with those issues and don't expect that to recur. But there's always going to be unplanned outages, you know, and events. But we've been pretty good about either avoiding them or dealing with them and keeping them as short as possible. And so we just, we had several factors that happened, you know, at Coffeyville and East Dubuque in the quarter. So we lost a few days in both plants.
The plan part was okay, we and we've said on the last call. We are upgrading our control system for our compressors at at our East Dubuque facility and it requires us to take an outage on the compressors. So that reduces our rate for a period of time until the control system as is.
<unk> is installed and then tuned up and brought brought into operation but.
The unplanned we had a couple of outages and we dealt with those issues and don't expect that recur, but there.
They're always going to be unplanned outages and events, but.
We've been pretty good about either avoiding them or dealing with them and keeping them as short as possible and so we just we had several factors that have to happen.
At Coffeyville and east Dubuque in the quarter. So we lost a few days in both plants.
Rob McGuire: Okay. I appreciate that. And by the way, Mark, congratulations on being named the incoming CEO of CVR as well. And I guess you're going to do both roles, but do you envision at some point naming a new head to CVR Partners? You know, like.
Okay, I appreciate that and by the way Mark congratulations on being named the.
Incoming CEO of CVR, as well and I get you're going to do both roles, but do you envision at some point naming a new head to CVR partners.
Mark Pytosh: It's, you know, we're in the first 24 hours, so I don't want to try to speculate on the go-forward there. But you know, CVR Partners is an important part of the family and a valuable asset for CVR Energy. And you know, I intend to continue to manage and follow it closely and, you know, do the best that we can to maximize returns there. So not planning on giving that up in the short run. You know, we have a great team in place, and so I can count on them. And so I'm going to, you know, at least initially, I will start with both roles. So you're not getting rid of me here, Rob.
Like its were in the first 24 hours. So I don't want to try to speculate on the go forward there but.
CVR partners is an important part of the family and a valuable asset for CVR energy.
And.
I intend to continue to manage it and follow it closely.
And.
Do do the best that we can to maximize returns there so not planning on giving that up in the short run.
We have a great team in place and so I can count on them.
And so I'm going to at least initially I will start with both roles. So youre not getting resume here Rob.
Rob McGuire: Appreciate that. We're glad you're there. And then with regards to, so do you have a view on industry consolidation at this point with the new administration? Do you think they're a smidge more indulgent towards consolidation?
Appreciate that we're glad you're there.
And then.
With regards to it so do you have a view on industry consolidation at this point with the New administration do you think there are a smidge more indulgent towards consolidation.
Mark Pytosh: Obviously, you know, this administration seems to be more, I'd say, look more favorably upon consolidation in the context of lowering cost and ultimately lowering cost, you know, out to consumers. I don't, you know, like I've always felt like there probably was some more consolidation to occur in the nitrogen fertilizer space. It is a global business, and some of the geopolitical events, I think, are causing people to reconsider, you know, where they own assets, where they're a producer. And so it wouldn't surprise me to see more consolidation down the road. The one thing that we are watching, which has obviously emerged here in the last week, is the potential merger of Union Pacific and Norfolk Southern. We think that that may very well open up some new lanes for us that we're not currently in.
Obviously.
Yeah.
This administration seems to be more.
I'd say look more favorably upon consolidation in the context of lowering cost and ultimately lower cost out to consumers.
I don't like I've always felt like there probably was some more consolidation to occur in the nitrogen fertilizer space. It is a global business and some of the.
Geopolitical events, I think are causing people to reconsider.
You know.
Where were they own assets, where they are a producer and so it wouldn't surprise me to see more consolidation down the road. The one thing that we are watching which is obviously emerged here in the last week is the potential merger of Union Pacific and Norfolk Southern.
We we think that that may very well open up some new lanes for us that we're not currently in.
Mark Pytosh: And I'm not sure if there'll be another merger consideration there, like in the BN and CSX. But you know, that's, you know, I think that's a sign of kind of, you know, where we are. But it could very well spill into the fertilizer space in terms of more consolidation. And you heard my comments, you know, we, the US, has become an exporter to Europe for ammonia. They're keeping their upgrade plants up and running, but they're taking more ammonia from the US. And so, you know, I think production capacity in the United States is more valuable because it is, we have cheap feedstock. We have good logistics. And you know, and now with a lot of the carbon capture going on, we're increasingly lower carbon intensity.
And not sure there'll be another merger consideration there like in the B and C S X but.
Yes.
That's a sign of kind of where we are but it could very well spill into the fertilizer space in terms of more consolidation you heard my comments, we the U S has become an exporter to Europe for ammonia, they're keeping their upgrade plants.
Up and running but they are taking more ammonia from the U S.
And so.
I think <unk>.
<unk> capacity in the United States is more valuable because it is where we are.
Cheap feedstock.
We have good logistics and.
And now with a lot of the carbon capture going on where we're increasingly lower carbon intensity. So I think the U S could be a durable export export our fertilizer, which would make production assets more valuable in the U S.
Mark Pytosh: So I think the US could be, you know, a durable exporter of fertilizer, which would make production assets more valuable in the US.
Rob McGuire: That's great. One last question. With regards to your brownfield reliability and redundancy projects, could you give us an idea of where your capacity is today and what those projects will add in terms of volumes?
That's great. One last question with regards to your brownfield reliability and redundancy projects could you give us an idea of where your capacity is today and what those projects will add in terms of volumes.
Mark Pytosh: Sure. And so what I said in the remarks on Coffeyville, you know, we think we can get somewhere in the ballpark of about 100 tons a day of ammonia production out of the projects that we've been talking about for the last few quarters. And at East Dubuque, we're looking at, you know, potential projects that might add 5% plus to our capacity there. So, you know, those are, and those, if you look at what it costs to build new capacity, we're getting a bargain price for these brownfield projects where we're adding capacity for a fraction of what it would cost to build actual new production capacity. So they're great investments for us because it's a lot cheaper to build brownfield than it is to try to build a new one.
Sure and so what I said in.
And the marks on our remarks on Coffeyville.
We think we can get somewhere in the ballpark of about 100 tons a day of ammonia production out of the projects that we've been talking about for the last the last few quarters and at East Dubuque, We are looking at potential projects that might add 5% plus to our capacity there.
No.
Those are and if you look at what it cost to build new capacity.
We're getting a bargain price for these brownfield projects, where we're adding capacity for a fraction of what it would cost to build.
Actual new production capacity.
Investments for us.
It's a lot cheaper to build brownfield than it is to try to build a new one.
Rob McGuire: That makes sense. And can you just confirm for me, are all those projects maintenance or growth capex or a mix?
That makes sense.
Can you just firm for me is are all of those projects maintenance or growth capex or a mix.
Mark Pytosh: Those are all in the growth, what Dane described as the growth capex that are being reserved. So that doesn't, you know, we've been reserving against that for a period of time, and that doesn't really come out of the, you know, the maintenance side of the capital budget. So if you kind of think about reliability, we're spending our ongoing maintenance dollars to maintain our reliability and address issues, plus address some what I call bigger bottleneck issues or bigger reliability, single point of failures at the two plants. And those are the dollars that are being reserved in the growth capital. But we get, we're going to get production capacity for that. So it's not, you know, it's a combination of reliability plus, which means, you know, higher, if we operate at higher nameplate capacity, we're going to have more production, plus we're going to increase the nameplate.
We're all on the growth what Dane described as the growth Capex that are being reserved so that doesn't we've been reserving against that for a period of time.
That doesn't really come out of the.
On the maintenance side on the capital budget. So if you kind of think about reliability, where we're spending our ongoing maintenance dollars to maintain our reliability and address issues plus address some what I call bigger bottleneck issues are bigger reliability single point of failures at the two plants.
And that's those are the dollars that are being reserved in the growth growth capital, but we get we're going to get production capacity for that so it's not.
It's a combination of reliability plus which is means higher if we operated at higher nameplate capacity, we're going to have more production plus we're going to increase the nameplate. So ideally what we would do is higher percentage of our higher nameplate. That's the goal.
Mark Pytosh: So ideally, what we would do is a higher percentage of a higher nameplate. That's the goal.
Rob McGuire: That's great. Thank you so much for all your time and answering my questions.
That's great. Thank you so much for all your time and answering my questions.
Mark Pytosh: Okay. Thank you, Rob.
Thank you Rob.
Christine: Thank you. We have reached the end of the question-and-answer session. I'd now like to turn the floor back over to management for closing comments.
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.
Mark Pytosh: Well, I wanted to, again, want to thank everybody for being on the call today, and we look forward to discussing our third quarter results in October, early November. Thank you very much.
But wanted again wanted to thank everybody for being on the call today, and we look forward to discussing our third quarter results.
In October early November thank you very much.
Christine: 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.
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.