Q2 2019 Earnings Call
Greetings and welcome to CVR Energy second quarter 2019 conference call.
At this time all participants are in a live only mode. A 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. That's all right at this conference is being recorded.
Now I'd like to turn the conference over to your host Jay Finks, Vice President Finance and Treasurer.
Thank you Dan good afternoon, everyone.
We very much appreciate you joining us this afternoon for CVR energy second quarter 2019 earnings call.
With me today are Dave lamp, our Chief Executive Officer, Tracie, Jackson, our Chief Financial Officer, and other members of management.
Prior to discussing our 2019 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.
Without limiting the foregoing the words outlook believes anticipates plans expects and similar expressions are intended to identify 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 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.
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 2015 second quarter earnings release that we filed with the SEC.
With that said I'll turn the call over to Dave.
Thank you Jay good afternoon, everyone and thank you for joining our earnings call.
Hopefully you've had an opportunity to listen to the CVR partners earnings call earlier today.
Yesterday, we reported second quarter consolidated net income of 128 million as compared to $68 million in the second quarter of 2018.
EBITDA for the second quarter, 19 was $273 million compared to 180 million for the previous year the year over year EBITDA improvement was driven by safe reliable operations low RIN prices wide, Brent Ti differentials higher crack spreads increased fertilizer sales and.
Sales volumes and price and a gain on our Cushing tank farm sale.
We also announced a second quarter dividend of 75 cents per share, which will be paid on August 12 to stockholders of record on the close of the market on August 5th.
On an annualized basis, our current dividend of $3 per share represents an industry, leading dividend yield of approximately 5.5.
Percent based on yesterday's closing price.
For our petroleum segment, both plants rhem.
Right.
Ran well operationally despite record levels of rainfall and flooding conditions that persisted through the quarter.
The combined total throughput for the second quarter of 19 was approximately 216000 barrels per day compared to 218000 barrels barrels per day in the second quarter of 18.
The group 3211 crack spread averaged $20.67 per barrel in the second quarter of 19 as compared to $19.
An 18 cents per barrel for the second quarter of 18 crude differentials remained favorable during the quarter with the average the average differential between Brent and WTI remaining over $8.50 per barrel or approximately $1.50 per barrel wider than the second quarter of 18.
The WCS differential tightened relevant relative to the second quarter of 18 to $12.63 per barrel largely as a result of the continued production curtailment imposed by the of Golar, Alberta government.
The Midland differential to Cushing also narrowed to $2.27 per barrel in the quarter.
Light product yield.
For the quarter was 98% on crude processed.
Our distillate yield as a percentage of total crude oil throughput was 44% in the second quarter of 2019 slightly below prior year period, mainly due to the runoff of NAFTA built during the wood when you would turn around late in the first quarter early second quarter.
Our distillate yield consistently ranks in the top quartile among us independent refiners.
In total we get gathered approximately a 120000 barrels a day of crude oil during the second quarter of 2019 as compared to 111000 barrels for the same period last year.
As we continue to ship our slate to crude oil gathered in our own backyard, we have increased scoop gathering.
And runs by over 25% relative to the second quarter of 18.
As we increase our crude oil gathering in the scoop, we've reduced gathering activities and other non strategic strategic strategic areas as well as our purchases of Cushing common crew.
During the second quarter, the fertilizer segment had a strong reliable operations at both facilities Coffeyvilles ammonia unit operated at 97% utilization in the quarter well above the utilization in the second quarter of 18, which is impacted by both planned and unplanned downtime.
At East Dubuque.
The ammonia plant.
Operated at 98% utilization, which was also higher than the prior year period.
Low natural gas prices combined with strong demand.
And constrained river movements resulted in fertilizer solid contribution to CVR Energys consolidated results.
Board of directors for CVR partners General partner declared a second quarter 2019 distribution of 14 cents per common unit.
Which will be paid on August 12 to unitholders of record.
At the close of the market on August 5th.
As CVR energy owns approximately 34%.
Of the common units of CVR partners, we will receive proportionate cash distribution of approximate approximately $5 million.
Now, let me turn the call over to Tracy just discuss our financial highlights.
Thank you, Dave and good afternoon, everyone. We reported consolidated net income of 128 million in the second quarter 2019, as compared to 68 million in the prior year period.
Diluted earnings per share was $1.16 for the second quarter 2019, compared to 50 cents for the prior year period.
The effective tax rate for the second quarter, 2019 was 24% compared to 18 cents.
18% for the prior year period.
The increase in income tax rate was due primarily to the decrease in non controlling interest as a result of the first quarter equity transaction. We continue to expect that our full year 2019 effective tax rate will be between 20 and 25%.
The petroleum segment EBITDA for the second quarter 2019 was 216 million compared to 164 million in the same period in 2018, the increase in EBITDA year over year was driven by low rent prices higher crack spreads and the gain on the Cushing tank farm sale.
In the second quarter 2019, our petroleum segments refining margin, excluding inventory revaluation impact was $15.68 per total throughput barrel compared to $13.03 in the same quarter in 2018.
The slight decline in crude oil flat price through the quarter generated a negative inventory revaluation impact of two cents per barrel. During the second quarter of 2019. This compares to a dollar and 10 cents per barrel positive impact during the same period last year the capture rate excluding the inventory revaluation impact was 76% in the second quarter 2019, as compared to 68% in the second quarter of 2018.
The total derivative gains for the second quarter of 29.
4 million, which includes unrealized gains of 2 million associated with open purchases of Canadian crude oil that are scheduled for future delivery.
In the second quarter 2018, we had a total derivative gains of 10 million, which included $7 million of unrealized losses at the end of the quarter.
[noise] rent expense in the second quarter, 2019 was $21 million or one dollar.
A dollar five per barrel total throughput compared to $50 million or $2.51 per barrel of total throughput in the same period last year.
Based upon recent market prices of rent and current production plans, we estimate that our rins expense will be approximately $70 million to $80 million in 2019, excluding any potential reductions and renewable volume obligation. In addition, we expect every five cent move in the price of Rins to result in a 10 to 15 million dollar impact to our annual rents expense.
The petroleum segments direct operating expenses were $4.40 per barrel of total throughput in the second quarter 2019, as compared to $4 and third 68 per barrel in the prior year period. The decrease was primarily associated with lower environmental accruals.
For the second quarter 2019, the fertilizer segment reported operating income of 35 million and net income of 19 million or 17 cents per common unit. This is compared to second quarter of 2018 operating losses of less than $1 million and a net loss of $16 million or 15 cents per common unit.
Adjusted EBITDA was $60 million in the second quarter of 2019 compared to $26 million for the prior year period.
Year over year increase in adjusted EBITDA was primarily due to a 28% increase in total sales volumes and improved pricing up 31% and 14% for ammonia and UAN respectively.
Total consolidated capital spending for the second quarter 2019 was 22 million, which included 17 million from the petroleum segment and 2 million from the fertilizer segment.
Of this total environmental and maintenance capital spending comprised $20 million, including 15 million in the petroleum segment and $2 million in the fertilizer segment.
We now estimate the total consolidated capital spending for 2019 to be approximately 160 to 180 million of which approximately 140 to 150 million is environmental and maintenance capital.
This includes plans turnarounds and excludes planned turnaround spending, which we estimate will be approximately 50 to 55 million for the year.
Our cash position remains strong as we ended the quarter with cash of approximately 540 million on a consolidated basis, which includes $69 million in the fertilizer segment.
We continue to feel confident in our strong balance sheet and liquidity position.
Looking ahead, we estimate our total throughput for the third quarter of 2019 to be approximately 215000 to 225000 barrels per day.
We expect total direct operating expenses for the third quarter to be approximately 90 to 100 million and total capital spending to range between 40 and $60 million would that Dave I'll turn the call back to you.
Thank you Tracy in summary, we are proud of our strong results for the second quarter of 2019.
Our mission continues to be a top tier north American petroleum refining and fertilizer company as measured by safe reliable operations superior financial performance and profitable growth.
Looking at the second half of 2019 and beyond we currently see a host of market themes that drive our outlook.
One domestic crude oil.
And specifically light crude oil production continues to increase recent data from.
Hey shows.
Year over year crude oil production growth from the major shale oil basins.
Of over 1.2 million barrels per day.
To the Brent Ti spread remains healthy, although the Midland Cushing differential has compressed.
Line fill up new pipelines.
Three gasoline demand remained strong with the latest data showing vehicle miles traveled in the U.S. up by 1% over 1% year over year.
For product exports have been steady.
Five RIN prices have increased recently or but are still fairly low.
Six IMO 2020, as less than six months away and we continue to believe these new standards will represent a tailwind for the refinery industry in general.
Seven.
Tier three gasoline specifications change.
[noise] changes will also be fully implemented by January one 2020, which likely represents another tailwind for the refining industry, especially for those refiners that are prepared.
Hey.
Continued low natural gas prices benefit, both our refining and fertilizer business and number nine due to the wet weather.
And flooding in the spring, we should see lower than expected planted corn acres and yield resulted in a decrease decreased corn inventories.
This has driven an increase in corn prices and bodes well for the future.
Fertilizer demand as future corn acres planted should increase and farmers should seek to maximize yields.
We believe CVR energy is well positioned for the balance of 2019 and beyond and we continue to make progress on our strategic objectives.
In support of these objectives, we have a number of initiatives that we are progressing as previously discussed in our first quarter earnings call I'd like to provide some updates on those initiatives today.
First the board has approved schedule and unit schedule eight engineering design work for the Coffeyville crude Optionality project. This project would increase capacity of processing natural gasoline to 10000 barrels per day.
Natural gasoline spreads to regular subgrade are in the 70 cents range today and are expected to widen further with implementation of tier three gasoline specs.
Second we completed our sale of the underutilized Cushing tank farm assets as planned for a consideration of $44 million, including inventory.
Third we increased our ability to produce premium gasoline at Wynnewood as a result of the been free repositioning project and the installation of a new generation of catalyst.
We have also changed the reformer catalyst at Coffeyville.
Which one which also should increase our premium production there premium spreads in the group have averaged 26 cents in the second quarter of 2019 and have averaged 40 cents quarter to date.
The prompt prices are more like 55 cents.
Fourth.
Scheduling engineering design work is progressing on the new C. C. Six I saw at Wynnewood, which should also improved capture rate.
The more premium production and improve liquid volume yield.
Fifth scheduling process engineering work is also underway to replace the hydrofluoric acid catalyst in the Wynnewood Appalachian unit with a solid catalyst.
This project is also expected to increase premium production that when you were.
And finally, we initiated the bank process to evaluate potential strategic alternatives for the company.
As we have further divided defines our capital project plans, we have reduced our capital spending plan for 2019 by approximately $50 million to $60 million to reflect the timing of certain projects that have shifted into later years.
Looking at the third quarter of 2019.
The second quarter to date.
Quarter to date group three cracks.
211 have averaged $19.35 per barrel.
With the Brent WTI spread.
At $6.57 per barrel and the Midland Cushing differential at 75 cents per barrel.
Thats, an all rins or 22 cents quarter to date compared to 17 in the second in the second quarter and biodiesel Rins are at 41 cents compared to 38 cents in the last quarter.
With that operator, we're ready for questions.
At this time, we will 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 and may be necessary to pick up your handset before pressing the star Keith.
Our first question comes from the line of Prussia Rao with Citigroup. Please proceed with your question.
Good afternoon, Thanks for taking my question.
Sure.
I wanted to have a couple of questions on operations in the quarter, but sort of wanted to.
Address something else first which is that the.
The exploratory process for strategic.
Alternatives for the company and sort of just get an update on where we stand on that Theres theres two to sort of.
Thanks, I wanted to addressing that I get your take on one end.
Theres been speculation in the market are looking at you know where you trade versus peers that you have it.
It might be attractive for CVI potentially to be a consolidate tour in the market.
I wanted to.
Yes sort of get your thoughts around that.
Arpus staying wide here.
The second is that given that the share where the share prices and that's supported by the know your strong dividend yield.
We are sort of at a share price where it previously indicated we were.
We would have been minimally acceptable almost single acceptable for sale. The company. So I wonder if that how how that plays there how that shade the thought of selling the company given that you have strong cash flows you have a good day, we didn't deal here out of the going concern the company is robust so.
Just wanted to get updated thoughts around both of those factors and overall on the process.
Well it does.
Most I can probably say on that subject is really that we just started this bank process and we're we're just into it now and it's a it's really premature to make any conclusions from it at this point.
I think.
As I've stated before is.
The.
Timing of Oh.
The the offering as a.
As a.
Based on really the the tailwinds of the industry and what we see coming forward.
And I believe that it's a reasonable time to to make this offering.
You know that.
Kent explain exactly why the stock's done with the stock has done but the.
I'm glad for and Oh, we look forward to.
To to exploring all the options available to us in the future and that's what we'll do through via this bank process.
All right. Thanks, guys appreciate sort of constraint and I can answer that.
Color is helpful.
Operationally, then maybe turning to.
First petroleum and then too.
Compared to the first segment on the petroleum segment.
You'd probably see I wanted to get a sense of how much the spin on it.
Narrowing WCS spread sorry, it was a headwind doing.
Looking ahead, we are expecting a.
The ldcs to widen out as rail movements start going.
Seems like that's that's more probable increasingly every day as we as we look at all the factors on the government's doing up there.
How much could that help in Threeq you in in the back half and is that something that you're also expecting.
I don't have a list of factors that give you positive and constructive is is how should we be thinking about that cadence there from from where you fit.
Well ultimately I think you know the WCS has the price or Canadian crudes have to price at their rail alternatives.
Today is barely covering that it cover into that at all.
I think it's more driven right now by the constraints of the government has on production.
At some point I got to think they'll let that go.
But then rail will take over and I think what so what you're seeing in the future as its trying to price of that the rail alternative in the $20 range.
So that's kind of our view going forward. Its is just as we would say on the Brent Ti.
Ultimately it trades to transportation alternatives.
Would you be taking advantage of.
Yeah hedging or derivative strategies on that forward discounting or is that something we should be thinking about in terms of.
You know your earnings going ahead or are we or I know your policy has been a little bit more light on the on the hedging derivatives activity then.
From previous years, but just wanted to get a sense of.
But unity there would you be tactical.
Well my philosophy on hedging as a hedge would it adds value.
And that's a pretty tough standard to live too.
Oh, that's why you've seen us reduce our activity in that area.
On the other hand.
We do see some <unk> positive arps of just just thinking about the the governments influence on WCS were.
Most likely they will get it wrong and.
In that so far just because I know that the futures have been trading out than the 20 dollar $22 range and every month that rolls over it just rolls over to a higher price.
And we are looking at taking advantage of some of those opportunities, but that would be about it.
Okay, and then last question on the effort.
Segment.
The.
Great performance. This quarter I think you are geographically, where health positioning wise thing to do.
Just wanted to get a sense thinking ahead, you know we are through the different sort of stands in contrast to the macro news we've been hearing that affecting the energy industry from.
AG all the flooding they'd left affecting planting the seeds in and you know a lot of farmers are taking insurance payments and sort of calling it a year.
And wanted to get a sense of what the.
Me if there is anything to think about the back half in terms of demand for fertilizer segment, and then you know as we roll forward to 2020.
You've got a reversal, where we get a tailwind here as farmers come back to market.
Hopefully without <unk>.
Outsize weather events, we are back to more normalized here. So just trying to get a sense or under planning around that over the next couple of quarters and then as we look out to next year.
I think our view of that is that a you know you can just look at the corn prices gone up almost a bought.
And that that really is reflecting that there is as I said in my opening remarks is.
The yield should be fairly poor I mean, the the the the government even projecting <unk> of 166 on yield per bushel per acre.
That's down from 176, but we really think there were overstating, even the 166 and they are certainly overstating the number acres that actually got it.
Just we can just tell that by our own demand.
But the second quarter was very good to us because we.
The river constraints really added to add value to what.
And we were able to sell pretty high high rates, both the ammonia and UAN.
And keep our inventories under control. So I think we're well positioned for what should be a very good planting season next year.
Assuming the weather cooperates, which is hard to predict.
If there are any.
The effect to think about.
Yeah on the back half of this year from versus usual demand.
Oh, sorry, Richard.
Maybe for you were pretty relatively insulated didnt QQ versus the rest of the market I know a lot of that the AG.
Market now should we continue to try to expect that or is there, but this is creating a little bit.
This is kind of conservatism should we think that some of that demand fall off kicks in a little bit in the back half of this year before things get good morning, good morning.
Yeah, It's it's always hard to say, but you know I think just the fact that.
You know when the price goes up like this the farmers tend to plant more corn.
And the.
This is a historical I mean, that's it's probably a five year.
Pecan prices, so I really think they're going to plant a lot of corn versus beans.
And that bodes well for our business.
Declined region frequency.
Victor.
Well good luck you. Thank you for the time appreciate it.
Our next question comes from the line of Neil Mehta with Goldman Sachs. Please proceed with your question.
Hey, Ed. Thanks, Thanks, very much and congrats on the great share price performance this year.
I guess a couple of follow up questions first on.
On the comments you made around Brent that BTI and ultimately Dave you think it trades towards transportation economics.
Can you just talk about how you think the Brent Ti Brad will evolve over time.
And how do you think about what normal is what are what are the legs that ultimately define Brent Ti hi.
Once all these Permian pipes come online.
Okay and the oil boom My my my view of the Brent Ti is really driven by shallow production and.
You know as long as we have a million million to have barrels coming on a year.
And even with the pipes that are about to be on the ground and operating.
I just can't find a way that that marrow to clear those barrels is good I mean, the discount between Brent WCS.
And I, particularly would say that's even more true for T. L. W. GTL and the new WTC, that's about to come out.
No the that's going to make a big difference and also and what a what.
Yeah, we're going to have to talk about three grades rather than one.
And ER and the ones that each one of those and not each of those bill bode well no matter what the Brent Ti does for us because we're we're processors of the.
The lighter type barrel.
And what do you think west, Texas light will trade at relative to let's say a neat Midland barrel over time, given the quality differential well I love. It I think my answer to that would be a look at the production forecast of 44 to 50 gravity type material.
Coming out of the Permian Basin number one but also out of the yard at Arco Basin.
And I think you'll find that there's a million 2 million barrels a day coming.
And finding a home for that is not going to be easy and the Gulf coast.
And Ah I think a lot of that will have to go offshore and that plays right into the Brent Ti spread ultimately ultimate realized Brent WTI spread for us.
Yes, so I mean, if the forward curve looks something like five five to $6 a barrel for Brent Debbie is that kind of how you guys think about.
You know what normalized transportation of economic well I think normalized transportation is probably more in the 350 range.
But I think to clear the barrel just like I said, Neil there's so much of it coming.
Yes, assuming there's not it's not a 30 dollar WCS price.
Yes, rich I don't know I don't think the world can can sustain the kind of growth in oil and oil production to meet demand at a 30 dollar price. So it wont stay there long if it does get there.
And even in the $55 range. These a lot of these plays are very profitable so.
Okay.
All right well that's helpful. And then the follow up is just around the dividend and capital returns to shareholders. So.
You've been a if you step the dividend back up to the $3 share level, how do you think about the dividend per share growth.
From here, especially given share price appreciation recognizing it's a board decision.
But should we view.
The dividend as a growing.
That level overtime or do you see it kind of flat lining for here and hope the stock kind of growth in the dividend.
I think we'll continue to evaluate that we currently with the 75 cents per share quarterly dividend and $3 a year have an industry, leading dividend yield and so we are evaluating that along with the number of high return capital projects that Dave outlined on the call and so we'll continue to discuss that with the board.
Non core assets part of the discussion as well.
It wouldn't be part of the discussion, but I don't know that we have any that we haven't dealt with us maybe one left to go but you know it was a cushing asset that Cushing tank farm was mainly contango play in.
And you know, it's just sat there basically of my my opinion so.
You know I think we've dealt with a lot of that already Neil.
Okay.
I think there are some questions around what we would do with you a and the Ukraine.
Fertilizer business versus refining.
And that will just play out as as it does depending on what we do on the on the bank process.
Okay.
Okay. Thank you.
Our next question comes from the line of Paul Cheng with Scotia, Howard Weil. Please proceed with your question.
Hey, guys. Good afternoon, I got to know how you doing.
A quick question on the third quarter guidance for Opex 92 on coming then that seems high compared to what you've been able to do is there any particular reason why that would be a higher then let's say for the last several quarters.
I don't have any specifics to to outline on that Tracey predominantly maintenance projects that will be completed maintenance and repair project thatll be just from a timing perspective are hitting in the third quarter.
Tracy those he is not being capitalized.
Hi, not maintenance and repair now.
Okay, which.
Oh facility this those that heating.
Well, we have maintenance and repair projects that run across the portfolio on a continuous basis. So it's both.
HM Okay. All right. That's fine then maybe that the Dave that you you can remind me the crew Optionality point, Jack or what's the total capex and timing as well is that you.
The the <unk> total capital is around 200 million.
And the timing is the end of 22.
Is that going to be two phases. So what that you were going to do all at ones well. This is really just phase one if we remember we talked about in the past was there was a phase two that involves a gas oil hydrotreater, which is really a play around oh gosh, a decrease in our ability to process and WCS to 40000 barrels a day, we don't see the need to do that right away until we really get definition on.
They are the future of Oh sulfur credits and other other factors were on tier three gasoline. So okay. So this is still talking about previously referred to just a phase one not the entire projects.
Yeah, I'm really phase one is Ah you know this is just it is really just doing the scheduling engineering, there who require further further approvals by the board.
But the projects really pretty strong 30 plus percent return.
And it's a strategic in nature because of just as I mentioned tier three gasoline specs.
Oh, we believe natural gasolines going again, very cheap even cheaper than it is today.
Just because it's a relatively high sulfur can't be blended without being treated.
And given that he is actually going to increase your gasoline yield right if I recall correctly.
And in the market that that seems to be a concern gas I mean, it's going to be in excess supply.
Are you concerned that that may actually have my own docomo cat or profitability.
Well a lot of those barrels are getting in there today.
Paul So I don't view it as a big increase although I do share your concern and Ah, but you know remember a for the most part or the the Midcon is is an important.
Market from with explorer pipeline.
Maybe not in the winter, but it certainly is in the summer.
No I think I don't like high paid high concern that doing to winter you assume say in the last couple of years and one that you had lost four or five years, a the market has become very choppy candy showed that within what that de bottlenecking and everything going on doing that when the time is it's no longer you can put them okay.
Yeah, that's correct, it's an export market, but remember the utilization remains high in the mid con.
And it will.
Manifest itself on the wide Brent Ti ice Brent.
But you know I still I still say I was still tell you that a lot of these barrels are already being placed into the market today. They just won't won't fit in the future with with tier three gas back spec specs.
Mhm and how much is there can you just remind me how much is the increase in the gasoline supply and is it going to have any dismiss upon increase.
Well again, our ability to process 10000 barrels of natural gasolines basically you treat it and hydrotreater at nice on it and then you put it right to gasoline. So it's a it's a barrel so you're basically increased by 10000 barrels a day, okay. So because we run some today, we run off to about 3000 barrels a day. Okay. So about 7000, but you have had no impact on that Jack and <unk> and that D. So.
That's correct.
I see okay. Thank you.
You're welcome.
Our next question comes from the line of Matthew Blair with Tudor Pickering Holt. Please proceed with your question.
Hey, good morning, everyone I, Dave you mentioned tier three <unk>, it's a potential tailwind could you talk about where you currently stand on tier three compliance and you know perhaps share any any specifics around your outlook for octane premiums in a 2020, you know do you expect it to get back up to what we saw in 2015.
Sure well, let's let's talk about first take the first part is where's the industry. Yet you know I think a lot I think you Oh, you know and I mentioned in my opening remarks that for those refiners that are prepared for this it's going to be very very lucrative I think and for those that aren't it's going to be very expensive.
So then its a question of who's ready and who isn't in our case a we are we already make you want 10 ppm at the Wynnewood refinery and ER. We are you still using credits at the Coffeyville refinery to blend down but it doesn't doesn't take a whole lot for us to get there where we are today, we're probably running in the 18 to 2025 range on on so it's not a big big move for us.
And I'd also with the what we've done on them.
Then to the repositioning and these new technology catalyst or new generation catalyst, we put in our reformers, we have the ability to make a lot of octane that historically, we havent made.
So I think we're really well positioned for it and as I mentioned in my remarks also we had.
We have a.
Premium spreads to sub grade right now 55 cents in our markets.
And you know it just kinda could you know I don't know if that's an anomaly as I mentioned to you know quarter to date, it's more like 41 cents.
But it's marching up and I think it's just gets worse as people run out of credits.
And you know certainly by January one of 2020.
There isn't going to be the option to or credits are going to be very expensive to buy.
And that's just going to that's going to take away opting for the pool.
Right right. Okay sounds good you your Midland barrels at Coffeyville were much lower than previous quarters.
I was wondering if this might be a case like what you're doing with WCS, where you still pipe the same amount of barrels, but then you resell. It at Cushing is is that the case or did you actually reduced your your piped volumes of Midland in the quarter, but remember we had a turnaround at the Wynnewood, which Ah why we were down there what do you what are cut back at winning what I shouldn't say, we weren't down all the way but.
We were shipping those barrels towards Coffeyville.
And then Ah, whereas we came out of turnaround we as I mentioned, we had high NAFTA inventory, because we had the reformer down.
And it took us about a couple of months to run that off so we were cut back.
And not that's part of it then the other part is just the sheer increase we've seen in production out of this.
Out of the school.
Is the rest of the barrels so we actually ended up selling Midland and running this as a.
As it is the best alternative for us in that and that's why you saw the big increase in coffee.
Our plan long term is to get.
You know as much as possible at the Red River line fill the Red River line up.
And need more capacity to do until we come back out all the Cushing common we've been buying.
Through our own blending in essence.
For Coffeyville.
Okay. So I guess just to clarify.
You're saying that you're still.
Economically exposed to I think it's like around like usually like 35 or 40, a day of Midland even though the refineries only ran I believe about 14, a day in the quarter. Yeah. We were we we have a historical line space of about 30.
When we get prorate, it a little bit because based on the school. So I think the actual numbers around 20 827.
And then we we ran some of it and sold the rest with a better alternative with the stack condensates and lights.
Got it Okay and then a last question I think probably for Tracy the depreciation has moved up quite a bit over the past couple of quarters is this due to the new accounting policy of capitalizing turnarounds in is that 76 million is that a good number to use going forward.
Yes. It is it is at the beginning of the year, we began capitalizing our turnaround expense and then we filed a recast 10-K for reference purposes, and so don't look like are more normal run rate going forward.
Got it thank you very much.
Right.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to management for closing remarks.
Again I'd like to thank all of you for your interest in CVR energy. Additionally, I'd like to thank our employees for their hard work.
[noise] commitment towards safe reliable response environmentally responsible operations.
We look forward to reviewing our third quarter results during our next earnings call.
Thank you.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.