UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q | | | | | | | | |
| (Mark One) |
| ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | |
| For the quarterly period ended | September 30, 20222023 |
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| OR |
| |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | |
For the transition period from to |
Commission file number: 001-33492
CVR ENERGY, INC.
(Exact name of registrant as specified in its charter) | | | | | | | | | | | | | | |
| Delaware | | | | 61-1512186 |
(State or other jurisdiction of incorporation or organization) | | | (I.R.S. Employer
Identification No.) |
2277 Plaza Drive, Suite 500, Sugar Land, Texas 77479
(Address of principal executive offices) (Zip Code)
(281) 207-3200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, $0.01 par value per share | CVI | The New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | |
| Large accelerated filer | ☐☑ | Accelerated filer | ☑☐ | Non-accelerated filer | ☐ |
| Smaller reporting company | ☐ | Emerging growth company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
There were 100,530,599 shares of the registrant’s common stock outstanding at October 28, 2022.27, 2023.
TABLE OF CONTENTS
CVR Energy, Inc. - Quarterly Report on Form 10-Q
September 30, 20222023
| | PART I. Financial Information | PART I. Financial Information | | PART II. Other Information | | PART I. Financial Information | | PART II. Other Information | |
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This Quarterly Report on Form 10-Q (including documents incorporated by reference herein) contains statements with respect to our expectations or beliefs as to future events. These types of statements are “forward-looking” and subject to uncertainties. See “Important Information Regarding Forward-Looking Statements” section of this filing.
September 30, 20222023 | 2
Important Information Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including, but not limited to, those under Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. All statements other than statements of historical fact, including without limitation, statements regarding future operations, financial position, estimated revenues and losses, growth, capital projects, stock or unit repurchases, impacts of legal proceedings, projected costs, prospects, plans and objectives of management are forward-lookingforward looking statements. The words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project,” and similar terms and phrases are intended to identify forward-looking statements.
Although we believe our assumptions concerning future events are reasonable, a number of risks, uncertainties, and other factors could cause actual results and trends to differ materially from those projected or forward looking. Forward looking statements, as well as certain risks, contingencies or uncertainties that may impact our forward looking statements, include but are not limited to the following:
•volatile margins in the refining industry and exposure to the risks associated with volatile crude oil, refined product and feedstock prices;
•the availability of adequate cash and other sources of liquidity for the capital needs of our businesses;
•the severity, magnitude, duration, and impacteffects arising out of the novel coronavirus 2019Russia-Ukraine and any variant thereof (collectively, “COVID-19”) pandemicIsrael-Hamas conflicts, including with respect to impacts to commodity prices and of businesses’ and governments’ responses to such pandemic on our operations, personnel, commercial activity, and supply and demand across our and our customers’ and suppliers’ business;other markets;
•the effects of changes in market conditions and market volatility, arising from the COVID-19 pandemic, inflation or potential economic recession, including crude oil and other commodity prices, demand for those commodities, storage and transportation capacities, including inflation, and the impact of such changes on our operating results and financial position;
•expectations regarding our business and the economic recovery relating to the COVID-19 pandemic, including beliefs regarding future customer activity and the timing of the recovery;condition;
•the ability to forecast our future financial condition, results of operations, revenues and expenses;
•the effects of transactions involving forward or derivative instruments;
•the effects of inflation;
•changes in laws, regulations and policies with respect to the export of crude oil, refined products, other hydrocarbons or renewable feedstocks or products including, without limitation, the actions of the Biden Administration that impact oil and gas operations in the U.S.;United States;
•interruption in pipelines supplying feedstocks or distributing the petroleum business’ products;
•competition in the petroleum and nitrogen fertilizer businesses, including potential impacts of domestic and global supply and demand and/or domestic or international duties, tariffs, or similar costs;
•capital expenditures;
•changes in our or our segments’ credit profiles and the effects of higher interest rates;profiles;
•the cyclical and seasonal nature of the petroleum and nitrogen fertilizer businesses;
•the supply, availability and price levels of essential raw materials and feedstocks, and the effects of inflation thereupon;feedstocks;
•our production levels, including the risk of a material decline in those levels;
•accidents or other unscheduled shutdowns or interruptions affecting our facilities, machinery, or equipment, or those of our suppliers or customers;
•existing and future laws, regulations or rulings, including but not limited to those relating to the environment, climate change, emissions, including tailpipe emission standards that could impact the future viability of internal combustion engines, renewables, safety, security and/or the transportation of production of hazardous chemicals like ammonia, including potential liabilities or capital requirements arising from such laws, regulations or rulings;
•erosion of demand for our products due to increasing focus on climate change and environmental, social and governance (“ESG”) initiatives;
•potential operating hazards from accidents, fire, severe weather, tornadoes, floods, or other natural disasters;
•the impact of weather on commodity supply and/or pricing and on the nitrogen fertilizer business including our ability to produce, market or sell fertilizer products profitability or at all;
•rulings, judgments or settlements in litigation, tax or other legal or regulatory matters;
•the dependence of the nitrogen fertilizer business on customers and distributors including to transport goods and equipment;equipment and providers of feedstocks;
•the reliance on, or the ability to procure economically or at all, petroleum coke (“pet coke forcoke”) our nitrogen fertilizer business purchases from Coffeyville Resources Refining & Marketing, LLC (“CRRM”)our subsidiaries and third-party suppliers or the natural gas, electricity, oxygen, nitrogen, sulfur processing and compressed dry air and other products purchased from third parties by the nitrogen fertilizer and petroleum businesses;
•risks associated with third party operation of or control over important facilities necessary for operation of our refineries and nitrogen fertilizer facilities;
•risks of terrorism, cybersecurity attacks, and the security of chemical manufacturing facilities and other matters beyond our control;
•political disturbances, geopolitical instability and tensions, and associated changes in global trade policies and economic sanctions, including, but not limited to, in connection with Russia’s invasion of Ukraine in February 2022 and any ongoing conflicts in the region;
•our lack of diversification of assets or operating and supply areas;
•the petroleum business’ and nitrogen fertilizer business’ dependence on significant customers and the creditworthiness and performance by counterparties;
•the potential loss of the nitrogen fertilizer business’ transportation cost advantage over its competitors;
•the potential inability to successfully implement our business strategies at all or on time and within our anticipated budgets, including significant capital programs or projects, turnarounds or renewable or carbon reduction initiatives at our refineries and fertilizer facilities, including pretreater, carbon sequestration, segregation of our renewables business and other projects;
•our ability to continue to license the technology used for our operations;
•our petroleum business’ purchase of, or ability to purchase, renewable identification numbers (“RINs”) on a timely and cost effective basis or at all;
•the impact of refined product demand and declining inventories on refined product prices and crack spreads;
•Organization of Petroleum Exporting Countries’ and its allies’ (“OPEC+”) production levels and pricing;
•the impact of RINs pricing, our blending and purchasing activities and governmental actions, including by the U.S. Environmental Protection Agency (the “EPA”) on our RIN obligations,obligation, open RINs positions, small refinery exemptions, and our estimated consolidated cost to comply with our Renewable Fuel Standard (“RFS”) obligations;
•operational upsets or changes in laws that could impact the amount and receipt of credits (if any) under Section 45Q of the Internal Revenue Code of 1986, as amended;
•ability to meet certain carbon oxide capture and sequestration milestones;
•our businesses’ ability to obtain, retain or renew environmental and other governmental permits, licenses or authorizations necessary for the operation of its business;
•our ability to successfully complete our restructuring initiative and the benefits thereof;issue securities or obtain financing at favorable rates or at all;
•bank failures or other events affecting financial institutions;
•existing and proposed laws, regulations or rulings, including but not limited to those relating to climate change, alternative energy or fuel sources, and existing and future regulations related to the end-use of our products or the application of fertilizers;
•ESG including but not limited to compliance with ESG-related recommendations or directives and risks or impacts relating thereto, whether from regulators, rating agencies, lenders, investors, litigants, customers, vendors, the public or others;
•refinery and nitrogen fertilizer facilities’ operating hazards and interruptions, including unscheduled maintenance or downtime and the availability of adequate insurance coverage;
•risks related to services provided by or competition among our subsidiaries, including conflicts of interests and control of CVR Partners, LP’s general partner;partner, and control of CVR Energy, Inc. by its controlling shareholder;
•instability and volatility in the capital and credit and commodities markets and in the global economy, including duemarkets;
•risks related to the ongoing Russia-Ukraine conflict;conclusion of a potential spin-off of our nitrogen fertilizer segment or potential future reconsideration thereof;
•restrictions in our debt agreements;
•our ability to refinance our debt on acceptable terms or at all;
•asset impairments and impacts thereof;
•the outcome of any legal proceedings involving or investigations of our controlling shareholder or his affiliates;
•our controlling shareholder’s intentions regarding ownership of our common stock, including any dispositions of our common stock;
•the severity, magnitude, duration, and impact of the COVID-19 pandemic, or any future pandemic or breakout of infectious disease, and of businesses’ and governments’ responses to such pandemic on our operations, personnel, commercial activity, and supply and demand across our and our customers’ and suppliers’ business;
•the variable nature of CVR Partners, LP’s distributions, including the ability of its general partner to modify or revoke its distribution policy, or to cease making cash distributions on its common units;
•changes in tax and other laws, regulations and policies, including, without limitation, actions of the Biden Administration that impact conventional fuel operations or favor renewable energy projects in the U.S.;
•changes in CVR Partners’Partners, LP’s treatment as a partnership for U.S. federal income or state tax purposes;
•our ability to recover under our insurance policies for damages or losses in full or at all;
•labor supply shortages, labor difficulties, labor disputes or strikes;
•impacts of any decision to return a unit back to hydrocarbon processing following renewable conversion; and
•the factors described in greater detail under “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 20212022 and our other filings with the U.S. Securities and Exchange Commission (the “SEC”(“SEC”).
All forward-looking statements contained in this Report only speak as of the date of this Report. We undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that occur after the date of this Report, or to reflect the occurrence of unanticipated events, except to the extent required by law.
Information About Us
Investors should note that we make available, free of charge on our website at cvrenergy.com,www.CVREnergy.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We also post announcements, updates, events, investor information and presentations on our website in addition to copies of all recent news releases. We may use the Investor Relations section of our website to communicate with investors. It is possible that the financial and other information posted there could be deemed to be material information. Documents and information on our website are not incorporated by reference herein.
The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC.
September 30, 20222023 | 45
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CVR ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(unaudited)
| | | | | | | | | | | |
| (in millions) | September 30, 2022 | | December 31, 2021 |
| ASSETS |
| Current assets: | | | |
| Cash and cash equivalents (including $119 and $113, respectively, of consolidated variable interest entity (“VIE”)) | $ | 618 | | | $ | 510 | |
| Accounts receivable (including $54 and $88, respectively, of VIE) | 320 | | | 299 | |
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| Inventories (including $65 and $52, respectively, of VIE) | 632 | | | 484 | |
| Prepaid expenses and other current assets (including $3 and $9, respectively, of VIE) | 88 | | | 76 | |
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| Total current assets | 1,658 | | | 1,369 | |
| Property, plant and equipment, net (including $826 and $850, respectively, of VIE) | 2,267 | | | 2,273 | |
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| Other long-term assets (including $15 and $14, respectively, of VIE) | 281 | | | 264 | |
| Total assets | $ | 4,206 | | | $ | 3,906 | |
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| LIABILITIES AND EQUITY |
| Current liabilities: | | | |
| | | |
| | | |
| Accounts payable (including $79 and $50, respectively, of VIE) | $ | 557 | | | $ | 409 | |
| | | |
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| | | |
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| Other current liabilities (including $105 and $111, respectively, of VIE) | 974 | | | 747 | |
| Total current liabilities | 1,531 | | | 1,156 | |
| Long-term liabilities: | | | |
| Long-term debt and finance lease obligations, net of current portion (including $547 and $611, respectively, of VIE) | 1,587 | | | 1,654 | |
| | | |
| Deferred income taxes | 245 | | | 268 | |
| Other long-term liabilities (including $17 and $12, respectively, of VIE) | 72 | | | 58 | |
| Total long-term liabilities | 1,904 | | | 1,980 | |
| | | |
| CVR stockholders’ equity | | | |
| CVR Energy stockholders’ equity: | | | |
| Common stock, $0.01 par value per share; 350,000,000 shares authorized; 100,629,209 and 100,629,209 shares issued as of September 30, 2022 and December 31, 2021, respectively | 1 | | | 1 | |
| Additional paid-in-capital | 1,508 | | | 1,510 | |
| Accumulated deficit | (947) | | | (956) | |
| Treasury stock, 98,610 shares at cost | (2) | | | (2) | |
| | | |
| Total CVR stockholders’ equity | 560 | | | 553 | |
| Noncontrolling interest | 211 | | | 217 | |
| Total equity | 771 | | | 770 | |
| Total liabilities and equity | $ | 4,206 | | | $ | 3,906 | |
| | | | | | | | | | | |
| (in millions) | September 30, 2023 | | December 31, 2022 |
| ASSETS |
| Current assets: | | | |
| Cash and cash equivalents (including $89 and $86, respectively, of consolidated variable interest entity (“VIE”)) | $ | 889 | | | $ | 510 | |
| Accounts receivable (including $36 and $90, respectively, of VIE) | 316 | | | 358 | |
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| Inventories (including $74 and $78, respectively, of VIE) | 610 | | | 624 | |
| Prepaid expenses and other current assets (including $4 and $11, respectively, of VIE) | 72 | | | 101 | |
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| Total current assets | 1,887 | | | 1,593 | |
| Property, plant and equipment, net (including $770 and $811, respectively, of VIE) | 2,227 | | | 2,247 | |
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| Other long-term assets (including $46 and $24, respectively, of VIE) | 307 | | | 279 | |
| Total assets | $ | 4,421 | | | $ | 4,119 | |
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| LIABILITIES AND EQUITY |
| Current liabilities: | | | |
| | | |
| | | |
| Accounts payable (including $37 and $51, respectively, of VIE) | $ | 566 | | | $ | 497 | |
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| Other current liabilities (including $77 and $75, respectively, of VIE) | 745 | | | 942 | |
| Total current liabilities | 1,311 | | | 1,439 | |
| Long-term liabilities: | | | |
| Long-term debt and finance lease obligations, net of current portion (including $547 and $547, respectively, of VIE) | 1,583 | | | 1,585 | |
| | | |
| Deferred income taxes | 276 | | | 249 | |
| Other long-term liabilities (including $49 and $16, respectively, of VIE) | 99 | | | 55 | |
| Total long-term liabilities | 1,958 | | | 1,889 | |
| | | |
| CVR Energy stockholders’ equity: | | | |
| Common stock, $0.01 par value per share; 350,000,000 shares authorized; 100,629,209 and 100,629,209 shares issued as of September 30, 2023 and December 31, 2022, respectively | 1 | | | 1 | |
| Additional paid-in-capital | 1,508 | | | 1,508 | |
| Accumulated deficit | (550) | | | (976) | |
| Treasury stock, 98,610 shares at cost | (2) | | | (2) | |
| | | |
| Total CVR stockholders’ equity | 957 | | | 531 | |
| Noncontrolling interest | 195 | | | 260 | |
| Total equity | 1,152 | | | 791 | |
| Total liabilities and equity | $ | 4,421 | | | $ | 4,119 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
September 30, 20222023 | 56
CVR ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions, except per share data) | 2022 | | 2021 | | 2022 | | 2021 |
| Net sales | $ | 2,699 | | | $ | 1,883 | | | $ | 8,216 | | | $ | 5,129 | |
| Operating costs and expenses: | | | | | | | |
| Cost of materials and other | 2,267 | | | 1,473 | | | 6,619 | | | 4,381 | |
| Direct operating expenses (exclusive of depreciation and amortization) | 218 | | | 137 | | | 545 | | | 409 | |
| Depreciation and amortization | 74 | | | 65 | | | 210 | | | 199 | |
| Cost of sales | 2,559 | | | 1,675 | | | 7,374 | | | 4,989 | |
| | | | | | | |
| Selling, general and administrative expenses (exclusive of depreciation and amortization) | 35 | | | 30 | | | 110 | | | 85 | |
| Depreciation and amortization | 1 | | | 2 | | | 5 | | | 6 | |
| Loss on asset disposal | 1 | | | 1 | | | 1 | | | 3 | |
| | | | | | | |
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| Operating income | 103 | | | 175 | | | 726 | | | 46 | |
| Other (expense) income: | | | | | | | |
| Interest expense, net | (19) | | | (23) | | | (67) | | | (92) | |
| | | | | | | |
| | | | | | | |
| Investment (loss) income on marketable securities | — | | | (1) | | | — | | | 82 | |
| Other income (expense), net | 3 | | | 2 | | | (81) | | | 12 | |
| | | | | | | |
| Income before income tax expense | 87 | | | 153 | | | 578 | | | 48 | |
| Income tax expense (benefit) | 7 | | | 47 | | | 106 | | | (1) | |
| Net income | 80 | | | 106 | | | 472 | | | 49 | |
| Less: Net (loss) income attributable to noncontrolling interest | (13) | | | 22 | | | 121 | | | 10 | |
| Net income attributable to CVR Energy stockholders | $ | 93 | | | $ | 84 | | | $ | 351 | | | $ | 39 | |
| | | | | | | |
| Basic and diluted earnings per share | $ | 0.92 | | | $ | 0.83 | | | $ | 3.49 | | | $ | 0.38 | |
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| | | | | | | |
| Weighted-average common shares outstanding: | | | | | | | |
| Basic and diluted | 100.5 | | | 100.5 | | | 100.5 | | | 100.5 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions, except per share data) | 2023 | | 2022 | | 2023 | | 2022 |
| Net sales | $ | 2,522 | | | $ | 2,699 | | | $ | 7,045 | | | $ | 8,216 | |
| Operating costs and expenses: | | | | | | | |
| Cost of materials and other | 1,787 | | | 2,267 | | | 5,211 | | | 6,619 | |
| Direct operating expenses (exclusive of depreciation and amortization) | 170 | | | 218 | | | 503 | | | 545 | |
| Depreciation and amortization | 80 | | | 74 | | | 217 | | | 210 | |
| Cost of sales | 2,037 | | | 2,559 | | | 5,931 | | | 7,374 | |
| | | | | | | |
| Selling, general and administrative expenses (exclusive of depreciation and amortization) | 38 | | | 35 | | | 109 | | | 110 | |
| Depreciation and amortization | 1 | | | 1 | | | 4 | | | 5 | |
| Loss on asset disposal | 1 | | | 1 | | | 1 | | | 1 | |
| | | | | | | |
| | | | | | | |
| Operating income | 445 | | | 103 | | | 1,000 | | | 726 | |
| Other (expense) income: | | | | | | | |
| Interest expense, net | (11) | | | (19) | | | (44) | | | (67) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Other income (expense), net | 4 | | | 3 | | | 10 | | | (81) | |
| | | | | | | |
| Income before income tax expense | 438 | | | 87 | | | 966 | | | 578 | |
| Income tax expense | 84 | | | 7 | | | 185 | | | 106 | |
| Net income | 354 | | | 80 | | | 781 | | | 472 | |
| Less: Net income (loss) attributable to noncontrolling interest | 1 | | | (13) | | | 103 | | | 121 | |
| Net income attributable to CVR Energy stockholders | $ | 353 | | | $ | 93 | | | $ | 678 | | | $ | 351 | |
| | | | | | | |
| Basic and diluted earnings per share | $ | 3.51 | | | $ | 0.92 | | | $ | 6.74 | | | $ | 3.49 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Weighted-average common shares outstanding: | | | | | | | |
| Basic and diluted | 100.5 | | | 100.5 | | | 100.5 | | | 100.5 | |
| | | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
September 30, 20222023 | 67
CVR ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(unaudited) | | | Common Stockholders | | | Common Stockholders | |
| (in millions, except share data) | (in millions, except share data) | Shares
Issued | | $0.01 Par Value Common Stock | | Additional
Paid-In
Capital | | Accumulated Deficit | | Treasury
Stock | | | Total CVR
Stockholders’
Equity | | Noncontrolling
Interest | | Total
Equity | (in millions, except share data) | Shares
Issued | | $0.01 Par Value Common Stock | | Additional
Paid-In
Capital | | Accumulated Deficit | | Treasury
Stock | | | Total CVR
Stockholders’
Equity | | Noncontrolling
Interest | | Total
Equity |
| Balance at December 31, 2021 | 100,629,209 | | | $ | 1 | | | $ | 1,510 | | | $ | (956) | | | $ | (2) | | | | $ | 553 | | | $ | 217 | | | $ | 770 | | |
| | Balance at December 31, 2022 | | Balance at December 31, 2022 | 100,629,209 | | | $ | 1 | | | $ | 1,508 | | | $ | (976) | | | $ | (2) | | | | $ | 531 | | | $ | 260 | | | $ | 791 | |
| Net income | | Net income | — | | | — | | | — | | | 195 | | | — | | | | 195 | | | 64 | | | 259 | |
| Dividends paid to CVR Energy stockholders | | Dividends paid to CVR Energy stockholders | — | | | — | | | — | | | (50) | | | — | | | | (50) | | | — | | | (50) | |
| Distributions from CVR Partners to its public unitholders | Distributions from CVR Partners to its public unitholders | — | | | — | | | — | | | — | | | — | | | | — | | | (36) | | | (36) | | Distributions from CVR Partners to its public unitholders | — | | | — | | | — | | | — | | | — | | | | — | | | (70) | | | (70) | |
| | Changes in equity due to CVR Partners’ common unit repurchases | — | | | — | | | (2) | | | — | | | — | | | | (2) | | | (9) | | | (11) | | |
| Other | Other | — | | | — | | | — | | | (1) | | | — | | | | (1) | | | 1 | | | — | | Other | — | | | — | | | — | | | (1) | | | — | | | | (1) | | | — | | | (1) | |
| Balance at March 31, 2023 | | Balance at March 31, 2023 | 100,629,209 | | | 1 | | | 1,508 | | | (832) | | | (2) | | | | 675 | | | 254 | | | 929 | |
| Net income | Net income | — | | | — | | | — | | | 94 | | | — | | | | 94 | | | 59 | | | 153 | | Net income | — | | | — | | | — | | | 130 | | | — | | | | 130 | | | 38 | | | 168 | |
| Balance at March 31, 2022 | 100,629,209 | | | 1 | | | 1,508 | | | (863) | | | (2) | | | | 644 | | | 232 | | | 876 | | |
| Dividends paid to CVR Energy stockholders | — | | | — | | | — | | | (40) | | | — | | | | (40) | | | — | | | (40) | | |
| | Distributions from CVR Partners to its public unitholders | — | | | — | | | — | | | — | | | — | | | | — | | | (15) | | | (15) | | |
| | Net income | — | | | — | | | — | | | 165 | | | — | | | | 165 | | | 74 | | | 239 | | |
| Balance at June 30, 2022 | 100,629,209 | | | 1 | | | 1,508 | | | (738) | | | (2) | | | | 769 | | | 291 | | | 1,060 | | |
| Dividends paid to CVR Energy stockholders | Dividends paid to CVR Energy stockholders | — | | | — | | | — | | | (302) | | | — | | | | (302) | | | — | | | (302) | | Dividends paid to CVR Energy stockholders | — | | | — | | | — | | | (50) | | | — | | | | (50) | | | — | | | (50) | |
| Distributions from CVR Partners to its public unitholders | Distributions from CVR Partners to its public unitholders | — | | | — | | | — | | | — | | | — | | | | — | | | (67) | | | (67) | | Distributions from CVR Partners to its public unitholders | — | | | — | | | — | | | — | | | — | | | | — | | | (70) | | | (70) | |
| | Net income (loss) | — | | | — | | | — | | | 93 | | | — | | | | 93 | | | (13) | | | 80 | | |
| Balance at September 30, 2022 | 100,629,209 | | | $ | 1 | | | $ | 1,508 | | | $ | (947) | | | $ | (2) | | | | $ | 560 | | | $ | 211 | | | $ | 771 | | |
| Balance at June 30, 2023 | | Balance at June 30, 2023 | 100,629,209 | | | 1 | | | 1,508 | | | (752) | | | (2) | | | | 755 | | | 222 | | | 977 | |
| Net income | | Net income | — | | | — | | | — | | | 353 | | | — | | | | 353 | | | 1 | | | 354 | |
| Dividends paid to CVR Energy stockholders | | Dividends paid to CVR Energy stockholders | — | | | — | | | — | | | (151) | | | — | | | | (151) | | | — | | | (151) | |
| Distributions from CVR Partners to its public unitholders | | Distributions from CVR Partners to its public unitholders | — | | | — | | | — | | | — | | | — | | | | — | | | (28) | | | (28) | |
| | Balance at September 30, 2023 | | Balance at September 30, 2023 | 100,629,209 | | | $ | 1 | | | $ | 1,508 | | | $ | (550) | | | $ | (2) | | | | $ | 957 | | | $ | 195 | | | $ | 1,152 | |
| | | Common Stockholders | | | Common Stockholders | |
| (in millions, except share data) | (in millions, except share data) | Shares
Issued | | $0.01 Par Value Common Stock | | Additional
Paid-In
Capital | | Accumulated Deficit | | Treasury
Stock | | | Total CVR
Stockholders’
Equity | | Noncontrolling
Interest | | Total
Equity | (in millions, except share data) | Shares
Issued | | $0.01 Par Value Common Stock | | Additional
Paid-In
Capital | | Accumulated Deficit | | Treasury
Stock | | | Total CVR
Stockholders’
Equity | | Noncontrolling
Interest | | Total
Equity |
| Balance at December 31, 2020 | 100,629,209 | | | $ | 1 | | | $ | 1,510 | | | $ | (490) | | | $ | (2) | | | | $ | 1,019 | | | $ | 200 | | | $ | 1,219 | | |
| Balance at December 31, 2021 | | Balance at December 31, 2021 | 100,629,209 | | | $ | 1 | | | $ | 1,510 | | | $ | (956) | | | $ | (2) | | | | $ | 553 | | | $ | 217 | | | $ | 770 | |
| Net income | | Net income | — | | | — | | | — | | | 94 | | | — | | | | 94 | | | 59 | | | 153 | |
| | Distributions from CVR Partners to its public unitholders | | Distributions from CVR Partners to its public unitholders | — | | | — | | | — | | | — | | | — | | | | — | | | (36) | | | (36) | |
| Changes in equity due to CVR
Partners’ common unit repurchases | Changes in equity due to CVR
Partners’ common unit repurchases | — | | | — | | | — | | | — | | | — | | | | — | | | (1) | | | (1) | | Changes in equity due to CVR
Partners’ common unit repurchases | — | | | — | | | (2) | | | — | | | — | | | | (2) | | | (9) | | | (11) | |
| Other | Other | — | | | — | | | — | | | 1 | | | — | | | | 1 | | | — | | | 1 | | Other | — | | | — | | | — | | | (1) | | | — | | | | (1) | | | 1 | | | — | |
| Net loss | — | | | — | | | — | | | (39) | | | — | | | | (39) | | | (16) | | | (55) | | |
| Balance at March 31, 2021 | 100,629,209 | | | 1 | | | 1,510 | | | (528) | | | (2) | | | | 981 | | | 183 | | | 1,164 | | |
| Balance at March 31, 2022 | | Balance at March 31, 2022 | 100,629,209 | | | 1 | | | 1,508 | | | (863) | | | (2) | | | | 644 | | | 232 | | | 876 | |
| Net income | | Net income | — | | | — | | | — | | | 165 | | | — | | | | 165 | | | 74 | | | 239 | |
| Dividends paid to CVR Energy stockholders | Dividends paid to CVR Energy stockholders | — | | | — | | | — | | | (492) | | | — | | | | (492) | | | — | | | (492) | | Dividends paid to CVR Energy stockholders | — | | | — | | | — | | | (40) | | | — | | | | (40) | | | — | | | (40) | |
| Distributions from CVR Partners to its public unitholders | | Distributions from CVR Partners to its public unitholders | — | | | — | | | — | | | — | | | — | | | | — | | | (15) | | | (15) | |
| | Net (loss) income | — | | | — | | | — | | | (6) | | | — | | | | (6) | | | 4 | | | (2) | | |
| Balance at June 30, 2021 | 100,629,209 | | | 1 | | | 1,510 | | | (1,026) | | | (2) | | | | 483 | | | 187 | | | 670 | | |
| | Balance at June 30, 2022 | | Balance at June 30, 2022 | 100,629,209 | | | 1 | | | 1,508 | | | (738) | | | (2) | | | | 769 | | | 291 | | | 1,060 | |
| Net income (loss) | | Net income (loss) | — | | | — | | | — | | | 93 | | | — | | | | 93 | | | (13) | | | 80 | |
| Dividends paid to CVR Energy stockholders | | Dividends paid to CVR Energy stockholders | — | | | — | | | — | | | (302) | | | — | | | | (302) | | | — | | | (302) | |
| Distributions from CVR Partners to its public unitholders | Distributions from CVR Partners to its public unitholders | — | | | — | | | — | | | — | | | — | | | | — | | | (11) | | | (11) | | Distributions from CVR Partners to its public unitholders | — | | | — | | | — | | | — | | | — | | | | — | | | (67) | | | (67) | |
| | Net income | — | | | — | | | — | | | 84 | | | — | | | | 84 | | | 22 | | | 106 | | |
| Balance at September 30, 2021 | 100,629,209 | | | $ | 1 | | | $ | 1,510 | | | $ | (942) | | | $ | (2) | | | | $ | 567 | | | $ | 198 | | | $ | 765 | | |
| Balance at September 30, 2022 | | Balance at September 30, 2022 | 100,629,209 | | | $ | 1 | | | $ | 1,508 | | | $ | (947) | | | $ | (2) | | | | $ | 560 | | | $ | 211 | | | $ | 771 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CVR ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) | | | | | | | | | | | |
| Nine Months Ended September 30, |
| (in millions) | 2023 | | 2022 |
| Cash flows from operating activities: | | | |
| Net income | $ | 781 | | | $ | 472 | |
| Adjustments to reconcile net income to net cash provided by operating activities: |
| Depreciation and amortization | 221 | | | 215 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Deferred income taxes | 31 | | | (22) | |
| Loss on asset disposal | 1 | | | 1 | |
| | | |
| Share-based compensation | 30 | | | 49 | |
| Unrealized (gain) loss on derivatives, net | 35 | | | (5) | |
| | | |
| | | |
| Other items | 1 | | | 4 | |
| Changes in assets and liabilities: | | | |
| Current assets and liabilities | (105) | | | 157 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Non-current assets and liabilities | (11) | | | (3) | |
| | | |
| Net cash provided by operating activities | 984 | | | 868 | |
| Cash flows from investing activities: | | | |
| Capital expenditures | (150) | | | (145) | |
| | | |
| Turnaround expenditures | (53) | | | (74) | |
| | | |
| Return of equity method investment | 21 | | | — | |
| | | |
| | | |
| | | |
| Other investing activities | 1 | | | 2 | |
| | | |
| Net cash used in investing activities | (181) | | | (217) | |
| Cash flows from financing activities: | | | |
| | | |
| | | |
| Principal payments on senior secured notes | — | | | (65) | |
| | | |
| Repurchase of common units by CVR Partners | — | | | (12) | |
| | | |
| Dividends to CVR Energy’s stockholders | (251) | | | (342) | |
| Distributions to CVR Partners’ noncontrolling interest holders | (168) | | | (118) | |
| Other financing activities | (5) | | | (6) | |
| Net cash used in financing activities | (424) | | | (543) | |
| Net increase in cash, cash equivalents and restricted cash | 379 | | | 108 | |
| Cash, cash equivalents and restricted cash, beginning of period | 517 | | | 517 | |
| Cash, cash equivalents and restricted cash, end of period | $ | 896 | | | $ | 625 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
September 30, 20222023 | 7
CVR ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) | | | | | | | | | | | |
| Nine Months Ended September 30, |
| (in millions) | 2022 | | 2021 |
| Cash flows from operating activities: | | | |
| Net income | $ | 472 | | | $ | 49 | |
| Adjustments to reconcile net income to net cash provided by operating activities: |
| Depreciation and amortization | 215 | | | 205 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Gain on marketable securities | — | | | (82) | |
| Deferred income taxes | (22) | | | (34) | |
| Loss on asset disposal | 1 | | | 3 | |
| Loss on extinguishment of debt | 1 | | | 8 | |
| Share-based compensation | 49 | | | 31 | |
| Unrealized gain on derivatives, net | (5) | | | (16) | |
| | | |
| | | |
| Other items | 3 | | | 4 | |
| Changes in assets and liabilities: | | | |
| Current assets and liabilities | 157 | | | 209 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Non-current assets and liabilities | (3) | | | 5 | |
| | | |
| Net cash provided by operating activities | 868 | | | 382 | |
| Cash flows from investing activities: | | | |
| Capital expenditures | (145) | | | (188) | |
| | | |
| Turnaround expenditures | (74) | | | (3) | |
| Acquisition of pipeline assets | — | | | (20) | |
| | | |
| | | |
| Proceeds from sale of assets | — | | | 7 | |
| | | |
| Other investing activities | 2 | | | — | |
| | | |
| Net cash used in investing activities | (217) | | | (204) | |
| Cash flows from financing activities: | | | |
| | | |
| Proceeds from issuance of senior secured notes | — | | | 550 | |
| Principal payments on senior secured notes | (65) | | | (567) | |
| | | |
| Repurchase of common units by CVR Partners | (12) | | | (1) | |
| | | |
| Dividends to CVR Energy’s stockholders | (342) | | | (241) | |
| Distributions to CVR Partners’ noncontrolling interest holders | (118) | | | (11) | |
| Other financing activities | (6) | | | (9) | |
| Net cash used in financing activities | (543) | | | (279) | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | 108 | | | (101) | |
| Cash, cash equivalents and restricted cash, beginning of period | 517 | | | 674 | |
| Cash, cash equivalents and restricted cash, end of period | $ | 625 | | | $ | 573 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) Organization and Nature of Business
Organization
CVR Energy, Inc. (“CVR Energy,” “CVR,” “we,” “us,” “our,” or the “Company”) is a diversified holding company primarily engaged in the petroleum refining and marketing industry (the “Petroleum Segment”) and the nitrogen fertilizer manufacturing industriesindustry through its holdingsinterest in CVR Refining,Partners, LP, (the “Petroleum Segment” or “CVR Refining”) and CVR Partners, LPa publicly traded limited partnership (the “Nitrogen Fertilizer Segment” or “CVR Partners”). CVR Refining is an independent petroleum refinerThe Petroleum Segment refines and marketer ofmarkets high value transportation fuels primarily in the form of gasoline and diesel fuels, as well as renewable diesel.fuels. CVR Partners produces and markets nitrogen fertilizers primarily in the form of urea ammonium nitrate (“UAN”) and ammonia. We also produce and market renewable diesel. CVR’s common stock is listed on the New York Stock Exchange under the symbol “CVI.” Icahn Enterprises L.P. and its affiliates (“IEP”) owned approximately 71%66% of the Company’s outstanding common stock as of September 30, 2022.2023.
Stock Repurchase Program - On October 23, 2019, CVR Energy’s board of directors (the “Board”) authorized a stock repurchase program (the “Stock Repurchase Program”), which would enable the Company to repurchase up to $300 million of the Company’s common stock. As of September 30, 2023, the Company had not repurchased any of the Company’s common stock under the Stock Repurchase Program, which expired, in accordance with its terms, on October 22, 2023.
CVR Partners, LP
Interest Holders - As of September 30, 2022,2023, public common unitholders held approximately 63% of CVR Partners’ outstanding common units and CVR Services, LLC (“CVR Services”), a wholly ownedwholly-owned subsidiary of CVR Energy, held the remaining approximately 37% of CVR Partners’ outstanding common units. In addition, CVR Services held 100% of the interestsinterest in CVR Partners’ general partner, CVR GP, LLC (“CVR GP”), which held a non-economic general partner interest in CVR Partners as of September 30, 2022.2023. The noncontrolling interest reflected on the condensed consolidated balance sheets of CVR is only impacted by the net incomeresults of, and distributions from, and unit repurchases by CVR Partners.
Unit Repurchase Program - On May 6, 2020, the board of directors of CVR Partners’ general partner (the “UAN GP Board”), on behalf of CVR Partners, authorized a unit repurchase program (the “Unit Repurchase Program”), which was increased on February 22, 2021. The Unit Repurchase Program, as increased, authorized CVR Partners to repurchase up to $20 million of the CVR Partners’ common units. During the three and nine months ended September 30, 2023 and the three months ended September 30, 2022, and 2021, CVR Partners did not repurchase any common units. During the nine months ended September 30, 2022, and 2021, CVR Partners repurchased 111,695 and 24,378 common units respectively, on the open market in accordance with a repurchase agreement under Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934, as amended, at a cost of $12 million, and $1 million, respectively, exclusive of transaction costs, or an average price of $110.98 and $21.69 per common unit, respectively.unit. As of September 30, 2022,2023, CVR Partners, considering all repurchases made since inception of the Unit Repurchase Program, had a nominal authorized amount in authority remaining under the Unit Repurchase Program. This Unit Repurchase Program does not obligate CVR Partners to repurchaseacquire any common units and may be cancelled, modified, or terminated by the UAN GP Board at any time.
As a result of these repurchases, and the resulting change in CVR Energy’s ownership of CVR Partners while maintaining control, CVR Energy recognized a decrease of $2 million to additional paid-in capital from the reduction of non-controllingnoncontrolling interests totaling $3 million and athe related reduction of a deferred tax liability totaling $1 million from changes in its book versus tax basis in CVR Partners as of September 30, 2022. CVR Energy recognized a nominal increase to additional paid-in capital from the non-cash reduction of non-controlling interests totaling $0.1 million and the recognition of a deferred tax liability totaling $0.1 million from changes in its book versus tax basis in CVR Partners as of December 31, 2021.2022.
(2) Basis of Presentation
The accompanying condensed consolidated financial statements, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). These, include the accounts of the Company and its majority-owned direct and indirect subsidiaries. All intercompany accounts and transactions have been eliminated. Certain notes and other information have been condensed or omitted from the condensed consolidated financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with the December 31, 20212022 audited consolidated financial statements and notes thereto included in CVR Energy’s Annual Report on Form 10-K for the year ended December 31, 20212022 (the “2021“2022 Form 10-K”).
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Our condensed consolidated financial statements include the consolidated results of CVR Partners, which is defined as a variable interest entity.entity (“VIE”).
In the opinion of the Company’s management, the accompanying condensed consolidated financial statements reflect all adjustments that are necessary for fair presentation of the financial position and results of operations of the Company for the periods presented. Such adjustments are of a normal recurring nature, unless otherwise disclosed.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Certain reclassifications have been made within theThe condensed consolidated financial statements for prior periods to conform with current presentation.
The preparation of the condensed consolidated financial statementsare prepared in conformity with GAAP, which requires management to make certain estimates and assumptions that affect the reported amounts and disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses andduring the disclosure of certain assets and liabilities.reporting period. Actual results could differ from those estimates. Results of operations and cash flows for the interim periods presented are not necessarily indicative of the results that will be realized for the year ending December 31, 20222023 or any other interim or annual period.
(3) Recent Accounting Pronouncements and Accounting Changes
Accounting Standards Issued But Not Yet Implemented
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. This guidance applies to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates. The guidance is effective beginning on March 12, 2020 through the sunset date of Topic 848, which is currently expected to occur on December 31, 2022. The Company has not utilized any of the optional expedients or exceptions available under this guidance and will continue to assess whether this guidance is applicable throughout the effective period.
(4) Inventories
Inventories consisted of the following:
| | (in millions) | (in millions) | September 30, 2022 | | December 31, 2021 | (in millions) | September 30, 2023 | | December 31, 2022 |
| Finished goods | Finished goods | $ | 281 | | | $ | 215 | | Finished goods | $ | 278 | | | $ | 297 | |
| Raw materials | Raw materials | 244 | | | 177 | | Raw materials | 214 | | | 206 | |
| In-process inventories | In-process inventories | 25 | | | 20 | | In-process inventories | 25 | | | 35 | |
| Parts, supplies and other | Parts, supplies and other | 82 | | | 72 | | Parts, supplies and other | 93 | | | 86 | |
| Total inventories | Total inventories | $ | 632 | | | $ | 484 | | Total inventories | $ | 610 | | | $ | 624 | |
(5)(4) Property, Plant and Equipment
Property, plant and equipment consisted of the following:
| | (in millions) | (in millions) | September 30, 2022 | | December 31, 2021 | (in millions) | September 30, 2023 | | December 31, 2022 |
| Machinery and equipment | Machinery and equipment | $ | 4,162 | | | $ | 4,033 | | Machinery and equipment | $ | 4,265 | | | $ | 4,194 | |
| Buildings and improvements | Buildings and improvements | 87 | | | 88 | | Buildings and improvements | 87 | | | 86 | |
| ROU finance leases | ROU finance leases | 79 | | | 81 | | ROU finance leases | 81 | | | 79 | |
| Land and improvements | Land and improvements | 72 | | | 71 | | Land and improvements | 73 | | | 72 | |
| Furniture and fixtures | Furniture and fixtures | 35 | | | 37 | | Furniture and fixtures | 37 | | | 37 | |
| Construction in progress | Construction in progress | 131 | | | 142 | | Construction in progress | 215 | | | 143 | |
| Other | Other | 14 | | | 15 | | Other | 15 | | | 15 | |
| | | 4,580 | | | 4,467 | | | 4,773 | | | 4,626 | |
| Less: Accumulated depreciation and amortization | Less: Accumulated depreciation and amortization | (2,313) | | | (2,194) | | Less: Accumulated depreciation and amortization | (2,546) | | | (2,379) | |
| Total property, plant and equipment, net | Total property, plant and equipment, net | $ | 2,267 | | | $ | 2,273 | | Total property, plant and equipment, net | $ | 2,227 | | | $ | 2,247 | |
On February 1, 2021,During the nine months ended September 30, 2023, the Company completeddid not identify the existence of an impairment indicator for our long-lived asset groups as outlined under the FASB ASC Topic 360, Property, Plant, and Equipment. The depreciation and amortization expense related to property, plant and equipment was $59 million and $57 million for the three months ended September 30, 2023 and 2022, respectively, and $165 million and $167 million for the nine months ended September 30, 2023 and 2022, respectively.
(5) Equity Method Investments
In January 2023, CVR Partners and its subsidiary, Coffeyville Resources Nitrogen Fertilizer, LLC (“CRNF”), entered into a pipeline acquisitionseries of agreements with CapturePoint LLC, an unaffiliated Texas limited liability company, and certain unaffiliated third-party investors intended to qualify under the Internal Revenue Service (“IRS”) safe harbor described in Revenue Procedure 2020-12 for total considerationcertain joint ventures that are eligible to claim certain tax credits available to joint ventures under Section 45Q of $23 million, which was accounted forthe Internal Revenue Code of 1986, as a business combination under Accounting Standards Codificationamended (“ASC”Section 45Q Credits”) 805. An intangible asset ofand allow us to monetize Section 45Q Credits we
September 30, 20222023 | 1011
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
$3 millionexpect to generate from January 6, 2023 until March 31, 2030 (the “45Q Transaction”). Among other items, the 45Q Transaction resulted in the creation of CVR-CapturePoint Parent LLC, which was recognized inaccounted for by CVR Partners as an equity-method investment.
We have the following investments which have applied the equity method of accounting and are presented within Other long-term assets on our condensed consolidated financial statements:
•CVR-CapturePoint Parent, LLC (“CVRP JV”) -Through our subsidiaries, and in connection with the 45Q Transaction, we received a 50% interest in CVRP JV in connection with a modification to a carbon oxide contract (“CO Contract”) with a customer. We applied the VIE model under FASB ASC Topic 810, Consolidation, to our variable interest in CVRP JV and determined that CVRP JV is a VIE. While we concluded we are not the primary beneficiary of CVRP JV, we do have significant influence over CVRP JV’s operating and financial policies and, therefore, applied the equity method of accounting for our investment in CVRP JV.
We deferred the recognition of the noncash consideration received and expect to recognize such revenue as the performance obligation associated with the CO Contract is satisfied. Refer to Note 9 (“Revenue”) for further discussion. We have elected to record our share of the earnings or loss of CVRP JV one quarter in arrears. Distributions received from CVRP JV will reduce our equity method investment and will be recorded in the period in which they are received.
•Enable South Central Pipeline, LLC (“Enable JV”) - Through our subsidiaries, we own a 40% interest in Enable JV, which operates a 12-inch 26-mile crude oil pipeline with a capacity of approximately 20,000 barrels per day that is connected to the Wynnewood Refinery. The remaining interest in Enable JV is owned by a subsidiary of Energy Transfer LP, which also serves as the operator of the pipeline owned by the Enable JV.
•Midway Pipeline, LLC (“Midway JV”) - Through our subsidiaries, we own a 50% interest in Midway JV, which operates a 16-inch 99-mile crude oil pipeline with a capacity of approximately 131,000 barrels per day which connects the Coffeyville Refinery to the Cushing, Oklahoma oil hub. The remaining interest in Midway JV is owned by Plains Pipeline, L.P.
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | CVRP JV | | Enable JV | | Midway JV | | Total |
| Balance at December 31, 2022 | $ | — | | | $ | 5 | | | $ | 71 | | | $ | 76 | |
| CVRP JV inception | 46 | | | — | | | — | | | 46 | |
| | | | | | | |
Cash distributions (1) | (19) | | | (1) | | | (2) | | | (22) | |
| Equity income | — | | | 1 | | | 2 | | | 3 | |
| Balance at March 31, 2023 | 27 | | | 5 | | | 71 | | | 103 | |
| Cash distributions | (1) | | | (1) | | | (2) | | | (4) | |
| Equity income | — | | | 1 | | | 2 | | | 3 | |
| Balance at June 30, 2023 | 26 | | | 5 | | | 71 | | | 102 | |
| Cash distributions | (1) | | | (1) | | | (2) | | | (4) | |
| Equity income | — | | | 1 | | | 2 | | | 3 | |
| Balance at September 30, 2023 | $ | 25 | | | $ | 5 | | | $ | 71 | | | $ | 101 | |
(1)Of the CVRP JV amount, approximately $1 million related to acquired contracts that is being amortized over less than three years. The accounting forincremental costs associated with obtaining the business combination was finalized during January 2022.
During the nine months ended September 30, 2022, the Company had not identified the existence of an impairment indicator forCO Contract were capitalized and included in Prepaid expenses and other current assets and Other long-term assets in our long-lived asset groups as outlined under ASC 360.condensed consolidated financial statements.
(6) Leases
Lease Overview
We lease certain pipelines, storage tanks, railcars, office space, land, and equipment across our refining, fertilizer, and corporate operations. Most of our leases include one or more renewal options to extend the lease term, which can be exercised at our sole discretion. Certain leases also include options to purchase the leased property. The depreciable life of leased assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain of our lease agreements include rental payments, which are adjusted periodically for factors such as inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Additionally, we do not have any material lessor or sub-leasing arrangements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Balance Sheet Summary as of September 30, 20222023 and December 31, 20212022
The following tables summarize the right-of-use (“ROU”) asset and lease liability balances for the Company’s operating and finance leases at September 30, 20222023 and December 31, 2021:2022:
| | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
| (in millions) | (in millions) | Operating Leases | | Finance Leases | | Operating Leases | | Finance Leases | (in millions) | Operating Leases | | Finance Leases | | Operating Leases | | Finance Leases |
| ROU assets, net | ROU assets, net | | | | | | | | ROU assets, net | | | | | | | |
| Pipeline and storage | Pipeline and storage | $ | 17 | | | $ | 21 | | | $ | 17 | | | $ | 23 | | Pipeline and storage | $ | 13 | | | $ | 18 | | | $ | 16 | | | $ | 20 | |
| Railcars | Railcars | 4 | | | — | | | 6 | | | — | | Railcars | 9 | | | — | | | 11 | | | — | |
| Real estate and other | Real estate and other | 14 | | | 15 | | | 14 | | | 18 | | Real estate and other | 16 | | | 14 | | | 13 | | | 15 | |
| Lease liability | Lease liability | | Lease liability | |
| Pipelines and storage | Pipelines and storage | 17 | | | 33 | | | 17 | | | 35 | | Pipelines and storage | 12 | | | 29 | | | 16 | | | 32 | |
| Railcars | Railcars | 4 | | | — | | | 6 | | | — | | Railcars | 9 | | | — | | | 11 | | | — | |
| Real estate and other | Real estate and other | 14 | | | 17 | | | 14 | | | 19 | | Real estate and other | 15 | | | 17 | | | 13 | | | 16 | |
Lease Expense Summary for the Three and Nine Months Ended September 30, 20222023 and 20212022
We recognize operating lease expense on a straight-line basis over the lease term and short-term lease expense within Direct operating expenses (exclusive of depreciation and amortization). and Cost of materials and other and finance lease expense on a straight-line basis over the lease term within Depreciation and amortization. For the three and nine months ended September 30, 20222023 and 2021,2022, we recognized lease expense comprised of the following components:
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | (in millions) | 2022 | | 2021 | | 2022 | | 2021 | (in millions) | 2023 | | 2022 | | 2023 | | 2022 |
| Operating lease expense | Operating lease expense | $ | 4 | | | $ | 3 | | | $ | 12 | | | $ | 11 | | Operating lease expense | $ | 4 | | | $ | 4 | | | $ | 13 | | | $ | 12 | |
| Finance lease expense: | Finance lease expense: | | Finance lease expense: | |
| Amortization of ROU asset | Amortization of ROU asset | 2 | | | 2 | | | 5 | | | 5 | | Amortization of ROU asset | 1 | | | 2 | | | 4 | | | 5 | |
| Interest expense on lease liability | Interest expense on lease liability | 1 | | | 1 | | | 4 | | | 4 | | Interest expense on lease liability | 1 | | | 1 | | | 3 | | | 4 | |
| Short-term lease expense | Short-term lease expense | 3 | | | 2 | | | 7 | | | 6 | | Short-term lease expense | 3 | | | 3 | | | 8 | | | 7 | |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Lease Terms and Discount Rates
The following outlines the remaining lease terms and discount rates used in the measurement of the Company’s ROU assets and lease liabilities:
| | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
| | Operating Leases | | Finance Leases | | Operating Leases | | Finance Leases | | Operating Leases | | Finance Leases | | Operating Leases | | Finance Leases |
| Weighted-average remaining lease term | Weighted-average remaining lease term | 3.9 years | | 6.5 years | | 4.1 years | | 7.2 years | Weighted-average remaining lease term | 3.9 years | | 5.5 years | | 4.1 years | | 6.3 years |
| Weighted-average discount rate | Weighted-average discount rate | 5.1 | % | | 9.0 | % | | 5.4 | % | | 9.0 | % | Weighted-average discount rate | 5.6 | % | | 9.0 | % | | 5.2 | % | | 9.0 | % |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Maturities of Lease Liabilities
The following summarizes the remaining minimum lease payments through maturity of the Company’s lease liabilities at September 30, 2022:2023:
| | (in millions) | (in millions) | Operating Leases | | Finance Leases | (in millions) | Operating Leases | | Finance Leases |
| Remainder of 2022 | $ | 5 | | | $ | 3 | | |
| 2023 | 14 | | | 11 | | |
| Remainder of 2023 | | Remainder of 2023 | $ | 5 | | | $ | 4 | |
| 2024 | 2024 | 10 | | | 10 | | 2024 | 14 | | | 11 | |
| 2025 | 2025 | 4 | | | 10 | | 2025 | 9 | | | 11 | |
| 2026 | 2026 | 3 | | | 10 | | 2026 | 7 | | | 11 | |
| 2027 | | 2027 | 3 | | | 10 | |
| Thereafter | Thereafter | 4 | | | 23 | | Thereafter | 3 | | | 12 | |
| Total lease payments | Total lease payments | 40 | | | 67 | | Total lease payments | 41 | | | 59 | |
| Less: imputed interest | Less: imputed interest | (5) | | | (17) | | Less: imputed interest | (5) | | | (13) | |
| Total lease liability | Total lease liability | $ | 35 | | | $ | 50 | | Total lease liability | $ | 36 | | | $ | 46 | |
The Company has entered into the following material lease commitments that have not yet commenced:
•On February 21, 2022, Coffeyville Resources Nitrogen Fertilizers, LLC (“CRNF”), a wholly owned subsidiary of CVR Partners,CRNF entered into the First Amendment to the On-Site Product Supply Agreement with Messer LLC (“Messer”), which amended the July 31, 2020 On-Site Product Supply Agreement (as amended, the “Messer Agreement”). Under the Messer Agreement, among other obligations, Messer is obligated to supply oxygen and make certain capital improvements during the term of the Messer Agreement, and CRNF is obligated to take as available and pay for oxygen nitrogen, and compressed dry air from Messer’s facility. This arrangement for CRNF’s purchase of oxygen nitrogen, and dry air from Messer does not meet the definition of a lease under FASB ASC Topic 842, Leases (“Topic 842”), as CRNF does not expect to receive substantially all of the output, which includes oxygen, nitrogen, and compressed air, of Messer’s on-site production from its air separation unit over the life of the Messer Agreement. The Messer Agreement also obligates Messer to install a new oxygen storage vessel, related equipment and infrastructure (“Oxygen Storage Vessel” or “Vessel”) to be used solely by the Coffeyville Fertilizer Facility. The arrangement for the use of the Oxygen Storage Vessel meets the definition of a lease under Topic 842, as CRNF will receive all output associated with the Vessel. Based on terms outlined in the Messer Agreement, the Company expects the lease of the Oxygen Storage Vessel to be classified as a financingfinance lease with an estimated amount within the range of approximately$20 million to $25 million being capitalized upon lease commencement when the Vessel is placed in service, which is currently expected withinto occur in the next 12 months.first quarter of 2024.
On July 14, 2022, the Company entered into the Sixth Amendment to the Sugar Land Plaza Office Building Agreement with LCFRE Sugar Land Town Square, LLC (“LCFRE”), which amends the Sugar Land Plaza Office Building Agreement dated 2016 (as amended, the “LCFRE Agreement”). Under the LCFRE Agreement, LCFRE will provide office space to the Company which will continue to serve as the Company’s corporate office in Sugar Land, Texas and will commence onwith the lease term start date of October 1, 2023. Based on the terms outlined in the LCFRE Agreement, the Company expects the lease to be classified as an operating lease under Topic 842, with approximatelyan estimated amount within the range of $8 million to $12 million being capitalized upon lease commencement.
September 30, 20222023 | 1214
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
(7) Other Current Liabilities
Other current liabilities were as follows:
| | (in millions) | (in millions) | September 30, 2022 | | December 31, 2021 | (in millions) | September 30, 2023 | | December 31, 2022 |
| Accrued Renewable Fuel Standards (“RFS”) obligation | Accrued Renewable Fuel Standards (“RFS”) obligation | $ | 715 | | | $ | 494 | | Accrued Renewable Fuel Standards (“RFS”) obligation | $ | 413 | | | $ | 692 | |
| Share-based compensation | | Share-based compensation | 52 | | | 31 | |
| Accrued taxes other than income taxes | | Accrued taxes other than income taxes | 47 | | | 51 | |
| Personnel accruals | | Personnel accruals | 45 | | | 47 | |
| Accrued income taxes | | Accrued income taxes | 44 | | | — | |
| Derivatives | | Derivatives | 37 | | | 4 | |
| Deferred revenue | Deferred revenue | 65 | | | 87 | | Deferred revenue | 39 | | | 48 | |
| Share-based compensation | 45 | | | 15 | | |
| Personnel accruals | 45 | | | 46 | | |
| Accrued taxes other than income taxes | 43 | | | 45 | | |
| Accrued interest | Accrued interest | 18 | | | 24 | | Accrued interest | 19 | | | 24 | |
| Operating lease liabilities | Operating lease liabilities | 14 | | | 13 | | Operating lease liabilities | 13 | | | 15 | |
| Current portion of long-term debt and finance lease obligations | 6 | | | 6 | | |
| | Derivatives | — | | | 2 | | |
| Current portion of finance lease obligations | | Current portion of finance lease obligations | 7 | | | 6 | |
| Other accrued expenses and liabilities | Other accrued expenses and liabilities | 23 | | | 15 | | Other accrued expenses and liabilities | 29 | | | 24 | |
| Total other current liabilities | Total other current liabilities | $ | 974 | | | $ | 747 | | Total other current liabilities | $ | 745 | | | $ | 942 | |
(8) Long-Term Debt and Finance Lease Obligations
Long-term debt and finance lease obligations consisted of the following:
| | | | | | | | | | | |
| (in millions) | September 30, 2022 | | December 31, 2021 |
| CVR Partners: | | | |
9.25% Senior Secured Notes, due June 2023 (1) | $ | — | | | $ | 65 | |
| 6.125% Senior Secured Notes, due June 2028 | 550 | | | 550 | |
| | | |
| Unamortized discount and debt issuance costs | (3) | | | (4) | |
| Total CVR Partners debt, net of current portion | $ | 547 | | | $ | 611 | |
| | | |
| CVR Refining: | | | |
| | | |
| Finance lease obligations, net of current portion | 44 | | | 48 | |
| | | |
| | | |
| Total CVR Refining debt, net of current portion | $ | 44 | | | $ | 48 | |
| | | |
| CVR Energy: | | | |
| 5.25% Senior Notes, due February 2025 | $ | 600 | | | $ | 600 | |
| 5.75% Senior Notes, due February 2028 | 400 | | | 400 | |
| Unamortized debt issuance costs | (4) | | | (5) | |
| Total CVR Energy debt | $ | 996 | | | $ | 995 | |
| Total long-term debt and finance lease obligations, net of current portion | $ | 1,587 | | | $ | 1,654 | |
| Current portion of finance lease obligations | 6 | | | 6 | |
| Total long-term debt and finance lease obligations, including current portion | $ | 1,593 | | | $ | 1,660 | |
| | | | | | | | | | | |
| (in millions) | September 30, 2023 | | December 31, 2022 |
| CVR Partners: | | | |
| 6.125% Senior Secured Notes, due June 2028 | $ | 550 | | | $ | 550 | |
| | | |
| Unamortized discount and debt issuance costs | (3) | | | (3) | |
| Total CVR Partners debt | 547 | | | 547 | |
| | | |
| CVR Refining, LP (“CVR Refining”): | | | |
| | | |
| Finance lease obligations, net of current portion | 39 | | | 42 | |
| | | |
| | | |
| Total CVR Refining finance lease obligations, net of current portion | 39 | | | 42 | |
| | | |
| CVR Energy: | | | |
| 5.25% Senior Notes, due February 2025 | 600 | | | 600 | |
| 5.75% Senior Notes, due February 2028 | 400 | | | 400 | |
| Unamortized debt issuance costs | (3) | | | (4) | |
| Total CVR Energy debt | 997 | | | 996 | |
| Total long-term debt and finance lease obligations, net of current portion | 1,583 | | | 1,585 | |
| Current portion of finance lease obligations | 7 | | | 6 | |
| Total long-term debt and finance lease obligations, including current portion | $ | 1,590 | | | $ | 1,591 | |
(1)
The $65 million outstanding balance of the 9.25% Senior Secured Notes, due June 2023 (the “2023 UAN Notes”) was paid in full on February 22, 2022 at par, plus accrued and unpaid interest.
September 30, 20222023 | 1315
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Credit Agreements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Total Available Borrowing Capacity | | Amount Borrowed as of September 30, 2022 | | Outstanding Letters of Credit | | Available Capacity as of September 30, 2022 | | Maturity Date |
| CVR Partners: | | | | | | | | | |
Asset Based (“Nitrogen Fertilizer ABL”) Credit Agreement (1) | $ | 35 | | | $ | — | | | $ | — | | | $ | 35 | | | September 30, 2024 |
| CVR Refining: | | | | | | | | | |
Amended and Restated Asset Based (“Petroleum ABL”) Credit Agreement (2) | $ | 275 | | | $ | — | | | $ | 28 | | | $ | 247 | | | June 30, 2027 |
(1)Beginning September 30, 2021, loans under the Nitrogen Fertilizer ABL bear interest at an annual rate equal to, at the option of the borrowers, (i) (a) 1.615% plus the daily simple Secured Overnight Financing Rate (“SOFR”) or (b) 0.615% plus a base rate, if CVR Partners’ quarterly excess availability is greater than or equal to 75%, (ii) (a) 1.865% plus SOFR or (b) 0.865% plus a base rate, if CVR Partners’ quarterly excess availability is greater than or equal to 50% but less than 75%, or (iii) (a) 2.115% plus SOFR or (b) 1.115% plus a base rate, otherwise.
(2)Beginning June 30, 2022, loans under the Petroleum ABL bear interest at an annual rate equal to, at the option of the borrowers, (i) (a) 1.50% plus the Term SOFR (as defined in the Petroleum ABL) or (b) 0.50% plus a base rate, if CVR Refining’s quarterly excess availability is greater than 50%, and (ii) (a) 1.75% plus the Term SOFR or (b) 0.75% plus a base rate, otherwise. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Total Available Borrowing Capacity | | Amount Borrowed as of September 30, 2023 | | Outstanding Letters of Credit | | Available Capacity as of September 30, 2023 | | Maturity Date |
| CVR Partners: | | | | | | | | | |
| Asset Based (“Nitrogen Fertilizer ABL”) Credit Agreement | $ | 48 | | | $ | — | | | $ | — | | | $ | 48 | | | September 26, 2028 |
| CVR Refining: | | | | | | | | | |
| Amended and Restated Asset Based (“Petroleum ABL”) Credit Agreement | $ | 275 | | | $ | — | | | $ | 24 | | | $ | 251 | | | June 30, 2027 |
CVR Partners
2023 UAN NotesNitrogen Fertilizer ABL - On February 22, 2022,September 26, 2023, CVR Partners redeemed all of the outstanding 2023 UAN Notes at par and settled accrued and unpaid interest of approximately $1 million through, but not including, the date of redemption. As a result of this transaction, CVR Partners recognized a loss on extinguishment of debt of $1 million, which includes the write-off of unamortized deferred financing costs and discount of less than $1 million each.
CVR Refining
Petroleum ABL - On April 12, 2022, in connection with the Petroleum ABL, a new wholly owned subsidiary of CVR Energy, CVR Renewables, LLC (“CVR Renew”), delivered to Wells Fargo Bank, National Association, as administrative agent and collateral agent for the secured parties, a Joinder Agreement pursuant to which CVR Renew became a borrower for all purposes under the Petroleum ABL and other Credit Documents (as defined in the Petroleum ABL).
On June 30, 2022, CVR Refining and certain of its subsidiaries (the “Credit Parties”) entered into Amendment No. 31 to the Amended and RestatedCredit Agreement (the “ABL Amendment”). The ABL Amendment amended that certain Credit Agreement, dated December 20, 2012 (the “Amendment”, and as amended,of September 30, 2021, to, among other things, (i) increase the “Petroleum ABL”), with a group of lenders and Wells Fargo Bank, National Association, as administrative agent and collateral agent (the “Agent”). The Petroleum ABL is a senior secured asset based revolving credit facility in an aggregate principal amount available under the credit facility by an additional $15 million to a total of up to $275$50 million in the aggregate, with a $125 millionan incremental facility which isof an additional $15 million in the aggregate subject to additional lender commitments and certain other conditions.conditions, and (ii) extend the maturity date by an additional four years to September 26, 2028. The proceedsforegoing description of the loans mayABL Amendment does not purport to be used for capital expenditures, working capitalcomplete and general corporate purposesis qualified in its entirety by the terms of the Credit Parties and their subsidiaries. The Petroleum ABL provides for loans and letters of credit inAmendment, which is filed as an amount upexhibit to the aggregate availability under the facility, subject to meeting certain borrowing base conditions, with sub-limits of $30 million for swingline loans and $60 million (or $100 million if increased by the Agent) for letters of credit. The Petroleum ABL is scheduled to mature on June 30, 2027.
Loans under the Petroleum ABL bear interest at an annual rate equal to, at the option of the Credit Parties, (i) (a) 1.50% plus the Term SOFR (as defined in the Petroleum ABL) or (b) 0.50% plus a base rate, if CVR Refining’s quarterly excess availability is greater than 50%, and (ii) (a) 1.75% plus the Term SOFR or (b) 0.75% plus a base rate, otherwise. All borrowings under the Petroleum ABL are subject to the satisfaction of customary conditions, including absence of a default and accuracy of representations and warranties. The Credit Parties must also pay a commitment fee on the unutilized commitments and pay customary letter of credit fees.
The Petroleum ABL contains customary covenants for a financing of this type and requires the Credit Parties in certain circumstances to comply with a minimum fixed charge coverage ratio test, and contains other customary restrictive covenants that limit the Credit Parties’ ability and the ability of their subsidiaries to, among other things, incur liens, engage in a
September 30, 2022 | Report.14
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
consolidation, merger and purchase or sale of assets, pay dividends, incur indebtedness, make advances, investment and loans, enter into affiliate transactions, issue equity interests, or create subsidiaries and unrestricted subsidiaries.
On July 22, 2022, in connection with the Petroleum ABL, 14 newly created indirect, wholly owned subsidiaries (the “Joining Subsidiaries”) of CVR Energy delivered to the Agent a Joinder Agreement pursuant to which such Joining Subsidiaries became borrowers for all purposes under the Petroleum ABL and other Credit Documents.
CVR Energy
2025 Notes and 2028 Notes - On April 12, 2022, in connection with the 5.25% Senior Notes, due 2025 (the “2025 Notes”) and the 5.75% Senior Notes, due 2028 (the “2028 Notes” and together with the 2025 Notes, the “Notes”), issued pursuant to the Indenture dated January 27, 2020 (the “Indenture”), among CVR Energy, the subsidiary guarantors listed therein (collectively, the “Guarantors”), and Wells Fargo Bank, National Association, as trustee (the “Trustee”), CVR Renew, the Guarantors, and the Trustee executed and delivered a Supplemental Indenture pursuant to which CVR Renew unconditionally guaranteed all of the Company’s obligations under the Notes on the terms and conditions set forth in the Note Guarantee and the Indenture.
On July 1, 2022, in connection with the Amendment, the Joining Subsidiaries that were not previously parties to the Indenture executed and delivered a Supplemental Indenture to the Trustee pursuant to which such Joining Subsidiaries unconditionally guaranteed all of the Company’s obligations under the Notes on the terms and conditions set forth in the Note Guarantee and the Indenture.
Covenant Compliance
The Company and its subsidiaries were in compliance with all covenants under their respective debt instruments as of September 30, 2022.2023.
(9) Revenue
The following tables present the Company’s revenue disaggregated by major product. The following tables alsoproduct, which include a reconciliation of the disaggregated revenue withby the Company’s reportable segments.segments:
| | | Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 | | Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 |
| (in millions) | (in millions) | Petroleum Segment | | Nitrogen Fertilizer Segment | | Other / Elimination | | Consolidated | | Petroleum Segment | | Nitrogen Fertilizer Segment | | Other / Elimination | | Consolidated | (in millions) | Petroleum Segment (1) | | Nitrogen Fertilizer Segment | | Other / Elimination | | Consolidated | | Petroleum Segment (1) | | Nitrogen Fertilizer Segment | | Other / Elimination | | Consolidated |
| Gasoline | Gasoline | $ | 1,207 | | | $ | — | | | $ | — | | | $ | 1,207 | | | $ | 3,732 | | | $ | — | | | $ | — | | | $ | 3,732 | | Gasoline | $ | 1,186 | | | $ | — | | | $ | — | | | $ | 1,186 | | | $ | 3,287 | | | $ | — | | | $ | — | | | $ | 3,287 | |
Distillates (1)(2) | Distillates (1)(2) | 1,202 | | | — | | | 50 | | | 1,252 | | | 3,513 | | | — | | | 76 | | | 3,589 | | Distillates (1)(2) | 1,057 | | | — | | | 67 | | | 1,124 | | | 2,806 | | | — | | | 150 | | | 2,956 | |
| Ammonia | Ammonia | — | | | 22 | | | — | | | 22 | | | — | | | 125 | | | — | | | 125 | | Ammonia | — | | | 22 | | | — | | | 22 | | | — | | | 116 | | | — | | | 116 | |
| UAN | UAN | — | | | 119 | | | — | | | 119 | | | — | | | 438 | | | — | | | 438 | | UAN | — | | | 86 | | | — | | | 86 | | | — | | | 354 | | | — | | | 354 | |
| Other urea products | — | | | 6 | | | — | | | 6 | | | — | | | 26 | | | — | | | 26 | | |
| Urea products | | Urea products | — | | | 8 | | | — | | | 8 | | | — | | | 23 | | | — | | | 23 | |
Freight revenue | Freight revenue | 4 | | | 7 | | | — | | | 11 | | | 13 | | | 27 | | | — | | | 40 | | Freight revenue | 5 | | | 10 | | | — | | | 15 | | | 13 | | | 32 | | | — | | | 45 | |
Other (2)(4) | Other (2)(4) | 49 | | | 2 | | | 19 | | | 70 | | | 209 | | | 7 | | | 20 | | | 236 | | Other (2)(4) | 42 | | | 5 | | | 26 | | | 73 | | | 123 | | | 15 | | | 65 | | | 203 | |
| Revenue from product sales | Revenue from product sales | 2,462 | | | 156 | | | 69 | | | 2,687 | | | 7,467 | | | 623 | | | 96 | | | 8,186 | | Revenue from product sales | 2,290 | | | 131 | | | 93 | | | 2,514 | | | 6,229 | | | 540 | | | 215 | | | 6,984 | |
| | Crude oil sales | Crude oil sales | 12 | | | — | | | — | | | 12 | | | 29 | | | — | | | — | | | 29 | | Crude oil sales | 8 | | | — | | | — | | | 8 | | | 60 | | | — | | | — | | | 60 | |
Other revenue (2) | — | | | — | | | — | | | — | | | 1 | | | — | | | — | | | 1 | | |
| Other revenue | | Other revenue | — | | | — | | | — | | | — | | | 1 | | | — | | | — | | | 1 | |
| Total revenue | Total revenue | $ | 2,474 | | | $ | 156 | | | $ | 69 | | | $ | 2,699 | | | $ | 7,497 | | | $ | 623 | | | $ | 96 | | | $ | 8,216 | | Total revenue | $ | 2,298 | | | $ | 131 | | | $ | 93 | | | $ | 2,522 | | | $ | 6,290 | | | $ | 540 | | | $ | 215 | | | $ | 7,045 | |
|
September 30, 20222023 | 1516
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
| | | Three Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 | | Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 |
| (in millions) | (in millions) | Petroleum Segment | | Nitrogen Fertilizer Segment | | Other / Elimination | | Consolidated | | Petroleum Segment | | Nitrogen Fertilizer Segment | | Other / Elimination | | Consolidated | (in millions) | Petroleum Segment (1) | | Nitrogen Fertilizer Segment | | Other / Elimination | | Consolidated | | Petroleum Segment (1) | | Nitrogen Fertilizer Segment | | Other / Elimination | | Consolidated |
| Gasoline | Gasoline | $ | 962 | | | $ | — | | | $ | — | | | $ | 962 | | | $ | 2,619 | | | $ | — | | | $ | — | | | $ | 2,619 | | Gasoline | $ | 1,207 | | | $ | — | | | $ | — | | | $ | 1,207 | | | $ | 3,732 | | | $ | — | | | $ | — | | | $ | 3,732 | |
Distillates (1)(2) | Distillates (1)(2) | 723 | | | — | | | — | | | 723 | | | 1,996 | | | — | | | — | | | 1,996 | | Distillates (1)(2) | 1,202 | | | — | | | 50 | | | 1,252 | | | 3,513 | | | — | | | 76 | | | 3,589 | |
| Ammonia | Ammonia | — | | | 27 | | | — | | | 27 | | | — | | | 68 | | | — | | | 68 | | Ammonia | — | | | 22 | | | — | | | 22 | | | — | | | 125 | | | — | | | 125 | |
| UAN | UAN | — | | | 99 | | | — | | | 99 | | | — | | | 224 | | | — | | | 224 | | UAN | — | | | 119 | | | — | | | 119 | | | — | | | 438 | | | — | | | 438 | |
| Other urea products | — | | | 8 | | | — | | | 8 | | | — | | | 20 | | | — | | | 20 | | |
| Urea products | | Urea products | — | | | 6 | | | — | | | 6 | | | — | | | 26 | | | — | | | 26 | |
Freight revenue | Freight revenue | 5 | | | 9 | | | — | | | 14 | | | 16 | | | 24 | | | — | | | 40 | | Freight revenue | 4 | | | 7 | | | — | | | 11 | | | 13 | | | 27 | | | — | | | 40 | |
Other (2) | 45 | | | 2 | | | (4) | | | 43 | | | 117 | | | 8 | | | (8) | | | 117 | | |
Other products (4) | | Other products (4) | 49 | | | 2 | | | 19 | | | 70 | | | 209 | | | 7 | | | 20 | | | 236 | |
| Revenue from product sales | Revenue from product sales | 1,735 | | | 145 | | | (4) | | | 1,876 | | | 4,748 | | | 344 | | | (8) | | | 5,084 | | Revenue from product sales | 2,462 | | | 156 | | | 69 | | | 2,687 | | | 7,467 | | | 623 | | | 96 | | | 8,186 | |
| | Crude oil sales | Crude oil sales | 6 | | | — | | | — | | | 6 | | | 43 | | | — | | | — | | | 43 | | Crude oil sales | 12 | | | — | | | — | | | 12 | | | 29 | | | — | | | — | | | 29 | |
Other revenue (2) | 1 | | | — | | | — | | | 1 | | | 2 | | | — | | | — | | | 2 | | |
| Other revenue | | Other revenue | — | | | — | | | — | | | — | | | 1 | | | — | | | — | | | 1 | |
| Total revenue | Total revenue | $ | 1,742 | | | $ | 145 | | | $ | (4) | | | $ | 1,883 | | | $ | 4,793 | | | $ | 344 | | | $ | (8) | | | $ | 5,129 | | Total revenue | $ | 2,474 | | | $ | 156 | | | $ | 69 | | | $ | 2,699 | | | $ | 7,497 | | | $ | 623 | | | $ | 96 | | | $ | 8,216 | |
|
(1)The Petroleum Segment may incur broker commissions or transportation costs prior to the transfer on certain sales. The broker costs are expensed since the contract durations are less than one year. Transportation costs are accounted for as fulfillment costs and are expensed as incurred.
(2)Distillates consist primarily of diesel fuel, kerosene, jet fuel, and renewable fuels activity.
(2)(3)Freight revenue recognized by the Petroleum Segment is primarily tariff and line loss charges rebilled to customers to reimburse the Petroleum Segment for expenses incurred from a pipeline operator. Freight revenue recognized by the Nitrogen Fertilizer Segment represents the pass-through finished goods delivery costs incurred prior to customer acceptance and are reimbursed by customers. An offsetting expense for freight is included in Cost of materials and other.
(4)Other revenueproducts for the Petroleum Segment consists primarily of renewable fuels activity,(i) feedstock, asphaltheavy oils, and liquified petroleum gas sales, (ii) sulfur credits, and (iii) pipeline and processing fees. For the Nitrogen Fertilizer Segment, other products consists of sales of (i) nitric acid and (ii) carbon oxide, including sales made in connection with the 45Q Transaction and the noncash consideration received, which is recognized as the performance obligation associated with the CO Contract is satisfied over its term of 7 years, 3 months. Revenue from the CO Contract is recognized over time based on carbon oxide volumes measured at delivery. The Other/Elimination columns include certain credits related to renewable fuel activity and eliminations of intercompany transactions.
Transaction Price Allocated to Remaining Performance Obligations
We have spot and term contracts with customers and the transaction prices are either fixed or based on market indices (variable consideration). We do not disclose remaining performance obligations for contracts that have terms of one year or less and for contracts where the variable consideration was entirely allocated to an unsatisfied performance obligation. As of September 30, 2023, these contracts have a remaining duration of less than three years.
As of September 30, 2022,2023, the Nitrogen Fertilizer Segment had approximately $7$2 million of remaining performance obligations for contracts with an original expected duration of more than one year. The Nitrogen Fertilizer Segment expects to recognize approximately $2 millionthe majority of these performance obligations as revenue by the end of 2022, an additional $4 million in 2023 and the remaining nominal balance thereafter.during 2024.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Contract Balances
The Nitrogen Fertilizer Segment’s deferred revenue is a contract liability that primarily relates to nitrogen fertilizer sales contracts requiring customer prepayment prior to product delivery to guarantee a price and supply of nitrogen fertilizer. A summary of the Nitrogen Fertilizer Segment’s deferred revenue activity during the nine months ended September 30, 20222023 is presented below:
| | | | | |
| (in millions) | |
Balance at December 31, 20212022 | $ | 8748 | |
| Add: | |
New prepay contracts entered into during the period(1) | 8044 | |
| Noncash consideration received as part of the 45Q Transaction | 46 | |
| Less: | |
| Revenue recognized that was included in the contract liability balance at the beginning of the period | (86)(46) | |
| Revenue recognized related to contracts entered into during the period | (16)(11) | |
| Revenue recognized related to noncash consideration | (5) | |
Balance at September 30, 2022Other changes | (1) | |
| Total deferred revenue | 74 | |
Less: Current portion of deferred revenue | (39) | |
| Total long-term deferred revenue | $ | 6535 | |
(1) Substantially all of the payments associated with prepaid contracts were collected as of September 30, 2022.
(10) Derivative Financial Instruments Investments and Fair Value Measurements
Derivative Financial Instruments
Our segments are subject to fluctuations of commodity prices caused by supply and economic conditions, weather, interest rates, and other factors. To manage the impact of price fluctuations of crude oil and other commodities in our results of operations and certain inventories, and to fix margins on future sales and purchases, the Petroleum Segment uses various
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
commodity derivative instruments, such as futures and swaps. The Company has not designated any of its derivative contracts as hedge accounting and records changes in fair value and cash settlements on the condensed consolidated statements of operations.
On a regular basis, the Company enters into commodity contracts with counterparties for the purchases or sale of crude oil, blendstocks, various finished products, and RINs. These contracts usually qualify for the normal purchase normal sale exception and follow the accrual method of accounting. The Petroleum Segment may enter into forward purchase or sale contracts associated with RINs. As of September 30, 2022, the Petroleum Segment had open fixed-price commitments to purchase a net amount of 32 million RINs. All other derivative instruments are recorded at fair value using mark-to-market accounting on a periodic basis utilizing third-party pricing.
The following outlines the net notional buy (sell) position of our commodity derivative instruments held as of September 30, 20222023 and December 31, 2021:2022:
| | (in thousands of barrels) | (in thousands of barrels) | Commodity | | September 30, 2022 | | December 31, 2021 | (in thousands of barrels) | Commodity | | September 30, 2023 | | December 31, 2022 |
| Forwards | Forwards | Crude | | (1,640) | | | 67 | | Forwards | Crude | | 123 | | | 373 | |
| | Swaps | | Swaps | NYMEX Diesel Cracks | | (6,825) | | | — | |
| Swaps | | Swaps | NYMEX RBOB Cracks | | (2,025) | | | — | |
| Swaps | | Swaps | NYMEX 2-1-1 Cracks | | (4,530) | | | — | |
| Futures | Futures | Crude | | — | | | (20) | | Futures | Crude | | (50) | | | (150) | |
| Futures | Futures | ULSD | | (225) | | | (220) | | Futures | ULSD | | — | | | (215) | |
| | Futures | | Futures | Soybean | | — | | | (109) | |
As of September 30, 2023, the Petroleum Segment had open, fixed-price commitments to purchase a net amount of 28 million RINs.
The following outlines the realized and unrealized gains (losses) incurred from derivative activities, all of which were recorded in Cost of materials and other on the condensed consolidated statements of operations:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | 2023 | | 2022 | | 2023 | | 2022 |
| Forwards | $ | 3 | | | $ | 13 | | | $ | 13 | | | $ | 18 | |
| Swaps | (98) | | | (1) | | | (69) | | | (48) | |
| Futures | (11) | | | 11 | | | (9) | | | (13) | |
| Total (loss) gain on derivatives, net | $ | (106) | | | $ | 23 | | | $ | (65) | | | $ | (43) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | 2022 | | 2021 | | 2022 | | 2021 |
| Forwards | $ | 13 | | | $ | 2 | | | $ | 18 | | | $ | 24 | |
| Swaps | (1) | | | (13) | | | (48) | | | (68) | |
| Futures | 11 | | | (1) | | | (13) | | | (2) | |
| Total gain (loss) on derivatives, net | $ | 23 | | | $ | (12) | | | $ | (43) | | | $ | (46) | |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Offsetting Assets and Liabilities
The following outlines the condensed consolidated balance sheet line items that include our derivative financial instruments and the effect of the collateral netting. Such amounts are presented on a gross basis, before the effects of collateral netting. The Company elected to offset the derivative assets and liabilities with the same counterparty on a net basis when the legal right of offset exists.
| | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
| | Derivatives | | Collateral Netting | | Net Value | | Derivatives | | Collateral Netting | | Net Value | | Derivatives | | Collateral Netting | | Net Value | | Derivatives | | Collateral Netting | | Net Value |
| (in millions) | (in millions) | Assets | | Liabilities | | Assets | | Liabilities | | (in millions) | Assets | | Liabilities | | Assets | | Liabilities | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | $ | 7 | | | $ | (2) | | | $ | — | | | $ | 5 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Prepaid expenses and other current assets | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (1) | | | $ | 1 | | | $ | — | |
| | Other current liabilities | Other current liabilities | — | | | — | | | — | | | — | | | 5 | | | (7) | | | — | | | (2) | | Other current liabilities | — | | | (39) | | | 2 | | | (37) | | | — | | | (4) | | | — | | | (4) | |
| Other long-term liabilities | | Other long-term liabilities | — | | | (2) | | | — | | | (2) | | | — | | | — | | | — | | | — | |
At September 30, 20222023 and December 31, 2021,2022, the Company had $7$20 million and $4$7 million of collateral under master netting arrangements not offset against the derivatives within Prepaid expenses and other current assets on the condensed consolidated balance sheets, respectively, primarily related to initial margin requirements. Our derivative instruments may contain credit risk-related contingent provisions associated with our credit ratings. If our credit ratingratings were to be downgraded, it would allow the counterparty to require us to post additional collateral or to request immediate, full settlement of derivative instruments in liability positions. There are noAs of September 30, 2023, the aggregate fair value of our derivative liabilities with credit risk-related contingent provisions aswas $35 million, for which $2 million of September 30, 2022, and no collateral has been posted.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Investments
Investments consisted of equity securities, which are reported at fair value in Prepaid expenses and other current assets on our condensed consolidated balance sheets. These investments were considered trading securities. Investment (loss) income on marketable securities consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
| Gain (loss) on marketable securities | $ | — | | | $ | (1) | | | $ | — | | | $ | 82 | |
| Investment (loss) income on marketable securities | $ | — | | | $ | (1) | | | $ | — | | | $ | 82 | |
On January 18, 2022, the Company divested its remaining nominal investment in Delek US Holdings, Inc. (“Delek”). As of September 30, 2022, the Company did not hold any investment in Delek.
Fair Value Measurements
In accordance with FASB ASC Topic 820 — Fair Value Measurements and Disclosures (“ASC 820”), the Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or a group of assets or liabilities, such as a business.
ASC 820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
•Level 1 — Quoted prices in active markets for identical assets or liabilities
•Level 2 — Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities)
•Level 3 — Significant unobservable inputs (including the Company’s own assumptions in determining the fair value)
The following tables set forth the assets and liabilities measured or disclosed at fair value on a recurring basis, by input level, as of September 30, 20222023 and December 31, 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 |
| (in millions) | Level 1 | | Level 2 | | Level 3 | | | | Total |
| Location and description | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Prepaid expenses and other current assets (derivative financial instruments) | $ | — | | | $ | 5 | | | $ | — | | | | $ | 5 | |
| | | | | | | | | |
| Total assets | $ | — | | | $ | 5 | | | $ | — | | | | $ | 5 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Other current liabilities (RFS obligations) | $ | — | | | $ | (715) | | | $ | — | | | | $ | (715) | |
| Long-term debt and finance lease obligations, net of current portion (long-term debt) | — | | | (1,361) | | | — | | | | (1,361) | |
| Total liabilities | $ | — | | | $ | (2,076) | | | $ | — | | | | $ | (2,076) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 |
| (in millions) | Level 1 | | Level 2 | | Level 3 | | | | Total |
| Location and description: | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Other current liabilities (RFS obligations) | $ | — | | | $ | (413) | | | $ | — | | | | $ | (413) | |
| Other current liabilities (derivative financial instruments) | — | | | (37) | | | — | | | | (37) | |
| Other long-term liabilities (derivative financial instruments) | — | | | (2) | | | — | | | | (2) | |
| Long-term debt | — | | | (1,442) | | | — | | | | (1,442) | |
| Total liabilities | $ | — | | | $ | (1,894) | | | $ | — | | | | $ | (1,894) | |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| (in millions) | Level 1 | | Level 2 | | Level 3 | | | | Total |
| Location and description | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Prepaid expenses and other current assets (derivative financial instruments) | $ | — | | | $ | 1 | | | $ | — | | | | | $ | 1 | |
| | | | | | | | | |
| Total assets | $ | — | | | $ | 1 | | | $ | — | | | | | $ | 1 | |
| | | | | | | | | |
| Other current liabilities (derivative financial instruments) | $ | — | | | $ | (2) | | | $ | — | | | | | $ | (2) | |
| Other current liabilities (RFS obligations) | — | | | (494) | | | — | | | | | (494) | |
| Long-term debt and finance lease obligations, net of current portion (long-term debt) | — | | | (1,620) | | | — | | | | | (1,620) | |
| Total liabilities | $ | — | | | $ | (2,116) | | | $ | — | | | | | $ | (2,116) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| (in millions) | Level 1 | | Level 2 | | Level 3 | | | | Total |
| Location and description: | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Other current liabilities (commodity derivatives) | $ | — | | | $ | (4) | | | $ | — | | | | | $ | (4) | |
| Other current liabilities (RFS obligations) | — | | | (692) | | | — | | | | | (692) | |
| Long-term debt | — | | | (1,394) | | | — | | | | | (1,394) | |
| Total liabilities | $ | — | | | $ | (2,090) | | | $ | — | | | | | $ | (2,090) | |
As of September 30, 20222023 and December 31, 2021,2022, the only financial assets and liabilities that are measured at fair value on a recurring basis are the Company’s investments, derivative instruments and the RFS obligations. The estimated fair value of cash equivalents, including amounts invested in short-term money market funds, and restricted cash approximate their carrying amounts. The Petroleum Segment’s commodity derivative contracts and RFS obligations, which use fair value measurements and are valued using broker quoted market prices of identical or similar instruments and are considered Level 2 inputs.in the fair value hierarchy. Similarly, RFS obligations are valued using available broker quoted market RIN prices for each specific or closest vintage year and are considered Level 2 in the fair value hierarchy.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
CVR Partners performed a non-recurring fair value measurement of the equity interest received as part of the 45Q Transaction in the first quarter of 2023. Such valuation used a combination of the market approach and the discounted cash flow methodology with key inputs including the discount rate, contractual and expected future cash flows, and market multiples. CVR Partners determined the estimated fair value of the consideration received to be $46 million, which is a non-recurring Level 3 measurement, as defined by FASB ASC Topic 820, Fair Value Measurements, based on the use of CVR Partners’ own assumptions described above. The Company had no transfers of assets or liabilities between any of the above levels during the nine months ended September 30, 20222023 and year ended December 31, 2021.2022.
(11) Share-Based Compensation
A summary of compensation expense during the three and nine months ended September 30, 20222023 and 20212022 is presented below:
| | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | (in millions) | 2022 | | 2021 | | 2022 | | 2021 | (in millions) | 2023 | | 2022 | | 2023 | | 2022 |
| Performance Unit Awards | $ | — | | | $ | — | | | $ | — | | | $ | (3) | | |
| | | CVR Partners - Phantom Unit Awards | CVR Partners - Phantom Unit Awards | 9 | | | 6 | | | 20 | | | 18 | | CVR Partners - Phantom Unit Awards | $ | 3 | | | $ | 9 | | | $ | 7 | | | $ | 20 | |
| Incentive Unit Awards | Incentive Unit Awards | 4 | | | 5 | | | 29 | | | 16 | | Incentive Unit Awards | 12 | | | 4 | | | 23 | | | 29 | |
| Total share-based compensation expense | Total share-based compensation expense | $ | 13 | | | $ | 11 | | | $ | 49 | | | $ | 31 | | Total share-based compensation expense | $ | 15 | | | $ | 13 | | | $ | 30 | | | $ | 49 | |
(12) Commitments and Contingencies
Except as described below, there have been no material changes in the Company’s commitments and contingencies from those disclosed in the 20212022 Form 10-K and firstin the Forms 10-Q for the periods ended March 31, 2023 and second quarter 2022 Forms 10-Q.June 30, 2023. In the ordinary course of business, the Company may become party to lawsuits, administrative proceedings, and governmental investigations, including environmental, regulatory, and other matters. The outcome of these matters cannot always be predicted accurately, but the Company accrues liabilities for these matters if the Company has determined that it is probable a loss has been incurred and the loss can be reasonably estimated. While it is not possible to predict the outcome of such proceedings, if one or more of them were decided against us, the Company believes there would be no material impact onto its consolidated financial statements.
The Company continues to monitor its contractual arrangements and customer, vendor, and supplier relationships to determine whether and to what extent, if any, the impacts of the COVID-19 pandemic, the Russia-Ukraine conflict, the current global and domestic economic environment, including increasing interest rates and inflation or a potential recession, or ongoing crude oil, refined product, or utility price volatility will impair or excuse the performance of the Company or its subsidiaries or their customers, vendors, or suppliers under existing agreements. As of September 30, 2022,2023, the Company had not experienced a material financial impact from any actual or threatened impairment of or excuse in its or others’ performance under such agreements.
Crude Oil Supply Agreement
Effective on August 4, 2021, an indirect, wholly ownedwholly-owned subsidiary of CVR Refining entered into the Second Amended and Restated Crude Oil Supply Agreement (the “Crude“Vitol Crude Oil Supply Agreement”) with Vitol Inc. (“Vitol”), which superseded, in its entirety, the August 31, 2012 Amended and Restated Crude Oil Supply Agreement between the parties. Under the Vitol Crude Oil Supply Agreement, Vitol supplies the Petroleum Segment with crude oil and intermediation logistics helping to reduce the amount of inventory held at certain locations and mitigate crude oil pricing risk. Volumes contracted under the Vitol Crude Oil Supply Agreement, as a percentage of the total crude oil purchases (in barrels), were approximately 30%23% and 41%30% for the three months ended September 30, 20222023 and 2021,2022, respectively, and approximately 33%24% and 43%33% for the nine months ended September 30, 2023 and 2022, and 2021, respectively. TheIn June 2023, the Company’s subsidiary delivered a notice of termination to Vitol, which terminates the Vitol Crude Oil Supply Agreement which currently extends throughaccording to previously disclosed terms, effective December 31, 2022, automatically renews for successive one-year terms (each such term, a “Renewal Term”) unless either party provides the other with notice of non-renewal at least 180 days prior to expiration2023. The foregoing description of the Vitol Crude Oil Supply Agreement does not purport to be complete and is qualified in its entirety by reference to its full text which was filed with the Company’s quarterly report on Form 10-Q for the period ended September 30, 2021.
45Q Transaction
Under the agreements entered into in connection with the 45Q Transaction, the Company’s indirect subsidiary CRNF is obligated to meet certain minimum quantities of carbon oxide supply each year during the term or any Renewal Term.of the agreement and is subject to fees of up to $15 million per year (reduced pro rata for partial years) to the unaffiliated third-party investors, subject to an overall $45 million cap, if these minimum quantities are not delivered. CVR Partners issued a guarantee to the unaffiliated third-party investors and certain affiliates involved in the 45Q Transaction of the payment and performance obligations of CRNF and CVRP JV, which include the aforementioned fees. This guarantee has no impacts on the accounting records of CVR Partners unless the parties fail to comply with the terms of the 45Q Transaction contracts.
Renewable Fuel Standards
The Company’sCertain of the Petroleum Segment isSegment’s subsidiaries are subject to the RFS (collectively, the “obligated-party subsidiaries”) implemented by the Environmental Protection Agency (the “EPA”), which requires refiners to either blend renewable fuels into their transportation fuels or purchase renewable fuel credits, known as RINs, in lieu of blending. The Petroleum Segment isSegment’s obligated-party subsidiaries are not able to blend the majority of itstheir transportation fuels and must either purchase RINs or obtain waiver credits for cellulosic biofuels, or other exemptions from the EPA, in order to comply with the RFS. Additionally, the Petroleum Segment purchasesSegment’s obligated-party subsidiaries purchase RINs generated from our renewable diesel operations, whose operating results are not included in the Other Segment,either of our reportable segments, to partially satisfy itstheir RFS obligations.
The CompanyCompany’s obligated-party subsidiaries recognized a benefit of $135 million and an expense of $86 million and a benefit of $16 million for the three months ended September 30, 20222023 and 2021,2022, respectively, and a benefit of $99 million and an expense of $328 million and $335 million for the nine months ended September 30, 20222023 and 2021,2022, respectively, for its compliance with the RFS (based on the 2020, 2021, 2022 and 20222023 renewable volume obligation (“RVO”), for the respective periods, excluding the impacts of any exemptions or waivers to which the CompanyCompany’s obligated-party subsidiaries may be entitled). The recognized amounts are included within Cost of materials and other in the condensed consolidated statements of operations and represent costs to comply with the RFS obligation through purchasing of RINs not otherwise reduced by blending of ethanol, biodiesel, or renewable diesel. At each reporting period, to the extent RINs purchased and generated through blending are less than the RFS obligation (excluding the impact of exemptions or waivers to which the Company may be entitled), the remaining position is valued using RIN market prices at period end.end using for each specific or closest vintage year. As of September 30, 20222023 and December 31, 2021,2022, the Company’s obligated-party subsidiaries’ RFS positions were approximately $715$413 million and $494$692 million, respectively, and are recorded in Other current liabilities in the condensed consolidated balance sheets.
Litigation
Call Option LawsuitsCoverage Case – On August 19, 2022,In September 2023, the Superior Court of the State of Delaware (the “Delaware Court”) denied the motion filed by the primary and excess insurers (the “Insurers”) of the Company and certain of its affiliates (the “Call Defendants”) who are partiesseeking to stay the Call Defendants’ action against the Insurers in relation to insurance policies that have coverage limits of $50 million (the “Policies”) alleging breach of contract and breach of the implied covenant of good faith and fair dealing relating to the consolidatedInsurers’ denial of coverage of the Call Defendants’ defense expenses and indemnity, as well as other conduct of the Insurers, relating to the lawsuits (collectively, the “Call Option Lawsuits”) pending before the Delaware Court of Chancery (the “Chancery Court”) filed by purported former unitholders of CVR Refining on behalf of themselves and an alleged class of similarly situated unitholdersagainst the Call Defendants relating to the Company’s exercise of the call option under the CVR Refining Amended and Restated Agreement of Limited Partnership assigned to it by CVR Refining’s general partner, entered into a Stipulation, Compromise and Releasewhich action was settled by the parties on August 19, 2022 (the “Settlement”) in connection with its expected settlement of the Call“Call Option Lawsuits for $79 million. Final approval of the Settlement is pending before the Chancery Court. If finalized, the Settlement is not currently expected to have any further impact on the Company’s financial position or results of operations beyond the $79 million recognized within Other income (expense), net for the nine months ended September 30, 2022 to reflect the estimated probable loss.
In October 2022, the Call Defendants filed a First Amended Complaint in Chancery Court alleging Breach of Contract and Breach of the Implied Covenant of Good Faith and Fair DealingLawsuits”). This ruling allows our case against their primary and excess insurers (the “Insurers”) relating to their denial of coverage of the Call Defendants’ defense expenses and indemnity, as well as other conduct of the Insurers relating to the Call Option Lawsuits. Also in October 2022, the Call Defendants filed motions to oppose the Insurers’ Motion for Partial Summary Judgmentproceed in the lawsuit filed by the Insurers on January 27, 2021, in the 434thDelaware Court. The 434th Judicial District Court of Fort Bend County, Texas seeking a(the “Texas Court”) granted summary judgments in the Insurers’ declaratory judgment determiningaction seeking determination that theythe Insurers owe no indemnity coverage in relation to the Policies for settlement of the Call Option Lawsuits, in relationwhich the Company intends to insurance policies that have coverage limitsappeal once final judgment is entered. As our potential appeal of $50 million. As both lawsuitsthe Texas Court’s summary judgment rulings and our Delaware Court lawsuit are in their early stages,not yet concluded, the Company cannot determine at this time the outcome of these lawsuits, including whether the outcome would have a material impact on the Company’s financial position, results of operations, or cash flows.
RFS Disputes – The Company has filed a number of petitions inIn October 2023, the United States Court of Appeals for the Fifth Circuit (“Fifth Circuit”) heard oral arguments in the action by Wynnewood Refining Company, LLC (“WRC”) against the EPA relating to its April and June 2022 denial of WRC’s small refinery exemptions (“SREs”) as well as WRC’s claims against the EPA for RIN replacement relief for losses it sustained from the EPA’s late approval of WRC’s 2018 SRE, which SRE the EPA later purported to retroactively revoke and deny. No decision has yet been issued by the Fifth Circuit. Also in October 2023, the Fifth Circuit granted WRC’s
motion to stay enforcement of its compliance obligations for the 2022 compliance year pending resolution of its underlying challenges to the EPA’s July 2023 denial of 26 petitions from small refineries seeking SREs for one or more of the compliance years between 2016 and 2023, including the SRE sought by WRC for 2022, which challenges remain pending before the Fifth Circuit as well as the United States Court of Appeals for the District of ColombiaColumbia Circuit. The Fifth Circuit challenging the EPA’s denialhad previously granted WRC’s motion to stay enforcement of small refinery exemptions sought by Wynnewood Refining Company, LLCits compliance obligations for the 20172020 through 2021 compliance periods,years. The Company’s other challenges against the EPA’s April 2022 and June 2022 alternate compliance rulings andEPA relating to the RFS, including to the EPA’s Final Rule filedissued in July 2022 establishing RVO and also intervenedits intervention in an action filed by certain biofuels producers relating to the RFS. As each of these proceedings is in its preliminary stages, theRFS, remain pending. The Company cannot yet determine at this time the outcomes of these matters. While we intend to prosecute these actions vigorously, if these matters are ultimately concluded in a manner adverse to the Company, they could have a material effect on the Company’s financial position, results of operations, or cash flows.
Environmental, Health, and Safety (“EHS”) Matters
Clean Air Act Matter - In August 2022, the United States CourtCoffeyville Resources Refining & Marketing, LLC (“CRRM”) and certain of Appeals for the Tenth Circuit granted CRRM’s motionits affiliates have agreed to stay its appeal of the March 30, 2022 decision ofsettle claims brought in the United States District Court for the District of Kansas (“D. Kan.”Kan”) denying CRRM’s petition for judicial review of approximately $6.8 million in stipulated penalties (the “Stipulated Claims”) being sought by the United States, (onon behalf of the EPA)EPA, and the State of Kansas, throughon behalf of the Kansas Department of Health and Environment (“KDHE”) in connection with their allegations thatwhich primarily relate to the CRRM violated the Federal Clean Air Act (the “CAA”)refinery’s flares. The EPA and KDHE are seeking stipulated penalties under a 2012 Consent Decree between CRRM, the United States (on behalf of the EPA) and KDHE at CRRM’s Coffeyville refinery, primarily relating to flares.(“CD”) (the “Stipulated Claims”), which amount CRRM previously deposited funds into a commercial escrow account relating to the Stipulated Claims, and suchwhich escrowed funds are legally restricted for use and are included within Prepaid expenses and other currentin Other assets on thein our condensed consolidated balance sheets.
Motion practice The EPA and KDHE also filed a complaint in the lawsuit filed by the United States (on behalf of the EPA) and KDHE, which complaint was amended on February 17, 2022 (the “Amended Complaint”),D. Kan alleging violations of the CAA,Clean Air Act, the Kansas State Implementation Plan, Kansas law, 40 C.F.R. Part 63 and CRRM’s permits relating to flares, heaters, and related mattersmatters. The United States, on behalf of the EPA, and KDHE are seeking civil penalties, injunctive relief, and related relief in connection with these claims (collectively, the “Statutory Claims”), is ongoing. In October 2022, the D. Kan granted CRRM’s mostion. The parties have reached agreement to dismiss counts 1 through 17 of the Amended Complaint alleging violations of certain provisions of the Kansas Air Quality Act but denied its motion to dismiss all other Statutory Claims. CRRM expects to file an answer to the Amended Complaint in November 2022.
As negotiations and proceedings relating toresolve the Stipulated Claims and the Statutory Claims are ongoing,subject to final approvals by the EPA and KDHE.The terms of the settlement will be set forth in a consent decree that is in the process of being executed by the parties, which consent decree is subject to the approval and entry by the D. Kan following a period for public notice and comment. Should the settlement and consent decree be finalized as agreed to between the parties, such settlement is not expected to have a material impact on the Company’s financial position, results of operations, or cash flows. Should such settlement not be finalized as agreed to between the parties, the Company cannot determine at this time the outcome of these matters, including whether such outcome, or any subsequent enforcement or litigation relating thereto would have a material impact on the Company’s financial position, results of operations, or cash flows.
(13) Business Segments
CVR Energy’s revenues are primarily derived from two reportable segments: the Petroleum Segment and the Nitrogen Fertilizer Segment. The Company evaluates the performance of its segments based primarily on segment operating income (loss) and Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”). For the purposes of the business segments disclosure, the Company presents operating income (loss) as it is the most comparable measure to the amounts presented on the condensed consolidated statements of operations. The other amounts reflect activities associated with our renewable fuels activities,business, intercompany eliminations, corporate cash and cash equivalents, income tax activities, and other corporate activities that are not allocated or aggregated to the reportable segments.
September 30, 20222023 | 1920
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The following table summarizes certain operating results and capital expenditures information by segment:
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | (in millions) | 2022 | | 2021 | | 2022 | | 2021 | (in millions) | 2023 | | 2022 | | 2023 | | 2022 |
| Net sales: | Net sales: | | | | | | | | Net sales: | | | | | | | |
| Petroleum | Petroleum | $ | 2,474 | | | $ | 1,742 | | | $ | 7,497 | | | $ | 4,793 | | Petroleum | $ | 2,298 | | | $ | 2,474 | | | $ | 6,290 | | | $ | 7,497 | |
| Nitrogen Fertilizer | Nitrogen Fertilizer | 156 | | | 145 | | | 623 | | | 344 | | Nitrogen Fertilizer | 131 | | | 156 | | | 540 | | | 623 | |
Other, including intersegment eliminations (1) | Other, including intersegment eliminations (1) | 69 | | | (4) | | | 96 | | | (8) | | Other, including intersegment eliminations (1) | 93 | | | 69 | | | 215 | | | 96 | |
| Total net sales | Total net sales | $ | 2,699 | | | $ | 1,883 | | | $ | 8,216 | | | $ | 5,129 | | Total net sales | $ | 2,522 | | | $ | 2,699 | | | $ | 7,045 | | | $ | 8,216 | |
| | Operating income (loss): | Operating income (loss): | | | | | | | | Operating income (loss): | | | | | | | |
| Petroleum | Petroleum | $ | 137 | | | $ | 135 | | | $ | 564 | | | $ | (1) | | Petroleum | $ | 431 | | | $ | 137 | | | $ | 838 | | | $ | 564 | |
| Nitrogen Fertilizer | Nitrogen Fertilizer | (12) | | | 46 | | | 218 | | | 63 | | Nitrogen Fertilizer | 8 | | | (12) | | | 184 | | | 218 | |
Other, including intersegment eliminations (1) | Other, including intersegment eliminations (1) | (22) | | | (6) | | | (56) | | | (16) | | Other, including intersegment eliminations (1) | 6 | | | (22) | | | (22) | | | (56) | |
| Total operating income (loss) | Total operating income (loss) | 103 | | | 175 | | | 726 | | | 46 | | Total operating income (loss) | 445 | | | 103 | | | 1,000 | | | 726 | |
| Interest expense, net | Interest expense, net | (19) | | | (23) | | | (67) | | | (92) | | Interest expense, net | (11) | | | (19) | | | (44) | | | (67) | |
| Investment (loss) income on marketable securities | — | | | (1) | | | — | | | 82 | | |
| | Other income (expense), net | Other income (expense), net | 3 | | | 2 | | | (81) | | | 12 | | Other income (expense), net | 4 | | | 3 | | | 10 | | | (81) | |
| Income before income tax expense | Income before income tax expense | $ | 87 | | | $ | 153 | | | $ | 578 | | | $ | 48 | | Income before income tax expense | $ | 438 | | | $ | 87 | | | $ | 966 | | | $ | 578 | |
| Depreciation and amortization: | Depreciation and amortization: | | | | | | | | Depreciation and amortization: | | | | | | | |
| Petroleum | Petroleum | $ | 47 | | | $ | 50 | | | $ | 140 | | | $ | 152 | | Petroleum | $ | 50 | | | $ | 47 | | | $ | 141 | | | $ | 140 | |
| Nitrogen Fertilizer | Nitrogen Fertilizer | 22 | | | 18 | | | 64 | | | 52 | | Nitrogen Fertilizer | 23 | | | 22 | | | 59 | | | 64 | |
Other (1) | 6 | | | (1) | | | 11 | | | 1 | | |
| Other | | Other | 8 | | | 6 | | | 21 | | | 11 | |
| Total depreciation and amortization | Total depreciation and amortization | $ | 75 | | | $ | 67 | | | $ | 215 | | | $ | 205 | | Total depreciation and amortization | $ | 81 | | | $ | 75 | | | $ | 221 | | | $ | 215 | |
Capital expenditures: (2) | Capital expenditures: (2) | | | | | | | | Capital expenditures: (2) | | | | | | | |
| Petroleum | Petroleum | $ | 23 | | | $ | 12 | | | $ | 61 | | | $ | 31 | | Petroleum | $ | 26 | | | $ | 23 | | | $ | 79 | | | $ | 61 | |
| Nitrogen Fertilizer | Nitrogen Fertilizer | 25 | | | 7 | | | 39 | | | 14 | | Nitrogen Fertilizer | 8 | | | 25 | | | 18 | | | 38 | |
Other (1) | Other (1) | 20 | | | 19 | | | 59 | | | 144 | | Other (1) | 17 | | | 20 | | | 51 | | | 59 | |
| Total capital expenditures | Total capital expenditures | $ | 68 | | | $ | 38 | | | $ | 159 | | | $ | 189 | | Total capital expenditures | $ | 51 | | | $ | 68 | | | $ | 148 | | | $ | 158 | |
The following table summarizes total assets by segment:
| | (in millions) | (in millions) | September 30, 2022 | | December 31, 2021 | (in millions) | September 30, 2023 | | December 31, 2022 |
| | Petroleum | Petroleum | $ | 4,247 | | | $ | 3,368 | | Petroleum | $ | 4,635 | | | $ | 4,354 | |
| Nitrogen Fertilizer | Nitrogen Fertilizer | 1,083 | | | 1,127 | | Nitrogen Fertilizer | 1,019 | | | 1,100 | |
Other, including intersegment eliminations (1) | Other, including intersegment eliminations (1) | (1,124) | | | (589) | | Other, including intersegment eliminations (1) | (1,233) | | | (1,335) | |
| Total assets | Total assets | $ | 4,206 | | | $ | 3,906 | | Total assets | $ | 4,421 | | | $ | 4,119 | |
|
(1)Other includes amounts for the Wynnewood Refinery’s renewable diesel unitfeedstock pretreater project.
(2)Capital expenditures are shown exclusive of capitalized turnaround expenditures and business combinations.expenditures.
September 30, 20222023 | 2021
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
(14) Supplemental Cash Flow Information
Cash flows related to income taxes, interest, leases, and capital expenditures and deferred financing coststurnaround expenditures included in accounts payable and non-cash dividends were as follows:
| | | Nine Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | (in millions) | 2022 | | 2021 | (in millions) | 2023 | | 2022 |
| Supplemental disclosures: | Supplemental disclosures: | | | | Supplemental disclosures: | | | |
| Cash paid for income taxes, net of refunds | Cash paid for income taxes, net of refunds | $ | 131 | | | $ | 35 | | Cash paid for income taxes, net of refunds | $ | 88 | | | $ | 131 | |
| Cash paid for interest | Cash paid for interest | 78 | | | 92 | | Cash paid for interest | 76 | | | 78 | |
| Cash paid for amounts included in the measurement of lease liabilities: | Cash paid for amounts included in the measurement of lease liabilities: | | Cash paid for amounts included in the measurement of lease liabilities: | |
| Operating cash flows from operating leases | Operating cash flows from operating leases | 13 | | | 11 | | Operating cash flows from operating leases | 13 | | | 13 | |
| Operating cash flows from finance leases | Operating cash flows from finance leases | 4 | | | 4 | | Operating cash flows from finance leases | 3 | | | 4 | |
| Financing cash flows from finance leases | Financing cash flows from finance leases | 4 | | | 4 | | Financing cash flows from finance leases | 5 | | | 4 | |
| Non-cash investing and financing activities: | | |
| Noncash investing and financing activities: | | Noncash investing and financing activities: | |
| Change in capital expenditures included in accounts payable (1) | Change in capital expenditures included in accounts payable (1) | 14 | | | 1 | | Change in capital expenditures included in accounts payable (1) | (2) | | | 14 | |
| Change in turnaround expenditures included in accounts payable | Change in turnaround expenditures included in accounts payable | (1) | | | (1) | | Change in turnaround expenditures included in accounts payable | — | | | (1) | |
| Change in deferred financing costs included in accounts payable | — | | | 1 | | |
| Non-cash dividends to CVR Energy stockholders | — | | | 251 | | |
|
(1)Capital expenditures are shown exclusive of capitalized turnaround expenditures.
Cash, cash equivalents and restricted cash consisted of the following:
| | (in millions) | (in millions) | September 30, 2022 | | December 31, 2021 | (in millions) | September 30, 2023 | | December 31, 2022 |
| Cash and cash equivalents | Cash and cash equivalents | $ | 618 | | | $ | 510 | | Cash and cash equivalents | $ | 889 | | | $ | 510 | |
Restricted cash (1) | Restricted cash (1) | 7 | | | 7 | | Restricted cash (1) | 7 | | | 7 | |
| Cash, cash equivalents and restricted cash | Cash, cash equivalents and restricted cash | $ | 625 | | | $ | 517 | | Cash, cash equivalents and restricted cash | $ | 896 | | | $ | 517 | |
(1)The restricted cash balance is included within Prepaid expenses and other current assets on the condensed consolidated balance sheets.
(15) Related Party Transactions
Activity associated with the Company’s related party arrangements for the three and nine months ended September 30, 20222023 and 20212022 is summarized below:
Expenses from Related PartiesParty Activity
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | (in millions) | 2022 | | 2021 | | 2022 | | 2021 | (in millions) | 2023 | | 2022 | | 2023 | | 2022 |
| Cost of materials and other: | | | | | | | | |
| Sales to related parties: | | Sales to related parties: | | | | | | | |
CVRP JV CO Contract (1) | | CVRP JV CO Contract (1) | $ | 1 | | | $ | — | | | $ | 3 | | | $ | — | |
| Purchases from related parties: | | Purchases from related parties: | |
| Enable Joint Venture Transportation Agreement | Enable Joint Venture Transportation Agreement | $ | 3 | | | $ | 3 | | | $ | 7 | | | $ | 8 | | Enable Joint Venture Transportation Agreement | 3 | | | 3 | | | 9 | | | 7 | |
| | Midway Joint Venture Agreement (2) | | Midway Joint Venture Agreement (2) | 6 | | | 6 | | | 17 | | | 16 | |
| Payments: | Payments: | | Payments: | |
| Dividends (1)(3) | Dividends (1)(3) | 214 | | | — | | | 242 | | | 348 | | Dividends (1)(3) | 107 | | | 214 | | | 178 | | | 242 | |
|
(1)Sales to related parties, included in Net sales in our condensed consolidated financial statements, consists of CO sales to a CVRP JV subsidiary.
(2)Purchases from related parties, included in Cost of materials and other in our condensed consolidated financial statements, represents reimbursements for crude oil transportation services incurred on the Midway JV through Vitol as the intermediary purchasing agent.
(3)See below for a summary of the dividends paid to IEP during the nine months ended September 30, 20222023 and year ended December 31, 2021.2022.
September 30, 20222023 | 2122
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Corporate Master Service Agreement
On April 12, 2022, in connection with our Corporate Master Service Agreement effective January 1, 2020, by and among our wholly owned subsidiary, CVR Services, and certain other of our subsidiaries, including but not limited to CVR Partners and its subsidiaries, pursuant to which CVR Services provides the service recipients thereunder with management and other professional services (the “Corporate MSA”), 18 indirect, wholly owned subsidiaries of CVR Energy, including but not limited to CVR Renew and the Joining Subsidiaries, were joined as service recipients under the Corporate MSA.
Dividends to CVR Energy Stockholders
Dividends, if any, including the payment, amount and timing thereof, are determined in the discretion of CVR Energy’s board of directors (the “Board”).the Board. IEP, through its ownership of the Company’s common stock, is entitled to receive dividends that are declared and paid by the Company based on the number of shares held at each record date. The following table presentstables present quarterly dividends, excluding anyand special dividends paid to the Company’s stockholders, including IEP, during 2023 and 2022 (amounts presented in table below may not add to totals presented due to rounding).:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | Quarterly Dividends Paid (in millions) |
| Related Period | | Date Paid | | Quarterly Dividend
Per Share | | Public Stockholders | | IEP | | Total |
| 2022 - 1st Quarter | | May 23, 2022 | | $ | 0.40 | | | $ | 12 | | | $ | 28 | | | $ | 40 | |
| 2022 - 2nd Quarter | | August 22, 2022 | | 0.40 | | | 12 | | | 28 | | | 40 | |
| Total 2022 quarterly dividends | | $ | 0.80 | | | $ | 23 | | | $ | 57 | | | $ | 80 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Quarterly Dividends Paid (in millions) |
| Related Period | | Date Paid | | Quarterly Dividends
Per Share | | Public Stockholders | | IEP | | Total |
| 2022 - 4th Quarter | | March 13, 2023 | | $ | 0.50 | | | $ | 15 | | | $ | 36 | | | $ | 50 | |
| 2023 - 1st Quarter | | May 22, 2023 | | 0.50 | | | 15 | | | 36 | | | 50 | |
| 2023 - 2nd Quarter | | August 21, 2023 | | 0.50 | | | 15 | | | 36 | | | 50 | |
| Total 2023 quarterly dividends | | $ | 1.50 | | | $ | 44 | | | $ | 107 | | | $ | 151 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Special Dividends Paid (in millions) |
| Related Period | | Date Paid | | Special Dividends
Per Share | | Public Stockholders | | IEP | | Total |
| | | | | | | | | | |
| | | | | | | | | | |
| 2023 - 2nd Quarter | | August 21, 2023 | | $ | 1.00 | | | $ | 29 | | | $ | 71 | | | $ | 101 | |
| | | | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Quarterly Dividends Paid (in millions) |
| Related Period | | Date Paid | | Quarterly Dividends
Per Share | | Public Stockholders | | IEP | | Total |
| | | | | | | | | | |
| 2022 - 1st Quarter | | May 23, 2022 | | $ | 0.40 | | | $ | 12 | | | $ | 28 | | | $ | 40 | |
| 2022 - 2nd Quarter | | August 22, 2022 | | 0.40 | | | 12 | | | 28 | | | 40 | |
| 2022 - 3rd Quarter | | November 21, 2022 | | 0.40 | | | 12 | | | 28 | | | 40 | |
| Total 2022 quarterly dividends | | $ | 1.20 | | | $ | 35 | | | $ | 85 | | | $ | 121 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Special Dividends Paid (in millions) |
| Related Period | | Date Paid | | Special Dividends
Per Share | | Public Stockholders | | IEP | | Total |
| 2022 - 2nd Quarter | | August 22, 2022 | | $ | 2.60 | | | $ | 76 | | | $ | 185 | | | $ | 261 | |
| 2022 - 3rd Quarter | | November 21, 2022 | | 1.00 | | | 29 | | | 71 | | | 101 | |
| Total 2022 special dividends | | $ | 3.60 | | | $ | 106 | | | $ | 256 | | | $ | 362 | |
No quarterly dividends were paid during the first quarter of 2022 related to the fourth quarter of 2021, and there were no quarterly dividends declared or paid during 2021 related to the first, second, and third quarters of 2021 and fourth quarter of 2020.
On August 1, 2022, the Company also declared a special dividend of $2.60 per share, or $261 million, which was paid on August 22, 2022. Of this amount, IEP received $185 million due to its ownership interest in the Company’s shares.
On May 26, 2021, the Company announced a special dividend of approximately $492 million, or equivalent to $4.89 per share of the Company’s common stock, to be paid in a combination of cash (the “Cash Distribution”) and the common stock of Delek held by the Company (the “Stock Distribution”). On June 10, 2021, the Company distributed an aggregate amount of approximately $241 million, or $2.40 per share of the Company’s common stock, pursuant to the Cash Distribution, and approximately 10,539,880 shares of Delek common stock, which represented approximately 14.3% of the outstanding shares of Delek common stock, pursuant to the Stock Distribution. IEP received approximately 7,464,652 shares of common stock of Delek and $171 million in cash. The Stock Distribution was recorded as a reduction to equity through a derecognition of our investment in Delek, and the Company recognized a gain of $112 million from the initial investment in Delek through the date of the Stock Distribution.2021.
For the third quarter of 2022,2023, the Company, upon approval by the Board on October 31, 2022,30, 2023, declared a cash dividend of $0.40$0.50 per share, or $40$50 million, which is payable November 21, 202220, 2023 to shareholders of record as of November 14, 2022.13, 2023. Of this amount, IEP will receive $28$33 million due to its ownership interest in the Company’s shares.
In addition, the Company, upon approval by the Board on October 31, 2022,30, 2023, declared a special dividend of $1.00$1.50 per share, or $101$151 million, which is payable November 21, 202220, 2023 to shareholders of record as of November 14, 2022.13, 2023. Of this amount, IEP will receive $71$100 million due to its ownership interest in the Company’s shares.
Distributions to CVR Partners’ Unitholders
Distributions, if any, including the payment, amount and timing thereof, and UAN GP Board’s distribution policy, including the definition of available cash, are subject to change at the discretion of the UAN GP Board. The following table presents quarterly distributions paid by CVR Partners to its unitholders, including amountstables
September 30, 20222023 | 2223
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
present quarterly distributions paid by CVR Partners to its unitholders, including amounts received by the Company, during 20222023 and 20212022 (amounts presented in tables below may not add to totals presented due to rounding).:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | Quarterly Distributions Paid (in millions) |
| Related Period | | Date Paid | | Quarterly Distributions
Per Common Unit | | Public
Unitholders | | CVR Energy | | Total |
| 2021 - 4th Quarter | | March 14, 2022 | | $ | 5.24 | | | $ | 36 | | | $ | 20 | | | $ | 56 | |
| 2022 - 1st Quarter | | May 23, 2022 | | 2.26 | | | 15 | | | 9 | | | 24 | |
| 2022 - 2nd Quarter | | August 22, 2022 | | 10.05 | | | 67 | | | 39 | | | 106 | |
| Total 2022 quarterly distributions | | $ | 17.55 | | | $ | 118 | | | $ | 68 | | | $ | 186 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | Quarterly Distributions Paid (in millions) |
| Related Period | | Date Paid | | Quarterly Distributions
Per Common Unit | | Public
Unitholders | | CVR Energy | | Total |
| 2022 - 4th Quarter | | March 13, 2023 | | $ | 10.50 | | | $ | 70 | | | $ | 41 | | | $ | 111 | |
| 2023 - 1st Quarter | | May 22, 2023 | | 10.43 | | | 70 | | | 41 | | | 110 | |
| 2023 - 2nd Quarter | | August 21, 2023 | | 4.14 | | | 28 | | | 16 | | | 44 | |
| | | | | | | | | | |
| Total 2023 quarterly distributions | | $ | 25.07 | | | $ | 168 | | | $ | 98 | | | $ | 265 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | Quarterly Distributions Paid (in millions) |
| Related Period | | Date Paid | | Quarterly Distributions
Per Common Unit | | Public
Unitholders | | CVR Energy | | Total |
| 2021 - 2nd Quarter | | August 23, 2021 | | $ | 1.72 | | | $ | 11 | | | $ | 7 | | | $ | 18 | |
| 2021 - 3rd Quarter | | November 22, 2021 | | 2.93 | | | 20 | | | 11 | | | 31 | |
| Total 2021 quarterly distributions | | $ | 4.65 | | | $ | 31 | | | $ | 18 | | | $ | 50 | |
There were no quarterly distributions declared or paid by CVR Partners related to the first quarter of 2021 and fourth quarter of 2020. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | Quarterly Distributions Paid (in millions) |
| Related Period | | Date Paid | | Quarterly Distributions
Per Common Unit | | Public
Unitholders | | CVR Energy | | Total |
| 2021 - 4th Quarter | | March 14, 2022 | | $ | 5.24 | | | $ | 36 | | | $ | 20 | | | $ | 56 | |
| 2022 - 1st Quarter | | May 23, 2022 | | 2.26 | | | 15 | | | 9 | | | 24 | |
| 2022 - 2nd Quarter | | August 22, 2022 | | 10.05 | | | 67 | | | 39 | | | 106 | |
| 2022 - 3rd Quarter | | November 21, 2022 | | 1.77 | | | 12 | | | 7 | | | 19 | |
| Total 2022 quarterly distributions | | $ | 19.32 | | | $ | 130 | | | $ | 75 | | | $ | 205 | |
For the third quarter of 2022,2023, CVR Partners, upon approval by the UAN GP Board on October 31, 2022,30, 2023, declared a distribution of $1.77$1.55 per common unit, or $19$16 million, which is payable November 21, 202220, 2023 to unitholders of record as of November 14, 2022.13, 2023. Of this amount, CVR Energy will receive approximately $7$6 million, with the remaining amount payable to public unitholders.
September 30, 20222023 | 2324
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 20212022 filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 23, 202222, 2023 (the “2021“2022 Form 10-K”), and the unaudited condensed consolidated financial statements and related notes and with the statistical information and financial data appearing in this Report. Results of operations for the three and nine months ended September 30, 20222023 and cash flows for the nine months ended September 30, 20222023 are not necessarily indicative of results to be attained for any other period. See “Important Information Regarding Forward-Looking Statements.” References to “CVR Energy,” the “Company,” “we,” “us,” and “our,” may refer to consolidated subsidiaries of CVR Energy, including CVR Refining, LP or CVR Partners, LP, as the context may require.
Reflected in this discussion and analysis is how management views the Company’s current financial condition and results of operations, along with key external variables and management’s actions that may impact the Company. Understanding significant external variables, such as market conditions, weather, and seasonal trends, among others, and management actions taken to manage the Company, address external variables, among others, will increase users’ understanding of the Company, its financial condition and results of operations. This discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this Report.
Company Overview
CVR Energy Inc. (“CVR Energy,” “CVR,” “we,” “us,” “our,” or the “Company”) is a diversified holding company primarily engaged in the petroleum refining and marketing industry (the “Petroleum Segment”) and the nitrogen fertilizer manufacturing industriesindustry through our holdingsits interest in CVR Refining, LP (“CVR Refining”) and CVR Partners, LP, (“CVRa publicly traded limited partnership (the “Nitrogen Fertilizer Segment” or “CVR Partners”), respectively. CVR Refining is a refiner that. The Petroleum Segment does not have crude oil exploration or production operations (an “independent petroleum refiner”) and is a marketer of high value transportation fuels primarily in the form of gasoline and diesel fuels, as well as renewable diesel.fuels. CVR Partners produces and markets nitrogen fertilizers primarily in the form of ammonia and urea ammonium nitrate (“UAN”). At September 30, 2022, we owned the general partner and approximately 37% of the outstanding common units representing limited partner interests in CVR Partners. As of September 30, 2022, Icahn Enterprises L.P.ammonia. We also produce and its affiliates (“IEP”) owned approximately 71%market renewable diesel. Our renewable diesel operations are not part of our outstanding common stock.reportable segments discussed below.
We operate under two reportable business segments: petroleum and nitrogen fertilizer, which are referred to in this document as our “Petroleum Segment” and our “Nitrogen Fertilizer Segment,” respectively.
OnRenewables Business
Effective February 22, 2022,1, 2023, in connection with our growing focus on decarbonization, we announced that our board of directors (the “Board”) had approved a plan to restructuretransformed our business to segregate our renewables business. As part of this restructuring,transformation, in the first quarter of 2022, we formed 16 new indirect, wholly ownedwholly-owned subsidiaries (“NewCos”) of CVR Energy. In addition, in April 2022, in connection with our Corporate Master Service Agreement effective January 1, 2020, by and among our wholly ownedwholly-owned subsidiary, CVR Services, LLC (“CVR Services”), and certain other of our subsidiaries, including but not limited to CVR Partners and its subsidiaries, pursuant to which CVR Services provides the service recipients thereunder with management and other professional services (the “Corporate MSA”), 18 indirect, wholly owned subsidiaries of CVR Energy, including but not limited to CVR Renewables, LLC (“CVR Renew”),the NewCos were joined as service recipients under the Corporate MSA. Over the coming year, theThe Company intends to evaluate the transfer ofalso transferred certain additional assets to these NewCos to, among other purposes, better align our organizational structure with management and financial reporting, and our goal to maximize our renewables focus. Effective July 1, 2022, the Company completed the first of several planned intercompany asset transfers related to the restructuring and entered into certain agreements related thereto. At the present time, we expect the restructuring to be completed during the first quarter of 2023.reporting.
Strategy and Goals
The Company has adopted Mission and Values, which articulate the Company’s expectations for how it and its employees do business each and every day.
Mission and Core Values
Our Mission is to be a top tier North American renewable fuels, petroleum refining, and nitrogen-based fertilizer company as measured by safe and reliable operations, superior performance and profitable growth. The foundation of how we operate is built on five core Values:
•Safety - We always put safety first. The protection of our employees, contractors and communities is paramount. We have an unwavering commitment to safety above all else. If it’s not safe, then we don’t do it.
•Environment - We care for our environment. Complying with all regulations and minimizing any environmental impact from our operations is essential. We understand our obligation to the environment and that it’s our duty to protect it.
•Integrity - We require high business ethics. We comply with the law and practice sound corporate governance. We only conduct business one way—the right way with integrity.
•Corporate Citizenship - We are proud members of the communities where we operate. We are good neighbors and know that it’s a privilege we can’t take for granted. We seek to make a positive economic and social impact through our financial donations and the contributions of time, knowledge and talent of our employees to the places where we live and work.
•Continuous Improvement - We believe in both individual and team success. We foster accountability under a performance-driven culture that supports creative thinking, teamwork, diversity and personal development so that employees can realize their maximum potential. We use defined work practices for consistency, efficiency and to create value across the organization.
Our core valuesValues are driven by our people, inform the way we do business each and every day and enhance our ability to accomplish our mission and related strategic objectives.
Strategic Objectives
We have outlined the following strategic objectives to drive the accomplishment of our mission:
Environmental, Health & Safety (“EH&S”) - We aim to achieve continuous improvement in all EH&S areas through ensuring our people’s commitment to environmental, health and safety comes first, the refinement of existing policies, continuous training, and enhanced monitoring procedures.
Reliability - Our goal is to achieve industry-leading utilization rates at our facilities through safe and reliable operations. We are focusing on improvements in day-to-day plant operations, identifying alternative sources for plant inputs to reduce lost time due to third-party operational constraints, and optimizing our commercial and marketing functions to maintain plant operations at their highest level.
Market Capture - We continuously evaluate opportunities to improve the facilities’ realized pricing at the gate and reduce variable costs incurred in production to maximize our capture of market opportunities.
Financial Discipline - We strive to be as efficient as possible by maintaining low operating costs and disciplined deployment of capital.
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Achievements
From the beginning of the fiscal year through the date of filing, we successfully executed a number of achievements in support of our strategic objectives shown below:
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| SafetyEH&S | | Reliability | | Market Capture | | Financial Discipline |
Achieved reductions in environmental events, process safety management tier 1 incidents and total recordable incident rate of 23%, 70% and 67%, respectively, compared to the first nine months of 2021Corporate: | ü | | | | | | |
| | | | | | | |
Declared a quarterly cash dividend of $0.40$0.50 per share and a special dividend of $1.00$1.50 per share for the third quarter of 2022,2023, bringing total dividends declared to date of $4.80$4.00 per share related to the first nine months of 2022 | | | | | ü | | ü |
Progressed plan to restructure our business to segregate our renewables operations, including the creation of new entities and intercompany transfer of certain assets thereto | | | | | ü | | ü |
Completed the conversion of the Wynnewood hydrocracker to renewable diesel service | | | | | ü | | ü |
Petroleum Segment: | | | | | | | |
Achieved reductions in environmental events, process safety management tier 1 incidents and total recordable incident rate of 36%, 20% and 57%, respectively, compared to the first nine months of 2021 | ü | | | | | | |
Operated our refineries safely and reliably and at high utilization rates | ü | | ü | | ü | | |
Safely completed the planned turnaround at the Wynnewood Refinery on time and on budget2023 | | | ü | | ü | | ü |
Completed an amendment and extension of the CVR Refining Asset Based Credit Agreement | | | | | | | ü |
Achieved record truck-gathered crude oil volumesplan to transform our business to segregate our renewables operations in the third quarter of 2022February 2023 | | | | | ü | | ü |
| Achieved record monthly production rate at the Wynnewood Renewable Diesel Unit in June 2023 | | | ü | | ü | | |
| Petroleum Segment: | | | | | | | |
| | | | | | | |
| Operated our refineries reliably and at high utilization rates | | | ü | | ü | | |
| Completed the planned coker turnaround at the Coffeyville Refinery in April 2023 | | | ü | | ü | | |
| Increased crude oil gathering volumes by 15% compared to the first nine months of 2022 | | | ü | | ü | | |
| Increased refined product sales volumes across Coffeyville and Wynnewood racks by 4% compared to the first nine months of 2022 | | | ü | | ü | | |
| Achieved record quarterly crude oil gathering volumes of approximately 150,000 bpd for the third quarter of 2023 | | | ü | | ü | | |
| Entered into new bulk crude oil intermediation agreement with more favorable commercial terms | | | | | ü | | ü |
| Nitrogen Fertilizer Segment: | | | | | | | |
Achieved reductions inNo environmental events or process safety management tier 1 incidents and total recordable incident rate of 100% and 79%, respectively, compared toduring the first nine months of 2021 | ü | | | | | | |
Operated both fertilizer facilities safely2023 | ü | | | | | | |
Safely completed the planned turnarounds atContinued to operate both fertilizer facilities on timesafely and on budget, as well as inspected, repaired and replaced major equipment as necessary during this downtimeat high utilization rates. Combined ammonia utilization rate averaged over 100% for the first nine months of 2023 | ü | | ü | | ü | | ü |
Achieved record UAN production volumestruck shipments during March 2023 at the Coffeyville Fertilizer Facility in March 2022 | | | ü | | ü | | |
| Achieved record daily ammonia shipments during April 2023 and record quarterly ammonia production during the second quarter of 2023 at the East Dubuque Fertilizer Facility | | | ü | | ü | | |
Declared a cash distribution of $1.77$1.55 per common unit for the third quarter of 2022,2023, bringing cumulative distributions declared to date of $14.08$16.12 per common unit related to the first nine months of 20222023 | | | | | ü | | ü |
Achieved average reductionClosed on a transaction related to carbon capture and sequestration activities at the Coffeyville Fertilizer Facility in COJanuary 20232e emissions of over 1 million metric tons per year since 2020 for CVR Partners
| ü | | | | | | |
Completed CVR Partners’ targeted $95 million debt reduction plan with the repayment of the remaining $65 million balance of its 9.25% Senior Secured Notes, due 2023 (the “2023 UAN Notes”) in the first quarter of 2022 for a total reduction in annual cash interest expense of approximately $9 million | | | | | | | ü |
Repurchased over 111,000 CVR Partners common units for $12 million | | | | | | | ü |
Other Events
Following good faith bargaining by East Dubuque Nitrogen Fertilizer, LLC, the United Automobile Workers Union and its Local 1391 representing approximately 90 employees at the Nitrogen Fertilizer Segment’s facility in East Dubuque, Illinois (the “East Dubuque Fertilizer Facility”) went on strike on October 18, 2023 after its collective bargaining agreement expired the previous day. The East Dubuque Fertilizer Facility has continued to operate and is currently expected to continue normal operations during the strike.
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Industry Factors and Market Indicators
General Business Environment
Russia-Ukraine ConflictGeopolitical Matters - The conflict between Israel and Global Market Conditions - In February 2022, Russia invaded Ukraine, disruptingHamas, which began in October 2023, has the potential for broader regional conflict in the Middle East and, along with the ongoing Russian-Ukraine conflict, could significantly impact global oil, fertilizer, and agriculture markets. Such conflicts pose significant geopolitical risks to global markets, raise concerns of major implications, such as the enforcement of sanctions, and leadingcould contribute to heightened uncertainty in the worldwide economy recovering from the COVID-19 pandemic. In response, many countries have formally or informally adopted sanctions on a number of Russian exports, including Russianfurther oil inventory tightening and natural gas, and individuals affiliated with Russian government leadership. These sanctions, thus far, have resulted in oil price volatility, continued elevationand disrupt the production and trade of natural gas prices,fertilizer, grains, and should continue to impact commodity prices in the near-term, which could have a material effect on our financial condition, cash flows, or results of operations. A global recession stemming from market volatilityfeedstock supply through several means, including trade restrictions and higher price levels could result in demand destruction.supply chain disruptions. The ultimate outcome of the Russia-Ukraine conflictthese conflicts and any associated market disruptions as well as the potential for high inflation and/or economic recession, are difficult to predict and may materially affect our business, operations, and cash flows in unforeseen ways.
COVID-19 - The COVID-19 pandemic remains a dynamic and continuously evolving situation with unknown short and long-term economic challenges that could reverse any recent improvements. Further, the spread of variants of COVID-19 could cause restrictions to be reinstated, and the extent to which the pandemic may impact our business, financial condition, liquidity, or results of operations cannot be determined at this time.
Petroleum Segment
The earnings and cash flows of the Petroleum Segment are primarily affected by the relationship between refined product prices and the prices for crude oil and other feedstocks that are processed and blended into refined products together with the cost of refinery compliance. The cost to acquire crude oil and other feedstocks and the price for which refined products are ultimately sold depends on factors beyond the Petroleum Segment’s control, including the supply of, and demand for crude oil, as well as gasoline and other refined products which, in turn, depend on, among other factors, changes in domestic and foreign economies, driving habits, weather conditions, domestic and foreign political affairs, production levels, the availability or permissibly of imports and exports, the marketing of competitive fuels, and the extent of government regulation.regulations. Because the Petroleum Segment applies first-in first-out accounting to value its inventory, crude oil price movements may impact net income becauseas a result of changes in the value of its unhedged inventory. The effect of changes in crude oil prices on the Petroleum SegmentSegment’s results of operations is partially influenced by the rate at which the processing of refined products adjusts to reflect these changes.
The prices of crude oil and other feedstocks and refined products are also affected by other factors, such as product pipeline capacity, system inventory, local and regional market conditions, inflation, and the operating levels of other refineries. Crude oil costs and the prices of refined products have historically been subject to wide fluctuations. Widespread expansion or upgrades of third partythird-party facilities, price volatility, international political and economic developments, and other factors are likely to continue to play an important role in refining industry economics. These factors can impact, among other things, the level of inventories in the market, resulting in price volatility and a reduction in product margins. Moreover, the refining industry typically experiences seasonal fluctuations in demand for refined products, such as increases in the demand for gasoline during the summer driving season and for volatile seasonal exports of diesel from the United States Gulf Coast. Specific factors impacting the Company’s operations are outlined below:
As a result of government actions taken to curb the spread of COVID-19, and variants thereof, and significant business interruptions, theCurrent Market Outlook
•After substantial declines in demand for gasoline and diesel indue to the regionsCOVID-19 pandemic in which our Petroleum Segment operates declined substantially beginning at the end of the first quarter of 2020. However, building on recovery signs observed in late 2020, the U.S. market for refined products continued to show signs of recovery throughout 2021 and into 2022. Gasoline demand increased due to increased mobility, which is the main driver for highway travel, while the increase in diesel demand is generally a result of the opening of coastal states such as California, New York, New Jersey, and Florida to global shipping and commerce. The combination of improving demand, declining inventories, loss of domestic and foreign operating refining capacities, and conversionconversions to renewable diesel facilities led to an increase in refined products prices and crack spreads during 20212022 and into 2022. Furthermore, contributingthe first three quarters of 2023. While the refining market has largely recovered since the pandemic, refined product demand declined 3% nationwide in the third quarter of 2023 from the pre-pandemic third quarter of 2019 demand. Group 3 demand has been relatively strong compared to other parts of the country post the pandemic. Crack spreads have since normalized and we characterize current crack spreads just above mid-cycle levels.
•Winter 2022/2023 weather was warmer than average in Europe and when combined with natural gas conservation measures caused demand and prices for natural gas to fall significantly in the region, which contributed to the flattening of the global cost curve and has reduced the U.S. refiners’ advantage compared to refiners in Europe.
•Contributing to the ultra-low sulfur diesel (“ULSD”) supply constraints is the International Maritime Organization’s new limit on the sulfur content in the fuel oil used on board ships (“bunker fuel”) effective January 1, 2020, which lowered the sulfur limit of bunker fuel from 3.5% to 0.5% (the “IMO 2020 Regulations”), which necessitated blending ULSD into bunker fuel to meet the new specifications. The resulting reduction of supply for traditional ULSD demand was initially muted by the pandemic-induced demand contraction. Additionally,
•Recently, industrial production has slowed, as well as reduced truck tonnage and freight volumes, which reduced distillate pricing heading into the U.S. demand for jet fuelsthird quarter of 2023. This reduction has recovered, albeit at a slower pace than gasoline andreversed as of the end of the third quarter. Gasoline pricing declined significantly, while distillate pricing increased, through the end of the quarter.
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•Heavy and sour crude oil differentials have compressed with the announcement of OPEC, specifically Saudi Arabian, production cuts for the second half of 2023.
•Shale oil production continues to increase in the shale oil basins, albeit at a slower pace, including the Anadarko Basin. Crude oil exports have continued at the 4 million bpd rate, and we believe the Petroleum Segment benefits from these exports through the Brent crude differential to WTI, as well as all refineries in PADD II.
•Significant capacity additions are expected in 2024, headlined by major projects scheduled to start up in the Middle East, Asia, Mexico, and Africa. Some of the capacity additions could be offset by renewable diesel with jet fuel demandconversions and planned shutdowns, but refined product consumption is slowing in the United States and remains weak in Europe.
•Renewable identification number (“RIN”) prices fell significantly at approximately 83%the end of pre-2020 demand levels asthe third quarter. This decline was partly due to higher distillate prices and higher D4 production rates. We expect D4 production to exceed the RVO significantly going forward, creating a RIN surplus. In June 2023, the Environmental Protection Agency (“EPA”) set the renewable volume obligation (“RVO”) for 2023, 2024, and 2025 at 20.94, 21.54, and 22.33 billion, respectively.
•Electric vehicle penetration of September 30, 2022. From a global perspective,new vehicle sales in the U.S. Energy Information Administration (“EIA”) currently expects oil consumption will increase by more than global oil production, resulting in an increase of approximately 204 million barrels in 2022. However, these projections depend on the production decisions of OPEC+, U.S. oil production, and the pace of oil demand growth. While the refininglight vehicle market has largely recovered, uncertainty remains asincreased significantly, up approximately 30 percent from the prior year. We expect this trend to whether another wave of COVID-19 cases may spur additional governmental restrictions and lock-downs in the future which could decrease demand once again. Furthermore, the Russia-Ukraine conflict creates additional uncertainty, as sanctions on Russian oil exports, specifically diesel exports, have significantly influenced markets. The resolution of this conflict will continue to affect markets going forward. Based on these factors, current inventory levels have remained low, particularly for distillate, with the days of supply for gasoline, distillate, and jet fuel at approximately 2.4, 5.3, and 4.9 days, respectively, below the seasonally adjusted five-year averages. Furthermore, planned and unplanned outages are continuing to contribute to further inventory tightening and volatility.continue.
In addition to current market conditions discussed above, weRegulatory Environment
•We continue to be impacted by significant volatility and excessive RIN prices related to compliance requirements under the Renewable Fuel Standard (“RFS”), proposed climate change laws, and regulations. The petroleum business isCoffeyville Resources & Marketing, LLC (“CRRM”) and Wynnewood Refining Company, LLC (“WRC” and, together with CRRM, the “obligated-party subsidiaries”), are subject to the RFS, which, each year, absent exemptions or waivers, requires blending “renewable fuels” with transportation fuels or purchasing renewable identification numbers (“RINs”),RINs, in lieu of blending, or otherwise be subject tofacing penalties. Our cost to comply with the RFS is dependent upon a variety of factors, which include but are not limited to the availability of ethanol and biodiesel for blending at our refineries and downstream terminals or RINs for purchase, the price at which RINs can be purchased, transportation fuel and renewable diesel production levels and pricing including potential discounts thereto related to the RFS, and the mix of our products, all of which can vary significantly from period to period, as well as certain waivers or exemptions to which we may be entitled. Additionally, ourOur costs to comply with the RFS further depend on the consistent, timely, and timely applicationlegal administration of the RFS program by the Environmental Protection Agency (“EPA”), such asEPA, which includes timely establishment of the annual renewable volume obligation (“RVO”). DueRVO. RIN prices have been highly volatile and remain high due in large part to the EPA’s unlawful failure to establish the 2021 and 2022 RVOs by the November 30, 2020 and 2021their statutory deadlines, respectively, the EPA’s delay in issuing decisions on pending small refinery hardship petitions, and the EPA’s subsequent denial thereof, and the influence exerted and climate change initiatives announced by the Biden administration, among other factors, the price of RINs has been highly volatile and remains high. The price of RINs has also been impacted by the depletion of the carryover RIN bank, as demand destruction during the COVID-19 pandemic resulted in reduced ethanol blending and RIN generation that did not keep pace with mandated volumes, requiring carryover RINs from the RIN bank to be used to settle blending obligations.those hardship petitions. As a result, our costs to comply with RFS (excluding the impacts of any exemptions or waivers to which the Petroleum SegmentSegment’s obligated-party subsidiaries may be entitled) increased significantly throughout 2020, 2021,2022 and remainremained significant in 2022.through the third quarter of 2023.
In April 2022, the EPA denied 36 small refinery exemptions (“SRE”) for the 2018 compliance year, many of which had been previously granted by the EPA, and also issued an alternative compliance demonstration approach for certain small refineries (the “Alternate Compliance Ruling”) under which they would not be required to purchase or redeem additional RINs as a result of the EPA’s denial. On June 3,In July 2022, the EPA revised the 2020 RVO and finalized the 2021 and 2022 RVOs. The EPA alsoRVOs, denied 69 petitions from small refineries seeking SREs, including those submitted by Wynnewood Refining Company, LLCWRC for 2019, 2020, and2017 through 2021, and applied the Alternate Compliance Ruling to three such petitions. The price of RINs which continues to remain elevated, did not respond to the EPA announcement,excessively high, and as a result, we continue to expect significant volatility in the price of RINs during 2022 and into 2023 and such volatility could have material impacts on the Company’s results of operations, financial condition and cash flows.
•In 2022, we filed suit in the U.S. Court of Appeals for the Fifth Circuit (“Fifth Circuit”) asking that the court overturn the EPA’s improper denial of the Wynnewood Refinery’s SRE for the 2017 through 2021 compliance years. In April 2023, the Fifth Circuit granted WRC’s motion to stay enforcement of the RFS against WRC for the applicable periods until our lawsuit against the EPA relating to our SREs is resolved. This ruling limits the EPA’s ability to seek enforcement and penalties against the Wynnewood Refinery for noncompliance with the RFS while our lawsuit progresses. Oral argument in this action took place in October 2023.
•In April 2023, the EPA issued new proposed federal vehicle emissions standards for light-, medium-, and heavy-duty vehicles for model year 2027 and beyond, under which automakers are expected to need to produce 60% electric vehicles (“EVs”) by 2030 and 67% by 2032 to meet the requirements, compared to just 5.8% of EV vehicles sold in the United States in 2022.
•In July 2023, the EPA announced final RVOs for 2023, 2024, and 2025, and also, denied 26 petitions from small refineries seeking SREs for one or more of the compliance years between 2016 and 2023, including the SRE sought by
WRC for 2022, which denials WRC has challenged in court. In October 2023, the Fifth Circuit granted WRC’s motion to stay enforcement of the RFS against WRC for 2022 until our lawsuit against the EPA is resolved.
In December 2020, the Board approved the renewable diesel project at our Wynnewood Refinery, to convert the Wynnewood Refinery’s hydrocracker to a renewable diesel unit (“RDU”), which is expected to be capable of producing up to 100 million gallons of renewable diesel per year, generating approximately 170 to 180 million RINs annually. The hydrocracker conversion to renewable diesel service was completed in April 2022, and we are continuing to increase production. The production of renewable diesel is expected to significantly reduce our future net exposure to the RFS. Further, the RDU should enable us to capture additional benefits associated with the existing blenders’ tax credit which has been extended to the end of 2024 and growing low carbon fuel standard programs across the country, with programs in place in California and Oregon and new programs anticipated to be implemented over the coming years. Company Initiatives
•In November 2021, the Board approved the pretreater project at the Wynnewood Refinery, which is currently expected to be completed in the thirdfourth quarter of 2023 at an estimated cost of $95$94 million. The pretreatment unit should enable us to process a wider variety of renewable diesel feedstocks at the Wynnewood Refinery, most of which have a lower carbon intensity than soybean oil and generate additional low carbon fuel standardLCFS credits. When completed, these collectiveWith our existing renewable diesel effortsproduction, this could effectively mitigate a substantial majority, if not all, of our future RFS exposure, assuming we receive SREs for our Wynnewood Refinery which we believe we are legally entitled to and are pursuing in the courts. However, impacts from recent climate change initiatives under the Biden administration,Administration, actions taken by the courts, resulting administration actions under the RFS, and market conditions,
could significantly impact the amount by which our renewable diesel business mitigates our costs to comply with the RFS, if at all. The renewable diesel unit at the Wynnewood Refinery has the flexibility to be returned to hydrocarbon processing service primarily through a catalyst change; depending on market conditions including but not limited to renewable diesel margins, contractual obligations and other factors, the Company could seek to return the unit to hydrocarbon processing service in the future.
•The Company is evaluating a potential renewables project near its advantaged Coffeyville location, the approval of which would be subject to numerous conditions and requirements including but not limited to approval of our Board, regulators, and potential other third parties. This project, if approved and pursued, could enable the capture of synergies with the Petroleum Segment as the Coffeyville Refinery has excess hydrogen capacity as well as access to carbon capture use and storage.
As of September 30, 2022,2023, we have an estimated open position (excludingliability of $413 million for the impacts of any exemptions or waivers to which we may be entitled) underPetroleum Segment’s obligated-party subsidiaries compliance with the RFS for 2020, 2021, 2022 and 20222023, which consists of approximately 423367 million RINs, excluding approximately 3228 million of net open, fixed-price commitments to purchase RINs, resulting in a potential liability of $715 million.RINs. The Company’s open RFS position, which does not consider open commitments expected to settle in future periods, is marked-to-market each period and thus significant market volatility, as experienced in late 20212022 and 20222023 to date, could impact our RFS expense from period to period. We recognized expense of approximately $86 million and a benefit of $16 million for the three months ended September 30, 2022 and 2021, respectively, and expense of approximately $328 million and $335 million for the nine months ended September 30, 2022 and 2021, respectively, for the Company’s compliance with the RFS. The increase in expense in 2022 compared to 2021 was driven by an increase in RINs pricing through the third quarter of 2022. Of the expense recognized during the three and nine months ended September 30, 2022, $38 million and $108 million, respectively, relates to the revaluation of our net RVO position as of September 30, 2022. The revaluation represents the summation of the prior period obligation and current period commercial activities, marked at the period end market price. Based upon recent market prices of RINs in September 2022, current estimates related to other variable factors, including our anticipated blending and purchasing activities, and the impact of the open RFS positions and resolution thereof, our estimated consolidated cost to comply with the RFS (without regard to any SREs we may receive) is $390 to $400 million for 2022, net of the estimated RINs generation from our renewable diesel operations of $100 to $110 million.
Market Indicators
NYMEX WTI crude oil is an industry wide benchmark that is utilized in the market pricing of a barrel of crude oil. The pricing differences between other crudes and WTI, known as differentials, show how the market for other crude oils such as WCS, White Cliffs (“Condensate”), Brent Crude (“Brent”), and Midland WTI (“Midland”) are trending. Due to the COVID-19 pandemic, the Russia-Ukraine conflict, and, in each case, actions taken by governments and others in response thereto, refined product prices have experienced extreme volatility. As a result of the current environment, refining margins have been and will continue to be volatile.
As a performance benchmark and a comparison with other industry participants, we utilize NYMEX and Group 3 crack spreads. These crack spreads are a measure of the difference between market prices for crude oil and refined products and are a commonly used proxy within the industry to estimate or identify trends in refining margins. Crack spreads can fluctuate significantly over time as a result of market conditions and supply and demand balances. The NYMEX 2-1-1 crack spread is calculated using two barrels of WTI producing one barrel of NYMEX RBOB Gasoline (“RBOB”) and one barrel of NYMEX NY Harbor ULSD (“HO”). The Group 3 2-1-1 crack spread is calculated using two barrels of WTI crude oil producing one barrel of Group 3 sub-octane gasoline and one barrel of Group 3 ultra-low sulfur diesel.
Both NYMEX 2-1-1 and Group 3 2-1-1 crack spreads increaseddecreased during the nine months ended September 30, 20222023 compared to the nine months ended September 30, 2021.2022. The NYMEX 2-1-1 crack spread averaged $42.16$36.48 per barrel during the nine months ended September 30, 20222023 compared to $19.05$42.16 per barrel in the nine months ended September 30, 2021.2022. The Group 3 2-1-1 crack spread averaged $35.10 per barrel during the nine months ended September 30, 2023 compared to $38.38 per barrel during the nine months ended September 30, 2022 compared to $18.58 per barrel during the nine months ended September 30, 2021.2022.
Average monthly prices for RINs increased 9.7%decreased 8.4% during the third quarter of 20222023 compared to the same period of 2021.2022. On a blended barrel basis (calculated using applicable RVO percentages), RINs approximated $7.34 per barrel during the third quarter of 2023 compared to $8.02 per barrel during the third quarter of 2022 compared to $7.31 per barrel during the third quarter of 2021.
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The charts below are presented, on a per barrel basis, by month through September 30, 2022:2023:
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Crude Oil Differentials against WTI (1)(2) |
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PADD II Group 3 Product Crack Spread and RIN Pricing (2)(3) ($/bbl) |
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Group 3 Differential against NYMEX WTI (1)(2) ($/bbl) |
(1)The change over time in NYMEX - WTI, as reflected in the charts above, is illustrated below.
| | (in $/bbl) | (in $/bbl) | Average 2020 | | Average December 2020 | | Average 2021 | | Average December 2021 | | Average 2022 | | Average September 2022 | (in $/bbl) | Average 2021 | | Average December 2021 | | Average 2022 | | Average December 2022 | | Average 2023 | | Average September 2023 |
| WTI | WTI | $ | 39.34 | | | $ | 47.07 | | | $ | 68.11 | | | $ | 71.69 | | | $ | 98.35 | | | $ | 83.80 | | WTI | $ | 68.11 | | | $ | 71.69 | | | $ | 94.41 | | | $ | 76.52 | | | $ | 77.25 | | | $ | 89.43 | |
(2)Information used within these charts was obtained from reputable market sources, including the New York Mercantile Exchange (“NYMEX”), Intercontinental Exchange, and Argus Media, among others.
(3)PADD II is the Midwest Petroleum Area for Defense District (“PADD”), which includes Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee and Wisconsin.
Nitrogen FertilizerPetroleum Segment
Within the Nitrogen Fertilizer Segment,The earnings and cash flows from operationsof the Petroleum Segment are primarily affected by the relationship between nitrogen fertilizerrefined product prices utilization, and operating coststhe prices for crude oil and expenses, including pet cokeother feedstocks that are processed and natural gas feedstock costs.
blended into refined products together with the cost of refinery compliance. The cost to acquire crude oil and other feedstocks and the price atfor which nitrogen fertilizerrefined products are ultimately sold depends on numerous factors beyond the Petroleum Segment’s control, including the global supply of, and demand for nitrogen fertilizercrude oil, as well as gasoline and other refined products world grain demandwhich, in turn, depend on, among other factors, changes in domestic and foreign economies, driving habits, weather conditions, domestic and foreign political affairs, production levels, inflation, global supply disruptions, changes in world population, the cost and availability of fertilizer transportation infrastructure, local market conditions, operating levels of competing facilities, weather conditions, the availability or permissibly of imports impactsand exports, the marketing of foreign imports and foreign subsidies thereof,competitive fuels, and the extent of government interventionregulations. Because the Petroleum Segment applies first-in first-out accounting to value its inventory, crude oil price movements may impact net income as a result of changes in agriculture markets.the value of its unhedged inventory. The effect of changes in crude oil prices on the Petroleum Segment’s results of operations is partially influenced by the rate at which the processing of refined products adjusts to reflect these changes.
The prices of crude oil and other feedstocks and refined products are also affected by other factors, such as product pipeline capacity, system inventory, local and regional market conditions, inflation, and the operating levels of other refineries. Crude oil costs and the prices of refined products have historically been subject to wide fluctuations. Widespread expansion or upgrades of third-party facilities, price volatility, international political and economic developments, and other factors are likely to continue to play an important role in refining industry economics. These factors can impact, among other things, the level of inventories in the market, resulting in price volatility and a reduction in product margins. Moreover, the refining industry typically experiences seasonal fluctuations in demand for nitrogen fertilizer products.refined products, such as increases in the demand for gasoline during the summer driving season and for volatile seasonal exports of diesel from the United States Gulf Coast. Specific factors impacting the Company’s operations are outlined below:
As a resultCurrent Market Outlook
•After substantial declines in demand for gasoline and diesel due to the COVID-19 pandemic in 2020, the combination of improving demand, declining inventories, loss of domestic and foreign operating refining capacities, and conversions to renewable diesel facilities led to an increase in refined products prices and crack spreads during 2022 and the first three quarters of 2023. While the refining market has largely recovered since the pandemic, refined product demand declined 3% nationwide in the third quarter of 2023 from the pre-pandemic third quarter of 2019 demand. Group 3 demand has been relatively strong compared to other parts of the Russian invasion of Ukraine,country post the Black Sea, a major export point for nitrogen fertilizerpandemic. Crack spreads have since normalized and grains from these countries, has been closed to exports, which prompted tightening global supply conditions for nitrogen fertilizerwe characterize current crack spreads just above mid-cycle levels.
•Winter 2022/2023 weather was warmer than average in advance of spring plantingEurope and wheat and corn availability, two major exports from this region. Further, while fertilizers have not been formally sanctioned by countries, many customers are either unwilling to purchase Russian fertilizers or logistics make it too costly to import these fertilizers. Additionally,when combined with natural gas supplied from Russia to Western Europe has been constrained,conservation measures caused demand and prices for natural gas prices have remained elevated since September 2021, causing a significant portionto fall significantly in the region, which contributed to the flattening of European nitrogen fertilizer production capacity to be curtailed or costs to be elevatedthe global cost curve and has reduced the U.S. refiners’ advantage compared to competitorsrefiners in other regionsEurope.
•Contributing to the ultra-low sulfur diesel (“ULSD”) supply constraints is the International Maritime Organization’s limit on the sulfur content in the fuel oil used on board ships (“bunker fuel”) effective January 1, 2020, which lowered the sulfur limit of bunker fuel from 3.5% to 0.5% (the “IMO 2020 Regulations”), which necessitated blending ULSD into bunker fuel to meet the new specifications. The resulting reduction of supply for traditional ULSD demand was initially muted by the pandemic-induced demand contraction.
•Recently, industrial production has slowed, as well as reduced truck tonnage and freight volumes, which reduced distillate pricing heading into the third quarter of 2023. This reduction has reversed as of the world. Overall, these events have caused grain and fertilizer prices to rise, and we currently expect these conditions to persistend of the third quarter. Gasoline pricing declined significantly, while distillate pricing increased, through the springend of 2023.
September 30, 20222023 | 3128
Market Indicators•Heavy and sour crude oil differentials have compressed with the announcement of OPEC, specifically Saudi Arabian, production cuts for the second half of 2023.
While there is risk of shorter-term volatility given•Significant capacity additions are expected in 2024, headlined by major projects scheduled to start up in the inherent natureMiddle East, Asia, Mexico, and Africa. Some of the commodity cycle,capacity additions could be offset by renewable diesel conversions and planned shutdowns, but refined product consumption is slowing in the Company believes the long-term fundamentals for the U.S. nitrogen fertilizer industry remain intact. The Nitrogen Fertilizer Segment views the anticipated combination of (i) increasing global population, (ii) decreasing arable land per capita, (iii) continued evolution to more protein-based dietsUnited States and remains weak in developing countries, (iv) sustained use of corn and soybeans as feedstock for the domestic production of ethanol and other renewable fuels, and (v) positioningEurope.
•Renewable identification number (“RIN”) prices fell significantly at the lower end of the global cost curve should providethird quarter. This decline was partly due to higher distillate prices and higher D4 production rates. We expect D4 production to exceed the RVO significantly going forward, creating a solid foundationRIN surplus. In June 2023, the Environmental Protection Agency (“EPA”) set the renewable volume obligation (“RVO”) for nitrogen fertilizer producers2023, 2024, and 2025 at 20.94, 21.54, and 22.33 billion, respectively.
•Electric vehicle penetration of new vehicle sales in the U.S. over the longer term.
Corn and soybeans are two major crops planted by farmers in North America. Corn crops result in the depletion of the amount of nitrogen within the soil in which it is grown, which in turn, results in the need for this nutrient to be replenished after each growing cycle. Unlike corn, soybeans are able to obtain most of their own nitrogen through a process known as “N fixation.” As such, upon harvesting of soybeans, the soil retains a certain amount of nitrogen which results in lower demand for nitrogen fertilizer for the following corn planting cycle. Due to these factors, nitrogen fertilizer consumers generally operate a balanced corn-soybean rotational planting cycle as evident by the chart presented below as of Septemberlight vehicle market has increased significantly, up approximately 30 2022.
The relationship between the total acres planted for both corn and soybeans has a direct impact on the overall demand for nitrogen products, as the market and demand for nitrogen increases with increased corn acres and decreases with increased soybean acres. Additionally, an estimated 11.8 billion pounds of soybean oil is expected to be used in producing cleaner renewables in marketing year 2022/2023. Multiple refiners have announced renewable diesel expansion projects for 2022 and beyond, which will only increase the demand for soybeans and potentially for corn and canola.
The United States Department of Agriculture (“USDA”) estimates that in spring 2022 farmers planted 88.6 million corn acres, representing a decrease of 5.0% as compared to 93.3 million corn acres in 2021. Planted soybean acres are estimated to be 87.5 million, representing a 0.3% increase as compared to 87.2 million soybean acres in 2021. The combined corn and soybean planted acres of 176.1 million is in line with the acreage planted in 2021, which was the highest in history. Due to higher input costs for corn planting and increased demand for soybeans, particularly for renewable diesel production, it was more favorable for farmers to plant soybeans compared to corn. The lower planted corn acres in 2022 is expected to be supportive of corn prices for the remainder of 2022 and 2023.
Ethanol is blended with gasoline to meet renewable fuel standard requirements and for its octane value. Ethanol production has historically consumed approximately 35% of the U.S. corn crop, so demand for corn generally rises and falls with ethanol demand, as evidenced by the charts below through September 30, 2022.
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U.S. Plant Production of Fuel Ethanol (1)
| | Corn and Soybean Planted Acres (2)
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(1)Information used within this chart was obtainedpercent from the EIA through September 30, 2022.
(2)Information used withinprior year. We expect this chart was obtained from the USDA, National Agricultural Statistics Services as of September 30, 2022.trend to continue.
WeatherRegulatory Environment
•We continue to be impacted by significant volatility and excessive RIN prices related to compliance requirements under the Renewable Fuel Standard (“RFS”), proposed climate change laws, and regulations. Coffeyville Resources & Marketing, LLC (“CRRM”) and Wynnewood Refining Company, LLC (“WRC” and, together with CRRM, the “obligated-party subsidiaries”), are subject to the RFS, which, each year, absent exemptions or waivers, requires blending “renewable fuels” with transportation fuels or purchasing RINs, in lieu of blending, or otherwise facing penalties. Our cost to comply with the RFS is dependent upon a variety of factors, which include but are not limited to the availability of ethanol and biodiesel for blending at our refineries and downstream terminals or RINs for purchase, the price at which RINs can be purchased, transportation fuel and renewable diesel production levels and pricing including potential discounts thereto related to the RFS, and the mix of our products, all of which can vary significantly from period to period, as well as certain waivers or exemptions to which we may be entitled. Our costs to comply with the RFS further depend on the consistent, timely, and legal administration of the RFS program by the EPA, which includes timely establishment of the annual RVO. RIN prices have been highly volatile and remain high due in large part to the EPA’s unlawful failure to establish the RVOs by their statutory deadlines, the EPA’s delay in issuing decisions on pending small refinery hardship petitions, and the EPA’s subsequent denial of those hardship petitions. As a result, our costs to comply with RFS (excluding the impacts of any exemptions or waivers to which the Petroleum Segment’s obligated-party subsidiaries may be entitled) increased significantly throughout 2022 and remained significant through the third quarter of 2023.
•In April 2022, the EPA denied 36 small refinery exemptions (“SRE”) for the 2018 compliance year, many of which had been previously granted by the EPA, and also issued an alternative compliance demonstration approach for certain small refineries (the “Alternate Compliance Ruling”) under which they would not be required to purchase or redeem additional RINs as a result of the EPA’s denial. In July 2022, the EPA revised the 2020 RVO and finalized the 2021 and 2022 RVOs, denied 69 petitions from small refineries seeking SREs, including those submitted by WRC for 2017 through 2021, and applied the Alternate Compliance Ruling to three such petitions. The price of RINs continues to beremain excessively high, and as a critical variable for crop production. Even with high planted acres and trendline yields per acreresult, we continue to expect significant volatility in the U.S., inventory levels for cornprice of RINs during 2023 and soybeans remain below historical levelssuch volatility could have material impacts on the Company’s results of operations, financial condition and prices have remained elevated. With tight
September 30,•In 2022, | we filed suit in the U.S. Court of Appeals for the Fifth Circuit (“Fifth Circuit”) asking that the court overturn the EPA’s improper denial of the Wynnewood Refinery’s SRE for the 2017 through 2021 compliance years. In April 2023, the Fifth Circuit granted WRC’s motion to stay enforcement of the RFS against WRC for the applicable periods until our lawsuit against the EPA relating to our SREs is resolved. This ruling limits the EPA’s ability to seek enforcement and penalties against the Wynnewood Refinery for noncompliance with the RFS while our lawsuit progresses. Oral argument in this action took place in October 2023.
•32
grainIn April 2023, the EPA issued new proposed federal vehicle emissions standards for light-, medium-, and fertilizer inventory levels driven by the war in Ukraine, pricesheavy-duty vehicles for grainsmodel year 2027 and fertilizersbeyond, under which automakers are expected to remain elevated throughneed to produce 60% electric vehicles (“EVs”) by 2030 and 67% by 2032 to meet the springrequirements, compared to just 5.8% of 2023. WhileEV vehicles sold in the weather conditions were difficult earlyUnited States in spring 2022, farmers were able to complete2022.
•In July 2023, the crop planting later than normal. DemandEPA announced final RVOs for nitrogen fertilizer, as well as other crop inputs, was strong2023, 2024, and 2025, and also, denied 26 petitions from small refineries seeking SREs for the spring 2022 planting season. During the summer 2022 growing season, severe drought conditions were experienced in Asia, Europe, and partsone or more of the U.S. As a result, crop yields are projected to be below expectationscompliance years between 2016 and grain inventories are projected to be at2023, including the low end of historical levels, causing grain prices to rise during the three months ended September 30, 2022. We expect tight grain inventories to positively impact planted acreage for the spring of 2023 and boost the demand for nitrogen fertilizer.
On June 30, 2021, CF Industries Nitrogen, L.L.C., Terra Nitrogen, Limited Partnership, and Terra International (Oklahoma) LLC filed petitions with the U.S. Department of Commerce (“USDOC”) and the U.S. International Trade Commission (the “ITC”) requesting the initiation of antidumping and countervailing duty investigations on imports of UAN from Russia and Trinidad and Tobago (“Trinidad”). On July 18, 2022, the ITC made a negative final injury determination concerning its investigation of imports from Russia and Trinidad despite USDOC’s final determination in June that UAN is subsidized and dumped in the U.S. marketSRE sought by producers in both countries. Since the decision in July 2022, we have observed minimal impact on the supply or demand for nitrogen fertilizer.
The charts below show relevant market indicators for the Nitrogen Fertilizer Segment by month through September 30, 2022:
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Ammonia and UAN Market Pricing (1)
| | Natural Gas and Pet Coke Market Pricing (1)
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(1)Information used within these charts was obtained from various third-party sources, including Green Markets (a Bloomberg Company), Pace Petroleum Coke Quarterly, and the EIA, amongst others.
Results of Operations
Consolidated
Our consolidated results of operations include certain other unallocated corporate activities and the elimination of intercompany transactions and, therefore, do not equal the sum of the operating results of the Petroleum Segment and Nitrogen Fertilizer Segment.
September 30, 20222023 | 3329
Consolidated Financial Highlights (Three and Nine Months Ended September 30,WRC for 2022, versus September 30, 2021)
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Operating Income | | Net Income Attributable to CVR
Energy Stockholders
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Earnings per Share | | EBITDA (1)
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(1)See “Non-GAAP Reconciliations” section below for reconciliationswhich denials WRC has challenged in court. In October 2023, the Fifth Circuit granted WRC’s motion to stay enforcement of the non-GAAP measures shown above.RFS against WRC for 2022 until our lawsuit against the EPA is resolved.
Company Initiatives
•In November 2021, the Board approved the pretreater project at the Wynnewood Refinery, which is currently expected to be completed in the fourth quarter of 2023 at an estimated cost of $94 million. The pretreatment unit should enable us to process a wider variety of renewable diesel feedstocks at the Wynnewood Refinery, most of which have a lower carbon intensity than soybean oil and generate additional LCFS credits. With our existing renewable diesel production, this could effectively mitigate a substantial majority, if not all, of our future RFS exposure, assuming we receive SREs for our Wynnewood Refinery which we believe we are legally entitled to and are pursuing in the courts. However, impacts from recent climate change initiatives under the Biden Administration, actions taken by the courts, resulting administration actions under the RFS, and market conditions, could significantly impact the amount by which our renewable diesel business mitigates our costs to comply with the RFS, if at all. The renewable diesel unit at the Wynnewood Refinery has the flexibility to be returned to hydrocarbon processing service primarily through a catalyst change; depending on market conditions including but not limited to renewable diesel margins, contractual obligations and other factors, the Company could seek to return the unit to hydrocarbon processing service in the future.
•The Company is evaluating a potential renewables project near its advantaged Coffeyville location, the approval of which would be subject to numerous conditions and requirements including but not limited to approval of our Board, regulators, and potential other third parties. This project, if approved and pursued, could enable the capture of synergies with the Petroleum Segment as the Coffeyville Refinery has excess hydrogen capacity as well as access to carbon capture use and storage.
Three and Nine Months EndedAs of September 30, 2023, we have an estimated liability of $413 million for the Petroleum Segment’s obligated-party subsidiaries compliance with the RFS for 2020, 2021, 2022 versus September 30, 2021 (Consolidated)and 2023, which consists of approximately 367 million RINs, excluding approximately 28 million of net open, fixed-price commitments to purchase RINs. The Company’s open RFS position, which does not consider open commitments expected to settle in future periods, is marked-to-market each period and thus significant market volatility, as experienced in late 2022 and 2023 to date, could impact our RFS expense from period to period.
Market Indicators
Overview -
For
NYMEX WTI crude oil is an industry wide benchmark that is utilized in the three months ended September 30, 2022,market pricing of a barrel of crude oil. The pricing differences between other crudes and WTI, known as differentials, show how the Company’s operating incomemarket for other crude oils such as WCS, White Cliffs (“Condensate”), Brent Crude (“Brent”), and net income were $103 millionMidland WTI (“Midland”) are trending. Due to the COVID-19 pandemic, the Russia-Ukraine conflict, and, $80 million, respectively,in each case, actions taken by governments and others in response thereto, refined product prices have experienced extreme volatility. As a decreaseresult of $72 millionthe current environment, refining margins have been and $26 million, respectively, comparedwill continue to operating incomebe volatile.
As a performance benchmark and net incomea comparison with other industry participants, we utilize NYMEX and Group 3 crack spreads. These crack spreads are a measure of $175 millionthe difference between market prices for crude oil and $106 million, respectively, duringrefined products and are a commonly used proxy within the three months ended September 30, 2021. For the nine months ended September 30, 2022, the Company’s operating incomeindustry to estimate or identify trends in refining margins. Crack spreads can fluctuate significantly over time as a result of market conditions and net income were $726 millionsupply and $472 million, respectively, an increasedemand balances. The NYMEX 2-1-1 crack spread is calculated using two barrels of $680 millionWTI producing one barrel of NYMEX RBOB Gasoline (“RBOB”) and $423 million, respectively, compared to operating incomeone barrel of NYMEX NY Harbor ULSD (“HO”). The Group 3 2-1-1 crack spread is calculated using two barrels of WTI crude oil producing one barrel of Group 3 sub-octane gasoline and net incomeone barrel of $46 millionGroup 3 ultra-low sulfur diesel.
Both NYMEX 2-1-1 and $49 million, respectively,Group 3 2-1-1 crack spreads decreased during the nine months ended September 30, 2021. Refer2023 compared to our discussion of each segment’s results of operations below for further information.
Investment Income (Loss) on Marketable Securities - On June 10, 2021, the Company distributed substantially all of its holdings in Delek US Holdings, Inc. (“Delek”), of which the Company was the largest stockholder holding approximately 14.3% of Delek’s outstanding common stock, as part of a special dividend. On January 18, 2022, the Company divested its remaining nominal holdings in Delek, and as of September 30, 2022, the Company does not hold an investment in other marketable securities of Delek. There was no dividend income received during the three and nine months ended September 30, 2022. The NYMEX 2-1-1 crack spread averaged $36.48 per barrel during the nine months ended September 30, 2023 compared to $42.16 per barrel in the nine months ended September 30, 2022. The Group 3 2-1-1 crack spread averaged $35.10 per barrel during the nine months ended September 30, 2023 compared to $38.38 per barrel during the nine months ended September 30, 2022.
Average monthly prices for RINs decreased 8.4% during the third quarter of 2023 compared to the same period of 2022. On a blended barrel basis (calculated using applicable RVO percentages), RINs approximated $7.34 per barrel during the third quarter of 2023 compared to $8.02 per barrel during the third quarter of 2022.
September 30, 20222023 | 3430
2022 and 2021.
The Company did not recognizecharts below are presented, on a gain or loss on the investment during the three and nine months endedper barrel basis, by month through September 30, 2022, and for the three and nine months ended 2023:
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Crude Oil Differentials against WTI (1)(2) |
September 30, 2021,2023 | 31
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PADD II Group 3 Product Crack Spread and RIN Pricing (2)(3)($/bbl) |
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Group 3 Differential against NYMEX WTI (1)(2)($/bbl) |
(1)The change over time in NYMEX - WTI, as reflected in the Company recognized an unrealized loss of $1 millioncharts above, is illustrated below.
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| (in $/bbl) | Average 2021 | | Average December 2021 | | Average 2022 | | Average December 2022 | | Average 2023 | | Average September 2023 |
| WTI | $ | 68.11 | | | $ | 71.69 | | | $ | 94.41 | | | $ | 76.52 | | | $ | 77.25 | | | $ | 89.43 | |
(2)Information used within these charts was obtained from reputable market sources, including the New York Mercantile Exchange (“NYMEX”), Intercontinental Exchange, and a gain of $82 million, respectively.
Other Income (Expense)(3)PADD II is the Midwest Petroleum Area for Defense District (“PADD”), Net - For the threewhich includes Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee and nine months ended September 30, 2022, the Company’s Other income (expense), net was $3 million and $(81) million, respectively, compared to other income, net of $2 million and $12 million for the three and nine months ended September 30, 2021, respectively. The change related to the nine months ended September 30, 2022 was primarily attributable to the expected settlement of litigation. Refer to Part I, Item 1, Note 12 (“Commitments and Contingencies”) of this Report for further discussion.Wisconsin.
Income Tax Expense (Benefit) - Income tax expense for the three and nine months ended September 30, 2022 was $7 million and $106 million, or 8.3% and 18.4% of income before income tax, respectively, as compared to income tax expense (benefit) for the three and nine months ended September 30, 2021 of $47 million and $(1) million, or 30.8% and (2.1)% of income before income tax, respectively. The fluctuations in income tax expense and effective income tax rate were due primarily to changes in pretax earnings and earnings attributable to noncontrolling interest from the three and nine months ended September 30, 2021 to the three and nine months ended September 30, 2022.
Petroleum Segment
The earnings and cash flows of the Petroleum Segment are primarily affected by the relationship between refined product prices and the prices for crude oil and other feedstocks that are processed and blended into refined products together with the cost of refinery compliance. The cost to acquire crude oil and other feedstocks and the price for which refined products are ultimately sold depends on factors beyond the Petroleum Segment’s control, including the supply of, and demand for crude oil, as well as gasoline and other refined products which, in turn, depend on, among other factors, changes in domestic and foreign economies, driving habits, weather conditions, domestic and foreign political affairs, production levels, the availability or permissibly of imports and exports, the marketing of competitive fuels, and the extent of government regulations. Because the Petroleum Segment applies first-in first-out accounting to value its inventory, crude oil price movements may impact net income as a result of changes in the value of its unhedged inventory. The effect of changes in crude oil prices on the Petroleum Segment’s results of operations is partially influenced by the rate at which the processing of refined products adjusts to reflect these changes.
The prices of crude oil and other feedstocks and refined products are also affected by other factors, such as product pipeline capacity, system inventory, local and regional market conditions, inflation, and the operating levels of other refineries. Crude oil costs and the prices of refined products have historically been subject to wide fluctuations. Widespread expansion or upgrades of third-party facilities, price volatility, international political and economic developments, and other factors are likely to continue to play an important role in refining industry economics. These factors can impact, among other things, the level of inventories in the market, resulting in price volatility and a reduction in product margins. Moreover, the refining industry typically experiences seasonal fluctuations in demand for refined products, such as increases in the demand for gasoline during the summer driving season and for volatile seasonal exports of diesel from the United States Gulf Coast. Specific factors impacting the Company’s operations are outlined below:
Current Market Outlook
•After substantial declines in demand for gasoline and diesel due to the COVID-19 pandemic in 2020, the combination of improving demand, declining inventories, loss of domestic and foreign operating refining capacities, and conversions to renewable diesel facilities led to an increase in refined products prices and crack spreads during 2022 and the first three quarters of 2023. While the refining market has largely recovered since the pandemic, refined product demand declined 3% nationwide in the third quarter of 2023 from the pre-pandemic third quarter of 2019 demand. Group 3 demand has been relatively strong compared to other parts of the country post the pandemic. Crack spreads have since normalized and we characterize current crack spreads just above mid-cycle levels.
•Winter 2022/2023 weather was warmer than average in Europe and when combined with natural gas conservation measures caused demand and prices for natural gas to fall significantly in the region, which contributed to the flattening of the global cost curve and has reduced the U.S. refiners’ advantage compared to refiners in Europe.
•Contributing to the ultra-low sulfur diesel (“ULSD”) supply constraints is the International Maritime Organization’s limit on the sulfur content in the fuel oil used on board ships (“bunker fuel”) effective January 1, 2020, which lowered the sulfur limit of bunker fuel from 3.5% to 0.5% (the “IMO 2020 Regulations”), which necessitated blending ULSD into bunker fuel to meet the new specifications. The resulting reduction of supply for traditional ULSD demand was initially muted by the pandemic-induced demand contraction.
•Recently, industrial production has slowed, as well as reduced truck tonnage and freight volumes, which reduced distillate pricing heading into the third quarter of 2023. This reduction has reversed as of the end of the third quarter. Gasoline pricing declined significantly, while distillate pricing increased, through the end of the quarter.
•Heavy and sour crude oil differentials have compressed with the announcement of OPEC, specifically Saudi Arabian, production cuts for the second half of 2023.
•Shale oil production continues to increase in the shale oil basins, albeit at a slower pace, including the Anadarko Basin. Crude oil exports have continued at the 4 million bpd rate, and we believe the Petroleum Segment benefits from these exports through the Brent crude differential to WTI, as well as all refineries in PADD II.
•Significant capacity additions are expected in 2024, headlined by major projects scheduled to start up in the Middle East, Asia, Mexico, and Africa. Some of the capacity additions could be offset by renewable diesel conversions and planned shutdowns, but refined product consumption is slowing in the United States and remains weak in Europe.
•Renewable identification number (“RIN”) prices fell significantly at the end of the third quarter. This decline was partly due to higher distillate prices and higher D4 production rates. We expect D4 production to exceed the RVO significantly going forward, creating a RIN surplus. In June 2023, the Environmental Protection Agency (“EPA”) set the renewable volume obligation (“RVO”) for 2023, 2024, and 2025 at 20.94, 21.54, and 22.33 billion, respectively.
•Electric vehicle penetration of new vehicle sales in the U.S. light vehicle market has increased significantly, up approximately 30 percent from the prior year. We expect this trend to continue.
Regulatory Environment
•We continue to be impacted by significant volatility and excessive RIN prices related to compliance requirements under the Renewable Fuel Standard (“RFS”), proposed climate change laws, and regulations. Coffeyville Resources & Marketing, LLC (“CRRM”) and Wynnewood Refining Company, LLC (“WRC” and, together with CRRM, the “obligated-party subsidiaries”), are subject to the RFS, which, each year, absent exemptions or waivers, requires blending “renewable fuels” with transportation fuels or purchasing RINs, in lieu of blending, or otherwise facing penalties. Our cost to comply with the RFS is dependent upon a variety of factors, which include but are not limited to the availability of ethanol and biodiesel for blending at our refineries and downstream terminals or RINs for purchase, the price at which RINs can be purchased, transportation fuel and renewable diesel production levels and pricing including potential discounts thereto related to the RFS, and the mix of our products, all of which can vary significantly from period to period, as well as certain waivers or exemptions to which we may be entitled. Our costs to comply with the RFS further depend on the consistent, timely, and legal administration of the RFS program by the EPA, which includes timely establishment of the annual RVO. RIN prices have been highly volatile and remain high due in large part to the EPA’s unlawful failure to establish the RVOs by their statutory deadlines, the EPA’s delay in issuing decisions on pending small refinery hardship petitions, and the EPA’s subsequent denial of those hardship petitions. As a result, our costs to comply with RFS (excluding the impacts of any exemptions or waivers to which the Petroleum Segment’s obligated-party subsidiaries may be entitled) increased significantly throughout 2022 and remained significant through the third quarter of 2023.
•In April 2022, the EPA denied 36 small refinery exemptions (“SRE”) for the 2018 compliance year, many of which had been previously granted by the EPA, and also issued an alternative compliance demonstration approach for certain small refineries (the “Alternate Compliance Ruling”) under which they would not be required to purchase or redeem additional RINs as a result of the EPA’s denial. In July 2022, the EPA revised the 2020 RVO and finalized the 2021 and 2022 RVOs, denied 69 petitions from small refineries seeking SREs, including those submitted by WRC for 2017 through 2021, and applied the Alternate Compliance Ruling to three such petitions. The price of RINs continues to remain excessively high, and as a result, we continue to expect significant volatility in the price of RINs during 2023 and such volatility could have material impacts on the Company’s results of operations, financial condition and cash flows.
•In 2022, we filed suit in the U.S. Court of Appeals for the Fifth Circuit (“Fifth Circuit”) asking that the court overturn the EPA’s improper denial of the Wynnewood Refinery’s SRE for the 2017 through 2021 compliance years. In April 2023, the Fifth Circuit granted WRC’s motion to stay enforcement of the RFS against WRC for the applicable periods until our lawsuit against the EPA relating to our SREs is resolved. This ruling limits the EPA’s ability to seek enforcement and penalties against the Wynnewood Refinery for noncompliance with the RFS while our lawsuit progresses. Oral argument in this action took place in October 2023.
•In April 2023, the EPA issued new proposed federal vehicle emissions standards for light-, medium-, and heavy-duty vehicles for model year 2027 and beyond, under which automakers are expected to need to produce 60% electric vehicles (“EVs”) by 2030 and 67% by 2032 to meet the requirements, compared to just 5.8% of EV vehicles sold in the United States in 2022.
•In July 2023, the EPA announced final RVOs for 2023, 2024, and 2025, and also, denied 26 petitions from small refineries seeking SREs for one or more of the compliance years between 2016 and 2023, including the SRE sought by
WRC for 2022, which denials WRC has challenged in court. In October 2023, the Fifth Circuit granted WRC’s motion to stay enforcement of the RFS against WRC for 2022 until our lawsuit against the EPA is resolved.
Company Initiatives
•In November 2021, the Board approved the pretreater project at the Wynnewood Refinery, which is currently expected to be completed in the fourth quarter of 2023 at an estimated cost of $94 million. The pretreatment unit should enable us to process a wider variety of renewable diesel feedstocks at the Wynnewood Refinery, most of which have a lower carbon intensity than soybean oil and generate additional LCFS credits. With our existing renewable diesel production, this could effectively mitigate a substantial majority, if not all, of our future RFS exposure, assuming we receive SREs for our Wynnewood Refinery which we believe we are legally entitled to and are pursuing in the courts. However, impacts from recent climate change initiatives under the Biden Administration, actions taken by the courts, resulting administration actions under the RFS, and market conditions, could significantly impact the amount by which our renewable diesel business mitigates our costs to comply with the RFS, if at all. The renewable diesel unit at the Wynnewood Refinery has the flexibility to be returned to hydrocarbon processing service primarily through a catalyst change; depending on market conditions including but not limited to renewable diesel margins, contractual obligations and other factors, the Company could seek to return the unit to hydrocarbon processing service in the future.
•The Company is evaluating a potential renewables project near its advantaged Coffeyville location, the approval of which would be subject to numerous conditions and requirements including but not limited to approval of our Board, regulators, and potential other third parties. This project, if approved and pursued, could enable the capture of synergies with the Petroleum Segment as the Coffeyville Refinery has excess hydrogen capacity as well as access to carbon capture use and storage.
As of September 30, 2023, we have an estimated liability of $413 million for the Petroleum Segment’s obligated-party subsidiaries compliance with the RFS for 2020, 2021, 2022 and 2023, which consists of approximately 367 million RINs, excluding approximately 28 million of net open, fixed-price commitments to purchase RINs. The Company’s open RFS position, which does not consider open commitments expected to settle in future periods, is marked-to-market each period and thus significant market volatility, as experienced in late 2022 and 2023 to date, could impact our RFS expense from period to period.
Market Indicators
NYMEX WTI crude oil is an industry wide benchmark that is utilized in the market pricing of a barrel of crude oil. The pricing differences between other crudes and WTI, known as differentials, show how the market for other crude oils such as WCS, White Cliffs (“Condensate”), Brent Crude (“Brent”), and Midland WTI (“Midland”) are trending. Due to the COVID-19 pandemic, the Russia-Ukraine conflict, and, in each case, actions taken by governments and others in response thereto, refined product prices have experienced extreme volatility. As a result of the current environment, refining margins have been and will continue to be volatile.
As a performance benchmark and a comparison with other industry participants, we utilize NYMEX and Group 3 crack spreads. These crack spreads are a measure of the difference between market prices for crude oil and refined products and are a commonly used proxy within the industry to estimate or identify trends in refining margins. Crack spreads can fluctuate significantly over time as a result of market conditions and supply and demand balances. The NYMEX 2-1-1 crack spread is calculated using two barrels of WTI producing one barrel of NYMEX RBOB Gasoline (“RBOB”) and one barrel of NYMEX NY Harbor ULSD (“HO”). The Group 3 2-1-1 crack spread is calculated using two barrels of WTI crude oil producing one barrel of Group 3 sub-octane gasoline and one barrel of Group 3 ultra-low sulfur diesel.
Both NYMEX 2-1-1 and Group 3 2-1-1 crack spreads decreased during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The NYMEX 2-1-1 crack spread averaged $36.48 per barrel during the nine months ended September 30, 2023 compared to $42.16 per barrel in the nine months ended September 30, 2022. The Group 3 2-1-1 crack spread averaged $35.10 per barrel during the nine months ended September 30, 2023 compared to $38.38 per barrel during the nine months ended September 30, 2022.
Average monthly prices for RINs decreased 8.4% during the third quarter of 2023 compared to the same period of 2022. On a blended barrel basis (calculated using applicable RVO percentages), RINs approximated $7.34 per barrel during the third quarter of 2023 compared to $8.02 per barrel during the third quarter of 2022.
The charts below are presented, on a per barrel basis, by month through September 30, 2023:
| | |
Crude Oil Differentials against WTI (1)(2) |
| | |
PADD II Group 3 Product Crack Spread and RIN Pricing (2)(3)($/bbl) |
| | |
Group 3 Differential against NYMEX WTI (1)(2)($/bbl) |
(1)The change over time in NYMEX - WTI, as reflected in the charts above, is illustrated below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in $/bbl) | Average 2021 | | Average December 2021 | | Average 2022 | | Average December 2022 | | Average 2023 | | Average September 2023 |
| WTI | $ | 68.11 | | | $ | 71.69 | | | $ | 94.41 | | | $ | 76.52 | | | $ | 77.25 | | | $ | 89.43 | |
(2)Information used within these charts was obtained from reputable market sources, including the New York Mercantile Exchange (“NYMEX”), Intercontinental Exchange, and Argus Media, among others.
(3)PADD II is the Midwest Petroleum Area for Defense District (“PADD”), which includes Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee and Wisconsin.
Nitrogen Fertilizer Segment
Within the Nitrogen Fertilizer Segment, earnings and cash flows from operations are primarily affected by the relationship between nitrogen fertilizer product prices, utilization, and operating costs and expenses, including pet coke and natural gas feedstock costs.
The price at which nitrogen fertilizer products are ultimately sold depends on numerous factors, including the global supply and demand for nitrogen fertilizer products which, in turn, depends on, among other factors, world grain demand and production levels, inflation, global supply disruptions, changes in world population, the cost and availability of fertilizer transportation infrastructure, local market conditions, operating levels of competing facilities, weather conditions, the availability of imports, the availability and price of feedstocks to produce nitrogen fertilizer, impacts of foreign imports and foreign subsidies thereof, and the extent of government intervention in agriculture markets. These factors can impact, among other things, the level of inventories in the market, resulting in price volatility and a reduction in product margins. Moreover, the industry typically experiences seasonal fluctuations in demand for nitrogen fertilizer products.
Certain governmental regulations and incentives associated with the automobile transportation and agricultural industries, including the ones related to corn-based ethanol and sustainable aviation fuel production or consumption can directly impact our business. In August 2022, the Inflation Reduction Act was passed and introduced the Clean Fuel Production Credit incentivizing lower Carbon Intensity feedstocks, including corn oil, which may increase demand for corn planting. In June 2023, the EPA announced the renewable volume obligations for 2023, 2024, and 2025 which maintained the ethanol blending level at 15 billion gallons. These actions lead us to believe that the demand on food, in particular corn, for fuel will remain strong for the foreseeable future and support farmer economics that incentivize the use of nitrogen-based fertilizers.
On the contrary, in April 2023, the EPA announced the proposed federal vehicle emission standards for 2027 through 2032, which will essentially eliminate internal combustion engine vehicles and will reduce the demand for liquid fuels including ethanol. In 2022, production of ethanol consumed approximately 35% of the annual United States corn crop.
Market Indicators
While there is risk of shorter-term volatility given the inherent nature of the commodity cycle, the Company believes the long-term fundamentals for the U.S. nitrogen fertilizer industry remain intact. The Nitrogen Fertilizer Segment views the anticipated combination of (i) increasing global population, (ii) decreasing arable land per capita, (iii) continued evolution to more protein-based diets in developing countries, (iv) sustained use of corn and soybeans as feedstock for the domestic production of ethanol and other renewable fuels, and (v) positioning at the lower end of the global cost curve should provide a solid foundation for nitrogen fertilizer producers in the U.S. over the longer term.
Corn and soybeans are two major crops planted by farmers in North America. Corn crops result in the depletion of the amount of nitrogen within the soil in which it is grown, which in turn, results in the need for this nutrient to be replenished after each growing cycle. Unlike corn, soybeans are able to obtain most of their own nitrogen through a process known as “N fixation.” As such, upon harvesting of soybeans, the soil retains a certain amount of nitrogen which results in lower demand for nitrogen fertilizer for the following corn planting cycle. Due to these factors, nitrogen fertilizer consumers generally operate a balanced corn-soybean rotational planting cycle as shown by the chart presented below as of September 30, 2023.
The relationship between the total acres planted for both corn and soybeans has a direct impact on the overall demand for nitrogen products, as the market and demand for nitrogen increases with increased corn acres and decreases with increased soybean acres. Additionally, an estimated 12.5 billion pounds of soybean oil is expected to be used in producing cleaner renewable fuels in marketing year 2023/2024. Multiple refiners have announced renewable diesel expansion projects for 2023 and beyond, which will only increase the demand for soybeans and potentially for corn and canola.
The United States Department of Agriculture (“USDA”) estimates that in spring 2023 farmers planted 94.9 million corn acres, representing an increase of 7.1% as compared to 88.6 million corn acres in 2022. Planted soybean acres are estimated to be 83.6 million, representing a decrease of 4.5% as compared to 87.5 million soybean acres in 2022. The combined corn and soybean planted acres of 178.5 million is an increase of 1.3% compared to the acreage planted in 2022. Due to lower input costs in 2023 for corn planting and the relative grain prices of corn versus soybeans, economics have favored planting corn compared to soybeans to date in 2023. Lower inventory levels of corn and soybeans are expected to be supportive of high prices for the remainder of 2023 and into the spring of 2024.
Ethanol is blended with gasoline to meet renewable fuel standard requirements and for its octane value. Ethanol production has historically consumed approximately 36% of the U.S. corn crop, so demand for corn generally rises and falls with ethanol demand, as shown by the charts below through September 30, 2023.
| | | | | | | | |
U.S. Plant Production of Fuel Ethanol (1) | | Corn and Soybean Planted Acres (2) |
(1)Information used within this chart was obtained from the EIA through September 30, 2023.
(2)Information used within this chart was obtained from the USDA, National Agricultural Statistics Services as of September 30, 2023.
Weather continues to be a critical variable for crop production. Even with high planted acres and trendline yields per acre in the U.S., inventory levels for corn and soybeans remain below historical levels and prices have remained elevated. With tight grain and fertilizer inventory levels driven by the conflict in Ukraine, prices for grains remained elevated through the first three quarters of 2023, although below the elevated prices experienced in the spring of 2022. Demand for nitrogen fertilizer, as well as other crop inputs, was strong for the spring 2023 planting season, primarily due to elevated grain prices and favorable weather conditions for planting.
Fertilizer input costs have been volatile since the fall of 2021. Natural gas prices were elevated in the fall of 2022 due to shortages in Europe and demand being driven by building natural gas storage for winter. Winter 2022/2023 weather was warmer than average in Europe and when combined with natural gas conservation measures caused demand and prices for natural gas in Europe to fall significantly in the first quarter of 2023. The decline in natural gas prices has led to a significant reduction in the price for nitrogen fertilizer globally due to lower input costs. While we expect that natural gas prices might remain below the elevated levels experienced in 2022 in the near term, we believe that the structural shortage of natural gas in Europe will continue to be a source of volatility for the rest of 2023 and into 2024. Although pet coke prices remain elevated compared to historical levels, we believe third-party pet coke prices will likely decline in late 2023 and into 2024.
The charts below show relevant market indicators for the Nitrogen Fertilizer Segment by month through September 30, 2023:
| | | | | | | | |
Ammonia and UAN Market Pricing (1) | | Natural Gas and Pet Coke Market Pricing (1) |
(1)Information used within these charts was obtained from various third-party sources, including Green Markets (a Bloomberg Company), Pace Petroleum Coke Quarterly, and the EIA, amongst others.
Results of Operations
Consolidated
Our consolidated results of operations include renewable fuels, certain other unallocated corporate activities, and the elimination of intercompany transactions and, therefore, do not equal the sum of the operating results of the Petroleum Segment and Nitrogen Fertilizer Segment.
Consolidated Financial Highlights (Three and Nine Months Ended September 30, 2023 versus September 30, 2022)
| | | | | | | | |
| Operating Income | | Net Income Attributable to CVR Energy Stockholders |
| | | | | | | | |
| Earnings per Share | | EBITDA (1) |
(1)See “Non-GAAP Reconciliations” section below for reconciliations of the non-GAAP measures shown above.
Three and Nine Months Ended September 30, 2023 versus September 30, 2022 (Consolidated)
Overview - For the three months ended September 30, 2023, the Company’s operating income and net income were $445 million and $354 million, respectively, an increase of $342 million and $274 million, respectively, compared to operating income and net income of $103 million and $80 million, respectively, during the three months ended September 30, 2022. For the nine months ended September 30, 2023, the Company’s operating income and net income were $1.0 billion and $781 million, respectively, an increase of $274 million and $309 million, respectively, compared to operating income and net income of $726 million and $472 million, respectively, during the nine months ended September 30, 2022. Refer to our discussion of each segment’s results of operations below for further information.
Other Income (Expense), Net - For the three and nine months ended September 30, 2023, the Company’s Other income, net was $4 million and $10 million, respectively, compared to Other income (expense), net of $3 million and $(81) million, respectively, for the three and nine months ended September 30, 2022. The change related to the nine months ended September 30, 2023 was primarily attributable to the accrual for a litigation settlement that occurred during 2022.
Income Tax Expense - Income tax expense for the three and nine months ended September 30, 2023 was $84 million and $185 million, or 19.3% and 19.2% of income before income tax, respectively, compared to income tax expense for the three and nine months ended September 30, 2022 of $7 million and $106 million, or 8.3% and 18.4% of income before income tax, respectively. The fluctuation in income tax expense and effective income tax rate was due primarily to changes in pretax earnings and earnings attributable to noncontrolling interest from the three and nine months ended September 30, 2022 to the three and nine months ended September 30, 2023.
Petroleum Segment
The Petroleum Segment utilizes certain inputs within its refining operations. These inputs include crude oil, butanes, natural gasoline, ethanol, and bio-diesel (these are also known as “throughputs”).
Refining Throughput and Production Data by Refinery
| | | | | | | | | | | | | | | | | | | | | | | |
| Throughput Data | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in barrels per day (“bpd”)) | 2022 | | 2021 | | 2022 | | 2021 |
| Coffeyville | | | | | | | |
| Regional crude | 60,762 | | | 28,492 | | | 55,675 | | | 28,281 | |
| WTI | 30,261 | | | 63,779 | | | 37,465 | | | 62,388 | |
| WTL | 312 | | | 1,547 | | | 544 | | | 522 | |
| WTS | 1,222 | | | — | | | 412 | | | — | |
| | | | | | | |
| Midland WTI | — | | | 1,633 | | | 858 | | | 550 | |
| Condensate | 10,674 | | | 5,532 | | | 10,871 | | | 8,659 | |
| Heavy Canadian | 7,372 | | | 4,851 | | | 6,869 | | | 2,869 | |
| DJ Basin | 13,526 | | | 17,274 | | | 14,092 | | | 15,845 | |
| | | | | | | |
| Other feedstocks and blendstocks | 8,846 | | | 10,656 | | | 9,811 | | | 9,796 | |
| Wynnewood | | | | | | | |
| Regional crude | 45,840 | | | 62,091 | | | 45,553 | | | 59,321 | |
| | | | | | | |
| WTL | 4,915 | | | 2,809 | | | 2,323 | | | 4,586 | |
| Midland WTI | — | | | 4,312 | | | 539 | | | 1,453 | |
| WTS | — | | | — | | | 191 | | | — | |
| Condensate | 15,313 | | | 4,736 | | | 12,121 | | | 7,260 | |
| | | | | | | |
| | | | | | | |
| Other feedstocks and blendstocks | 2,614 | | | 3,231 | | | 2,774 | | | 3,115 | |
| Total throughput | 201,657 | | | 210,943 | | | 200,098 | | | 204,645 | |
September 30, 20222023 | 3536
| | | | | | | | | | | | | | | | | | | | | | | |
| Production Data | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in bpd) | 2022 | | 2021 | | 2022 | | 2021 |
| Coffeyville | | | | | | | |
| Gasoline | 67,048 | | 70,729 | | 71,005 | | 68,310 |
| Distillate | 56,848 | | 53,946 | | 56,768 | | 52,231 |
| Other liquid products | 4,832 | | 4,971 | | 5,183 | | 4,947 |
| Solids | 4,741 | | 4,355 | | 4,482 | | 4,138 |
| Wynnewood | | | | | | | |
| Gasoline | 36,423 | | 39,647 | | 33,040 | | 39,319 |
| Distillate | 24,605 | | 32,410 | | 23,154 | | 31,026 |
| Other liquid products | 6,264 | | 2,524 | | 5,436 | | 2,826 |
| Solids | 8 | | 16 | | 12 | | 19 |
| Total production | 200,769 | | 208,598 | | 199,080 | | 202,816 |
| | | | | | | |
Light product yield (as % of crude throughput) (1) | 97.2 | % | | 99.8 | % | | 98.1 | % | | 99.6 | % |
Liquid volume yield (as % of total throughput) (2) | 97.2 | % | | 96.8 | % | | 97.2 | % | | 97.1 | % |
Distillate yield (as % of crude throughput) (3) | 42.8 | % | | 43.8 | % | | 42.6 | % | | 43.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Throughput Data | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in barrels per day (“bpd”)) | 2023 | | 2022 | | 2023 | | 2022 |
| Coffeyville | | | | | | | |
| Regional crude | 68,176 | | | 60,762 | | | 62,442 | | | 55,675 | |
| WTI | 27,837 | | | 30,261 | | | 30,161 | | | 37,465 | |
| WTL | — | | | 312 | | | — | | | 544 | |
| WTS | — | | | 1,222 | | | — | | | 412 | |
| | | | | | | |
| Midland WTI | — | | | — | | | — | | | 858 | |
| Condensate | 7,401 | | | 10,674 | | | 7,718 | | | 10,871 | |
| Heavy Canadian | 2,731 | | | 7,372 | | | 2,307 | | | 6,869 | |
| DJ Basin | 20,504 | | | 13,526 | | | 17,006 | | | 14,092 | |
| Bakken | 962 | | | — | | | 324 | | | — | |
| | | | | | | |
| Other feedstocks and blendstocks | 12,260 | | | 8,846 | | | 12,538 | | | 9,811 | |
| Wynnewood | | | | | | | |
| Regional crude | 53,554 | | | 45,840 | | | 51,519 | | | 45,553 | |
| | | | | | | |
| WTL | — | | | 4,915 | | | 1,639 | | | 2,323 | |
| Midland WTI | 543 | | | — | | | 183 | | | 539 | |
| WTS | — | | | — | | | — | | | 191 | |
| Condensate | 15,780 | | | 15,313 | | | 14,567 | | | 12,121 | |
| | | | | | | |
| | | | | | | |
| Other feedstocks and blendstocks | 2,672 | | | 2,614 | | | 2,984 | | | 2,774 | |
| Total throughput | 212,420 | | | 201,657 | | | 203,388 | | | 200,098 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Production Data | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in bpd) | 2023 | | 2022 | | 2023 | | 2022 |
| Coffeyville | | | | | | | |
| Gasoline | 69,833 | | 67,048 | | 67,463 | | 71,005 |
| Distillate | 60,661 | | 56,848 | | 56,311 | | 56,768 |
| Other liquid products | 4,463 | | 4,832 | | 4,461 | | 5,183 |
| Solids | 4,416 | | 4,741 | | 3,896 | | 4,482 |
| Wynnewood | | | | | | | |
| Gasoline | 36,997 | | 36,423 | | 37,656 | | 33,040 |
| Distillate | 25,615 | | 24,605 | | 24,825 | | 23,154 |
| Other liquid products | 9,038 | | 6,264 | | 7,355 | | 5,436 |
| Solids | 9 | | 8 | | 10 | | 12 |
| Total production | 211,032 | | 200,769 | | 201,977 | | 199,080 |
| | | | | | | |
Light product yield (as % of crude throughput) (1) | 97.8 | % | | 97.2 | % | | 99.1 | % | | 98.1 | % |
Liquid volume yield (as % of total throughput) (2) | 97.3 | % | | 97.2 | % | | 97.4 | % | | 97.2 | % |
Distillate yield (as % of crude throughput) (3) | 43.7 | % | | 42.8 | % | | 43.2 | % | | 42.6 | % |
(1)Total Gasoline and Distillate divided by total Regional crude, WTI, WTL, Midland WTI, WTS, Condensate, Heavy Canadian, and DJ Basin, and Bakken throughput.
(2)Total Gasoline, Distillate, and Other liquid products divided by total throughput.
(3)Total Distillate divided by total Regional crude, WTI, WTL, Midland WTI, WTS, Condensate, Heavy Canadian, and DJ Basin, and Bakken throughput.
Petroleum SegmentFinancial Highlights (Three and Nine Months Ended September 30, 2022 versus September 30, 2021)
Overview - For the three months ended September 30, 2022, the Petroleum Segment’s operating income and net income were $137 million and $152 million, respectively, improvements of $2 million and $6 million, respectively, compared to operating income and net income of $135 million and $146 million, respectively, for the three months ended September 30, 2021. For the nine months ended September 30, 2022, the Petroleum Segment’s operating income and net income were $564 million and $584 million, respectively, improvements of $565 million and $561 million, respectively, compared to operating loss and net income of $1 million and $23 million, respectively, for the nine months ended September 30, 2021. These improvements were primarily due to improved crack spreads, partially offset by increased RINs, utilities, and labor costs. The increases during the nine months ended September 30, 2022 were also due to an increase in crude oil prices.
| | | | | | | | |
Net Sales | | Operating Income (Loss) |
September 30, 20222023 | 3637
Petroleum SegmentFinancial Highlights (Three and Nine Months Ended September 30, 2023 versus September 30, 2022)
Overview - For the three months ended September 30, 2023, the Petroleum Segment’s operating income and net income were $431 million and $460 million, respectively, representing an improvement of $294 million and $308 million, respectively, compared to operating income and net income of $137 million and $152 million, respectively, for the three months ended September 30, 2022. These improvements were primarily due to lower RFS related expenses and a favorable inventory valuation in the current period. For the nine months ended September 30, 2023, the Petroleum Segment’s operating income and net income were $838 million and $913 million, respectively, representing an improvement of $274 million and $329 million, respectively, compared to operating income and net income of $564 million and $584 million, respectively, for the nine months ended September 30, 2022. These improvements were primarily due to lower RFS related expenses.
| | | | | | | | |
| Net Sales | | Operating Income |
(1)See “Non-GAAP Reconciliations” section below for reconciliations of the non-GAAP measures shown above.
Net Sales - For the three and nine months ended September 30, 2022,2023, net sales for the Petroleum Segment increased $732decreased $176 million and $2.7$1.2 billion, respectively, when compared to the three and nine months ended September 30, 2021.2022. The increasesdecreases in net sales were due to increaseddriven by decreased refined product prices resulting from tight inventory levels and the ongoing conflict in Ukraine during the three and nine months ended September 30, 2022,2023 compared to the three and nine months ended September 30, 2021. Further, net sales for the nine months ended September 30, 2021 were impacted by Winter Storm Uri, resulting in reduced production rates at both refineries.2022.
| | | | | | | | |
Refining Margin (1)
| | Refining Margin (excluding Inventory
Valuation Impacts) (1)
|
September 30, 20222023 | 3738
| | | | | | | | |
Refining Margin (1) | | Refining Margin (excluding Inventory Valuation Impacts) (1) |
| | | | | | | | |
Refining Margin (1) | | Refining Margin (excluding Inventory Valuation Impacts) (1) |
(1)See “Non-GAAP Reconciliations” section below for reconciliations of the non-GAAP measures shown above.
Refining Margin - For the three months ended September 30, 2022,2023, refining margin was $607 million, or $31.05 per throughput barrel, compared to $307 million, or $16.56 per throughput barrel, as compared to $292 million, or $15.03 per throughput barrel, for the three months ended September 30, 2021.2022. The increase in refining margin of $15$300 million was primarily due to an increase in product crack spreads.lower RFS related expense and favorable inventory valuations. The Group 3 2-1-1 crack spread increaseddecreased by $23.79$4.84 per barrel relative to the third quarter of 2021,2022, driven by tight inventory levelsa tightening distillate crack spread due primarily to recession concerns and supply concerns due to the ongoing Russia-Ukraine conflict.slowing demand trends. The Petroleum SegmentSegment’s obligated-party subsidiaries recognized costs to comply with RFS of $90 million, or $4.64 per throughput barrel, which excludes the RINs revaluation benefit impact of $173 million, or $8.88 per total throughput barrel, for the three months ended September 30, 2023. This is compared to RFS compliance costs of $98 million, or $5.28 per throughput barrel, which excludes the RINs revaluation expense impact of $38 million, or $2.06 per total throughput barrel, for the three months ended September 30, 2022. This is compared to RFS compliance costs of $100 million, or $5.14 per throughput barrel, which excludes the RINs revaluation benefit impact of $115 million, or $5.94 per total throughput barrel, for the three months ended September 30, 2021. For the three months ended September 30, 2022,2023, the Petroleum Segment’s RFS compliance costs included $50$53 million of RINs purchased from our renewable diesel operations.operations compared to $50 million for the three months ended September 30, 2022. The decrease in RFS compliance costs in 20222023 was primarily related to a lower renewable volume obligationdecrease in RINs prices, coupled with an increase in RINs generated by ethanol and biodiesel blending for the three months ended September 30, 20222023 compared to the prior period. The increase infavorable RINs revaluation in 20222023 was athe result of increaseda favorable mark-to-market benefit in the current
period due to a decline in RINs prices forand a lower outstanding obligation in the current period and increased commercial activity.compared to the 2022 period. The Petroleum Segment also recognized a net loss on derivatives of $98 million during the three months ended September 30, 2023 compared to a net gain on derivatives of $13 million during the three months ended September 30, 2022 compared to a net loss on derivatives of $12 million during the three months ended September 30, 2021.2022. Our derivative activity was primarily a result of crack spread swaps, inventory hedging activity, and Canadian crude oilforward purchases and sales, and crack spread swaps.sales. Offsetting these impacts, crude oil prices decreasedincreased for the three months ended September 30, 2022,2023, which led to a favorable inventory valuation impact of $82 million, or $4.18 per total throughput barrel, compared to an unfavorable inventory valuation impact of $107 million, or $5.78 per total throughput barrel compared to a favorable inventory valuation impact of $8 million, or $0.41 per total throughput barrel for the three months ended September 30, 2021. Further, for the three months ended September 30, 2022, throughput volumes declined by 9,286 bpd due to minor plant outages during the period.2022.
For the nine months ended September 30, 2022,2023, refining margin was $1.4 billion, or $24.33 per throughput barrel compared to $1.1 billion, or $19.82 per throughput barrel, as compared to $475 million, or $8.51 per throughput barrel, for the nine months ended September 30, 2021.2022. The increase in refining margin of $608$268 million was primarily due to an increasea decrease in product crack spreads and crude oil prices.RFS related expense. The Group 3 2-1-1 crack spread increaseddecreased by $19.80$3.28 per barrel relative to the nine months ended September 30, 2021,2022, driven by increasing refined producta tightening distillate crack spread due primarily to recession concerns and slowing demand tight inventory levels, and supply concerns due to the ongoing Russia-Ukraine conflict.trends. The Petroleum Segment alsoSegment’s obligated-party subsidiaries recognized a net loss on derivativescosts to comply with RFS of $40$274 million, duringor $4.94 per throughput barrel, which excludes the nine months ended September 30, 2022 compared to a net loss on derivativesRINs revaluation benefit impact of $46$228 million, during the nine months ended September 30, 2021. Our derivative activity was primarily a result of inventory hedging activity, Canadian crude oil purchases and sales, and crack spread swaps. Offsetting these impactsor $4.10 per total throughput barrel, for the nine months ended September 30, 2022, throughput volumes declined by 4,547 bpd due2023. This is compared to the Wynnewood turnaround in the first quarter of 2022, startup of the RDU limiting crude unit capacity, and minor plant outages in the current period. The Petroleum Segment recognizedRFS compliance costs to comply with RFS of $287 million, or $5.26 per throughput barrel, which excludes the RINs revaluation expense impact of $108 million, or $1.98 per total throughput barrel, for the nine
months ended September 30, 2022. This is compared to RFS compliance costs of $282 million, or $5.04 per throughput barrel, which excludes the RINs revaluation expense impact of $54 million, or $0.96 per total throughput barrel, for the nine months ended September 30, 2021. For the nine months ended September 30, 2022,2023, the Petroleum Segment’s RFS compliance costs included $68$145 million of RINs purchased from our renewable diesel operations. The increase in RFS compliance costs in 2022 was primarily relatedoperations compared to increased RINs prices$68 million for the nine months ended September 30, 20222022. The decrease in RFS compliance costs in 2023 was primarily related to a decrease in RINs prices and an increase in RINs generated from ethanol and biodiesel blending, partially offset by a higher renewable volume obligation for the nine months ended September 30, 2023 compared to the prior period. The increase infavorable RINs revaluation in 20222023 was a result of increaseda mark-to-market benefit in the current period due to a decrease in the change in RINs prices forin the current period compared to the 2022 period. CrudeThe Petroleum Segment also recognized a net loss on derivatives of $56 million during the nine months ended September 30, 2023 compared to a net loss on derivatives of $40 million during the nine months ended September 30, 2022. Our derivative activity was primarily a result of crack spread swaps, inventory hedging activity, and Canadian crude forward purchases and sales. Offsetting these impacts, crude oil prices increased for the nine months ended September 30, 2022,2023, which led to a continuedfavorable inventory valuation impact of $48 million, or $0.87 per total throughput barrel, compared to a favorable inventory valuation impact of $63 million, or $1.16 per total throughput barrel compared to a favorable inventory valuation impact of $109 million, or $1.96 per total throughput barrel, duringfor the third quarter of 2021.nine months ended September 30, 2022.
| | | | | | | | |
Direct Operating Expenses (1) | | Direct Operating Expenses (1) |
(1)Exclusive of depreciation and amortization expense.
Direct Operating Expenses (Exclusive of Depreciation and Amortization) - For the three and nine months ended September 30, 2022,2023, direct operating expenses (exclusive of depreciation and amortization) were $105 million and $310 million, respectively, compared to $103 million and $314 million, respectively, as compared to $88 million and $270 million for the three and nine months ended September 30, 2021,2022, respectively. The increases inincrease for the current periods werethree months ended September 30, 2023 was primarily due to increased natural gaspersonnel costs electricity costs, repairslargely driven by share-based compensation and maintenance expense, and personnel costs. On a total throughput barrel basis, direct operating expenses increased to $5.53 and $5.74 per barrel,an increase in insurance expense. The decrease for the three and nine months ended September 30, 2022, respectively, from $4.52 and $4.83 per barrel, for the three and nine months ended September 30, 2021, respectively, which was due to increased costs mentioned above and decreased throughput volume compared to the prior periods caused by the Wynnewood turnaround in the first quarter of 2022, startup of the RDU in the second quarter of 2022, and minor plant outages in the current periods.2023,
September 30, 20222023 | 3940
was primarily due to lower utility costs resulting from a decline in natural gas prices. On a total throughput barrel basis, direct operating expenses decreased to $5.39 and $5.58 per barrel for the three and nine months ended September 30, 2023 respectively, from $5.53 and $5.74 per barrel for the three and nine months ended September 30, 2022, respectively. These decreases were primarily due to increased throughput for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022.
| | | | | | | | |
| Depreciation and Amortization | | Selling, General and Administrative
Expenses, and Other |
Depreciation and Amortization Expense - For the three and nine months ended September 30, 2022,2023, depreciation and amortization expense decreasedincreased $3 million and $12$1 million, respectively, compared to the three and nine months ended September 30, 2021,2022, primarily due to assets being fully depreciatedturnaround asset additions in 2021 and early 2022.2023.
Selling, General, and Administrative Expenses, and Other - For the three and nine months ended September 30, 2022,2023, selling, general and administrative expenses and other were $21 million and $62 million, respectively, compared to $20 million and $65 million, respectively, as compared to $19 million and $54 million for the three and nine months ended September 30, 2021,2022, respectively. The increases wereincrease for the three months ended September 30, 2023 was primarily a result of increased personnel costs, partially attributabledue to an increase in legal services and share-based compensation as a result of an increase in the market price of CVR Energy’s common shares. The decrease for the nine months ended September 30, 2023 was primarily a result of decreased personnel costs primarily attributable to share-based compensation as a result of a decrease in market prices for CVR Energy’s common shares during the nine months ended September 30, 2022.shares.
Nitrogen Fertilizer Segment
Utilization and Production Volumes - The following tables summarize the consolidated ammonia utilization from the Nitrogen Fertilizer Segment’s facilitiesfacility in Coffeyville, Kansas (the “Coffeyville Fertilizer Facility”) and the East Dubuque Illinois (the “East Dubuque Fertilizer Facility”).Facility. Utilization is an important measure used by management to assess operational output at each of the Nitrogen Fertilizer Segment’s facilities. Utilization is calculated as actual tons of ammonia produced divided by capacity adjusted for planned maintenance and turnarounds.capacity.
Utilization is presented solely on ammonia production rather than on each nitrogen product as it provides a comparative baseline against industry peers and eliminates the disparity of facility configurations for upgrade of ammonia into other nitrogen products. With production primarily focused on ammonia upgrade capabilities, we believe this measure provides a meaningful view of how well we operate.
Gross tons produced forof ammonia represent the total ammonia produced, including ammonia produced that was upgraded into other fertilizer products. Net tons available for sale representrepresents the ammonia available for sale that was not upgraded into other
September 30, 20222023 | 4041
other fertilizer products. The table below presents all of these Nitrogen Fertilizer Segment metrics for the three and nine months ended September 30, 20222023 and 2021:2022:
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| Consolidated Ammonia Utilization | Consolidated Ammonia Utilization | 52 | % | | 94 | % | | 76 | % | | 93 | % | Consolidated Ammonia Utilization | 99 | % | | 52 | % | | 101 | % | | 76 | % |
| Production Volumes (in thousands of tons) | Production Volumes (in thousands of tons) | | Production Volumes (in thousands of tons) | |
| Ammonia (gross produced) | Ammonia (gross produced) | 114 | | | 205 | | | 494 | | 610 | Ammonia (gross produced) | 217 | | | 114 | | | 660 | | 494 |
| Ammonia (net available for sale) | Ammonia (net available for sale) | 36 | | | 65 | | | 137 | | 205 | Ammonia (net available for sale) | 68 | | | 36 | | | 200 | | 137 |
| UAN | UAN | 184 | | | 314 | | | 832 | | 920 | UAN | 358 | | | 184 | | | 1,063 | | 832 |
|
On a consolidated basis for the three and nine months ended September 30, 2022,2023, the Nitrogen Fertilizer Segment’s utilization decreasedincreased to 99% and 101%, respectively, compared to 52% and 76%, for the three and nine months ended September 30, 2022, respectively. The decreases during the current periodsincreases were primarily due to the completion of planned turnarounds taking place at both fertilizer facilities in the third quarter of 2022, along withwhich subsequently improved operational reliability. In addition, there was increased unplanned downtime in 2022 associated with the Messer air separation plant (the “Messer Outages”) at the Coffeyville Fertilizer Facility and various pieces of equipment at the East Dubuque Fertilizer Facility.
Sales and Pricing per Ton - Two of the Nitrogen Fertilizer Segment’s key operating metrics are total sales volumes for ammonia and UAN, along with the product pricing per ton realized at the gate. TotalFor the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022, total product sales volumes were unfavorablefavorable, driven by lowerincreased production at both fertilizer facilities due to the planned turnarounds taking place at both facilities in the third quarter of 2022, which subsequently improved operational reliability, as well as increased downtime from the Messer Outages at the Coffeyville Fertilizer Facility and various pieces of equipment at the East Dubuque Fertilizer Facility in 2022, compared to 2021.2022. For the three and nine months ended September 30, 2022,2023, total product sales prices were favorable,unfavorable for both periods, driven by sales price increasesdecreases of 65%56% and 155%40%, respectively, for ammonia and 42%48% and 107%33%, respectively, for UAN. Ammonia and UAN sales prices were favorableunfavorable primarily due to lower fertilizer supply driven by ongoing impacts from the Russia-Ukraine conflict, including reduced production from Europe as a result of the high energy price environment, and higher crop pricing.natural gas prices. Product pricing at the gate represents net sales less freight revenue divided by product sales volume in tons and is shown in order to provide a pricing measure comparable across the fertilizer industry.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Consolidated sales (thousand tons) | | | | | | | |
| Ammonia | 27 | | | 52 | | | 118 | | | 164 | |
| UAN | 275 | | | 322 | | | 884 | | | 931 | |
| | | | | | | |
| Consolidated product pricing at gate (dollars per ton) | | | | | | | |
| Ammonia | $ | 837 | | | $ | 507 | | | $ | 1,062 | | | $ | 416 | |
| UAN | 433 | | | 305 | | | 496 | | | 240 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Consolidated sales (thousand tons) | | | | | | | |
| Ammonia | 62 | | | 27 | | | 183 | | | 118 | |
| UAN | 387 | | | 275 | | | 1,075 | | | 884 | |
| | | | | | | |
| Consolidated product pricing at gate (dollars per ton) | | | | | | | |
| Ammonia | $ | 365 | | | $ | 837 | | | $ | 633 | | | $ | 1,062 | |
| UAN | 223 | | | 433 | | | 330 | | | 496 | |
Feedstock - TheOur Coffeyville Fertilizer Facility utilizes a pet coke gasification process to produce nitrogen fertilizer. TheOur East Dubuque Fertilizer Facility uses natural gas in its production of ammonia. The table below presents these feedstocks for
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both fertilizer facilities within the Nitrogen Fertilizer Segment for the three and nine months ended September 30, 20222023 and 2021:2022:
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| Petroleum coke used in production (thousand tons) | 74 | | | 129 | | | 298 | | | 390 | | |
Petroleum coke (dollars per ton) | $ | 51.54 | | | $ | 50.35 | | | $ | 52.68 | | | $ | 43.23 | | |
Petroleum coke used in production (thousands of tons) | | Petroleum coke used in production (thousands of tons) | 131 | | | 74 | | | 386 | | | 298 | |
Petroleum coke used in production (dollars per ton) | | Petroleum coke used in production (dollars per ton) | $ | 84.09 | | | $ | 51.54 | | | $ | 78.49 | | | $ | 52.68 | |
Natural gas used in production (thousands of MMBtu) (1) | Natural gas used in production (thousands of MMBtu) (1) | 1,120 | | | 2,043 | | | 4,817 | | | 6,079 | | Natural gas used in production (thousands of MMBtu) (1) | 2,133 | | | 1,120 | | | 6,429 | | | 4,817 | |
Natural gas used in production (dollars per MMBtu) (1) | Natural gas used in production (dollars per MMBtu) (1) | $ | 7.19 | | | $ | 4.29 | | | $ | 6.65 | | | $ | 3.48 | | Natural gas used in production (dollars per MMBtu) (1) | $ | 2.67 | | | $ | 7.19 | | | $ | 3.57 | | | $ | 6.65 | |
Natural gas in cost of materials and other (thousands of MMBtu) (1) | Natural gas in cost of materials and other (thousands of MMBtu) (1) | 1,330 | | | 1,786 | | | 4,566 | | | 5,436 | | Natural gas in cost of materials and other (thousands of MMBtu) (1) | 2,636 | | | 1,330 | | | 6,354 | | | 4,566 | |
Natural gas in cost of materials and other (dollars per MMBtu) (1) | Natural gas in cost of materials and other (dollars per MMBtu) (1) | $ | 7.84 | | | $ | 3.78 | | | $ | 6.40 | | | $ | 3.27 | | Natural gas in cost of materials and other (dollars per MMBtu) (1) | $ | 2.51 | | | $ | 7.84 | | | $ | 4.21 | | | $ | 6.40 | |
|
(1)The feedstock natural gas shown above does not include natural gas used for fuel. The cost of fuel natural gas is included in Direct operating expenses (exclusive of depreciation and amortization).
Nitrogen Fertilizer Segment Financial Highlights (Three and Nine Months Ended September 30, 20222023 versus September 30, 2021)2022)
Overview - For the three months ended September 30, 2022, the Nitrogen Fertilizer Segment’s operating loss and net loss were $12 million and $20 million, respectively, representing reductions of $58 million and $55 million, respectively, compared to operating income and net income of $46 million and $35 million, respectively, for the three months ended September 30, 2021. These decreases were primarily driven by lower production and sales volumes and higher direct operating expenses as a result of the two planned turnarounds during the third quarter of 2022 compared to the three months ended September 30, 2021. For the nine months ended September 30, 2022,2023, the Nitrogen Fertilizer Segment’s operating income and net income were $218$8 million and $191$1 million, respectively, representing improvements of $20 million and $21 million, respectively, compared to operating loss and net loss of $12 million and $20 million, respectively, for the three months ended September 30, 2022. For the nine months ended September 30, 2023, the Nitrogen Fertilizer Segment’s operating income and net income were $184 million and $162 million, respectively, representing a $155$34 million and $174$29 million increasedecrease in operating income and net income, respectively, compared to operating income and net income of $63$218 million and $17$191 million, respectively, for the nine months ended September 30, 2021.2022. These increasesdecreases were primarily driven by higherdecreased product sales prices, for UAN and ammonia, partially offset by increased costs associated with the two turnarounds during the third quarter of 2022,production and sales volumes, compared to the nine months ended September 30, 2021.2022.
| | | | | | | | |
| Net Sales | | Operating Income (Loss) Income |
September 30, 20222023 | 4243
| | | | | | | | |
Net Income (Loss) Income | | EBITDA (1) |
(1)See “Non-GAAP Reconciliations” section below for reconciliations of the non-GAAP measures shown above.
Net Sales - For the three months ended September 30, 2022,2023, the Nitrogen Fertilizer Segment’s net sales increaseddecreased by $11$25 million to $156$131 million compared to the three months ended September 30, 2021.2022. This increaseThe decrease was primarily due to unfavorable UAN and ammonia sales prices, which reduced revenues by $110 million, partially offset by favorable UAN and ammonia pricing conditions which contributed $44sales volumes contributing $77 million in higher revenues partially offset by decreased sales volumes which reduced revenues by $27 million, compared to the three months ended September 30, 2021.2022.
The following table demonstrates the impact of changes in sales volumes and pricing for the primary components of net sales, excluding urea products, freight, and other revenue, for the three months ended September 30, 20222023 compared to the three months ended September 30, 2021:2022:
| | (in millions) | (in millions) | Price Variance | | Volume Variance | (in millions) | Price Variance | | Volume Variance |
| UAN | UAN | $ | 35 | | | $ | (14) | | UAN | $ | (81) | | | $ | 48 | |
| Ammonia | Ammonia | 9 | | | (13) | | Ammonia | (29) | | | 29 | |
The $330$472 and $128$210 per ton increasesdecreases in ammonia and UAN sales pricing, respectively, for the three months ended September 30, 20222023 compared to the three months ended September 30, 20212022 were primarily attributable to continued tight market conditions due to lower fertilizer supply driven by ongoing impacts fromnatural gas prices in the Russia-Ukraine conflict, including reduced production from Europe as a result of the high energy price environment, and higher crop pricing.current period. The decreasesincreases in UAN and ammonia sales volumes for the three months ended September 30, 20222023 compared to the three months ended September 30, 20212022 were primarily attributable to lowerincreased production due to the planned turnarounds at both fertilizer facilities duringdue to planned turnarounds taking place at both fertilizer facilities in the third quarter of 2022.2022, which subsequently improved operational reliability. In addition, there was increased downtime in 2022 from the Messer Outages at the Coffeyville Fertilizer Facility and various pieces of equipment at the East Dubuque Fertilizer Facility.
For the nine months ended September 30, 2022,2023, the Nitrogen Fertilizer Segment’s net sales increaseddecreased by $280$84 million to $623$540 million compared to the nine months ended September 30, 2021.2022. This increasedecrease was primarily due to unfavorable UAN and ammonia sales prices, which reduced revenues by $257 million, offset by favorable UAN and ammonia pricing conditions which contributed $301 million in higher revenues, partially offset by decreased sales volumes, which reducedincreased revenues by $30$164 million, compared to the nine months ended September 30, 2021.2022.
The following table demonstrates the impact of changes in sales volumes and pricing for the primary components of net sales, excluding urea products, freight, and other revenue, for the nine months ended September 30, 20222023 compared to the nine months ended September 30, 2021:2022:
| | (in thousands) | Price Variance | | Volume Variance | |
(in millions) | | (in millions) | Price Variance | | Volume Variance |
| UAN | UAN | $ | 225 | | | $ | (11) | | UAN | $ | (178) | | | $ | 95 | |
| Ammonia | Ammonia | 76 | | | (19) | | Ammonia | (78) | | | 69 | |
September 30, 20222023 | 4344
The $646$429 and $256$166 per ton increasesdecreases in ammonia and UAN sales pricing, respectively, for the nine months ended September 30, 20222023 compared to the nine months ended September 30, 20212022 were primarily attributable to continued tight market conditions due to lower fertilizer supply driven by ongoing impacts fromnatural gas prices in the Russia-Ukraine conflict, including reduced production from Europe as a result of the high energy price environment, and higher crop pricing.current period. The decreasesincreases in UAN and ammonia sales volumes for the nine months ended September 30, 20222023 compared to the nine months ended September 30, 20212022 were primarily attributable to lowerincreased production at both fertilizer facilities due to unplannedplanned turnarounds taking place at both fertilizer facilities in the third quarter of 2022, which subsequently improved operational reliability. In addition, there was increased downtime associated within 2022 from the Messer Outages at the Coffeyville Fertilizer Facility and various pieces of equipment at the East Dubuque Fertilizer Facility in 2022, along with the completion of the planned turnarounds at both fertilizer facilities during the third quarter of 2022.Facility.
Cost of Materials and Other - For the three and nine months ended September 30, 2022,2023, cost of materials and other was $31 million and $101 million, respectively, compared to $29 million compared to $26and $100 million for the three months ended September 30, 2021. The increase was driven primarily by an inventory draw contributing $5 million and an increase in purchases of ammonia of $4 million, partially offset by lower petroleum coke, natural gas, and hydrogen feedstock costs of $4 million and reduced distribution costs of $2 million.
For the nine months ended September 30, 2022, cost of materials and other was $100 million compared to $70 million for the nine months ended September 30, 2021.respectively. The increase wasincreases were driven primarily by increases in purchases of nitrogen and ammonia of $17 million, increased natural gas and hydrogenhigher third-party coke feedstock costs, of $12 million, higher distribution costs of $3 million, and an inventory draw contributing $1 million. These increases were partially offset by lower petroleum cokenatural gas feedstock costs of $1 million.
Direct Operating Expenses (exclusive of depreciation and amortization) -For the three months ended September 30, 2022, direct operating expenses (exclusive of depreciation and amortization) were $109 million compared to $48 million for the three months ended September 30, 2021. The increase was primarily due to increased costs associated with the planned turnarounds at both fertilizer facilities during 2022, which increased turnaround expenses by $31 million, drew down inventory of $16 million, increased repair and maintenance expenses by $8 million, and increased personnel costs by $5 million, a portion of which was attributable to share-based compensation as a result of an increase in market prices for CVR Partners’ common units during the current period.
For the nine months ended September 30, 2022, direct operating expenses (exclusive of depreciation and amortization) were $218 million compared to $139 million for the nine months ended September 30, 2021. The increase was primarily due to increased turnaround costs associated with the planned turnarounds at both fertilizer facilities during 2022, which increased turnaround expenses by $32 million, increased repair and maintenance expenses by $15 million, drew down inventory of $8 million, and increased personnel costs by $6 million, partially attributable to share-based compensation as a result of an increase in market prices for CVR Partners’ common units during the current period. In addition to these turnaround related increases, there were $12 million in higher prices for natural gas, $3 million of increased operating materials and office costs, $2 million of higher insurance costs, and $1 million related to higher electricity pricing and usage.
Non-GAAP Measures
Our management uses certain non-GAAP performance measures, and reconciliations to those measures, to evaluate current and past performance and prospects for the future to supplement our financial information presented in accordance with accounting principles generally accepted in the United States (“GAAP”). These non-GAAP financial measures are important factors in assessing our operating results and profitability and include the performance and liquidity measures defined below.
The following are non-GAAP measures we present for the period ended September 30, 2022:2023:
EBITDA - Consolidated net income (loss) before (i) interest expense, net, (ii) income tax expense (benefit) and (iii) depreciation and amortization expense.
Petroleum EBITDA and Nitrogen Fertilizer EBITDA - Segment net income (loss) before segment (i) interest expense, net, (ii) income tax expense (benefit), and (iii) depreciation and amortization.
Refining Margin - The difference between our Petroleum Segment net sales and cost of materials and other.
Refining Margin, adjusted for Inventory Valuation Impacts - Refining Margin adjusted to exclude the impact of current period market price and volume fluctuations on crude oil and refined product inventories purchased in prior periods and lower
of cost or net realizable value adjustments, if applicable. We record our commodity inventories on the first-in-first-out basis. As a result, significant current period fluctuations in market prices and the volumes we hold in inventory can have favorable or unfavorable impacts on our refining margins as compared to similar metrics used by other publicly-traded companies in the refining industry.
Refining Margin and Refining Margin adjusted for Inventory Valuation Impacts, per Throughput Barrel - Refining Margin and Refining Margin adjusted for Inventory Valuation Impacts divided by the total throughput barrels during the period, which is calculated as total throughput barrels per day times the number of days in the period.
Direct Operating Expenses per Throughput Barrel - Direct operating expenses for our Petroleum Segment divided by total throughput barrels for the period, which is calculated as total throughput barrels per day times the number of days in the period.
Adjusted EBITDA, Adjusted Petroleum EBITDA and Adjusted Nitrogen Fertilizer EBITDA - EBITDA, Petroleum EBITDA and Nitrogen Fertilizer EBITDA adjusted for certain significant non-cashnoncash items and items that management believes are not attributable to or indicative of our on-going operations or that may obscure our underlying results and trends.
Adjusted Earnings (Loss) per Share - Earnings (loss) per share adjusted for certain significant non-cashnoncash items and items that management believes are not attributable to or indicative of our on-going operations or that may obscure our underlying results and trends.
Free Cash Flow - Net cash provided by (used in) operating activities less capital expenditures and capitalized turnaround expenditures.
Net Debt and Finance Lease Obligations - Net debt and finance lease obligations is total debt and finance lease obligations reduced for cash and cash equivalents.
Total Debt and Net Debt and Finance Lease Obligations to EBITDA Exclusive of Nitrogen Fertilizer - Total debt and net debt and finance lease obligations is calculated as the consolidated debt and net debt and finance lease obligations less the Nitrogen Fertilizer Segment’s debt and net debt and finance lease obligations as of the most recent period ended divided by EBITDA exclusive of the Nitrogen Fertilizer Segment for the most recent twelve-month period.
We present these measures because we believe they may help investors, analysts, lenders and ratings agencies analyze our results of operations and liquidity in conjunction with our U.S. GAAP results, including but not limited to our operating performance as compared to other publicly-traded companies in the refining and fertilizer industries, without regard to historical cost basis or financing methods and our ability to incur and service debt and fund capital expenditures. Non-GAAP measures have important limitations as analytical tools, because they exclude some, but not all, items that affect net earnings and operating income. These measures should not be considered substitutes for their most directly comparable U.S. GAAP financial measures. See “Non-GAAP Reconciliations” included herein for reconciliation of these amounts. Due to rounding, numbers presented within this section may not add or equal to numbers or totals presented elsewhere within this document.
Factors Affecting Comparability of Our Financial Results
Petroleum Segment
Our historical results of operations for the periods presented may not be comparable with prior periods or to our results of operations in the future for the reasons discussed below.
Petroleum Segment
Coffeyville Refinery - During the threedue to capitalized expenditures as part of planned turnarounds. Total capitalized expenditures were $2 million and nine months ended September 30, 2022, we capitalized $4 million and $5 million, respectively, related to the pre-planning phase of a major planned turnaround that is currently expected to commence in the spring of 2023.
Wynnewood Refinery - The Petroleum Segment’s Wynnewood Refinery’s major planned turnaround began in late February 2022 and was completed in early April 2022. The pre-planning phase began during the first quarter of 2021. We did not capitalize turnaround expenditures for the three months ended September 30, 2023 and 2022, respectively, and capitalized turnaround expenditures of $68$53 million forand $73 million during the nine months ended September 30, 2022. During2023 and 2022, respectively. The next planned turnarounds are currently scheduled to take place in the threespring of 2024 at the Wynnewood Refinery and nine months ended September 30, 2021, we capitalized $1 million and $2 million, respectively, related toin 2025 at the pre-planning activities.
Nitrogen Fertilizer Segment
Coffeyville Fertilizer Facility - AOur results of operations for the periods presented may not be comparable with prior periods or to our results of operations in the future due to expenses incurred as part of planned turnarounds. We incurred turnaround expenses of $1 million and $31 million during the three months ended September 30, 2023 and 2022, respectively, and $2 million and $33 million during the nine months ended September 30, 2023 and 2022, respectively. The next planned turnarounds are currently scheduled to take place in 2025 at the Coffeyville Fertilizer Facility commencedand in July 2022 and was completed in mid-August 2022. For the three and nine months ended September 30, 2022, we incurred turnaround expense of $12 million for both periods related to this turnaround. For the three and nine months ended September 30, 2021, we incurred turnaround expense of less than $1 million for both periods related to planning for the Coffeyville Fertilizer Facility’s 2022 turnaround.
East Dubuque Fertilizer Facility - A planned turnaround2026 at the East Dubuque Fertilizer Facility commenced in August 2022 and was completed in mid-September 2022. For the three and nine months ended September 30, 2022, we incurred turnaround expense of $20 million and $21 million, respectively, related to this turnaround. For the three and nine months ended September 30, 2021, we incurred turnaround expense of less than $1 million for both periods related to planning for the East Dubuque Fertilizer Facility’s 2022 turnaround.Facility.
Non-GAAP Reconciliations
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | (in millions) | 2022 | | 2021 | | 2022 | | 2021 | (in millions) | 2023 | | 2022 | | 2023 | | 2022 |
| Net income | Net income | $ | 80 | | | $ | 106 | | | $ | 472 | | | $ | 49 | | Net income | $ | 354 | | | $ | 80 | | | $ | 781 | | | $ | 472 | |
| Interest expense, net | Interest expense, net | 19 | | | 23 | | | 67 | | | 92 | | Interest expense, net | 11 | | | 19 | | | 44 | | | 67 | |
| Income tax expense (benefit) | 7 | | | 47 | | | 106 | | | (1) | | |
| Income tax expense | | Income tax expense | 84 | | | 7 | | | 185 | | | 106 | |
| Depreciation and amortization | Depreciation and amortization | 75 | | | 67 | | | 215 | | | 205 | | Depreciation and amortization | 81 | | | 75 | | | 221 | | | 215 | |
| EBITDA | EBITDA | 181 | | | 243 | | | 860 | | | 345 | | EBITDA | 530 | | | 181 | | | 1,231 | | | 860 | |
| Adjustments: | Adjustments: | | Adjustments: | |
| Revaluation of RFS liability | Revaluation of RFS liability | 38 | | | (115) | | | 108 | | | 54 | | Revaluation of RFS liability | (174) | | | 38 | | | (228) | | | 108 | |
| Loss (gain) on marketable securities | — | | | 1 | | | — | | | (82) | | |
| Unrealized gain on derivatives, net | (20) | | | (22) | | | (5) | | | (16) | | |
| Inventory valuation impacts, unfavorable (favorable) | 114 | | | (8) | | | (63) | | | (109) | | |
Call Option Lawsuits settlement (1) | — | | | — | | | 79 | | | — | | |
| | Unrealized loss (gain) on derivatives, net | | Unrealized loss (gain) on derivatives, net | 48 | | | (20) | | | 35 | | | (5) | |
| Inventory valuation impacts, (favorable) unfavorable | | Inventory valuation impacts, (favorable) unfavorable | (91) | | | 114 | | | (44) | | | (63) | |
| Call Option Lawsuits settlement | | Call Option Lawsuits settlement | — | | | — | | | — | | | 79 | |
| | Adjusted EBITDA | Adjusted EBITDA | $ | 313 | | | $ | 99 | | | $ | 979 | | | $ | 192 | | Adjusted EBITDA | $ | 313 | | | $ | 313 | | | $ | 994 | | | $ | 979 | |
Reconciliation of Basic and Diluted Earnings per Share to Adjusted Earnings (Loss) per Share
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| Basic and diluted earnings per share | Basic and diluted earnings per share | $ | 0.92 | | | $ | 0.83 | | | $ | 3.49 | | | $ | 0.38 | | Basic and diluted earnings per share | $ | 3.51 | | | $ | 0.92 | | | $ | 6.74 | | | $ | 3.49 | |
Adjustments: (2)(1) | Adjustments: (2)(1) | | Adjustments: (2)(1) | |
| Revaluation of RFS liability | Revaluation of RFS liability | 0.28 | | | (0.85) | | | 0.80 | | | 0.40 | | Revaluation of RFS liability | (1.30) | | | 0.28 | | | (1.69) | | | 0.80 | |
| Loss (gain) on marketable securities | — | | | 0.01 | | | — | | | (0.60) | | |
| Unrealized gain on derivatives, net | (0.15) | | | (0.17) | | | (0.04) | | | (0.12) | | |
| Inventory valuation impacts, unfavorable (favorable) | 0.85 | | | (0.06) | | | (0.46) | | | (0.81) | | |
| | Unrealized loss (gain) on derivatives, net | | Unrealized loss (gain) on derivatives, net | 0.36 | | | (0.15) | | | 0.26 | | | (0.04) | |
| Inventory valuation impacts, (favorable) unfavorable | | Inventory valuation impacts, (favorable) unfavorable | (0.68) | | | 0.85 | | | (0.33) | | | (0.46) | |
Call Option Lawsuits settlement (1) | Call Option Lawsuits settlement (1) | — | | | — | | | 0.58 | | | — | | Call Option Lawsuits settlement (1) | — | | | — | | | — | | | 0.58 | |
| | Adjusted earnings (loss) per share | $ | 1.90 | | | $ | (0.24) | | | $ | 4.37 | | | $ | (0.75) | | |
| Adjusted earnings per share | | Adjusted earnings per share | $ | 1.89 | | | $ | 1.90 | | | $ | 4.98 | | | $ | 4.37 | |
(1)Refer to Part I, Item 1, Note 12 (“Commitments and Contingencies”) of this Report for further discussion.
(2)Amounts are shown after-tax, using the Company’s marginal tax rate, and are presented on a per share basis using the weighted average shares outstanding for each period.
Reconciliation of Net Cash Provided By Operating Activities to Free Cash Flow
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | 2023 | | 2022 | | 2023 | | 2022 |
| Net cash provided by operating activities | $ | 370 | | | $ | 156 | | | $ | 984 | | | $ | 868 | |
| Less: | | | | | | | |
| Capital expenditures | (50) | | | (57) | | | (150) | | | (145) | |
| Capitalized turnaround expenditures | (3) | | | (6) | | | (53) | | | (74) | |
| Return of equity method investment | 1 | | | — | | | 21 | | | — | |
| Free cash flow | $ | 318 | | | $ | 93 | | | $ | 802 | | | $ | 649 | |
September 30, 20222023 | 4647
Reconciliation of Net Cash Provided By Operating Activities to Free Cash Flow
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Net cash provided by operating activities | $ | 156 | | | $ | 139 | | | $ | 868 | | | $ | 382 | |
| Less: | | | | | | | |
| Capital expenditures | (57) | | | (62) | | | (145) | | | (188) | |
| Capitalized turnaround expenditures | (6) | | | (1) | | | (74) | | | (3) | |
| Free cash flow | $ | 93 | | | $ | 76 | | | $ | 649 | | | $ | 191 | |
Reconciliation of Petroleum Segment Net Income to EBITDA and Adjusted EBITDA
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | 2022 | | 2021 | | 2022 | | 2021 |
| Petroleum net income | $ | 152 | | | $ | 146 | | | $ | 584 | | | $ | 23 | |
| Interest income, net | (13) | | | (8) | | | (24) | | | (16) | |
| | | | | | | |
| Depreciation and amortization | 47 | | | 50 | | | 140 | | | 152 | |
| Petroleum EBITDA | 186 | | | 188 | | | 700 | | | 159 | |
| Adjustments: | | | | | | | |
| Revaluation of RFS liability | 38 | | | (115) | | | 108 | | | 54 | |
| Unrealized gain on derivatives, net | (25) | | | (22) | | | (8) | | | (16) | |
Inventory valuation impacts, unfavorable (favorable) (1) | 107 | | | (8) | | | (63) | | | (109) | |
| Petroleum Adjusted EBITDA | $ | 306 | | | $ | 43 | | | $ | 737 | | | $ | 88 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | 2023 | | 2022 | | 2023 | | 2022 |
| Petroleum net income | $ | 460 | | | $ | 152 | | | $ | 913 | | | $ | 584 | |
| Interest income, net | (26) | | | (13) | | | (65) | | | (24) | |
| | | | | | | |
| Depreciation and amortization | 50 | | | 47 | | | 141 | | | 140 | |
| Petroleum EBITDA | 484 | | | 186 | | | 989 | | | 700 | |
| Adjustments: | | | | | | | |
| Revaluation of RFS liability | (174) | | | 38 | | | (228) | | | 108 | |
| Unrealized loss (gain) on derivatives, net | 53 | | | (25) | | | 37 | | | (8) | |
Inventory valuation impacts, (favorable) unfavorable (1) | (82) | | | 107 | | | (48) | | | (63) | |
| Petroleum Adjusted EBITDA | $ | 281 | | | $ | 306 | | | $ | 750 | | | $ | 737 | |
Reconciliation of Petroleum Segment Gross Profit to Refining Margin and Refining Margin Adjusted for Inventory Valuation Impact
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | (in millions) | 2022 | | 2021 | | 2022 | | 2021 | (in millions) | 2023 | | 2022 | | 2023 | | 2022 |
| Net sales | Net sales | $ | 2,474 | | | $ | 1,742 | | | $ | 7,497 | | | $ | 4,793 | | Net sales | $ | 2,298 | | | $ | 2,474 | | | $ | 6,290 | | | $ | 7,497 | |
| Less: | Less: | | Less: | |
| Cost of materials and other | Cost of materials and other | (2,167) | | | (1,450) | | | (6,414) | | | (4,318) | | Cost of materials and other | (1,691) | | | (2,167) | | | (4,939) | | | (6,414) | |
| Direct operating expenses (exclusive of depreciation and amortization) | Direct operating expenses (exclusive of depreciation and amortization) | (103) | | | (88) | | | (314) | | | (270) | | Direct operating expenses (exclusive of depreciation and amortization) | (105) | | | (103) | | | (310) | | | (314) | |
| Depreciation and amortization | Depreciation and amortization | (47) | | | (50) | | | (140) | | | (152) | | Depreciation and amortization | (50) | | | (47) | | | (141) | | | (140) | |
| Gross profit | Gross profit | 157 | | | 154 | | | 629 | | | 53 | | Gross profit | 452 | | | 157 | | | 900 | | | 629 | |
| Add: | Add: | | Add: | |
| Direct operating expenses (exclusive of depreciation and amortization) | Direct operating expenses (exclusive of depreciation and amortization) | 103 | | | 88 | | | 314 | | | 270 | | Direct operating expenses (exclusive of depreciation and amortization) | 105 | | | 103 | | | 310 | | | 314 | |
| Depreciation and amortization | Depreciation and amortization | 47 | | | 50 | | | 140 | | | 152 | | Depreciation and amortization | 50 | | | 47 | | | 141 | | | 140 | |
| Refining margin | Refining margin | 307 | | | 292 | | | 1,083 | | | 475 | | Refining margin | 607 | | | 307 | | | 1,351 | | | 1,083 | |
Inventory valuation impacts, unfavorable (favorable) (1) | 107 | | | (8) | | | (63) | | | (109) | | |
Inventory valuation impacts, (favorable) unfavorable (1) | | Inventory valuation impacts, (favorable) unfavorable (1) | (82) | | | 107 | | | (48) | | | (63) | |
| Refining margin, adjusted for inventory valuation impacts | Refining margin, adjusted for inventory valuation impacts | $ | 414 | | | $ | 284 | | | $ | 1,020 | | | $ | 366 | | Refining margin, adjusted for inventory valuation impacts | $ | 525 | | | $ | 414 | | | $ | 1,303 | | | $ | 1,020 | |
(1)The Petroleum Segment’s basis for determining inventory value under GAAP is First-In, First-Out (“FIFO”). Changes in crude oil prices can cause fluctuations in the inventory valuation of crude oil, work in process and finished goods, thereby resulting in a favorable inventory valuation impact when crude oil prices increase and an unfavorable inventory valuation impact when crude oil prices decrease. The inventory valuation impact is calculated based upon inventory values at the beginning of the accounting period and at the end of the
accounting period. In order to derive the inventory valuation impact per total throughput barrel, we utilize the total dollar figures for the inventory valuation impact and divide by the number of total throughput barrels for the period.
Reconciliation of Petroleum Segment Total Throughput Barrels
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Total throughput barrels per day | 201,657 | | | 210,943 | | | 200,098 | | | 204,645 | |
| Days in the period | 92 | | | 92 | | | 273 | | | 273 | |
| Total throughput barrels | 18,552,434 | | | 19,406,776 | | | 54,626,789 | | | 55,868,087 | |
Reconciliation of Petroleum Segment Refining Margin per Total Throughput Barrel
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions, except per total throughput barrel) | 2022 | | 2021 | | 2022 | | 2021 |
| Refining margin | $ | 307 | | | $ | 292 | | | $ | 1,083 | | | $ | 475 | |
| Divided by: total throughput barrels | 19 | | | 19 | | | 55 | | | 56 | |
| Refining margin per total throughput barrel | $ | 16.56 | | | $ | 15.03 | | | $ | 19.82 | | | $ | 8.51 | |
Reconciliation of Petroleum Segment Refining Margin Adjusted for Inventory Valuation Impact per Total Throughput Barrel
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions, except per total throughput barrel) | 2022 | | 2021 | | 2022 | | 2021 |
| Refining margin, adjusted for inventory valuation impact | $ | 414 | | | $ | 284 | | | $ | 1,020 | | | $ | 366 | |
| Divided by: total throughput barrels | 19 | | | 19 | | | 55 | | | 56 | |
| Refining margin adjusted for inventory valuation impact per total throughput barrel | $ | 22.34 | | | $ | 14.62 | | | $ | 18.66 | | | $ | 6.55 | |
Reconciliation of Petroleum Segment Direct Operating Expenses per Total Throughput Barrel
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions, except per total throughput barrel) | 2022 | | 2021 | | 2022 | | 2021 |
| Direct operating expenses (exclusive of depreciation and amortization) | $ | 103 | | | $ | 88 | | | $ | 314 | | | $ | 270 | |
| Divided by: total throughput barrels | 19 | | | 19 | | | 55 | | | 56 | |
| Direct operating expenses per total throughput barrel | $ | 5.53 | | | $ | 4.52 | | | $ | 5.74 | | | $ | 4.83 | |
Reconciliation of Nitrogen Fertilizer SegmentNet (Loss) Income to EBITDA and Adjusted EBITDA
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | 2022 | | 2021 | | 2022 | | 2021 |
| Nitrogen Fertilizer net (loss) income | $ | (20) | | | $ | 35 | | | $ | 191 | | | $ | 17 | |
| Interest expense, net | 8 | | | 11 | | | 26 | | | 51 | |
| | | | | | | |
| Depreciation and amortization | 22 | | | 18 | | | 64 | | | 52 | |
| Nitrogen Fertilizer EBITDA and Adjusted EBITDA | $ | 10 | | | $ | 64 | | | $ | 281 | | | $ | 120 | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Total throughput barrels per day | 212,420 | | | 201,657 | | | 203,388 | | | 200,098 | |
| Days in the period | 92 | | | 92 | | | 273 | | | 273 | |
| Total throughput barrels | 19,542,631 | | | 18,552,434 | | | 55,524,925 | | | 54,626,789 | |
September 30, 20222023 | 48
Reconciliation of Petroleum Segment Refining Margin per Total Throughput Barrel
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions, except per total throughput barrel) | 2023 | | 2022 | | 2023 | | 2022 |
| Refining margin | $ | 607 | | | $ | 307 | | | $ | 1,351 | | | $ | 1,083 | |
| Divided by: total throughput barrels | 20 | | | 19 | | | 56 | | | 55 | |
| Refining margin per total throughput barrel | $ | 31.05 | | | $ | 16.56 | | | $ | 24.33 | | | $ | 19.82 | |
Reconciliation of Petroleum Segment Refining Margin Adjusted for Inventory Valuation Impact per Total Throughput Barrel
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions, except per total throughput barrel) | 2023 | | 2022 | | 2023 | | 2022 |
| Refining margin, adjusted for inventory valuation impact | $ | 525 | | | $ | 414 | | | $ | 1,303 | | | $ | 1,020 | |
| Divided by: total throughput barrels | 20 | | | 19 | | | 56 | | | 55 | |
| Refining margin adjusted for inventory valuation impact per total throughput barrel | $ | 26.87 | | | $ | 22.34 | | | $ | 23.46 | | | $ | 18.66 | |
Reconciliation of Petroleum Segment Direct Operating Expenses per Total Throughput Barrel
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions, except per total throughput barrel) | 2023 | | 2022 | | 2023 | | 2022 |
| Direct operating expenses (exclusive of depreciation and amortization) | $ | 105 | | | $ | 103 | | | $ | 310 | | | $ | 314 | |
| Divided by: total throughput barrels | 20 | | | 19 | | | 56 | | | 55 | |
| Direct operating expenses per total throughput barrel | $ | 5.39 | | | $ | 5.53 | | | $ | 5.58 | | | $ | 5.74 | |
Reconciliation of Nitrogen Fertilizer SegmentNet Income (Loss) to EBITDA and Adjusted EBITDA
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | 2023 | | 2022 | | 2023 | | 2022 |
| Nitrogen Fertilizer net income (loss) | $ | 1 | | | $ | (20) | | | $ | 162 | | | $ | 191 | |
| Interest expense, net | 8 | | | 8 | | | 22 | | | 26 | |
| | | | | | | |
| Depreciation and amortization | 23 | | | 22 | | | 59 | | | 64 | |
| Nitrogen Fertilizer EBITDA and Adjusted EBITDA | $ | 32 | | | $ | 10 | | | $ | 243 | | | $ | 281 | |
| | | | | | | |
| | | | | | | |
Reconciliation of Total Debt and Net Debt and Finance Lease Obligations to EBITDA Exclusive of Nitrogen Fertilizer
| | | | | |
| |
| (in millions) | Twelve Months Ended September 30, 20222023 |
Total debt and finance lease obligations (1) | $ | 1,5931,590 | |
Less: | |
Less: Nitrogen Fertilizer debt and finance lease obligations (1) | $ | 547 | |
| Total debt and finance lease obligations exclusive of Nitrogen Fertilizer | 1,0461,043 | |
| |
| EBITDA exclusive of Nitrogen Fertilizer | $ | 6031,179 | |
| |
| Total debt and finance lease obligations to EBITDA exclusive of Nitrogen Fertilizer | 1.730.88 | |
| |
| Consolidated cash and cash equivalents | $ | 618889 | |
Less:Less
| |
| : Nitrogen Fertilizer cash and cash equivalents | 11989 | |
| Cash and cash equivalents exclusive of Nitrogen Fertilizer | 499800 | |
| |
Net debt and finance lease obligations exclusive of Nitrogen Fertilizer (2) | $ | 547243 | |
| |
Net debt and finance lease obligations to EBITDA exclusive of Nitrogen Fertilizer (2) | 0.91$ | 0.21 | |
(1)Amounts are shown inclusive of the current portion of long-term debt and finance lease obligations.
(2)Net debt represents total debt and finance lease obligations exclusive of cash and cash equivalents.
| | | Three Months Ended | | Twelve Months Ended September 30, 2022 | | Three Months Ended | | Twelve Months Ended September 30, 2023 (1) |
| (in millions) | (in millions) | | December 31, 2021 | | March 31, 2022 | | June 30, 2022 | | September 30, 2022 | | (in millions) | | December 31, 2022 | | March 31, 2023 | | June 30, 2023 | | September 30, 2023 | |
| Consolidated | Consolidated | | | | | | | | | | | Consolidated | | | | | | | | | | |
| Net income | Net income | | $ | 25 | | | $ | 153 | | | $ | 239 | | | $ | 80 | | | $ | 497 | | Net income | | $ | 172 | | | $ | 259 | | | $ | 168 | | | $ | 354 | | | $ | 953 | |
| Interest expense, net | Interest expense, net | | 24 | | | 24 | | | 23 | | | 19 | | | 90 | | Interest expense, net | | 18 | | | 18 | | | 16 | | | 11 | | | 63 | |
| Income tax (benefit) expense | | (7) | | | 34 | | | 66 | | | 7 | | | 100 | | |
| Income tax expense | | Income tax expense | | 50 | | | 56 | | | 44 | | | 84 | | | 234 | |
| Depreciation and amortization | Depreciation and amortization | | 74 | | | 67 | | | 73 | | | 75 | | | 289 | | Depreciation and amortization | | 73 | | | 68 | | | 72 | | | 81 | | | 294 | |
| EBITDA | EBITDA | | $ | 116 | | | $ | 278 | | | $ | 401 | | | $ | 181 | | | $ | 976 | | EBITDA | | 313 | | | 401 | | | 300 | | | 530 | | | 1,544 | |
| | Nitrogen Fertilizer | Nitrogen Fertilizer | | Nitrogen Fertilizer | |
| Net income (loss) | | $ | 61 | | | $ | 94 | | | $ | 118 | | | $ | (20) | | | $ | 253 | | |
| Net income | | Net income | | 95 | | | 102 | | | 60 | | | 1 | | | 258 | |
| Interest expense, net | Interest expense, net | | 11 | | | 10 | | | 8 | | | 8 | | | 37 | | Interest expense, net | | 8 | | | 7 | | | 7 | | | 8 | | | 30 | |
| | Depreciation and amortization | Depreciation and amortization | | 21 | | | 19 | | | 21 | | | 22 | | | 83 | | Depreciation and amortization | | 19 | | | 15 | | | 20 | | | 23 | | | 77 | |
| EBITDA | EBITDA | | $ | 93 | | | $ | 123 | | | $ | 147 | | | $ | 10 | | | $ | 373 | | EBITDA | | 122 | | | 124 | | | 87 | | | 32 | | | 365 | |
| | EBITDA exclusive of Nitrogen Fertilizer | EBITDA exclusive of Nitrogen Fertilizer | | $ | 23 | | | $ | 155 | | | $ | 254 | | | $ | 171 | | | $ | 603 | | EBITDA exclusive of Nitrogen Fertilizer | | $ | 191 | | | $ | 277 | | | $ | 213 | | | $ | 498 | | | $ | 1,179 | |
(1)Due to rounding, numbers within this table may not add or equal to totals presented.
Liquidity and Capital Resources
Our principal source of liquidity has historically been cash from operations. Our principal uses of cash are for working capital, capital expenditures, funding our debt service obligations, and paying dividends to our stockholders, as further discussed below.
September 30, 20222023 | 4950
Following the significant declines inhe demand and pricing for crude oil and refined products in 2020 duehas returned to pre-COVID levels, and the COVID-19 pandemic, market conditions improved steadily throughout 2021 and into 2022, as mobility increased amid the spreadsupply impacts of vaccinations and general easing of restrictions related to COVID-19. As refined product demand rebounded toward pre-COVID-19 levels, the permanent loss of refined product supply due to refinery closures in 2020 led to a tightening of supplythe U.S. and globally have kept inventories of refined products that,at or below 5-year average levels. However, current geopolitical matters, such as the conflict between Israel and Hamas, which has a potential for broader regional conflict in conjunction with the increase in demand, ledMiddle East, and the ongoing Russian-Ukraine conflict, pose significant risks to an increase in prices. Inglobal markets and could contribute to further oil inventory tightening and price volatility, and disrupt the first quarterproduction and trade of 2022, followingfertilizer, grains, and feedstock supply through several means, including trade restrictions and supply chain disruptions.
While the Russian invasion of Ukraine, crude oil and refined product prices increased further and have been volatile over concerns of a reduction in global supply of these products due to sanctions placed on Russian exports by the U.S. and numerous other countries. Despite the extreme volatility in commodity pricing the increase in refined product pricing during 2021 and into 2022 has had a favorable impact on our business and has not significantly impacted our primary source of liquidity.
While we believe demand for crude oil and refined products has nearly returned to pre-COVID-19 levels and commodity prices have rebounded,liquidity, there is still uncertainty on the horizon due to the potential for recession driven demand destruction and any potential resolutionimplications of the Russia-Ukraine conflict.geopolitical matters. We continue to maintain our focus on safe and reliable operations, maintain an appropriate level of cash to fund ongoing operations, and protect our balance sheet. As a result of these improving factors, the Board elected to declare a $0.40$0.50 per share quarterly cash dividend and a $1.50 per share special dividend for the third quarter of 2022 and a special cash dividend of $1.00.2023. This decision supports the Company’s continued focus on financial discipline through a balanced approach of evaluation of strategic investment opportunities and stockholder distributionsdividends while maintaining adequate capital requirements for ongoing operations throughout the uncertain environment.this environment of uncertainty. The Board will continue to evaluate the economic environment, the Company’s cash needs, optimal uses of cash, and other applicable factors, and may elect to make additional changes to the Company’s dividend (if any) in future periods. Additionally, in executing financial discipline, we have successfully implemented and are maintaining the following measures:
•DeferredFocused on maintaining adequate liquidity to help mitigate the majoritypotential impact of our growth capital spending, withadverse government actions such as the exception of the RDU project and construction of the pre-treatment unit at the Wynnewood Refinery;EPA unlawfully denying SREs;
•Focused refining maintenance capital expenditures to only include those projects which are a priority to support continuing safe and reliable operations, or which we consider required to support future activities;
•Focused future capital allocation to high-return assets and opportunities that advance participation in the energy industry transformation;
•Continued to focus on disciplined management of operational and general and administrative cost reductions; and
•For the Petroleum Segment, deferred the Wynnewoodturnaround at the Coffeyville Refinery turnaround from the spring of 2021 to the spring of 2022 and deferring the refinery in Coffeyville, Kansas (the “Coffeyville Refinery”) turnaround from fall of 2021 to spring of 2023; and
•For the Nitrogen Fertilizer Segment, took advantage of downtime to perform maintenance activities, which enabled us to defer the turnarounds at the Coffeyville and East Dubuque Fertilizer Facilities to the summer of 2022.2023.
When considering the market conditions and actions outlined above, we currently believe that our cash from operations and existing cash and cash equivalents, along with borrowings, as necessary, will be sufficient to satisfy anticipated cash requirements associated with our existing operations for at least the next 12 months. However, our future capital expenditures and other cash requirements could be higher than we currently expect as a result of various factors including, but not limited to, rising material and labor costs, the costs associated with complying with the Renewable Fuel Standard’s outcome of litigation and other factors. Additionally, our ability to generate sufficient cash from our operating activities and secure additional financing depends on our future operational performance, which is subject to general economic, political, financial, competitive, and other factors, some of which may be beyond our control.
Depending on the needs of our business, contractual limitations and market conditions, we may from time to time seek to issue equity securities, incur additional debt, issue debt securities, or redeem, repurchase, refinance, or retire our outstanding debt through privately negotiated transactions, open market repurchases, redemptions, exchanges, tender offers or otherwise, but we are under no obligation to do so. There can be no assurance that we will seek to do any of the foregoing or that we will be able to do any of the foregoing on terms acceptable to us or at all.
On February 22, 2022,September 26, 2023, CVR Partners redeemed the remaining $65 million in aggregate principal amount of its 2023 UAN Notes at par, plus accrued and unpaid interest. This transaction represents a significant and favorable change in CVR Partners’ cash flow and liquidity position, with annual savings of approximately $6 million in future interest expense. On June 30, 2022, CVR Refining and certain of its subsidiaries entered into Amendment No. 31 to the Amended and RestatedCredit Agreement (the “ABL Amendment”). The ABL Amendment amended that certain Credit
Agreement, dated as of September 30, 2022 | 50
Agreement,2021 (as amended, the “Petroleum“Nitrogen Fertilizer ABL”). The Petroleum ABL is a senior secured asset based revolving credit facility in an, to, among other things, (i) increase the aggregate principal amount available under the credit facility by an additional $15 million to a total of up$50 million in the aggregate, with an incremental facility of an additional $15 million in the aggregate subject to $275 millionadditional lender commitments and acertain other conditions, and (ii) extend the maturity date of June 30, 2027. Referby an additional four years to Part I, Item 1, Note 8 (“Long-Term Debt and Finance Lease Obligations”) of this Report for further discussion. September 26, 2028.
The Company and its subsidiaries were in compliance with all applicable covenants under their respective debt instruments as of September 30, 2022,2023, as applicable.
We do not have any “off-balance sheet arrangements” as such term is defined within the rules and regulations of the SEC.
Cash Balances and Other Liquidity
As of September 30, 2022,2023, we had total liquidity of approximately $900 million, which consisted$1.2 billion, consisting of consolidated cash and cash equivalents of $618$889 million, $247$251 million available under the Petroleum ABL, and $35$48 million available under the Asset Based Credit Agreement (the “NitrogenNitrogen Fertilizer ABL”).ABL. As of December 31, 2021,2022, we had $510 million in cash and cash equivalents.
| | | | | | | | | | | |
| (in millions) | September 30, 2022 | | December 31, 2021 |
| CVR Partners: | | | |
9.25% Senior Secured Notes, due June 2023 (1) | $ | — | | | $ | 65 | |
| 6.125% Senior Secured Notes, due June 2028 | 550 | | | 550 | |
| Unamortized discount and debt issuance costs | (3) | | | (4) | |
| Total CVR Partners debt | $ | 547 | | | $ | 611 | |
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| | | |
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| CVR Energy: | | | |
| 5.25% Senior Notes, due February 2025 | $ | 600 | | | $ | 600 | |
| 5.75% Senior Notes, due February 2028 | 400 | | | 400 | |
| Unamortized debt issuance costs | (4) | | | (5) | |
| Total CVR Energy debt | $ | 996 | | | $ | 995 | |
| Total long-term debt | $ | 1,543 | | | $ | 1,606 | |
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| | | |
(1)The $65 million outstanding balanceLong-term debt consisted of the 2023 UAN Notes was paid in full on February 22, 2022 at par, plus accrued and unpaid interest.following:
| | | | | | | | | | | |
| (in millions) | September 30, 2023 | | December 31, 2022 |
| CVR Partners: | | | |
| 6.125% Senior Secured Notes, due June 2028 | $ | 550 | | | $ | 550 | |
| Unamortized discount and debt issuance costs | (3) | | | (3) | |
| Total CVR Partners debt | 547 | | | 547 | |
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| | | |
| | | |
| CVR Energy: | | | |
| 5.25% Senior Notes, due February 2025 | 600 | | | 600 | |
| 5.75% Senior Notes, due February 2028 | 400 | | | 400 | |
| Unamortized debt issuance costs | (3) | | | (4) | |
| Total CVR Energy debt | 997 | | | 996 | |
| Total long-term debt | $ | 1,544 | | | $ | 1,543 | |
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| | | |
CVR Partners
As of September 30, 2022,2023, the Nitrogen Fertilizer Segment has the 6.125% Senior Secured Notes, due June 2028 (the “2028 UAN Notes”) and the Nitrogen Fertilizer ABL, the proceeds of which may be used to fund working capital, capital expenditures, and for other general corporate purposes. Refer to Part I, Item 1, Note 8 (“Long-Term Debt and Finance Lease Obligations”) of this Report and Part II, Item 8, Note 6 (“Long-Term Debt”Debt and Finance Lease Obligations”) of our 20212022 Form 10-K for further discussion.
CVR Refining
On JuneAs of September 30, 2022, CVR Refining amended its2023, the Petroleum Segment has the Petroleum ABL, which provides an aggregate principal amount of up to $275 million, the proceeds of which may be used to fund working capital, capital expenditures, and for other general corporate purposes. Refer to Part I,II, Item 1,8, Note 86 (“Long-Term Debt and Finance Lease Obligations”) of this Report and Part II, Item 8, Note 6 (“Long-Term Debt”) of our 20212022 Form 10-K for further discussion.
CVR Energy
As of September 30, 2022,2023, CVR Energy has the 5.25% Senior Notes, due 2025 (the “2025 Notes”) and the 5.75% Senior Notes, due 2028 (the “2028 Notes” and together with the 2025 Notes, the “Notes”), the net proceeds of which may be used for general corporate purposes, which may include funding acquisitions, capital projects, and/or share repurchases or other distributions to our stockholders. Refer to Part II, Item 8, Note 6 (“Long-Term Debt”Debt and Finance Lease Obligations”) of our 20212022 Form 10-K for further discussion.
Capital Spending
We divide capital spending needs into two categories: maintenance and growth. Maintenance capital spending includes non-discretionary maintenance projects and projects required to comply with environmental, health, and safety regulations. Growth capital projects generally involve an expansion of existing capacity and/or a reduction in direct operating expenses. We undertake growth capital spending based on the expected return on incremental capital employed.
In December 2020, our Board approved the renewable diesel project at our Wynnewood Refinery, to convert the refinery’s hydrocracker to a RDU capable
Our total capital expenditures for the nine months ended September 30, 2022,2023, along with our estimated expenditures for 2022,2023, by segment, are as follows:
| | | Nine Months Ended
September 30, 2022 Actual | | 2022 Estimate (1) | | Nine Months Ended
September 30, 2023 Actual | | 2023 Estimate |
| | Maintenance | Growth | Total | | Maintenance | Growth | Total |
| (in millions) | Maintenance | Growth | Total | | Low | High | Low | High | Low | High | |
(in millions) | | (in millions) | Maintenance | Growth | Total | | Low | High | Low | High | Low | High |
| Petroleum | Petroleum | $ | 59 | | $ | 2 | | $ | 61 | | | $ | 81 | | $ | 91 | | $ | 3 | | $ | 7 | | $ | 84 | | $ | 98 | | Petroleum | $ | 70 | | $ | 9 | | $ | 79 | | | $ | 89 | | $ | 96 | | $ | 24 | | $ | 27 | | $ | 113 | | $ | 123 | |
Renewables (2)(1) | Renewables (2)(1) | 1 | | 53 | | 54 | | | 1 | | 2 | | 67 | | 77 | | 68 | | 79 | | Renewables (2)(1) | 1 | | 46 | | 47 | | | 2 | | 3 | | 50 | | 60 | | 52 | | 63 | |
| Nitrogen Fertilizer | Nitrogen Fertilizer | 38 | | 1 | | 39 | | | 43 | | 45 | | 1 | | 2 | | 44 | | 47 | | Nitrogen Fertilizer | 17 | | 1 | | 18 | | | 26 | | 28 | | 3 | | 4 | | 29 | | 32 | |
| Other | Other | 5 | | — | | 5 | | | 8 | | 10 | | — | | — | | 8 | | 10 | | Other | 4 | | — | | 4 | | | 6 | | 7 | | — | | — | | 6 | | 7 | |
| Total | Total | $ | 103 | | $ | 56 | | $ | 159 | | | $ | 133 | | $ | 148 | | $ | 71 | | $ | 86 | | $ | 204 | | $ | 234 | | Total | $ | 92 | | $ | 56 | | $ | 148 | | | $ | 123 | | $ | 134 | | $ | 77 | | $ | 91 | | $ | 200 | | $ | 225 | |
(1)Total 2022 estimated capitalized costs include approximately $1 million of growth related projects that will require additional approvals before commencement.
(2)Renewables reflects spending on the Wynnewood Refinery RDURefinery’s renewable feedstock pretreater project. Upon completion and meeting of certain criteria under accounting rules, Renewables is expected to be a new reportable segment. As of September 30, 2022,2023, Renewables does not the meet the definition of a reportable segment as defined under Accounting Standards Codification Topic 280.
Our estimated capital expenditures are subject to change due to unanticipated changes in the cost, scope, and completion time for capital projects. For example, we may experience unexpected changes in labor or equipment costs necessary to comply with government regulations or to complete projects that sustain or improve the profitability of the refineries or nitrogen fertilizer facilities. We may also accelerate or defer some capital expenditures from time to time. Capital spending for CVR Partners is determined by the board of directors of its general partner (the “UAN GP Board”). We will continue to monitor market conditions and make adjustments, if needed, to our current capital spending or turnaround plans.
The Petroleum Segment began a major scheduled turnaround at the Wynnewood Refinery in late February 2022 that was completed in early April 2022. We did not capitalize turnaroundSegment’s total capitalized expenditures were $2 million and $4 million during the three months ended September 30, 2023 and 2022, respectively, and capitalized expenditures of $68$53 million forand $73 million during the nine months ended September 30, 2022. For the three2023 and nine months ended September 30, 2021, we capitalized turnaround expenditures of $1 million and $2 million,2022, respectively. The Petroleum Segment’s next planned turnaround at the Coffeyville Refinery isturnarounds are currently expectedscheduled to starttake place in the spring of 2023. For2024 at the three and nine months ended September 30, 2022, we capitalized $4Wynnewood Refinery at an estimated cost of $44 million and $5 million, respectively, related toin 2025 at the pre-planning activities.Coffeyville Refinery.
The Nitrogen Fertilizer Segment’sSegment incurred turnaround expenses of $1 million and $31 million during the three months ended September 30, 2023 and 2022, respectively, and $2 million and $33 million during the nine months ended September 30, 2023 and 2022, respectively. The next planned turnaroundturnarounds are currently scheduled to take place in 2025 at the Coffeyville Fertilizer Facility commencedand in July 2022 and was completed in mid-August 2022. The planned turnaround2026 at the East Dubuque Fertilizer Facility commenced in August 2022 and was completed in mid-September 2022. For the three and nine months ended September 30, 2022, we incurred $12 million in turnaround expense for both periods related to the Coffeyville Fertilizer Facility’s turnaround, and $20 million and $21 million, respectively, in turnaround expense related to the East Dubuque Fertilizer Facility’s turnaround. We will continue to monitor market conditions and make adjustments, if needed, to our current capital spending or turnaround plans.Facility.
Dividends to CVR Energy Stockholders
Dividends, if any, including the payment, amount and timing thereof, are determined inat the discretion of our Board. IEP, through its ownership of the Company’s common stock, is entitled to receive dividends that are declared and paid by the Company based on the number of shares held at each record date. The following table presentstables present quarterly dividends, excluding anyand special dividends paid to the Company’s stockholders, including IEP, during 2023 and 2022 (amounts presented in table below may not add to totals presented due to rounding).:
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| | | | | | Quarterly Dividends Paid (in millions) |
| Related Period | | Date Paid | | Quarterly Dividend
Per Share | | Public Stockholders | | IEP | | Total |
| 2022 - 1st Quarter | | May 23, 2022 | | $ | 0.40 | | | $ | 12 | | | $ | 28 | | | $ | 40 | |
| 2022 - 2nd Quarter | | August 22, 2022 | | 0.40 | | | 12 | | | 28 | | | 40 | |
| Total 2022 quarterly dividends | | $ | 0.80 | | | $ | 23 | | | $ | 57 | | | $ | 80 | |
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| | | | | | Quarterly Dividends Paid (in millions) |
| Related Period | | Date Paid | | Quarterly Dividends
Per Share | | Public Stockholders | | IEP | | Total |
| 2022 - 4th Quarter | | March 13, 2023 | | $ | 0.50 | | | $ | 15 | | | $ | 36 | | | $ | 50 | |
| 2023 - 1st Quarter | | May 22, 2023 | | 0.50 | | | 15 | | | 36 | | | 50 | |
| 2023 - 2nd Quarter | | August 21, 2023 | | 0.50 | | | 15 | | | 36 | | | 50 | |
| Total 2023 quarterly dividends | | $ | 1.50 | | | $ | 44 | | | $ | 107 | | | $ | 151 | |
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| | | | | | Special Dividends Paid (in millions) |
| Related Period | | Date Paid | | Special Dividends
Per Share | | Public Stockholders | | IEP | | Total |
| | | | | | | | | | |
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| 2023 - 2nd Quarter | | August 21, 2023 | | $ | 1.00 | | | $ | 29 | | | $ | 71 | | | $ | 101 | |
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| | | | | | Quarterly Dividends Paid (in millions) |
| Related Period | | Date Paid | | Quarterly Dividend
Per Share | | Public Stockholders | | IEP | | Total |
| | | | | | | | | | |
| 2022 - 1st Quarter | | May 23, 2022 | | $ | 0.40 | | | $ | 12 | | | $ | 28 | | | $ | 40 | |
| 2022 - 2nd Quarter | | August 22, 2022 | | 0.40 | | | 12 | | | 28 | | | 40 | |
| 2022 - 3rd Quarter | | November 21, 2022 | | 0.40 | | | 12 | | | 28 | | | 40 | |
| Total 2022 quarterly dividends | | $ | 1.20 | | | $ | 35 | | | $ | 85 | | | $ | 121 | |
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| | | | | | Special Dividends Paid (in millions) |
| Related Period | | Date Paid | | Special Dividends
Per Share | | Public Stockholders | | IEP | | Total |
| 2022 - 2nd Quarter | | August 22, 2022 | | $ | 2.60 | | | $ | 76 | | | $ | 185 | | | $ | 261 | |
| 2022 - 3rd Quarter | | November 21, 2022 | | 1.00 | | | 29 | | | 71 | | | 101 | |
| Total 2022 special dividends | | $ | 3.60 | | | $ | 106 | | | $ | 256 | | | $ | 362 | |
No quarterly dividends were paid during the first quarter of 2022 related to the fourth quarter of 2021, and there were no quarterly dividends declared or paid during 2021 related to the first, second, and third quarters of 2021 and fourth quarter of 2020.
On August 1, 2022, the Company also declared a special dividend of $2.60 per share, or $261 million, which was paid on August 22, 2022. Of this amount, IEP received $185 million due to its ownership interest in the Company’s shares.
On May 26, 2021, the Company announced a special dividend of approximately $492 million, or equivalent to $4.89 per share of the Company’s common stock, to be paid in a combination of cash (the “Cash Distribution”) and the common stock of Delek held by the Company (the “Stock Distribution”). On June 10, 2021, the Company distributed an aggregate amount of approximately $241 million, or $2.40 per share of the Company’s common stock, pursuant to the Cash Distribution, and approximately 10,539,880 shares of Delek common stock, which represented approximately 14.3% of the outstanding shares of Delek common stock, pursuant to the Stock Distribution. IEP received approximately 7,464,652 shares of common stock of Delek and $171 million in cash. The Stock Distribution was recorded as a reduction to equity through a derecognition of our investment in Delek, and the Company recognized a gain of $112 million from the initial investment in Delek through the date of the Stock Distribution.2021.
For the third quarter of 2022,2023, the Company, upon approval by the Company’s Board of Directors on October 31, 2022,30, 2023, declared a cash dividend of $0.40$0.50 per share, or $40$50 million, which is payable November 21, 202220, 2023 to shareholders of record as of November 14, 2022.13, 2023. Of this amount, IEP will receive $28$33 million due to its ownership interest in the Company’s shares.
In addition, the Company, upon approval by the Board on October 31, 2022,30, 2023, declared a special dividend of $1.00$1.50 per share, or $101$151 million, which is payable November 21, 202220, 2023 to shareholders of record as of November 14, 2022.13, 2023. Of this amount, IEP will receive $71$100 million due to its ownership interest in the Company’s shares.
Distributions to CVR Partners’ Unitholders
Distributions, if any, including the payment, amount and timing thereof, and UAN GP Board’s distribution policy, including the definition of available cash, are subject to change at the discretion of the UAN GP Board. The following table presentstables present quarterly distributions paid by CVR Partners to itsCVR Partners’ unitholders, including amounts received by the Company, during 20222023 and 20212022 (amounts presented in tables below may not add to totals presented due to rounding).:
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| | | | | | Quarterly Distributions Paid (in millions) |
| Related Period | | Date Paid | | Quarterly Distributions
Per Common Unit | | Public
Unitholders | | CVR Energy | | Total |
| 2021 - 4th Quarter | | March 14, 2022 | | $ | 5.24 | | | $ | 36 | | | $ | 20 | | | $ | 56 | |
| 2022 - 1st Quarter | | May 23, 2022 | | 2.26 | | | 15 | | | 9 | | | 24 | |
| 2022 - 2nd Quarter | | August 22, 2022 | | 10.05 | | | 67 | | | 39 | | | 106 | |
| Total 2022 quarterly distributions | | $ | 17.55 | | | $ | 118 | | | $ | 68 | | | $ | 186 | |
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| | | | | | Quarterly Distributions Paid (in millions) |
| Related Period | | Date Paid | | Quarterly Distributions
Per Common Unit | | Public
Unitholders | | CVR Energy | | Total |
| 2022 - 4th Quarter | | March 13, 2023 | | $ | 10.50 | | | $ | 70 | | | $ | 41 | | | $ | 111 | |
| 2023 - 1st Quarter | | May 22, 2023 | | 10.43 | | | 70 | | | 41 | | | 110 | |
| 2023 - 2nd Quarter | | August 21, 2023 | | 4.14 | | | 28 | | | 16 | | | 44 | |
| Total 2023 quarterly distributions | | $ | 25.07 | | | $ | 168 | | | $ | 98 | | | $ | 265 | |
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| | | | | | Quarterly Distributions Paid (in millions) |
| Related Period | | Date Paid | | Quarterly Distributions
Per Common Unit | | Public
Unitholders | | CVR Energy | | Total |
| 2021 - 4th Quarter | | March 14, 2022 | | $ | 5.24 | | | $ | 36 | | | $ | 20 | | | $ | 56 | |
| 2022 - 1st Quarter | | May 23, 2022 | | 2.26 | | | 15 | | | 9 | | | 24 | |
| 2022 - 2nd Quarter | | August 22, 2022 | | 10.05 | | | 67 | | | 39 | | | 106 | |
| 2022 - 3rd Quarter | | November 21, 2022 | | 1.77 | | | 12 | | | 7 | | | 19 | |
| Total 2022 quarterly distributions | | $ | 19.32 | | | $ | 130 | | | $ | 75 | | | $ | 205 | |
For the third quarter of 2023, CVR Partners, upon approval by the UAN GP Board on October 30, 2023, declared a distribution of $1.55 per common unit, or $16 million, which is payable November 20, 2023 to unitholders of record as of
September 30, 20222023 | 5354
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| | | | | | Quarterly Distributions Paid (in millions) |
| Related Period | | Date Paid | | Quarterly Distributions
Per Common Unit | | Public
Unitholders | | CVR Energy | | Total |
| 2021 - 2nd Quarter | | August 23, 2021 | | $ | 1.72 | | | $ | 11 | | | $ | 7 | | | $ | 18 | |
| 2021 - 3rd Quarter | | November 22, 2021 | | 2.93 | | | 20 | | | 11 | | | 31 | |
| Total 2021 quarterly distributions | | $ | 4.65 | | | $ | 31 | | | $ | 18 | | | $ | 50 | |
There were no quarterly distributions declared or paid by CVR Partners related to the first quarter of 2021 and fourth quarter of 2020.
For the third quarter of 2022, CVR Partners, upon approval by the UAN GP Board on October 31, 2022, declared a distribution of $1.77 per common unit, or $19 million, which is payable November 21, 2022 to unitholders of record as of November 14, 2022.13, 2023. Of this amount, CVR Energy will receive approximately $7$6 million, with the remaining amount payable to public unitholders.
Capital Structure
On October 23, 2019, the Board authorized a stock repurchase program (the “Stock Repurchase Program”). The Stock Repurchase Program would enable the Company to repurchase up to $300 million of the Company’s common stock. Repurchases under the Stock Repurchase Program may be made from time-to-time through open market transactions, block trades, privately negotiated transactions or otherwise in accordance with applicable securities laws. The timing, price and amount of repurchases (if any) will be made at the discretion of management and are subject to market conditions as well as corporate, regulatory, debt maintenance and other considerations. While theThe Stock Repurchase Program currently has a duration of four years, it does not obligate the Company to acquire any stock and may be terminated by the Board at any time.time prior to its expiration date. As of September 30, 2022,2023, the Company hashad not repurchased any of the Company’s common stock under the Stock Repurchase Program. The Stock Repurchase Program expired, in accordance with its terms, on October 22, 2023.
On May 6, 2020, CVR Partners announced that the UAN GP Board, on behalf of CVR Partners, authorized a unit repurchase program (the “Unit Repurchase Program”), which was increased on February 22, 2021. The Unit Repurchase Program, as increased, authorized CVR Partners to repurchase up to $20 million of the CVR Partners’ common units. During the three and nine months ended September 30, 2023 and the three months ended September 30, 2022, and 2021, CVR Partners did not repurchase any common units. During the nine months ended September 30, 2022, and 2021, CVR Partners repurchased 111,695 and 24,378 common units respectively, on the open market in accordance with a repurchase agreement under Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934, as amended, at a cost of $12 million, and $1 million, respectively, exclusive of transaction costs, or an average price of $110.98 and $21.69 per common unit, respectively.unit. As of September 30, 2022,2023, CVR Partners, considering all repurchases made since inception of the Unit Repurchase Program, had a nominal authorized amount in authority remaining under the Unit Repurchase Program. This Unit Repurchase Program does not obligate CVR Partners to repurchaseacquire any common units and may be cancelled or terminated by the UAN GP Board at any time.
Cash Flows
The following table sets forth our consolidated cash flows for the periods indicated below:
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | (in millions) | 2022 | | 2021 | | Change | (in millions) | 2023 | | 2022 | | Change |
| Net cash provided by (used in): | Net cash provided by (used in): | | | | | | Net cash provided by (used in): | | | | | |
| Operating activities | Operating activities | $ | 868 | | | $ | 382 | | | $ | 486 | | Operating activities | $ | 984 | | | $ | 868 | | | $ | 116 | |
| Investing activities | Investing activities | (217) | | | (204) | | | (13) | | Investing activities | (181) | | | (217) | | | 36 | |
| Financing activities | Financing activities | (543) | | | (279) | | | (264) | | Financing activities | (424) | | | (543) | | | 119 | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 108 | | | $ | (101) | | | $ | 209 | | |
| Net increase in cash, cash equivalents and restricted cash | | Net increase in cash, cash equivalents and restricted cash | $ | 379 | | | $ | 108 | | | $ | 271 | |
Operating Activities
The change in net cash provided by operating activities for the nine months ended September 30, 2022, as2023 compared to the nine months ended September 30, 2021,2022 was driven primarily due toby a $515$309 million increase in EBITDAnet income during 20222023 as a result of stronger operations,commodity price fluctuations, a litigation settlement expense in 2022, and decreases in RFS compliance and utility costs, as well as an increase in income taxes of $11$53 million from the non-cash change in the unrealized gain on derivatives, and an increase of $18 million in non-cash share based compensation which is due to higher market prices for CVR Partners’ unitsfluctuations in pretax earnings and CVR Energy’s shares in 2022 comparedearnings attributable to 2021.noncontrolling interest. This isvariance was partially offset by a decrease in working capital of $52$262 million primarily associated with theattributed to decreases in accrued liabilities and accounts payable, partially offset by increases in our inventory.inventories and accounts receivable.
Investing Activities
The change in net cash used in investing activities for the nine months ended September 30, 2022, as2023 compared to the nine months ended September 30, 2021,2022 was primarily due to an increasedistributions from the CVR Partners’ equity method investment of $21 million associated with the 45Q Transaction and a decrease in our turnaround expenditures of $71$21 million in 20222023 compared to 20212022 related to the planned turnaround at the Wynnewood Refinery completed in 2022 and a reduction in the proceeds from the sale of assets of $7 million. These are2022. This was partially offset by a reductionan increase in capital expenditures of $43$5 million as the Wynnewood RDU was completed in April 2022, and a $20 million acquisition of pipeline assets in 2021 with no correspondingresulting from fixed asset purchases in 2022.additions.
Financing Activities
The change in net cash used for financing activities for the nine months ended September 30, 2022, as2023 compared to the net cash providedused in financing activities for the nine months ended September 30, 2021,2022 was primarily due to an increasea decrease in dividends paid to CVR Partners non-controlling interest holders and CVR Energy stockholders of $107$91 million during 2023 compared to 2022, and $65 million and $101$12 million respectively, during 2022 compared to 2021, a change of $48 million inused for the redemption of the remaining balance of the 2023 UAN Notes in 2022 compared to the partial redemption of the 2023 UAN Notes and the 6.5% UAN Notes due April 2021 in 2021, and an increase of $11 million in unit repurchases of CVR Partners’ common unitunits, respectively, in 2022, with no corresponding amounts in 2023. This was partially offset by an increase in dividends paid to CVR Partners noncontrolling interest holders of $50 million during 2023 compared to 2021. Additionally, in June 2021, CVR Partners completed a private offering of $550 million aggregate principal amount of the 2028 UAN Notes and used the proceeds, plus cash on hand, to redeem a portion of the 2023 UAN Notes.2022.
Critical Accounting Estimates
Our critical accounting estimates are disclosed in the “Critical Accounting Estimates” section of our 20212022 Form 10-K. No modifications have been made during the three and nine months ended September 30, 20222023 to these estimates.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to our market risks as of and for the three and nine months ended September 30, 2022,2023, as compared to the risks discussed in Part II, Item 7A of our 20212022 Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company has evaluated, under the direction and with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e) and 15d-15(e). Based upon this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of September 30, 2022.2023.
Changes in Internal Control Over Financial Reporting
There have been no material changes in our internal controls over financial reporting required by Rule 13a-15 of the Exchange Act that occurred during the fiscal quarter ended September 30, 20222023 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Part I, Item 1, Note 12 (“Commitments and Contingencies”) to Part I, Item 1 of this Report, which is incorporated by reference into this Part II, Item 1, for a description of certain litigation, legal, and administrative proceedings and environmental matters.
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of our 20212022 Form 10-K, which risk factors could be affected by the potential effects of the Russia-Ukraine conflict.10-K. Additional risks and uncertainties, including risks and uncertainties not presently known to us, or that we currently deem immaterial, could also have an adverse effect on our business, financial condition, and/or results of operations.
Item 5. Other Information
None.During the three months ended September 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Item 6. Exhibits | | | | | | | | |
| INDEX TO EXHIBITS |
| Exhibit Number | | Exhibit Description |
4.1*10.1**+ | | Supplemental Indenture,Amendment No. 1 to Credit Agreement dated as of July 1, 2022,September 26, 2023, among CVR Energy, Inc.Partners, LP, CVR Nitrogen, LP, East Dubuque Nitrogen Fertilizers, LLC, Coffeyville Resources Nitrogen Fertilizers, LLC, CVR Nitrogen Holdings, LLC, CVR Nitrogen Finance Corporation, CVR Nitrogen GP, LLC, certain of their subsidiaries from time to time party thereto, the lenders from time to time party thereto, and Wells Fargo Bank National Association, a national banking association, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 to the Partnership’s Form 8-K filed on September 27, 2023). |
| 10.2* | | |
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10.1** | | |
10.2**Õ
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| 31.1* | | |
| 31.2* | | |
| 31.3* | | |
| 32.1† | | |
| 101* | | The following financial information for CVR Energy, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 20222023 formatted Inline XBRL (“Extensible Business Reporting Language”) includes: (i) Condensed Consolidated Balance Sheets (unaudited), (ii) Condensed Consolidated Statements of Operations (unaudited), (iii) Condensed Consolidated Statements of Comprehensive Income (unaudited), (iv) Condensed Consolidated Statement of Changes in Equity (unaudited), (v) Condensed Consolidated Statements of Cash Flows (unaudited) and (vi) the Notes to Condensed Consolidated Financial Statements (unaudited), tagged in detail. |
| 104* | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* Filed herewith.
** Previously filed.
† Furnished herewith.
Õ The exhibits and schedules+ Certain portions of this exhibit have been omittedredacted pursuant to Item 601(a)(5)601(b)(10)(iv) of Regulation S-K and will be providedS-K. The Company agrees to furnish supplementally an unredacted copy of this exhibit to the Securities and Exchange CommissionSEC upon request.
PLEASE NOTE: Pursuant to the rules and regulations of the SEC, we may file or incorporate by reference agreements as exhibits to the reports that we file with or furnish to the SEC. The agreements are filed to provide investors with information
September 30, 20222023 | 5657
regarding their respective terms. The agreements are not intended to provide any other factual information about the Company, its business or operations. In particular, the assertions embodied in any representations, warranties and covenants contained in the agreements may be subject to qualifications with respect to knowledge and materiality different from those applicable to investors and may be qualified by information in confidential disclosure schedules not included with the exhibits. These disclosure schedules may contain information that modifies, qualifies and creates exceptions to the representations, warranties and covenants set forth in the agreements. Moreover, certain representations, warranties and covenants in the agreements may have been used for the purpose of allocating risk between the parties, rather than establishing matters as facts. In addition, information concerning the subject matter of the representations, warranties and covenants may have changed after the date of the respective agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures. Accordingly, investors should not rely on the representations, warranties and covenants in the agreements as characterizations of the actual state of facts about the Company, its business or operations on the date hereof.
September 30, 20222023 | 5758
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | CVR Energy, Inc. |
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November 1, 2022October 31, 2023 | | By: | /s/ Dane J. Neumann |
| | | Executive Vice President, Chief Financial
Officer, Treasurer and Assistant Secretary |
| | | (Principal Financial Officer) |
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November 1, 2022October 31, 2023 | | By: | /s/ Jeffrey D. Conaway |
| | | Vice President, Chief Accounting Officer
and Corporate Controller |
| | | (Principal Accounting Officer) |
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September 30, 20222023 | 5859
