CVI - Earnings call transcript Q3 2019

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Operator

Greetings, and welcome to the CVR Energy, Inc.

Third Quarter 2019 Conference Call. [Operator Instructions].

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. of Treasurer. President Vice Finks, Finance and Jay Thank may begin. you, you

Jay Finks

Quarter Good Thank for very Third Executive With Officer; afternoon, Financial our much our and Dave Michelle. today our Earnings are me appreciate Energy Tracy afternoon We Chief this other everyone. you, members Lamp, management. Call. us you CVR Chief Jackson, XXXX Officer; joining of

is this statements third Prior results, let term that our as you forward-looking contain XXXX quarter under laws. conference discussing securities may to remind call federal defined that me

to historical For foregoing, this this forward-looking purpose, call believes, expressions that any identify the may intended expects statements words the made are forward-looking during not be plans, statements. statements facts limiting similar anticipates, be to deemed outlook, statements. Without and of are

may results. by Commission these factors the You important forth filings earnings that Exchange Securities in and are latest cautioned be our affected our with in statements and set

actual discussed new any the materially whether by operations events publicly required differ update a or forward-looking may forward-looking As except otherwise, or no future to law. extent undertake of result the a We as in result, obligation results results information, statements, the to from statements.

includes such financial to various filed the measures. This call earnings that in quarter including release are related the SEC. to we our with financial also included disclosures non-GAAP most The measures directly non-GAAP GAAP reconciliation measures, comparable XXXX third

Dave. With that to turn over I'll said, call the

David Lamp

and safe, and fertilizer tighter in per quarter income million. operations, third Despite thank increased everyone, crude earlier third through improved this net CVR results rates, generated strong sales EBITDA Good was call for quarter had Jay. you, volumes reliable and the throughput Partners joining and crack share we of year, differentials capture higher of $X.XX. quarterly consolidated the the reported $XXX earnings and opportunity $XXX spreads quarter pricing. Yesterday, afternoon, for to an call. we today. our listen Thank you you diluted earnings to million Hopefully, earnings

our per a dividend also announced to in $X.XX $X.XX increase We quarterly share.

stockholders November of market based on on The yesterday's dividend the third be share to quarter record $X.XX dividend X% our of closing current as of price. of increase, yield paid an industry-leading XX over With represents of on November this X. annualized dividend per will close

barrel For day ran our both 'XX. quarter West as in quarter in to compared barrels Domestic segment, the and primarily with 'XX due Texas XXXX was new Gulf during of the startup have The the crude to plants of total to pipelines material quarter. in X-X-X $XX.XX Petroleum from tightened crack throughput spread Coast. quarter no third the $XX.XX recently, of third Combined per downtime well the the of compared barrels Group day per fill quarter per XXX,XXX XXX,XXX to approximately third averaged as the for of X line 'XX. differentials

$XX.XX differential to $X.XX barrel the differential per quarter $X.XX as the of to in quarter per barrel 'XX. Cushing the The third per 'XX Brent-TI narrowed third the barrel quarter as $X.XX quarter averaged per of Midland in third to in in barrel compared 'XX. The of compared

a was WTI Alberta WCS to the government. per $XX.XX by period curtailments The tightening year. same imposed differential barrel as WCS is in of barrel The compared the to differential $XX.XX last largely production of per the continued result

on crude oil Light product the for yield processed. quarter XX% was

in total of was year crude prior oil third a distillate with XX% in the 'XX, throughputs period. yield percentage Our of as quarter line

U.S. highest the ranks among Our distillate of as yield the one refiners. independent consistently

last compared to year. the XXX,XXX approximately third period total, barrels 'XX we In oil gathered in same per day quarter of of the XXX,XXX crude during barrels as

to at barrels XXX,XXX volumes the per September increase day. Our throughout gathering with volumes continue quarter,

increased oils runs other nonstrategic our gathered to to in reducing As our by continue activities XX% the gathering as Cushing we third regions over for crude well crude while of have SCOOP quarter our shift our 'XX, oil. gathering backyard, as slate we our in common relative of own purchases

XXX% back turnaround was Year-over-year segment Coffeyville's natural gas utilization sales the compared EBITDA prices Fertilizer's in operations ammonia October XX% contribution the quarter, both Dubuque, CVR's up in The at for full at strong production. third prices Dubuque at had operated completed as XX% as unit XX% prior to facilities. East the coming third and is of year operated UAN both 'XX. consolidated Fertilizer unit volume, reliable the up and and in resulted period. to higher leading in the ammonia compared positive to to quarter lower the to utilization UAN At results. the ammonia now turnaround East During financial in quarter at

The paid market Board on declared Partners' X. CVR a 'XX distribution of November quarter the the to unit, of November will be on per Directors general $X.XX which at third unitholders of of record close of common partner XX

Partners XX% proportionate of CVR receive units, owns common Energy distribution million. CVR of a $X will cash As approximately amount approximately we

financial Now discuss to Tracy highlights. let additional the over me call to turn

Tracy Jackson

afternoon, Thank and good you, everyone. Dave,

transaction. the the quarter XX% improvement XX% our effective were third noncontrolling was mentioned, rate the rate earnings for of the interest and of $XXX due both reported and share XXXX. quarter and compared net $XXX of $X.XX. Dave as earnings primarily of share consolidated quarter period. tax earnings for diluted for decrease the million income to $X.XX compares result tax in the for income diluted effective net prior diluted As of year increase third third the million of in of a XXXX in we per first to This per The XXXX, to share equity per The quarter of

be full between that XXXX effective tax XX%. We XX% will our rate continue year to expect and

million the the XXXX. barrel to same inventory a The valuation impact inventory compares driven The per quarter a XXXX per higher The impact through negative positive in was Petroleum during during quarter crude same by and refining to capture This EBITDA $X.XX quarter throughput volume. oil barrel in third period segment's excluding valuation throughput period flat XXXX. was $X.XX valuation increase XXXX, year-over-year the our third $XX.XX third XXXX. of in in of third EBITDA for per price generated the third of was last $XXX in of the XX% in increased million capture impact, year. same margin, $XXX rates XXXX. as inventory total the quarter the In the of compared impact, quarter quarter $XX.XX decline to to the segment's Petroleum the compared excluding in The XXXX quarter rate, compared XX% barrel was

derivative commodity open crude purchases associated quarter million, of delivery. we the oil In are $XX of million. scheduled Total of instruments totaled gains derivative for includes of third with unrealized derivative that third and Canadian had open $X for which gains XXXX gains XXXX, $XX the future quarter total million

reduction in our market approximately that $XX and prior Based by year RINs RINs our year-over-year XXXX of driven expense now expense to of third production $XX was million lower recent XXXX. obligation. $XX RINs decline and the combination period we renewable declined plans, million RINs estimate on million by year. The in prices current the a expense in volume prices in compared of quarter RINs to will last a same be

as of cost direct offset utilities The of barrel or services. for the per were total with associated year third lower materials increased in compared period. and was The primarily Petroleum labor $X.XX to the barrel segment's by XXXX prior throughput per $X.XX operating expenses increase outside expenses quarter in

of or slight the of For adjusted net unit. quarter unit. year to was Fertilizer $X compared or the coke year-over-year $XX $XX decrease in to reported $X.XX third third third a EBITDA of XXXX operating to million and is of segment and primarily Adjusted EBITDA million The quarter an $X.XX due net per million was million $XX of XXXX million common prices. of loss common operating of million quarter higher $X costs income XXXX, This period. the loss compared a $XX higher the and loss prior per pet for in operating

consolidated to which we spending, to of million including million Total $X capital million which the $XX approximately is XXXX million million, of be million, $XXX turnaround segment certain the This $XX approximately million We to $XX to the the quarter the the and in for approximately reduction plan $XX which million total, Petroleum to environmental and million included total for million Of million environmental in $XXX in from be consolidated and and in spending spending into XXXX a timing the segment. $XXX projects The Fertilizer subsequent $XXX shift comprised capital segment $XX spending the estimate Petroleum $XX was Fertilizer $X planned capital maintenance excludes our this from third year. million, years. capital $XX spending segment. approximate now for result estimate capital maintenance million XXXX for of is capital.

basis, we on remains million consolidated position the $XXX of approximately cash Our strong with which includes as quarter the in ended million $XX cash Fertilizer segment. a

in strong feel our balance to position. and We continue sheet confident liquidity

Looking our XXX,XXX segment, ahead, of the per be throughput XXX,XXX Petroleum estimate we for approximately fourth to total to XXXX day. quarter for barrels

to direct total spending $XX million quarter We expect million. fourth million expenses be and $XX capital for between $XXX approximately the range and total to operating to million $XX

the be segment, XXX%, between Fertilizer rate utilization planned excluding turnaround. the we our and impact For ammonia XX% to estimate of

million. approximately spending We and $XX and between $X operating to inventory million capital be expect $XX be expenses excluding to $XX total and impacts turnaround direct to million, million

back Dave, that, call to With I'll turn you. the

David Lamp

quarter third of 'XX. summary, are of we In in the results our Thanks, Tracy. proud strong

Our financial to reliable a superior petroleum, be refining as fertilizer operations, and and continues measured profitable mission performance American North by tier top safe, company growth.

that is valuation process peers, a relative outlook, an market of our process we bank provide many the and now our formal spread, to to like bid-ask discussing bank acknowledge in premium resulted May. peers, update our concluded. I'd our that announced therefore, wide in Before to We on

stock to in of revenue the Along opportunities. dividend, continue X% million. previous we Board to the and has diversification authorized program However, a mentioned repurchase with increase X-year $XXX various value up evaluate the creation

over as consider opportunistically repurchasing return will to potential cash shares our shareholders excess to time. way one We

ways in I the would capital remain high-valued focused that us and with cash authorization believe and provide dividend shale best this like financial stable arise. business high-return the to available through of funding to and continue segments. is other increasing business a but will repurchase growing into and reiterate exploring to flexibility sourcing on additional improve crude We use diversify to projects, we efforts improving should capture opportunity optionality, rates our our

Looking look that positive of 'XX, fundamentals 'XX at constructive we into range a and -- we to have see. by continue outlook, the driven remainder market of a

U.S. prices First, low for positive products low unemployment and demand. crude are refined

prices Second, low refining Fertilizer gas natural continued benefit businesses. and our both

million Third, data check are and vehicle the X oil currently Fourth, showing miles by barrels strong. U.S. remains X day, in remain the averages. been refined X-year last with distillate and almost remain per year. or to U.S. at have X% exports latest much Year-to-date have crude year-to-date a in up year. gasoline over compared barrels above the strong inventories petroleum demand million day Five, and exports traveled throughout product gasoline of below averaged exports

shale, over shale discount oil XXX,XXX shows crude WTI. of a they prices Light -- share, at remain of XX compliant all specifically, small domestic the in continues crude Six, granting that barrels continued for as the have future. again, although 'XX the crude are continuing increase. sell for to oil major per WTL requires currently and data well, exemptions Recent should production EPA, that we in year-over-year growth been government light believe The and volatile, refinery increasing day. and we to relatively RIN these exemptions production granted over volumes these Seven, the basins -- believe low. barrels

beginning January in fuel positive implementation by industry a refining believe IMO track widening up these on this general. a going high rates IMO standards the show in X, remains for Brent-TI view in Eight, already the IMO discounts. of increase attributed for to the tailwind to to impacts also continue and market represent evidenced we are the and for may XXXX, spread the be of recent forward. recent we sulfur shipping Part as new

that those Tier believe January understand continued fully likely in for also IMO and production. appreciate the does X. prepared. another industries that in the -- XXXX X be implemented the by fully This oil gasoline represents of not finally, will domestic growth shale specifications are refining changes still We crude the potential Tier X market impacts or And for tailwind gasoline

and further market the will ability most to our We positioned gasoline, projects all are capital regard and developing in to these feedstock forces, premium are our we yields of liquid optionality. increase make increase our well expand

and over The almost approved, are implementation this gasoline intended expected estimating cost capacity per $X.XX Coffeyville A regular to our increase are gasoline specs. to gallon design with and year Natural a engineering crude gasoline Tier have further Schedule processing averaged is work for optionality project, subgrade the XX,XXX natural to spreads if complete. to day. X of barrels widen

The our If Schedule production at Wynnewood liquid increase CX/CX in therefore, the alkylate replacement and project of yield. estimating. isom this also capture expected acid project the cost of and is new approved, HF our continue rate our we engineering And at as A production Wynnewood in and this volume is to alkylation, should improve premium to catalyst gasoline. in evaluate Wynnewood

these projects defined quarter. all should of greater. expect and Board the believe approval Engineering or projects We attractive continues, to the for fourth and generate ready XX% end are work by and returns of have we these

per and WTI. $X.XX cracks $X.XX Midland differential to the quarter averaged last of average, metrics quarter. consistent $XX.XX at have are at with RINs quarter per differential fourth and RINs Looking barrel over the Cushing WTL quarter-to-date Brent-TI Group follows: at as biodiesel The at X barrel, over the XXXX, averaged averaged the spread have compared $X.XX $X.XX third $X.XX WTI. Cushing Ethanol has with $X.XX are

that, we ready questions. for With Michelle, are

Operator

Instructions]. [Operator

comes question of line the Goldman with first Sachs. Neil Our Mehta from

Neil Mehta

first and question mind expand now. don't broaden comes Could is the The through I -- on which you could good that here. to can diversification, portfolio? presence you out it guess relates guess kind fit of what to might talk where a within as congrats about look guys or us with question, the I walk you first to have you one areas potential quarter business? a right retail,

David Lamp

we compliments of Probably PADD niche-type and those IV, the us. diversification to quarter. group. thanks outside or V, on somewhere PADD Neil, for PADD would I for III opportunities. PADD us be of earning probably to streams The most because our appeal that the but is specifically from not of or IV just things interest Sure, PADD look the

really our I retail RINs, strategy And on then around RINs secondly, think, mitigation. is around

recognize We high the dent blending, into wholesale it. prices, internal steps retail RIN -- of are increase process. make we and still taken to have for really to RIN in our get still we the poster that to child whole to side We've a but or business -- either

all really it yield distillate, makes our with doing and because itself lend continue on remain -- channels higher about course, table, at those it. we via Of to difficult But a of the to marketing to doesn't really it our much that it. look

Neil Mehta

footprint? you David, IV on your talk comments fit best there that there of think some comments on would provide you PADD Any IV, And that's has been assets interesting. the why your for can be do PADD hitting the market.

David Lamp

Yes.

-- it's that we stream points us kind main would continue and think I think and more in-land differentiation. an that a refiner liquidity that we're for to value-added dislocation from the we that's of like like

Neil Mehta

us to refining about the What come the we where that is with And do those once then all And enhance system? you working to Okay. capital think system? has allocating investments can just again on? remind come to on you on? are you the quick-hit refining What to stand how projects improve

David Lamp

the fully one was recently of reformer, the because -- that than rate the the seeing front a we that in improvements largely, is you're capture of service. relocation and Benfree Well, implemented rather some in of And that lot in the behind reformer project. of is completed

capture the follow you both our -- the replaced know lot the quarter, $X.XX reformers over at of has third but And -- past. catalyst a improved in at also group, I averaged that's the also if don't We rate in spreads refineries. subgrade. And what both that they premium that in

-- I remarks the others XXXX, the three term were XXXX in mentioned in range. -- projects, all are longer 'XX that prepared are Some of the

develop. time to some take they'll So

Operator

question Scotia the next Cheng comes line Howard Paul of Weil. with Our from

Paul Cheng

Tracy, this Dave, refinery how maybe actual in quarter? the much benefit for is small the is you recorded Tracy. exemption that

Tracy Jackson

simply confirm do We reduction exemption obligation that received not that a prior an for we RVO in we our year. received

Paul Cheng

$XX 'XX, and million, Okay. up can that range you then you to provide? million, any what said that kind you Can tell is Now that amount? of 'XX, $XX us

Tracy Jackson

confirm but prepared can't you be exemption. we prior I decrease point the remarks should received would and what directionally I over considering, you that to as the year any

Paul Cheng

And you -- Dave, willing looking leverage mean, potential is I the to curious just how acquisition, for that put right the want you -- on mean, I when rate you're asset? be would at much that, leverage

David Lamp

I didn't understand your question, Paul.

Paul Cheng

go your do much how for balance the an to you're to you how willing order a transaction? acquisition ratio, to if the for that debt leverage refinery, maximum? So willing complete you're in on the in yes, is net on? What's much put sheet, put What

David Lamp

right well is the we're think don't strong, industry on outside balance sheet our now, cash. get average, but very I we

amount appropriate the such take put to a there thing. capital actions other would do raise on we So to or

Paul Cheng

debt-to-EBITDA Is that or net like net a any capital ratio or ratio target? that debt to

David Lamp

don't we have our or there, Right anything. add. We target to low at have compared we're all to now, trying hit we're real to that and a Paul, peers, capacity

Paul Cheng

you're refinery a And environment people there's between individual what the when on to the on you at maybe buyer pretty sales discrepancy looking is a what asking the wide big do pay that part think assets? willing , the current and potential

David Lamp

cash case, us. have that make is what EBITDA, that that that case, And as $XX the parameters. Group for I of the the exposed We're a industry. more there crude. part would source. And there $XX frankly, think -- move bid-ask you're in company X consolidators I assets do shape, And of there was to we think crude or looking even aren't that wherewithal was companies at comment the same out it. I for the a that or compete. our type diversification EBITDA need and of really therefore, just A many extremely with don't In Any adding E&P wide our it many to of diversification the refiners it, there way, are just we're market part left the aren't out in long deal again, to doesn't form

Paul Cheng

looking the to higher than Midland Cushing. date, is And we're at price if a $X about

does that, minimum crude pay? do And you to So Midland still it scenario? have to kind guys under you economic fee that have of run the don't make for volume you if you or any sense take-or-pay

David Lamp

we gathering around basin assuming it, is space. historical to our not we we the on our proportion, that's crudes lose historical that as -- would strategy there is No. don't If that's proprietary In But on that really the as necessarily good and go most just the all and around tend the -- is pipeline. We're SCOOP case, space in have long part our case. use STACK, backyard to have runway and we lines for pretty public well lines we there.

Our it's Midland it Cushing then profitable in, the bring if bring we don't down substantially, are purchases if isn't. common have it in of and to flexibility and

bring rapidly, ability you WTI the If the version material and to we barrel, process growing that for the also have and volume WTL attention that is which WTI. is of light the to

Paul Cheng

you Sorry. the is run, How could much the way WTI line given economy...

David Lamp

if still have don't It's market, it's just Paul, to crude over to a data just new us so the enough we determining that, but value-added -- We're WTI. yet.

Paul Cheng

Okay. That's question. great. Final

will For know, has it quarter. runway UAN, forward? because mainly seems X high the the What be I OpEx of going is don't that for but the million been $XX quarter in a reasonable turnaround. high, last

Tracy Jackson

facility. our higher Paul, and was It going to forward in due can $XX quarter I Dubuque at to between the think turnaround you East that was something million. on $XX see look the million

Paul Cheng

see be now in going you back ago million, to to would million, $XX you're are million. a couple because years $XX some go sub-$XX we Tracy, them So in not that

level? going go kind not of to we're to back down that So

Tracy Jackson

a impact on basis, in so third inventory Remember, the quarterly quarter. impacts occurring of have also this OpEX past we expense changes that their

as forward, then make whether script, expensed the call, our in Pytosh extent depending you to we're debottlenecking So And or building an the indicated to have going back be we continue drawing maintenance that listened the that which referenced to I to will projects inventory, reliability and on will, complete if impact. projects to them. Mr. going they're investments

Paul Cheng

Okay.

that $XX not going to So that means we're million. below

new that the million to should range million is assume? we $XX $XX So

David Lamp

on what Depends in happens inventory, Paul.

So...

Tracy Jackson

Right.

Operator

of line Prashant the from Citigroup. with comes question Rao next Our

Prashant Rao

just But may from down over do coverage in NGL rolling negative due one's getting are gas that questions price a gathering, upstream some on that First some upstream kind in headwinds fears SCOOP/STACK, the SCOOP/STACK question how about I the maybe specifically, production investors our and the next -- fact and productivity of rig year. some to on pretty of of count's that's macro fit the in the there's there get dramatically or exposed not we've year-to-date, to been operators more that and areas some sensitivity. you for the of productivity our in some as

macro able you you distillate-rich be your and can to from have to get So some just maybe because So that seems to increase color the comment how I but incrementally if barrel? some to get was wondering to on wanted up thoughts gathering been there negative, and here. guys that frame

David Lamp

their Well, that aligned the all -- production, much that is the they've you've we out answer go productive they that, with and out with the way right of there, formation, of take and I and large we're driftwood and very we them. been heard think, producers pretty to

connected basically to pipeline our them. So

So these still grow down, down, that's production region on is to seems rig that I the we've Yes, but really DUCs in it. think, plays. are how grown count productive

Prashant Rao

good Okay. be smaller not feels fair? a least that over have saying be is operators, you connected -- in is affected guys production And you're that and sounds at of they'll confidence probably you won't the with, case some larger rolls do kind what you're like that

David Lamp

correct. these still forward, projections -- we get to are there's and and up seeing the right. And their guys That's going

Prashant Rao

Okay. question the A Makes to sense. follow-up buyback. related

get on of play may I in be specifically question doing asking wanted market, you might you're because here? I'm base. given -- your keeping shareholder at options Or you what block about what to that Just open a the concentration how open out, the curious table considered how NCIB? that, go would would just looking your sense a the of

David Lamp

made year that authorization, we four and do cyclic rolls. abundantly opportunity the it and shows when a business a clear and up that I only a it it's we'd think this opportunistic think -- implies it is I Well,

exactly Sometimes, if probably buyers. when comes. it that until go really be probably it we we is about it that and rolls time haven't comes, How low, disclosed we'd won't

Operator

[Operator Instructions].

comes of Matthew question next Tudor, Holt Our line Blair Pickering, Company. from with the &

Matthew Blair

update about you're part portfolio, I thinking add here? whether of makes your might long the to even, whether how UAN on exposure any as UAN that term sense guess, or Dave, And to you

David Lamp

Well, certainly where of be our don't point. EBITDA, view accretive that will is. currently a but highly it curve stock's forward and at and trading we -- the It diversification attractive, what we although the think be this as could

we'll I look on think keep it. an it. eye We'll at

Our only is of that. ownership XX%

big take the the So of it all what's But and umbrella. it's underneath the to on distribution we effect variable that. also very MLPs a cognizant to with CVI are happening way nut

to continue it, we watch Matt. So

Matthew Blair

sorry, good. for so? quarter? Sounds the reduced activities? was million what the And Is or the repeat What's in gathering. you then you gathered And still mentioned $XX around your good can it EBITDA volumes number gathering

David Lamp

talking logistical-type assets? about Are you MLP-able,

Matthew Blair

Correct.

David Lamp

It has up. gone gone have volumes up since our

In fact, to Coffeyville. Red basically refinery we late Cushing in our and we're back full from the delivering is that area 'XX, then River on and bought Pipeline, our in Wynnewood to barrels

And going it's range, assets before, think, the $XX probably We looking million at I'm for we're that I other quoted opportunities we into can that, like it's gone So it. more some. guess. roll to up in million $XX

of it. kind just scale any don't have MLP. do We to plans no logistical the have for We

Matthew Blair

what were the volumes gathered Got quarter? in your And it.

David Lamp

day. per barrels XXX,XXX

Operator

the questions any no further management this I'd to are to at for back over time. call turn closing remarks. like There

David Lamp

your Okay. Again, you for interest CVR in thank all Energy.

to commitment we'd their XXXX fourth like We Thank environmentally results you. operations. call. safe, our and during earnings to quarter forward reviewing for Additionally, responsible hard thank and our our work reliable next all employees look towards

Operator

Thank you. This concludes today's teleconference.

You day. for disconnect Thank have your participation, and you lines wonderful your a at may time. this

CVR Energy (CVI) 24 Oct 192019 Q3 Earnings call transcript