CVR Energy Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 1, 2023

There are 10 speakers on the call.

Operator

Greetings, and welcome to the CVR Energy, Inc. 2nd Quarter 2023 Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Richard Roberts, Vice President of FP and A and IR. Thank you, Mr.

Operator

Roberts. You may begin.

Speaker 1

Thank you, Camilo. Good afternoon, everyone. We very much appreciate you joining us this afternoon

Speaker 2

for our

Speaker 1

CVR Energy Second Quarter 2023 Earnings Call. With me today are Dave Lamp, our Chief Executive Officer Dane Newman, our Chief Financial Officer and other members of management. Prior to discussing our 2023 Second Quarter results, let me remind you that this conference call may contain forward looking statements as that term is defined under federal securities laws. For this purpose, any statements made during this call that are not statements of historical facts may be deemed to be forward looking statements. A listen only mode.

Speaker 1

You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in the forward looking statements. We undertake no obligation to publicly update any forward looking statements whether as a result of new information, listen only mode. Including reconciliations to the most directly comparable GAAP financial measures are included in our 2023 Second Quarter Earnings Release that we filed with the SEC and Form 10 Q for the period and will be discussed during the call. With that said, I'll turn the call over to Dave.

Speaker 3

Thank you, Richard. Good afternoon, everyone, and thank you for joining our earnings call. Yesterday, we reported 2nd quarter consolidated net income of $168,000,000 and earnings per share of 1.29 a listen. EBITDA for the quarter was $300,000,000 Our solid results for the quarter were driven by continued strength in gasoline and diesel crack spreads. Listen.

Speaker 3

We are pleased to announce that the Board of Directors has authorized a special dividend of $1 per share. This is in addition to the regular to the 2nd quarter dividend of $0.50 per share, both of which will be paid on August 21 a listen only mode to shareholders of record at the close of the market on August 14. Our annualized dividend yield, excluding special dividends,

Speaker 4

listen to the call. At this time, all participants

Speaker 3

are in a listen to the call. It remains best in class among the independent refiners.

Speaker 4

In a listen.

Speaker 3

In our Petroleum segment, combined total throughput for the Q2 of 2023 was approximately 201,000 barrels per day in a listen and light product yield was 100% on crude oil process. We completed the planned coker turnaround at Coffeyville in early April in a listen only mode. At the gasoline hydrotreater at Wynnewood during the quarter, the impact to operations at the plant was minimal and we were able to run the refinery without in operation by consuming sulfur credits. We expect to have the hydrotreater repaired and back in service in the next week. A listen.

Speaker 3

Benchmark crack spreads remained elevated during the 2nd quarter listen with Group 3,211 averaging $32.03 per barrel. RIN prices declined slightly from the Q1, but remain stubbornly high at over $7 per barrel. Last month, EPA continued down their ridiculous and misguided path, a listen only mode. We are also encouraged by the Board of Directors and Small Refinery Exemptions in a listen only mode, including Wynnewood's petition for 2022. We've already filed lawsuits and received a stay from the 5th Circuit related to the denial of the Wynnewood Small Refinery Exemption for 2017 through 2021, and we expect to challenge this most recent denial in court very a listen.

Speaker 3

As we have continually stated, the RFS regulation was written specifically to protect small refineries a listen to the question and answer session. We will continue to fight for our rights listen to the operator that we believe Wynnewood is entitled to. We completed the second catalyst change at the Wynnewood Renewable Diesel Unit in April and we processed approximately 18,000,000 gallons of vegetable oil feedstock in the 2nd quarter. We also switched catalyst providers listen only mode with the most recent change and so far we are seeing an increase in renewable diesel yields. A listen to the global spread improved slightly from the Q1 and despite the lower throughput volumes, we once again saw improved results relative to the previous quarter.

Speaker 3

Listen only mode. As a reminder, our renewable diesel business is currently reported in our Corporate and Other segment. In a listen only mode. In the fertilizer segment, both facilities ran well during the quarter with a consolidated ammonia utilization rate of 100%. A listen.

Speaker 3

Fertilizer prices continued to decline during the Q2, although we sold more than 40% of our Q2 volume in the Q1 at higher prices.

Speaker 4

Listen only mode.

Speaker 3

We recently completed both the summer fill and fall prepaid ammonia ordering from customers. We have a good order book listen to

Speaker 5

the call. Now let me

Speaker 3

turn the call over to Dane to discuss our financial highlights.

Speaker 5

Thank you, Dave, and good afternoon, everyone. For the Q2 of 2023, our consolidated net income was $168,000,000 earnings per share was $1.29 and a listen and EBITDA was $300,000,000 Our 2nd quarter results included unfavorable inventory valuation impact of $26,000,000 in a listen only mode. Unrealized derivative losses of $19,000,000 and a negative mark to market on our estimated outstanding rate obligation of $2,000,000 Excluding the above mentioned items, adjusted EBITDA for the quarter was $347,000,000 and adjusted earnings per share was $1.64 Adjusted EBITDA in the Petroleum segment was $258,000,000 for the 2nd quarter, driven by strong product cracks in Mid Con. Our 2nd quarter realized margin a listen only mode. Adjusted for inventory valuation, unrealized derivative losses and RIN mark to market impacts was $20.27

Speaker 2

per barrel,

Speaker 5

Excluding the mark to market impact was $88,000,000 or $4.85 per barrel, which negatively impacted our capture rate for the quarter by approximately 15%. A listen only mode. The estimated accrued RFS obligation on the balance sheet was $599,000,000 at June 30, to RINs mark to market at an average price of $1.61 As a reminder, our estimated outstanding rate obligation listen only mode. Direct operating expenses in the Petroleum segment were $5.46 per barrel for the 2nd quarter listen to the Q2 of 2022. The decrease in direct operating expenses a listen only mode.

Speaker 5

This was primarily due to lower natural gas and electricity prices somewhat offset by higher repair and maintenance expenses.

Speaker 4

A listen. Adjusted EBITDA in the Fertilizer segment was $87,000,000 for the 2nd

Speaker 5

quarter, with strong production for the quarter somewhat offsetting the decline in nitrogen fertilizer prices relative to the Q2 of listen. The partnership declared a distribution of $4.14 per common unit for the Q2 of 2023. A listen. As CVR Energy owns approximately 37% of CVR Partners' common units, we will receive a proportionate cash distribution of approximately 16,000,000 listen. Cash provided by operations for the Q2 of 2023 was $367,000,000 and free cash flow was 271,000,000 a listen only mode.

Speaker 5

Significant uses of cash in the quarter included $97,000,000 of capital and turnaround spending, dollars 70,000,000 paid for the non controlling interest portion of a listen to CVR Partners 1st quarter distribution, dollars 54,000,000 paid for cash taxes and interest and $50,000,000 paid for the CBI 1st quarter dividend. A listen. Total consolidated capital spending was $48,000,000 which included $22,000,000 in the Petroleum segment, dollars 6,000,000 in the Fertilizer segment, in a listen to $18,000,000 on the pretreatment unit for the RDU. Turnaround spending in the second quarter was $11,000,000 For the full year 2023, listen

Speaker 4

only mode.

Speaker 5

We estimate total consolidated capital spending to be approximately $200,000,000 to $225,000,000 and turnaround spending to be approximately $55,000,000 to $65,000,000 listen. Turning to the balance sheet, we ended the quarter with a consolidated cash balance of $751,000,000 which includes $69,000,000 of cash in the Fertilizer segment. A listen only mode. Total liquidity as of June 30, excluding CVR Partners, was approximately $937,000,000 which was listen only mode. This concludes our prepared remarks and our prepared remarks are in the prepared remarks.

Speaker 5

We are pleased to announce that the to the call. We are currently intending to hold higher levels of cash on the balance sheet in order to offset the potential for a growing RIN liability as we await the outcome a listen only mode of the lawsuits related to Wynnewood Small Refinery Exemptions. Looking ahead to the Q3 of 2023, for our Petroleum segment, We estimate total throughput to be approximately 200,000 to 215,000 barrels per day, direct operating expenses to range between $95,000,000 $105,000,000 listen and total capital spending to be between $45,000,000 $49,000,000 For the Fertilizer segment, we estimate our Q3 2023 ammonia utilization rate to be between 95% and 100%, direct operating expenses to be approximately $50,000,000 to $55,000,000 excluding inventory impacts listen and total capital spending to be between $14,000,000 $16,000,000 For Renewables, we estimate Q3 2023 total throughput to approximately 17,000,000 to 22,000,000 gallons, direct operating expenses to be between $6,000,000 $8,000,000 and total capital spending to listen to the call to be between $23,000,000 $25,000,000 With that Dave, I'll turn the call back

Speaker 3

over to you. Thanks Dane. In summary, we had another strong quarter with solid contributions from both the refining and fertilizer segments. We saw another quarter of improved results with the Renewable Diesel business as well. Listen only mode.

Speaker 3

As we look at the underlying fundamentals driving our business, we are optimistic about the near term outlook and we are pleased to be paying another special dividend to our shareholders. Starting with the refining, crack spreads remained elevated in the second listen only mode of 2020 3 with the increase in gas cracks during the quarter nearly offsetting the decline in distillate cracks.

Speaker 4

A listen to the

Speaker 3

Refined product inventories remain at or below the low end of 5 year ranges, demonstrating a listen only mode. The impact of reduced refining capacity in the U. S. And the heavy turnaround activity in unplanned outages in the first half of the year. Listen to the Q1 of 2019.

Speaker 3

The a listen to the Q3. Gasoline demand in the U. S. Has been trending above 2022 levels since March, a listen only mode. Although diesel demand has been lower for most of the year by about 5% on average.

Speaker 3

Slowing diesel demand has been one of the a listen to the primary areas of concern in the market with freight, rail and truck movements all down this year, although freight rates have started to increase recently. A listen. The other item we continue to watch is the start up of new refining capacity around the world and the impact that may have on exports of refined products a listen only mode. On our last earnings call, I highlighted the hedging program that we entered into earlier listen only mode of communication with the company's financial results. This year, which generated a realized gain of over $11,000,000 in the second quarter.

Speaker 3

For the second half of twenty twenty three, we We have approximately 20% of our expected gasoline and diesel production volumes headed and for 2024, we have approximately 15% hedged. Attributed to elevated turnaround activity in the first half of twenty twenty three. Heavy crude spreads remained narrow listen and we have been running very little WCS at Coffeyville as a result. Shallow production in the United States continues to grow slowly listen and our gathered volumes increased in the 2nd quarter averaging over 145,000 barrels per day. Crude oil exports out of the U.

Speaker 3

S. Have listen to the call. At this time, all

Speaker 4

participants are in a listen to

Speaker 3

the call. And we believe continued crude exports at this level supports a sustained a listen to the TIS Spread. We continue to make progress on some of the refining projects we have discussed in previous calls. Listen. We have received a permit for the project to replace HF acid with a solid catalyst in the Alky unit at the Wynnewood refinery listen only mode with an expected completion in 2026.

Speaker 3

This change will increase our alky a listen to the 2,500 barrels per day as well. We are also continuing to progress our diesel yield improvement projects, which we believe could listen to the new refineries by approximately 6,000 barrels per day within 2 or 3 years. Listen to the total distillate yield from approximately 43% today to over 46%. Listen. Turning to the fertilizer segment, nitrogen fertilizer prices declined further in the 2nd quarter, in part due to the a listen to the call.

Speaker 3

We believe customer inventories are now at the lowest levels in recent years a listen and will need to be replenished over the coming months. In July, we completed both the summer at UAN fill and the fall prepay a listen

Speaker 4

to the ammonia ordering from customers.

Speaker 3

With the reset in prices, we saw strong demand for both products and believe listen to recent bottom pricing in UAN and ammonia. In June, we announced that we concluded our evaluation of potential transaction listen to spin off our GP and LP interest in CBR Partners and the Board decided not to pursue the transaction at this time. A listen only mode. Ultimately, the Board concluded the complexity associated with the transaction may not deliver appropriate value under the current conditions. A listen.

Speaker 3

We will continue to explore ways to capitalize on unique assets of CVR Energy and CVR Partners. Finally, in renewables, construction on the PTU is progressing. However, delays in the equipment delivery of a listen only mode. The expected in service date to the Q4 of 2023. Over the past three months a listen only mode.

Speaker 3

For the past few months, we have had preliminary discussions with various parties that may be potentially interested in in a listen only mode. Partening on a renewable diesel project with an option for SAF production at our Coffeyville location. A listen. We are currently contemplating a significantly larger facility at Coffeyville than we have at Whitewood. As we look for ways to take a listen to the as we look to explore the potential of taking advantage of economies of scale.

Speaker 3

Listen only mode. We would also like to be able to utilize some of the existing infrastructure at the refinery. Discussions are still in the preliminary phase at this point, listen only mode. But so far, we have received initial interest from a variety of partners. I look forward to providing additional details as we progress these discussions.

Speaker 3

A listen. Looking at the Q3 of 2023, quarter to date metrics are as follows. Group 211 cracks listen to the call. At this time, all participants are in a listen to the $34.51 per barrel with the Brent TI spread of $4.32 and a Midland differential at $1.50 over a listen to WTI. Fertilizer prices are approximately $4.50 per ton

Speaker 4

in a listen only mode

Speaker 3

and UAN is $2.50 per ton. As of yesterday, Group 3 211 cracks were $43.08 per barrel. In

Speaker 4

a listen to the call. Brent TI was $3.76

Speaker 3

per barrel, WCS was $15.65 under WTI and RINs were approximately 7 point listen to $0.84 per barrel. We continue to strive to operate our plants in safe, reliable and environmentally responsible manner in a listen to our new business, continue to focus on maximizing free cash flow, which underpins our peer leading dividend yield. Listen. With that, operator, we're ready for questions.

Operator

Thank you. We will now be conducting a question and answer session. A

Speaker 4

listen only mode.

Operator

Thank you. And our first question is from Matthew Blair with Tudor, Pickering, Holt and Company. Please proceed with your question.

Speaker 4

A listen.

Speaker 2

Hey, Dave. Thanks for taking my questions and congrats on the strong results. I want to circle back to your comments on a listen to the product crack hedges. Did I hear you correctly that the realized gain was only $11,000,000 in the quarter? We thought it was listen probably looking to be a little bit higher.

Speaker 2

And, I guess if you mark that portfolio today, do you have a sense on whether Q3 would have a similar gain or maybe something a little bit higher? Thank you.

Speaker 3

Well, the $11,000,000 is correct. That is directly from our crack hedges. We had some other hedging activities that increased that number a bit, but around crude and other products. A listen. But right now, if you look at the portfolio we have, we're mostly underwater in the Q3 at this point.

Speaker 3

A listen. That has a way of shifting though. Some of the cracks we have in 'twenty four are still above water. A listen. But in general, the market as you know is really heavily backwardated and it's a listen to the front months

Speaker 4

that are really hitting us pretty hard.

Speaker 2

Okay, makes sense. And then on the potential Coffeyville RD project, a listen. Appreciate that you're still in the early stages here. But I guess, do you have any more details you can share on a listen to the potential size of the project, both in terms of capacity as well as CapEx. And to clarify, would this be a a Greenfield project or would it be a partial conversion of the refinery?

Speaker 2

And then if you could also maybe just talk about what a listen to the type of partner you'd be looking for, would this be more of like a financial partner or more of a feedstock partner?

Speaker 3

Sure. Listen. Well, I think you've heard us talk about the conversion of and cutting doing what we did at Wynnewood in the past at Coffeyville. A listen. We've looked at that pretty hard and it really doesn't pay out.

Speaker 3

The best option is to build more, I wouldn't call it greenfield, I'd call it more brownfield. In proximity to the refinery. There would be some synergies with the refinery. A listen. But in any case, all this the economics are always better, when you get scale as you get bigger.

Speaker 3

A listen. So we were looking at not only upsizing it, but building what's largely practical to ship into Coffeyville itself. That's usually limited by rail access, which is vessels no bigger than 14 feet in diameter or something like that. A listen. So, I think we're looking at something much larger than what's at Wynnewood.

Speaker 3

And the type of partners we're really looking for are in a listen to the call. This is a fairly pricey project should we decide to do it. A listen. The first levels of activity are really around doing the design, doing a full cost estimate by having the land to put it on in a listen and getting the permit submitted. So until we have that, we don't really we're pretty wide open on who partners might be.

Speaker 3

A listen. But we have, as we mentioned, have had a lot of conversations with people that are interested in investing in this space, listen and we'll look to monetize our position at Wynnewood with the construction of

Speaker 4

a listen only mode.

Speaker 2

Sounds good. Thank you very much.

Speaker 3

You're welcome.

Operator

A listen. Thank you. Our next question is from Manav Gupta with UBS.

Speaker 6

Listen. Good morning, guys. Very strong refining results. If one didn't know that in a listen. There was an outage at the gasoline hydrotreater.

Speaker 6

There's no way the results would tell you that. So help us understand because we do know there was some kind of outage. How you manage so well around this outage? And if it had not happened, would the results have would have been actually even better than what we saw yesterday? A

Speaker 3

listen. Well, as you know, where the fire occurred was in a gasoline hydrotreater, which basically takes gasoline and treats down the sulfur to meet Tier 3 specs. We've been running that unit for quite a long time and in a listen to the at both Coffee Billy and when he wouldn't have generated significant credits. We monetized some of those credits in a listen during this time and those all those credits are on our balance sheet at 0 value. So you didn't see much impact in the financials.

Speaker 3

We are hurt a little bit because those are credits we could have sold, which right now are selling around $2,500 a listen to the call for credit and we could have sold those in the future. So it did impact us in some ways. A listen. However, even though the fire did cause a disruption for a short period of time, we were pretty well able to catch that back up. Listen.

Speaker 3

I will remind you too that we finished up the coker turnaround at Coffeyville towards the beginning of the Q1, a listen. But it did impact our rates as we had high inventories that we had to run off until we got those inventories back in control. We weren't at full crude rate at Coffeyville either.

Speaker 6

In a listen. Perfect. I just have a quick follow-up. As you mentioned, you're looking at various partner options and I understand At this point, you're limited in what you can say, but would you prefer a single partner who comes in for both the refining assets? A listen or are you actually looking for different partners for the 2 different assets that would potentially be

Speaker 4

RD units?

Speaker 3

A listen. Well, as you know, we restructured our company to break out renewables as a separate company, ultimately with the idea that we could spend that if

Speaker 5

a listen.

Speaker 3

We built the scale that we think we can do. So I think what we're looking really at is some type of partnership a listen to the probably multiple parties because of the size of this company would be probably in a listen to 700,000,000 gallons a year of renewable diesel and probably half of that SAF. A listen. So it's a sizable venture and a decent market cap. So we think it has the potential to be a standalone company.

Speaker 3

And this is precisely why we did the restructuring, this will allow us to pursue this type of activity. So, I think we want strategic, we want financial, we want all types. We'd love somebody to come in that has the ability to help us source feed, a listen. Advantage speed, we think Coffeyville is a really good location to build something like this because it's right in the ag belt and its close proximity to a lot of ethanol plants, which as you know, corn oil is a fairly low CI material that would Allow us to capture BTC on any kind of SAF we might make, enhanced BTC, I'll say. A listen.

Speaker 3

So, we're it's still really early, but it's wide open, and we'll just be exploring what all the alternatives are.

Speaker 6

A listen. Thank you so much for your detailed response.

Speaker 3

You're welcome.

Operator

Thank you. Our next question is from John Rial with JPMorgan. Please proceed with your question.

Speaker 7

A listen. Hi, good afternoon. Thanks for taking my question. So just on the special dividend, I think I've asked on the past couple of calls, and Dave, you've talked about in a listen to the call. Needing to see kind of a remarkable environment to do specials going forward and perhaps we're in a remarkable environment right now, particularly with a listen to gasoline cracks where they were.

Speaker 7

Is that still the bar only paying out in very strong environment? Listen. So are you shifting policy more towards maybe something like 100% payout type policy?

Speaker 3

Well, I think we a listen only mode. I told you, our whole drive here is to maintain attractive investment portfolio, but by focusing on free cash flow generation and cash returns to our shareholders. That is that's every day in our DNA. In a listen only mode. And we really are targeting above average cash returns to shareholders and unitholders.

Speaker 3

A listen and we look at repurchasing stock units, buying down debt, all the options a listen every quarter and we only do those when they're value added and whether our stock price where it is today, stock buybacks don't make any sense to us.

Speaker 4

In a listen to

Speaker 3

the debt buyback is we don't have anything pressing us immediately, but that will be on our equation going forward. A listen. As far as the cracks go, I would tell you, if you look back 5 years, back to 2018, which was a pretty good year for refining, in a listen. The gas crack was around $14 on a rent adjusted basis was around 12. Today, we're looking at 27, on an unadjusted basis, 2019 on adjusted basis.

Speaker 3

Diesel, listen. Back in 2018, on an unadjusted RIN basis was almost $23 Today, it's 37 in a listen to the RINs, it's 21, 29, almost 30. So they're fairly remarkable. They're not quite as diesel is a little less than what it was in 'twenty two, but gasoline is very much stronger than what 'twenty two was. A listen.

Speaker 3

So, I would still tell you they're pretty remarkable, at least in my experience of 40 years in this business. A listen. So, when we have the cash, we're going to every quarter, the Board looks at all the options and decides where to put it. In a listen. If we don't have good investments or something that is a high return, it's going to go back to shareholders.

Speaker 3

And that's exactly what we did this time.

Speaker 7

That's very helpful. Thanks, Dave. And then maybe along the same lines, Pro form a for the special, it looks like your cash balance is about $650,000,000 or so. You talked about wanting to hold higher levels from here. A listen.

Speaker 7

Do you have a minimum cash balance that you're thinking of right now with that in mind? And is there any impact from the hedge program on Additional cash that you have to hold there.

Speaker 5

Yes, I'll grab this one. So the minimum cash balance will fluctuate just based on commodity pricing levels, heavily focused on crude price. Today, we'd say our minimum cash balance is in the $400,000,000 to $4.50 range. And as we talk about holding a little excess a. The primary driver there is to not allow our RIN short particularly for Wynnewood to grow much more.

Speaker 5

A listen. So when we talk excess cash, it's really just that balance that we'd want to cover, on any growing short for the 2023 position, and then the rest listen after that would become available potential cash.

Speaker 7

Thank you.

Speaker 5

You got it.

Operator

Listen. Thank you. Our next question is from Neil Mehta with Goldman Sachs. Please proceed with your question.

Speaker 8

Yes. Good morning, Dave and Tina. Congrats on a great quarter here. Thank you, Dan. Thanks, Dave.

Speaker 8

The first question is in a listen only mode. Okay. So just your thoughts as we go through the back half of the year, different considerations, maybe you want to talk about demand profile, a listen to the maintenance and of course the spreads between Brent and WTI.

Speaker 3

Sure.

Speaker 4

A listen. Well, I think we

Speaker 3

had the very if you look at demand on the Magellan system, a listen. It basically hasn't changed much at all. Even though when I mentioned the U. S. Is down a bit on diesel, you can't see it at all in the mid term.

Speaker 3

Actually, we had the basis blew out a little bit into a negative point in the quarter, but that has since come back to positive numbers versus New York Harbor. And what happens then is typically the arb opens between Gulf Coast and Mid Con and barrels in a listen to the pipeline to meet us. They've been hesitant to do that a little bit just because of the backwardation in the market. A listen to the products have been severely backwardated, and that adds a lot of risk when you have 7 days to ship time. So, that's been limited.

Speaker 3

So, the margins have been very good in the group and the premium has been even better a let me see it about $0.41 premium to regular. So really no trouble moving barrels, no trouble at all making as much premium as we can. And really, it's been a very a listen to open market for any kind of production increases we could make. Sorry, I forgot the rest of your question.

Speaker 8

No, just Brent WTI on the crude side as well, but that was great on product.

Speaker 3

Yes. Brent TI, I think we're we've always said in a listen to the Shell Oil, what makes drives that number. And in our area, actual Shell Oil production is up. In a listen. Several of the E and P companies have hit pretty big sized wells and did some farming activities that they're still coming on.

Speaker 3

And So you can see it in our pipeline rate. We're up to 145,000 barrels, which we were during COVID. I think we bottomed it right at 100, one a little bit. So it's still happening and with $4,000,000 of exports that seem to be hanging in there pretty tight, a $4 Brent TI is necessary to force that off the market off the shore. So, mainly heavier crude refiners that all this light crude has to go offshore.

Speaker 8

And then Dave, I don't want to get you animated here, but I do have to ask you every quarter about your perspectives on the RINs markets and on RFS. A listen. Just sort of your thoughts on how ethanol and biodiesel RINs can evolve here and What are the next things that we as an investment community should be looking forward to as we kind of see try to figure out what this means a listen for the refining sector.

Speaker 3

Well, this does get me fired up, Neil, as you well in a listen. I just feel that the EPA has totally mismanaged this, the whole system for many, many years. In a listen and they did it again with the new RBOs that came out, keeping the ethanol mandate in a listen to the question and answer session. And actually putting pretty small numbers frankly for The D4s are the advanced bios. It was just it just seems like a complete mistake to me.

Speaker 3

In a listen. What are you trying to encourage here? You're just trying to keep rim prices high to make the consumer pay another $0.30 a gallon or what? A listen. Frankly, D6 should be cheap and D4 should be expensive.

Speaker 3

And if The BTC goes away. I think you'll see D4s even have to go a lot higher to continue in a listen to encourage production of renewable diesel in SAF. So, it just seems to me it's they talk out of both sides of their mouth that a listen. Climate change is huge and we're going to do everything to do it, but yes, we can't put an RVO out that encourages more probably the lowest carbon a listen to the question. So, as far as the future, I think in a listen.

Speaker 3

We've seen a big surge at our rack volumes, which helps us blend more ethanol and biodiesel, Which just means we have less to buy on the open market and we're pretty much long de force with the Wynnewood situation. In a listen. I don't think our position is bad. If we did something like a big RD plant at Coffeyville, we'd be very long runs. In a listen to our strategy hasn't changed.

Speaker 3

We're still investing in renewables and minimizing what we invest other than maintain our assets and in a listen to any value projects that improve our feedstock supply, improve our capture Our product placement in the refining side.

Speaker 8

Yes. It's definitely less of an issue than it was before for you guys, but understood. Thanks so much.

Speaker 1

A listen. You're

Operator

welcome. Thank you. And our next question is from Paul Cheng with Scotiabank. Listen.

Speaker 9

Hi, thank you. Dave, I have to apologize. First, I came in late,

Speaker 4

listen. So you may already address if you have noticed the case.

Speaker 9

Please let me know. I will look at the transcript. Have you mentioned or that this cohort is your Audi a listen. 2nd quarter profitability and then also that how you think that's going to trend over the next couple of quarters We assume the R and D margin is the indicator is flat.

Speaker 3

Well, we haven't published any numbers on R a low risk. But we did mention that the second quarter was better than the Q1 and the Q1 was profitable. A listen. So, we continue to ramp up. We went through our 2nd catalyst change.

Speaker 3

BTU comes on in the 4th quarter And we're anticipating that will add $0.30 $0.40 $0.50 to the per gallon to the margin. In a listen to our long term view of soybean oil is in the current market is somewhere around $1.50 to 1 $0.70 Maybe $1 to $1.70 on the actual margin and that looks to be still true to us.

Speaker 9

A listen. Are you currently running all soybean oil or that you are running some lower CIP stock?

Speaker 3

A listen. We do run some corn oil, treated corn oil, but most of it is soybean oil today. We will be shifting to more corn oil as we in a listen.

Speaker 4

All right. And I'm just curious,

Speaker 9

I mean, a number of years ago that you guys had in a listen. Pretty active trying to sell the company or they're looking for a merger partner. Since then that I think there's a number of companies, the management have changed in terms of your peers. Have you visited whether that it's worth it a listen to that you can get a better economy of scale in the refining business?

Speaker 3

Well, I think listen. We looked at all sides of the equation. Paul, as you know, we looked at selling our assets a listen to buying more assets in Refine. And we've kind of gotten to the point where I don't think we're consolidator, but we Could be a consolidatee, but anything future wise, we're really focused on renewables in some form or fashion. And any other thing that could be a carbon reduction in the field.

Speaker 3

I'll tell you that's pretty tough growing. Listen. There just aren't a lot of really great opportunities out there even with the IRA. The problem with it is, it's in a listen. It lasts 10, 12 years and then what?

Speaker 3

You're left with uncompetitive assets compared to fossil fuels. So a listen. It's difficult to make that kind of investment when you've got that short horizon and it takes you 3 to 4 years to build anything.

Speaker 9

In a listen. And Dave, you earlier that I'm trying to make sure I heard you, but you're saying that today's share price Buyback doesn't make sense to you. So when you when the Board and you and the management to decide whether you want to go for buy And maybe that on the buyback, what kind of matrix that you guys using to determine whether that you should go for buyback or special dividend? Listen.

Speaker 3

Well, I think it's not that complicated, Paul. It's really if the share price is cheap, a listen. Buybacks make a lot of sense. But at $35 where we're at today, we're maybe a little higher than that now, But that's more difficult for us to see how that's accretive in the long haul. In a listen only mode.

Speaker 3

And I just share buybacks reduce the number of shares, but that's about all it does.

Speaker 9

A listen. Okay. A final one for me. You have excess cash. And One of your peers that when they have excess cash, they actually get out from the inventory optic agreement, Because quite frankly that the inventory off the agreement basically is just an off balance sheet financing and they charge you a fee in a listen.

Speaker 9

And that fee is pretty high. So curious that when you're looking at that, you guys just signed a new deal on here. A listen. Does it make sense for you to get out from that deal or from that kind of deals and in a listen. Trying to manage the inventory yourself and then you probably will be able to save money and yet your balance sheet is actually strong enough to be able to do it and have excess a

Speaker 5

listen. Yes, Paul. I'll take this one. We actually enjoy having the intermediation program in place, Having just signed a new agreement, we don't find the cost to be overwhelming by any means, and they help us with a lot of credit management. A listen.

Speaker 5

So there's other benefits that we enjoy outside of just having them manage our inventory. It is something we've looked at And again, we'll look at from time to time, but at this time, we are very happy about where we're headed on the aviation front.

Speaker 9

A listen. All right. We do. Thank you.

Speaker 4

Thank you.

Operator

Listen. Thank you. We have reached the end of our question and answer session. I would like to turn the floor back over to management for closing comments.

Speaker 3

Listen. I'd like to thank you all for your interest in CVR Energy. Additionally, I'd like to thank our employees for their hard work and commitment towards safe, reliable, environmentally a listen to the call. We look forward to reviewing our Q3 of 2023 results at our next earnings call. Listen.

Speaker 3

Thank you and have a great day.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Powered by Quartr
Earnings Conference Call
CVR Energy Q2 2023
00:00 / 00:00