CVR Energy, Inc. Price & Performance (CVI)

A result, actual operations or results may differ materially from the results discussed in the forward looking statements. Undertake no obligation to publicly update any forward looking statements as a result of new information, future events or otherwise. Except to the extent required by law. This call also includes various non GAAP financial measures. Disclosures related to such non GAAP measures, including reconciliation to the most directly comparable GAAP financial measures, included in our twenty twenty four fourth quarter earnings release that we filed with the SEC and Form 10 ks for the period will be discussed during the call. With that said, I'll turn the call over to Dave. Thank you, Richard. Good afternoon, everyone, and thank you for joining our earnings call. For the full year of 2024, we reported a consolidated net income of $45,000,000 an EBITDA of $394,000,000 At the segment level, we generated $223,000,000 of EBITDA at our in our Petroleum segment, $179,000,000 of EBITDA in our fertilizer segment. We also began separately reporting results from our Renewables segment which generated $3,000,000 of EBITDA for the full year of 2024.

For the fourth quarter, consolidated net income was $40,000,000 and EBITDA was 100 and and $22,000,000 In the Petroleum segment, combined total throughput for the fourth quarter of twenty twenty four was approximately 214,000 barrels per day, Crude utilization for the quarter was approximately 94% of nameplate capacity despite planned run cuts in December. And light product yield was 103 on crude oil processed. Benchmark cracks softened during the fourth quarter with Group 3,211 averaging $14.32 per barrel. From the third quarter came from a decline in gasoline crack which is somewhat typical for the fourth quarter as demand slows seasonally and supply increases with the addition of butane blending. In addition, The U. S. Refining fleet continued to run hard through the fourth quarter averaging 91% utilization. Compared to a five year average of of 87% CVR. RIN prices increased $0.17 per barrel from the third third quarter of twenty twenty four levels averaging approximately $4.06 per barrel for the quarter. In early January, EPA denied Winnie Woods 2023 small refinery exemption petition once again coming up with new reasons for the denial that we consider ludicrous and illegal forcing us once again to seek protection of the Fifth Circuit through Estee, twenty twenty four application for small refinery exemption is already filed and EPA again missed the ninety day deadline to rule on it.

We are pleased to report that last week EPA advised the Fifth Circuit that EPA does not oppose the stay when he would request it. While the Fifth Circuit has not yet ruled on our now unopposed motion to stay, we expect them to do so soon. While we continue to aggressively pursue the small refinery Winnie Wood deserves We are hopeful that EPA's Fifth Circuit filings last week signals a return to common sense to the agency. We welcome Administrator Zeldin to the EPA and we're hopeful that under the new administration, EPA will see the critical role that small refineries like ours play. In rural communities across America. Exactly why Congress included small refinery exemptions in the renewable fuel standard legislation.

For the fourth quarter of twenty twenty four, we processed a approximately $17,000,000 balance of vegetable oil feedstock in the renewable diesel unit at Winnie Wood. Gross margin was approximately $0.79 per gallon for the fourth quarter and $0.8 per gallon for the full year of 2024. [indiscernible] of renewable diesel, We are reducing the rated rated capacity of the unit to 80,000,000 gallons per year going forward due to catalyst limitations. Based on the revised capacity utilization for the quarter was approximately 73 which was negatively impacted by catalyst degradation in December. The HOBO spread declined slightly from the third quarter, primarily due to Declines in California diesel prices However, this was more than offset by increased D4s and LCFS credit prices. In the fertilizer segment, both facilities ran well during the quarter ammonia utilization of 96%. Relative to the prior period, ammonia prices were higher despite some challenging weather conditions in the quarter. We saw good demand and had strong shipments from our facilities.

Now let me turn the call over to Dane to discuss our financial highlights.

Thank you, Dave, and good afternoon, everyone. For the fourth quarter of twenty twenty four, our net income attributable to CBI shareholders was $28,000,000 CVR per share was $0.28 and EBITDA was $122,000,000 Our fourth quarter results include a reduction to quarterly RINs expense due to a mark to market impact on our estimated outstanding RFS obligation of $57,000,000 CVR gain on the sale of our interest the Midway pipeline of $24,000,000 and unfavorable inventory valuation impact of $20,000,000 and unrealized derivative losses of $6,000,000 Excluding the above mentioned items, adjusted EBITDA for the quarter was $67,000,000 and adjusted losses per share were $0.13 Adjusted EBITDA in the Petroleum segment was $9,000,000 for the fourth quarter lower crack spreads driving the majority of the decline from the prior year period, Our fourth quarter realized margin adjusted for RIN mark to market impacts inventory valuation, and unrealized losses was $6.45 per barrel. Representing a 45% capture rate on the Group three-two 11 benchmark. Net RINs expense for the quarter excluding the mark to market impact, was $56,000,000 or $2.86 per barrel, which negatively impacted our capture rate for the quarter by approximately 20%. The estimated accrued RFS obligation on the balance sheet was $323,000,000 at December 31, representing RMB $487,000,000 mark to market at an average price of $0.66 This is down slightly from the RFS obligation on the balance sheet at the end of twenty twenty three of $329,000,000 comprised of RMB362 million marked at an average price of $0.91 As a reminder, our estimated outstanding RAN obligation is primarily related to Winnie Wens' rent obligations through 2024, and excludes the impact of any small refinery exemptions.

Direct operating expenses in the Petroleum segment were $5.13 per barrel for the fourth quarter, compared to $4.69 per barrel in the fourth quarter of twenty twenty three. The increase in direct operating expenses per barrel was primarily due to increased repair and maintenance expenses in addition to lower throughput volumes compared to the prior year period. Adjusted EBITDA in the Renewable segment was $9,000,000 for the fourth quarter, a significant improvement from our fourth quarter twenty twenty three adjusted EBITDA of negative $17,000,000 The increase in adjusted EBITDA was driven by a combination of an improved HOGO spread, and reduced feedstock basis due in part to the addition of pretreatment unit in 2024 enabling the processing of cheaper untreated feedstocks. Adjusted EBITDA in the fertilizer segment was $50,000,000 for the fourth quarter with increased ammonia sales prices petcoats feedstock costs and lower direct operating expenses driving the improvement relative to the prior year period. The Board of Directors of CVR Partners General Partner, declared a distribution of $1.75 per common unit for the fourth quarter of twenty twenty four.

As CVR Energy owns approximately 37% of CVR Partners' common unit We will receive a proportionate cash distribution of approximately $7,000,000 Cash flow from operations for the fourth quarter of twenty twenty four was 98,000,000 and free cash flow was 40,000,000 Our fourth quarter cash flow from operations includes a working capital benefit of approximately $80,000,000 excluding rent obligation changes and the gain on the sale of our interest in the Midway pipeline. The working capital benefit was primarily attributed to increased increased lease accrued payables. Significant uses of cash in the quarter included $62,000,000 of capital and turnaround spending, $18,000,000 of cash interest $7,000,000 for the non controlling interest portion of the CVR Partners third quarter distribution. Total consolidated capital spending for the full year 2024 was 181,000,000 which included $128,000,000 in the Petroleum segment $37,000,000 in the Fertilizer segment, and $11,000,000 in the Renewables segment. Turnaround spending was approximately $58,000,000 in 2024. For the full year 2025, we estimate total consolidated capital spending to be approximately $165.02 $05,000,000 and turnaround spend will be approximately $170,000,000 to $185,000,000 Turning to the balance sheet, we ended the quarter with a consolidated balance of $987,000,000 includes $91,000,000 of cash in the fertilizer segment.

The quarter, we completed two transactions that significantly increased our liquidity. Generating $318,000,000 of net proceeds from the term loan [indiscernible] And $90,000,000 of gross proceeds from the sale of our 50% interest in the Midway pipeline. Total liquidity as of December 31, excluding CVR Partners, approximately 1,100,000,000.0 which was comprised primarily of $896,000,000 of cash availability under the EBL facility of $238,000,000 With the actions taken during the fourth quarter to increase our liquidity position, we feel confident in our ability to manage through the large turnaround underway at Coffeyville. And the potential for continued near term weakness in the refining market. We do not anticipate the term loan remaining a part of our long term leverage profile and we would anticipate working to return to our leverage target of approximately two to 2.5 times mid cycle EBITDA on a gross basis. Market conditions permit. Looking into the first quarter of twenty twenty five, for our petroleum segment, we estimate total throughput be approximately 120,000 to 135,000 barrels per day will be impacted by the planned turnaround of coffee dollars total capital spending to be between $30,000,000 and $40,000,000 and turnaround spending to be between $150,000,000 and 165,000,000 For the fertilizer segment, we estimate our first quarter twenty twenty five ammonia utilization rate to be between 95100%.

We estimate direct operating expenses to be approximately $55 to $65,000,000 excluding inventory impacts and total capital spending to be between $12,000,000 and 16,000,000 For the Renewables segment, we estimate first quarter twenty twenty five total throughput to be approximately 13,000,000 to 16,000,000 gallons which will be impacted by a catalyst change completed in January.

Estimate direct operating expenses to be between $8,000,000 and $10,000,000 and total capital spending to be between $2,000,000 and 5,000,000 Dave, I will turn it back over to you. Thanks, Dane.

Refining market conditions remain challenging on the fourth quarter largely due to the market being oversupplied. As a result of both average utilization levels in The United States as well as addition of new refined capacity globally. We look to 2025, However, We are cautiously optimistic that refining market conditions will improve relative to 2024 for a number of reasons.

Looking at The U. S. Supply and demand balance, we are starting 2025 in a better position than we were a year ago. Year to date average gasoline and diesel demand are above or at or above five year averages and inventories of gasoline and diesel are at or below five year averages. Spring maintenance season is currently underway and planned turnaround activity is expected to be fairly heavy. Particularly for FCC and Alky units. In addition, announced [indiscernible] planned closures could result in nearly 800,000 barrels of refining capacity in The U. And Europe being shut down this year. Between these announced closures, increased diesel demand resulting from a cold winter weather in The U. S. And Europe, and any potential increases in refined product demand as a result of business friendly slash pro growth policies we see the potential for tightening supply and demand balances this year, which should be supportive of increased crack spreads. The planned turnaround at Coffeyville is currently underway after we elected to accelerate the timing following an incident at Coffeyville's net the hydrotreater during freezing weather conditions in January. We currently anticipate the duration of the turnaround be extended by ten to and the cost to increase by $10,000,000 to 15,000,000 although these figures could change depending on several factors including weather.

We currently expect the turnaround to be complete by the March, which should During the turnaround, we intend to complete tie ins for the initial phase of the diesel recovery project at Coffeyville which should give us the ability to increase distillate yield by approximately 1,500 barrels per Day.

We Believe We Could Further Increase Coffeyville's desolate yield by another 2,500 barrels per day over the next few years if we elect to invest additional capital. We also plan to install some piping and revamp some of our tankage at Coffeyville which should enable us begin making up to 9,000 barrels per day of jet fuel. With the potential to increase that capacity with further additional investment.

While it will take time to develop a significant book of business, for the jet fuel, by shifting up to 9,000 barrels of distillate production to jet, we could potentially reduce coffee bills annual RFS obligation by up to RMB18 million. Based on 2024 average jet to diesel spreads and average RIN prices, estimate the potential margin uplift of approximately $5 to $7 a barrel on any new jet fuel sales.

We currently expect to have the piping in and takeage work associated with the jet fuel production complete by the end of the third quarter. In the renewable segment, we completed a catalyst change in January we're currently running the unit at 5,000 barrels per day in the Nefer to optimize yield and catalyst life. We currently intend to run the unit until we get clarity on the blender tax credit and or see the final rules on production tax credit. When under tax credit, we believe RID prices and or low carbon fuel standard credits must increase significantly to compensate If not, a significant amount of biodiesel and renewable diesel production would likely be out of the money and would have to shut in. Given these headwinds as the renewable space moves forward, it is difficult to ignore that we have approximately $290,000,000 million dollars in our renewable business over the last several years to participate in carbon emission reduction generate rents and optimize our assets we have. In doing so, We have been reminded that reliance on government credits is not a sustainable business and we already have enough exposure to politically mismanaged regulations like RFS. As a result, we are left with an investment with uncertain returns in the business that today is is breakeven at best.

We have completed design of SAFRD project near our Coffeyville facilities have a firm understanding of our capability to convert our Winnie Wood renewable diesel unit to SAF production with additional capital. We do believe there is potential for these opportunities in the future, it is critical to get clarity on available and durability of government subsidies before we continue investing additional capital or time into such ventures.

We remain willing to participate further in this space but are pausing our intentions to actively pursue the market for partners and investors. We remain open to the opportunity if someone approaches us that is willing to accept the subsidy risk if an appropriate environment develops, resume an active approach to offering our value proposition to the market. In the fertilizer segment, recent USDA estimates for ending corn and soybean inventories have one, which is supportive of grain prices recently. The outlook for fertilizer demand for the spring is good and we have seen prices increase to start the new year. We are continuing to invest in plant infrastructure for reliability, including the installation of two new boilers at Coffeyville in the fourth quarter. And planned projects in 2025 that focus on water and electricity reliability. And quality at both plants. We are also looking at the potential to expand our and we continue to evaluate the feedstock optionality project at the coffee built facility. Looking at the first quarter of twenty twenty five, quarter to date metrics are as follows. [indiscernible] have averaged $15.03 per barrel with a Brent TI spread of $3.33 per barrel and a WCF differential of $13.19 As of yesterday, Group three two eleven cracks were $18.68 per barrel, Brent TI was $3.99 per barrel and WCS was $13.7 under WTI.

RINs were approximately $5.32 per barrel.

Prompt fertilizer prices are $600 per ton. For ammonia and $3.15 for per ton for UAN. Although 2024 was challenging year for us both operationally and from a broader market We feel we are well positioned to capitalize on any improvements in crack spreads this year as a result from supply rationalization.

We are confident the liquidity enhancing measures we took in the fourth quarter should provide ample cash to get through the [indiscernible] and weather any near term weakness in cracks. Want to reiterate something Dan mentioned in his prepared remarks that one of our focuses one of our primary focuses after the completion of the turnaround. Will be to start reducing debt restoring our balance sheet to target levels as soon as we can. Subject to market additions and other [indiscernible] To properly grow our business. With that operator, we're ready for questions.

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

Thank you.

Our first question comes from the line of Manav with UBS. Please proceed with your question. Good morning, Dave and team.

You did generate about $40,000,000 in free cash flow in the fourth quarter. Now obviously, the first quarter you are doing this big turnaround, but in line with the comments you made, looks like by second quarter things would be even in a better position. And so if you do continue to generate free cash post your coffee will turnaround, just trying to understand what would be better used in your mind just to pay down debt or is at some point you could rethink about instituting a dividend here?

As we said in our prepared remarks, one of the key focus we do want to work on is the delevering comfortable with the original $1,000,000,000 want to work off the term loan.

I don't think it should be a scenario where we should expect to see the term loan fully gone before a dividend were potentially to return.

But we want to see some sustained strength in the market as well. So look to take a balanced approach and see how things develop as we go forward.

As you know, Monav, the dividend is something the Board looks at every quarter. And as cracks improve, I would think the likelihood goes up. The board acts on that.

Perfect. My quick follow-up here is you mentioned that you are looking at some projects. Which could give you a higher jet yield. Just trying to understand what could be the CapEx required to pull off those projects and what kind of timeline are we looking at? Could you should you decide to move ahead, could you bring those on? Within the next twelve or fifteen months by making some tweaks So help us understand what could give you a higher jet yield going ahead?

Well, I think right now, Manav, our constraint is really building a book of business.

For jet. A lot of the airlines, major airlines are on three year contract terms. It's going to take a little time to build it, but In essence, it's just a jumper or two and some pipe we have to install and rearrange our tankage at Coffeyville to to add additional volume of jet. As you know, we already produce jet at the [indiscernible] And are mainly sales constrained on that also. With the loss of our military contract last year. So it was not going to take us long as I've said in my prepared remarks We should be ready at the end of the third quarter produce jet at Coffeyville.

You so much. I'll turn it over. Thank you. Our next question comes from the line of Adam Wojeo with Goldman Sachs.

Please proceed with your question.

Yes. Good afternoon team and thank you for taking my questions. First one is just on how you guys think about the operating footprint of the company. I know it's probably more of a near term focus on the big turnaround going on right now and then the balance sheet. But in the past, you've talked about looking to potentially diversify the company's refining operating footprint from the Mid Con into other regions. Just wanted to get your latest views here If you think there are any regions of focus we should be mindful of? And then anything on a potential timeline there?

Well, Adam, I think we've mentioned many times, we look at everything comes on the market. Bidask has been too wide for us to even consider. A lot of these deals that have come up, but market in the Mid Con pad two. And anything that can diversify us from that is a benefit That said, our focus is more inland and going west than it is going south or or east Might consider going North if the right deal ever came up, but So again, we want to diversify out of PADD II as much as possible.

Got it. Very clear. And just a follow-up for me on the Renewables segment. Saw that you guys broke the segment earnings profile out. This quarter. And when we think about the path to run rate positive EBITDA contribution going forward, aside from improving margins more broadly, Operationally, is there anything you think we should be focused on? And then can you tie that into how you think about potential opportunities within renewables, specifically in SaaS what's needed from a supply demand standpoint or an incentive standpoint? To further make a call there? Thanks.

Sure, Adam. I mean, as I mentioned in the prepared remarks, is the problem with renewables is the uncertainty of government subsidies [indiscernible] say it. And when I say that it's politically driven RFS regulation that CVR seems to be there's nobody driving the ship. And I'll just use the example of the the fact that the mandate is $22,000,000,000 and $15,000,000,000 $16,000,000,000 of that is ethanol. Ethanol does little for the environment whereas renewable diesel does. And lo and behold, you've got D6s coupled with D4s that's started to break a little bit.

But You would think the government would drive towards lower carbon [indiscernible] Rather than just doing a mandate on ethanol, which is really not necessary at all. Because ethanol is part of the fuel blend. It's a cheap blend stock for octane and it would be blended no matter what. So until we get clarity on some of these regulations and somebody and adults in the room controlling them. It'd be difficult to see how we make some investments subsidies that today the people are reporting that that's selling for about $1 to $2 premium over RD. If you take all the subsidies and add them all up, you need more like dollars 4 to really to even have that kind of sales price. So to us, it's we've got we've had all we can stand of of exposure to government subsidies and and it's going to take a shift change for us to really invest in it. We do have projects that look attractive on a capital barrel capital basis for both SAF and Renewables. But again, these subsidies are just scary.

Got it. Very clear. Thank you.

Our next question comes from the line of John Royall with JPMorgan. Please proceed with your Hi, good afternoon. Thanks for taking my question. So my first one is on asset sales and maybe a two parter if I can. First, can you tell us the tax implications of the $90,000,000 Midway pipeline sale and have the tax has been paid out yet? And then secondly, how should we think about asset sales from here? And if other assets could potentially shake loose does a better environment in refining maybe change your thinking on raising cash via asset sales?

Good afternoon, John. Yes, so on the Midway sale, the $90,000,000 proceeds, there will be a tax impact Say our tax basis in that joint venture was call it $15,000,000 So the remaining would be exposed to tax has not been paid, but anticipate paying that as we move through the beginning of twenty twenty five here.

As far as other logistics assets, we have we used to advertise $80,000,000 which was kind of an aggressive EBITDA content that included if we were to spin off our logistics as a a separate MLP, We think that revised that number is more is more realistic around $20,000,000 That's post the sale of Midway. So there's a few out there, but not not near as much as we had originally advertised, John. Hopefully that answers your question.

It does. Thank you. And then Next question is on renewable diesel. I think you mentioned in the opener that you have some limitations on [indiscernible] That are impacting your capacity. I think you took it down about 20% if I heard it right. Can you just give us a little more detail on what those constraints are?

Well, this was a revamp. So we took an existing reactor and unit and converted it to what we thought was 7,500 barrels of capacity for per day of vegetable oil. And corn oil. Well, as it turns out, we're willfully short of catalyst. Our run lengths are between six and eight months at best. And it's just the yield is just so affected by the high space velocity at the higher rates that we just think we have to downgrade the unit. [indiscernible] to really do it. With the addition of another catalyst bed, we'd be right back to that 7,500 possibly even more. So and if you look at the SAF project, that's largely how we would accomplish it. We'd add a reactor and that would take care of the pretreatment of the to remove the oxygen and then the existing reactor would be adequate for isomerization. [indiscernible] That's kind of the ultimate plan. The problem is, as I mentioned, Thank you. You're welcome.

Our next question comes from the line of Matthew Blair with Tudor Pickering. Please proceed with your question.

Thank you and good morning. The refining capture improved quarter over quarter seems pretty good in the context of a higher RVO and perhaps some other challenges. Can you talk about the tailwinds to capture in the fourth quarter And then also discuss any major moving parts on capture we should be thinking about for the first quarter?

Hey, Matt. Yes. So Tim wants to capture, I would say, two things, not massive contributors, but with the run cuts we did enact in December that kind of drove our margin to a higher per barrel number on the cracks earlier in the period relative to the average across the quarter. When they fell off in December. There's some small inventory benefits call it $0.3 to $0.5 a barrel also in there. Not a big number, but on a depressed crack, it does give you a little bit of benefit. Other than that, not a lot of unusual things to report. And then as we look to the first quarter Again, I think it's going to be more a function of just getting back to normal operations and having a lower percentage of the crack being taken up by fixed costs if the crack stays elevated here.

Sounds good.

And then I had two questions in regards to the RD feedstock mix.

First, in the reporting, there's an other feedstock and blendstocks line item that it's fairly large, it's about one third of the total throughput Could you talk about what goes into that line item? And then second, with the 45Z coming out, your pretreaters online, are you anticipating any changes in your RD feedstock mix going forward?

Well, Matt, I think on your first question, the other is just refinery grass streams that are processed with with the RD unit when it was previously in hydrocracker service. Then there's also I think others, it includes hydrogen. As a part of it.

So that's probably the bigger piece On your second question, which I already forgot, can you repeat it again, please?

Is anything changing on your RD feedstock mix going forward in light of the 45 corn oil if we could, which is a low CI material. [indiscernible] [indiscernible] problem again is comes back to Catalyst. And our ability to do that is limited by our ability to process more corn oil without a yield penalty.

We continue to explore that though and look at other ways to do it. And the Z is good, but it doesn't it doesn't quite make up for the BTC. In any case.

Great. Thanks for your insights. You're welcome.

We have reached the end of the question and answer session. Would now like to turn the floor back over to management for closing comments. Again, 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 responsible operations.

Look forward to reviewing our first quarter results in the next earnings call. Thank you. [indiscernible] [indiscernible]