CVR Energy Inc. (CVI)

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CVR Energy, Inc. (CVI)

Q3 2009 Earnings Call

November 3, 2009 11:00 am ET


Stirling Pack - VP of IR

John Lipinski - Chairman, President and CEO

Ed Morgan - CFO and Treasurer

Stan Riemann - COO


Jeff Dietert - Simmons & Company

Paul Sankey - Deutsche Bank

Vance Shaw - Credit Suisse



Welcome to CVR Energy Third Quarter Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Stirling Pack, Vice President of Investor Relations for CVR Energy. Thank you. Mr. Pack, you may begin.

Stirling Pack

Good morning everyone. We appreciate very much your being here for our call this morning. We know that there are a large number of users that have called in and we appreciate that very much.

With me this morning is Jack Lipinski, our Chief Executive Officer; Ed Morgan, our Chief Financial Officer and Stan Riemann, our Chief Operating Officer will be participating either in the call or in the question-and-answer time period. So we'll proceed with that introduction.

Prior to discussion of our 2009 third quarter results, we are required to make the following Safe Harbor statement. In accordance with Federal Securities Laws, the statements in this earnings call relating to matters that are not historical facts, are forward-looking statements based on management's belief and assumptions using currently available information and expectations as of this date, and are not guarantees of future performance and do involve certain risks and uncertainties including those noted in our filings with the Securities and Exchange Commission.

This presentation includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures including reconciliation to the most directly comparable GAAP financial measures are included in our third quarter 2009 earnings release, which we `d yesterday after the close of the market.

With that said, I'll quickly turn the call over to Jack Lipinski, our Chief Executive Officer. Jack?

John Lipinski

Thank you Stirling and good morning. Thanks for joining us this morning on our third quarter earnings call. I'll begin by reviewing our results and speak briefly about the operating environment we find ourselves in.

Following my comments, Ed Morgan, our CFO, will provide a more detailed look at our reported financials and then we'll conclude the call with your questions.

As Stirling mentioned, yesterday after the market closed, we reported a third quarter net loss of $13.4 million or $0.16 per basic share. Our results reflected soft commodity markets loss for refinery throughput due to mechanical issues on two critical units and the cost of extraordinary repairs. Lost refinery production associated with mechanical problems on our FCC and CCR cost us approximately $0.22 per share on a pretax basis for the quarter.

Without these interruptions and their associated maintenance costs our reported results would have been near breakeven. We pride ourselves on operational excellence and we are really disappointed with mechanical issues we experienced. Early in the quarter the cat cracker was forced down to an internal catalyst circulation issue. You may recall from our last investor call that I mentioned the unit was being returned to service following repair.

Subsequently our CCR, which is a continuous catalytic reforming unit operated at reduced rate severity for a period while we corrected an issue that has been troublesome since the deferred unit was first brought on stream. Permanent repairs were completed and both units are now operating as we would expect. These interruptions did reduce our overall throughput for the quarter. We averaged 101,500 barrels a day compared to 114,700 barrels a day for the same quarter last year.

We always try to turn adversity into opportunity and did so during the quarter. We performed maintenance and upgrades on the affected units, as well as other units in the plant. We successful debottlenecked the CCR, reusing its weighted capacity from 24,000 barrels a day to 26,500 barrels a day. This increase has already begun to pay dividends, as the CCR is critical to our blending program and is the source of supplemental hydrogen supply to our fertilizer plant.

Some of the work we performed this past quarter was scheduled to be done during our 2011 turn around. We can now scratch those work items off for less and get benefits now as compared to two years from now.

Our petroleum marketing and crude gathering programs performed as expected during the quarter. We gathered about 27,000 barrels a day of crude during the quarter. Access to fairly priced gathered barrels is an important portion of our realized refinery margin. Our system is capable of delivering over 30,000 barrels a day and with the addition of a wholly-owned location in Osage County, Oklahoma; our capacity will grow to about 35,000 barrels a day. We expect that this location operational in the next few months.

We also currently market through our wholesale reps at 30 different locations in our marketing area. We do this to capture higher margins above what we would get in wholesale.

We continue to reutilized our substantial crude storage both in Cushing, Oklahoma; and on site to store roughly 500,000 barrels of crude in a contango- carry program. Crude remained in contangos for the entire quarter and remain so today. The spread level varied from a low of about $0.20 a barrel to a high of just over $2 per barrel in the third quarter, its approximately $0.65 a barrel today. Using our cash to fund the carry program is an effective way to generate additional profit. From a pure spread perspective that pays us to carry crude with our cash even at a $0.10 contango.

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