CVR Refining, LP (CVRR)

CVRR 
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CVR Refining, LP (CVRR)

Q3 2013 Earnings Call

November 1, 2013, 12:00 PM ET

Executives

Jay Finks - Director, Investor Relations

John Lipinski - Chief Executive Officer and President

Susan Ball - Chief Financial Officer and Treasurer

Stanley Riemann - Chief Operating Officer

Analysts

Jeff Dietert - Simmons & Company

Ed Westwick - Credit Suisse

Presentation

Operator

Greetings and welcome to the CVR Refining third quarter 2013 conference call. (Operator Instructions) It is now my pleasure to introduce your host, Jay Finks, Director of Investor Relations for CVR Refining. Thank you, Mr. Finks. You may begin.

Jay Finks

Thank you, Kevin. Good morning, everyone. We very much appreciate you joining us this morning for CVR Refining third quarter 2013 earnings call. With me are Jack Lipinski, our Chief Executive Officer; Susan Ball, our Chief Financial Officer; and Stan Riemann, our Chief Operating Officer.

Prior to discussing our 2013 third 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 maybe deemed to be forward-looking statements. Without limiting the foregoing, the words outlook, beliefs, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements.

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, future events or otherwise.

This call also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliations to the most directly comparable GAAP financial measures are included in our 2013 third quarter earnings release that we filed with the SEC this morning before the opening of the market.

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

John Lipinski

Thank you, Jay, and thank you all for joining us. This morning we released our third quarter's earnings and declared our third quarter's distribution of $0.30 per common unit. The third quarter's distribution will be paid on November 18 to unitholders on record of November 11. So far this year we've declared $3.23 in distributions to our unitholders.

In the third quarter 2013, we reported a consolidated net income of $86 million as compared to $318.6 million a year ago. Our 2013 third quarter consolidated adjusted EBITDA was $33.9 million as compared to $447.1 million a year ago.

Impacting our third quarter results were reduced crack spreads, weakened product basis, significantly tightened crude differentials, and absolutely and most importantly, the downtime associated with cat cracker at our Coffeyville refinery.

As you recall from our last earnings call on July 17, we had to take down our cat cracker at Coffeyville due to a failure of a major piece of equipment. The unit was back to full operating rates on September 11. Due to this outage, Coffeyville ran only about 79,400 barrels a day of crude for the quarter.

Wynnewood on the other hand ran approximately 81,300 barrels a day of crude, resulting in a total crude throughput of approximately 160,700 barrels a day. In the third quarter of 2013, our realized refining margin adjusted for FIFO was $8.21 per barrel and that compares to $33.44 a barrel in the same quarter last year.

Partially driving this decrease was the PADD II Group 3 2-1-1 product basis. The group averaged a negative $0.39 per barrel product basis, and look at that as what we actually realized compared to the mercantile stream, as compared to a positive $3.87 per barrel product basis in the same quarter of last year.

During the third quarter, we realized lower crude discounts as compared to year ago, however, we do continue to benefit from attractively priced crudes. Our purchase crude discount, WTI for the third quarter, was $0.37 per barrel as compared to $2.76 per barrel in the third quarter of 2012.

Again, this decrease year-over-year was significantly impacted by the downtime at the cat cracker and Wynnewood, which caused us not only to run lower rates, but to run a much lighter and sweeter crude slate and significantly fewer heavy, heavy sour barrels.

And just parenthetically that also increased our operating cost per barrel running at lower rates. We had cost associated with the outage itself, and so our margin capture was significantly affected by this outage. In the third quarter, we were able to process about 9,000 barrels a day of heavy sour crude as compared to 22,000 barrels a day in the same period last year.

The Western Canadian select discount to WTI averaged $22.92 in the third quarter as compared to $15.53 a year ago. Other differentials, such as Midland sweet crude versus Cushing and others were significantly tighter this year than they were last year.

Crude margins are rapidly changing. For the past couple of years, we've been focused on the Brent-WTI spread, as it's been highly correlated to the NYMEX 2-1-1 crack spread and basically benefited all refiners running WTI-related crudes. This has changed significantly. In the near term, we expect crude differentials to remain volatile, as more North American crudes produced and find their way to the Gulf Coast and East Coast markets, displacing higher-price order burn related imports.

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