CVR Energy Inc. (CVI)

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CVR Energy, Inc. (CVI)

Q4 2009 Earnings Call Transcript

March 2, 2010 11:00 am ET

Executives

Stirling Pack – VP, IR

Jack Lipinski – Chairman, President and CEO

Ed Morgan – CFO and Treasurer

Stan Riemann – COO

Analysts

Paul Sankey – Deutsche Bank

Julie Coutou – Simmons & Company

Presentation

Operator

Greetings and welcome to the CVR Energy fourth quarter and year end 2009 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

Thank you, Jackie. We very much appreciate being here. We appreciate everyone being on the call this morning. There are a large number of you who are there and some are still dialing in, but we are going to start as close to the proposed starting time as we can. Again, we very much appreciate you being here for our call this morning.

With me this morning is Jack Lipinski, our Chief Executive Officer; Ed Morgan, our Chief Financial Officer; and Stan Riemann, our Chief Operating Officer.

Prior to discussion of our 2009 fourth quarter and year-end 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 fourth quarter and year-end 2009 earnings release, which we filed yesterday after the close of the market.

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

Jack Lipinski

Thank you, Stirling; and good morning, all. Thanks for joining us on our fourth quarter and year-end earnings call. I will begin by talking about our results and then speak briefly about the operating and economic environments we find ourselves in. After my comments, Ed Morgan will provide a more information regarding our reported financials and Stan Riemann, our Chief Operating Officer, will then join Ed and I in taking your questions.

As Stirling said, after the market closed yesterday, we reported fourth-quarter net income of $9.5 million, or $0.11 per basic share, bringing our full-year net income to $69.4 million or $0.80 per share. As you all know, we have two diversified but complementary businesses, our Petroleum business is comprised of a 115,000 barrel per day complex full-coking sour refinery, and a 30,000 barrel per day crude gathering system. We also have a Nitrogen Fertilizer business that utilizes gasification technology, with low-cost petroleum coke as its feedstock. Ours is the only such plant in North America. The refinery supplies transportation fuels to the Southwest portion of PAD II, which is commonly referred to as Group 3. And our Nitrogen Fertilizer business supplies two products, anhydrous ammonia, and urea ammonium nitrate solution to America’s agricultural horde.

Over the past five years, we made the necessary investments to structure our companies is alive in the low-margin environment. Our refinery operating costs are lower in aggregate than many of our peers, even considering our high complexity. In addition, we have the lowest cost nitrogen fertilizer plant in North America at current natural gas prices. As a result, we have cost advantages and operational flexibilities that let us react competitively in the volatile markets we face today.

When accessing our quarterly results, it is important to consider what factors helped us along in the fourth quarter. Operationally, our plants ran well, we had no significant unplanned outages at the refinery for the fertilizer plant. Throughput at the refineries in the fourth quarter totaled 125,966 per day, which includes crude, feedstocks and blendstocks. Our nitrogen fertilizer plant performed equally well. We maintained a 98.9% on-stream position for the gasification units, and we were on-stream 98.1% of the time in our ammonia census loop and 96.7% of the time in our UAN facility.

In addition, we benefited from the continuing contango in the crude oil market, as we have for most of the year. Late in the fourth quarter, the contango spread, while still positive, declined to a point where it became less than the beneficial ones. Starting in January, we began to reduce inventories, held in our contango play, and applied some of the cash proceeds to pay down $25 million of our long-term corporate debt. That is part of our ongoing focus using our cash where it is most effective, but the goal is strengthening our balance sheet. Anticipating tough environmental conditions, we took actions to minimize costs and ran in capital, as long as it did not compromise our environmental health and safety performance. The remaining required capital project this year is the addition of an ultra-low sulfur gasoline unit. This unit will come online during the second quarter.

Looking at petroleum operations, the throughput at the refineries for the full year totaled 120,239 barrels per day, up from 117,719 per day in 2008. Although we posted higher throughput for the quarter and the year, that is not our main focus. We optimize our refinery, not for maximum throughput, but for maximum economic results. In determining how we run our plant, we balance significant factors, including product demand, yields, crude differentials, and feedstock costs. Our refinery (inaudible) we built and sourced a wide variety of crudes in Cushing, Oklahoma, and from our proprietary crude gathering system. Having access to a wide range of crudes enhances our ability to select the most cost effective plant.

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