CVR Energy, Inc. (CVI)
Q3 2010 Earnings Conference Call
November 2, 2010 11:00 AM ET
Stirling Pack – VP, IR
Jack Lipinski – Chairman, President and CEO
Ed Morgan – CFO and Treasurer
Stan Riemann – COO
Arjun Murti – Goldman Sachs
Jeff Dietert – Simmons & Company
Kathryn O’Connor – Deutsche Bank
Steven Carpell – Credit Suisse
Previous Statements by CVI
» CVR Energy, Inc. Q2 2010 Earnings Call Transcript
» CVR Energy, Inc. Q1 2010 Earnings Call Transcript
» CVR Energy, Inc. Q4 2009 Earnings Call Transcript
» CVR Energy, Inc. Q3 2009 Earnings Call Transcript
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.
Thank you, Claudia. Good morning, everyone. We very much appreciate you being here for our call this morning. With me today as call participants are Jack Lipinski, our Chief Executive Officer; Ed Morgan, our Chief Financial Officer; and Stan Riemann, our Chief Operating Officer.
Prior to the discussion of our 2010 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 & Exchange Commission.
This presentation also 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 2010 earnings release which we filed with the SEC yesterday after the close of the market.
With that said, I’ll turn the call over to Jack Lipinski, our Chief Executive Officer. Jack?
Thank you, Stirling, and good morning, all. Thanks for joining us. As you can see from the results we released, we had a very good third quarter, reflecting consistent reliable operations at both of our businesses.
We reported a net income of $23.2 million or $0.27 per share for the third quarter on $1.031 million of sales. Taking into account a handful of special items, our adjusted net earnings are $0.28 per share. The results and the details behind these numbers are available on the earnings release issued last night on PR Newswire, and on our website at cvrenergy.com.
In my results today, I will add some context to the numbers and give you our view of what we see coming in the fourth quarter. Ed will then add more detail regarding our financials. After Ed has concluded, I will close with some additional remarks. And Ed, Stan Riemann, our Chief Operating Officer, and I will take your questions.
As you know we have two major businesses, petroleum and nitrogen fertilizers. I’ll start with the petroleum segment. Operations for the third quarter were excellent. We processed an average of 118,350 barrels a day of crude, which is a quarterly record for us. Total throughputs include crude and all other feed stocks and blend stocks average a 128,789 barrels a day also at quarterly record.
Operating costs decreased from $3.59 per barrel of product sold in Q3 2009 to $3.1 per barrel of product sold to the third quarter this year. Operating costs decreased partly due to higher throughputs, but more importantly with increased efficiencies and lower maintenance costs.
Refining margins improved from the first half of the year, averaged $9.84 per barrel. Not only did we see improvement in NYMEX 211, but we saw a geographical improvement compared to group three where we operate. That basis, which has been traditionally positive in our area has been uncharacteristically low for the last three quarters. So we’re glad to see that it’s turned around.
We continue to see strong diesel demand in our area as a result of increased transportation uses as well as agricultural needs. Year-over-year inventory levels in the pipeline systems that we serve has shown a reduction in total volume and in days of supply. Since we’re seeing the increased diesel demand, we increased our diesel production.
We also ran a record amount of heavy Canadian crude this quarter and a differential for heavy crudes volume. We processed 18,600 barrels a day this past quarter as compared to 9,000 barrels a day a year-ago. At the end of the second quarter, heavy Canadian was selling at a discount of about $14 below WTI.
By July, that discount improved to the $17 range. By the latter part of the quarter, with pipeline problems on Enbridge line 6A and 6B, Heavy Canadian became even more heavily discounted and reached levels approaching $30 a barrel below WTI. We were able to acquire some of these cheaper barrels, which will be processed in the fourth quarter.
Another important part of our petroleum business is our crude gathering division. We continue at a record pace. We’ve gathered an excess for 31,500 barrels per day during the quarter. As I mentioned before, these fairly priced gathered barrels remain an important component in our refinery economics.
Now, let me move over to fertilizers where we had very good operations. Gasification was on stream over 99% of the time, our ammonia synthesis look again 99% on stream time, and UAN was about 97% on stream time. We produced 173,800 tons of UAN and 41,000 net tons from Magellan available for sale.