CVR Energy Inc. (CVI)

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CVR Energy, Inc. (CVI)

Q2 2011 Earnings Conference Call

August 4, 2011 14:00 ET


Jay Finks – Director of Finance

Jack Lipinski – Chief Executive Officer

Ed Morgan – Chief Financial Officer


Jeff Dietert – Simmons

Ed Westlake – Credit Suisse

Paul Sankey – Deutsche Bank

Brian – Credit Suisse

Kathryn O'Connor – Deutsche Bank



Greetings and welcome to the CVR Energy Second Quarter 2011 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, Jay Finks, Director of Finance. Thank you, Mr. Finks. You may begin.

Jay Finks – Director of Finance

Good afternoon everyone. We very much appreciate you being here for CVR Energy call this afternoon. With me today are Jack Lipinski, our Chief Executive Officer; Ed Morgan, our Chief Financial Officer; and Stan Riemann, our Chief Operating Officer.

Prior to discussion of our 2011 second 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 2011 second quarter earnings release that we filed with the SEC yesterday after closing the market.

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

Jack Lipinski – Chief Executive Officer

Thank you, Jay. Thank you all for joining us. From the results released last night, you can see we had a very solid second quarter. Consolidated net income was $124,900,000 million or $1.42 per fully diluted share on sales of over $1.4 billion. That compares to net income of $1.2 million in the same period a year ago on sales of just over $1 billion.

Adjusted net income was $130,400,000 million or $1.48 per fully diluted share in the second quarter. Non-cash adjustments like FIFO and share-based compensation along with the few other items account to the difference, as Morgan will provide you more detail on that during his remarks. Today, I’ll first speak about our results and where we go from there. After that, Ed, Stan, and I will take your questions.

Let me go first to the petroleum segment. If you joined us for last quarter’s conference call, that morning we had an issue with our CCR, aside from some reduced rates during the CCR outage. We are very happy with the quarter turned out operationally. Because of the CCR issue, we filed an 8-K indicating that we expected to operate about 108,000 barrels per day average for the quarter. We actually bettered that sum and averaged 109,500 barrels a day. Since then, our CCR has returned to normal operations and now we are running the plant at capacity above 115,000 barrels a day.

The petroleum segment had operating income of $183.5 million as compared to $4.6 million for the same quarter a year ago. Adjusted EBITDA for the petroleum segment was $208.4 million versus $46.5 million a year ago.

The continuing story for the second quarter is and was the Brent TI spread, which drove margins for all refiners with access to WTI base crudes. We are a 100% WTI-based refiner and we were able to capture this difference between Brent and WTI. The Brent-WTI relationship will continue to define our market at least – we look forward at least in the next two years. Today, that spread was $21.75 and it is moving around a little bit. This is a new number. This year so far we have seen it range from a low $30.29 to a high of $22.63 on July 14.

In addition all indications are that we will continue to see our group cracks, our regional cracks at above historic levels. During the year, our crack averaged $26.71 versus $11.75 a year ago. Today, the NYMEX 2-1-1 stands a little over at $33 a barrel. We realized an average refining margin of $25.49 per throughput barrel compared to a refining margin a year ago of $6.70. It’s remarkable what difference a year makes.

This quarter, we increased the amount of heavy sour crudes we ran to 21.2% of crude input, that’s up from 17.2% in the first quarter and also up from about 12% a year ago. We actually set a record of 24,600 barrels a day of heavy sour Canadian crudes process during the quarter.

Western Canadian Select one of the typical marker heavy Canadians traded at $17.61 discount WTI for the quarter. While this is not a bond burning discount, we continue to maximize our runs of heavy sour crudes as long as these differentials continue.

Final note on the petroleum segment, our gathering business set another record in June gathering more than 36,000 barrels a day. These fairly-priced barrels are an important part of our refinery economics and we are absolutely focused on growing this business.

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