Dane Neumann; Chief Financial Officer, Executive Vice President, Treasurer, Assistant Secretary; CVR Energy Inc
Greetings, and welcome to the CVR Energy third quarter 2024 conference call. (Operator Instructions) As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Richard Roberts, Financial Planning and Analysis and Investor Relations. Thank you, sir. You may begin.
Thank you, Christy, and good afternoon, everyone. Very much appreciate you joining us this afternoon for our CVR Energy's third quarter 2024 earnings call.
With me today are Dave Lamp, our Chief Executive Officer, Dane Neumann, our Chief Financial Officer and other members of management. Prior to discussing our 2024 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 are not statements of historical facts may be deemed to be 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. Except to the extent of required by law.
This call also includes various non-GAAP financial measures to the disclosures related to such non-GAAP measures, including reconciliation of the most directly comparable GAAP financial measures are included in our 2020 for third quarter earnings release that we filed with the SEC and Form 10 Q for the period and will be discussed during the call.
That said, I'll turn the call over to Dave.
Thank you, Richard, and good afternoon, everyone, and thank you for joining our earnings call. Yesterday, we reported third quarter consolidated net loss of $122 million and a loss per share of $1.24. EBITDA was a loss of $35 million.
Our results were impacted by unplanned downtime at both facilities during the quarter, partially due to external power supplies outages, along with an unfavorable mark-to-market impact on our outstanding the RFS obligation and negative inventory revalue the readout validation impacts due to the declining crude oil price with the upcoming major turnaround plan at Coffeyville next year.
Maintaining adequate liquidity and a strong balance sheet is a primary focus as we navigate the currently challenging refining market. In light of this, the Board of Directors has elected to suspend the quarterly dividend as we look to preserve preserve cash on the balance sheet. While this was a difficult decision, we believe it is an appropriate course of action. Given our near-term cash needs and the current forward strip for crack spreads into 2025.
Our petroleum segment combined total throughput for the third quarter of 2024 was approximately 189,000 barrels per day. Of light product yield was 99% on crude oil prices. We had a very difficult operational quarter with multiple plant interruptions, some of which were related to or were the result of putbacks external power supply outages. Crude oil utilization for the quarter was 85% compared to our third quarter crude utilization rate of 95% over the past five years.
We estimate lost profit opportunity was approximately $23 million in the third quarter, of which approximately 13 million was related to external power issues. Year to date, total loss offer profit opportunity was approximately $73 million, grew three ton benchmark cracks averaged $19.40 per barrel for the third quarter of 2024 compared to $39.10 per barrel for the third quarter of last year.
Average rent prices for the third quarter of 2024 also declined from the prior year period and ended the quarter at approximately $0.74 on our video weighted basis. Although this was a 7% increase from last quarter.
Regarding the RFS, the situation remains incomprehensible, no less than three federal courts, including the United States. Supreme Court has told EPA in no uncertain terms that small refinery hardship exemption exist to protect small refiners who suffer disproportionately economic harm for the Fifth Circuit and the D.C. Circuit called EP. EA's denial of the most of most hardship petitions arbitrary capricious vacating those denials and remanded back to EPA incredibly.
Despite this Express statutory obligation to rule on hardship petition to within 90 days, EPA has done nothing even though almost a year has passed since the Fifth Circuit loss. Epa's egregious conduct is lower than the petitioners hanging in limbo for years in the financial impact of their actions, threaten the very existence of small refineries like ours that a US federal agency can be allowed to frequently and repeatedly repeatedly violate the law without recourse shakes, the very foundation of our government, known as above the law, including EPA.
So I call you out the administrator Regan EPA has broken the RFS violated the law persistently ignores clear, very clear, clear direction from the courts. This must stop now for our part.
We continue to seek relief and support not only through to secure smaller small refinery exemptions, the winning with deserves, but the for CPA through to remedy the root cause small, requiring harm EPA's decision to violate the RFS while allowing not obligated parties to produce buy, sell trade and hoard rents, resulting in manipulation of the wind market. For the third quarter of 2024, we have price we processed approximately 20 million gallons of vegetable oil feedstocks through the renewable diesel unit.
It when he was the whole. The HOBO spread weaken slightly from the second quarter of 2024 with lower diesel prices. All this was although this was offset by higher prices for D4 RINs and LCFS credits, which helped drive a positive. As a reminder, our renewable diesel business is currently reported that in our corporate and other segments in the fertilizer segment, both facilities ran well during the quarter with consolidated ammonia utilization of 97%.
Nitrogen fertilizer prices for the third quarter of 2020 for increased relative to the third quarter of 2023. And we saw strong demand for ammonia and UAN over the summer.
Now let me turn the call over to Dane to discuss our financial highlights.
Dane Neumann
Thank you, Dave, and good afternoon, everyone. For the third quarter of 2024 our consolidated net loss was $122 million. Losses per share were $1.24, and EBITDA was a loss of $35 million. Our third-quarter results include a negative mark-to-market impact on our outstanding RFS obligation of $59 million in unfavorable inventory revaluation impact of $30 million and unrealized derivative losses of $9 million.
Excluding the above mentioned items, adjusted EBITDA for the quarter was $63 million and adjusted loss per share was $0.5. Adjusted EBITDA in the petroleum segment was 24 million for the third quarter, with the decline from the prior year period, primarily driven by lower product cracks and group three and reduced throughput volumes due to the downtime at both facilities.
Our third quarter realized margin adjusted for wind mark-to-market impacts, inventory valuation and unrealized derivative gains was $8.23 per barrel, representing a 42% capture rate on the Group three 2-1-1 benchmark. We estimate the unplanned downtime in the quarter negatively impacted our capture rate by approximately 7% relating to the resale I've gathered crude oil and the purchase of refined products for the backwardation in the market drove an additional 6% unfavorable capture impact.
Rent expense for the quarter, excluding the mark-to-market impact was $46 million, or $2.62 per barrel, which negatively impacted our capture rate for the quarter by approximately 14%. The estimated accrued RFS obligation on the balance sheet was $374 million at September 30, representing ZAR467 million mark to market at an average price of $0.8.
As a reminder, our estimated outstanding rent obligation excludes the impact of any small refinery exemptions. Direct operating expenses in the petroleum segment were $5.72 per barrel for the third quarter compared to $5.39 per barrel in the third quarter of 2023. The increase in direct operating expense per barrel was primarily driven by lower throughput volumes, partially offset by lower repair and maintenance expenses and natural gas and electricity costs.
Yes. Adjusted EBITDA in the fertilizer segment was $36 million for the third quarter, with higher market prices for ammonia and UAN and lower feedstock and operating expenses driving the increase relative to the prior year period. The Partnership declared a distribution of $1.19 per common unit for the quarter of 2024 the CVR Energy owns approximately 37% of CVR Partners.
Common units will receive a proportionate cash distribution of approximately $5 million. Cash provided by operations for the third quarter of 2024 was $48 million, primarily driven by 87 million of cash flow from the fertilizer segment. Free cash flow for the quarter was 13 million, also attributable primarily to the fertilizer segment.
Significant uses of cash in the quarter included $50 million for the CBI. Second quarter 2024 dividend, $39 million for cash interest, $36 million of capital and turnaround spending, and $13 million paid for the non-controlling interest portion of the CVR Partners' Second Quarter 2020.
For distribution. Total consolidated capital spending on an accrual basis was $39 million, which included 28 million in the petroleum segment, $10 million in the fertilizer segment and less than 1 million for the RTU turnaround. Spending in the third quarter was approximately $3 million.
For the full year 2024, we estimate total consolidated capital spending to be approximately 170 to $195 million, which represents a reduction of approximately $25 million from our previous estimates.
Turnaround spending is expected to be approximately $50 million to $60 million. Turning to the balance sheet, we ended the quarter with a consolidated cash balance of $534 million, which includes 111 million of cash in the fertilizer segment. Total liquidity as of September 30, excluding CVR Partners, was approximately $713 million, which was comprised primarily of $423 million of cash and availability under the ABL facility of $290 million.
Looking ahead to the fourth quarter of 2024 for our petroleum segment, we estimate total throughput to be approximately 200 to 215,000 barrels per day. Direct operating expenses to range between $100 million and $110 million and total capital spending to be between $38 million and $42 million.
For the fertilizer segment, we estimate our fourth quarter 2020 for ammonia utilization rate to be between 92% and 97% with some potential downtime at the third party air separation unit at Coffeyville expected in the quarter, we estimate direct operating expenses to be approximately $60 million to $70 million, excluding inventory impacts and total capital spending to be between $19 million and $23 million.
That Dave, I'll turn back over to Neil.
David Lamp
Thanks, Dane. Although we saw a slight improvement in the Group three crack spreads from the second quarter levels.
Overall refining markets remain challenging. While the Board's decision to suspend the dividend was difficult, we believe the key to surviving these downturns and refineries is maintaining adequate liquidity and protecting the balance sheet.
While we focus on areas we control safe, reliable operations while reducing costs and capital spend. We are currently exploring the potential increase in our liquidity through possible access to capital markets. To lead these efforts, cash on hand available ability of our on our undrawn revolver.
We are confident in our ability to navigate this challenging environment and be well prepared post turnaround for any improvements in refining margins by and demand fundamentals for refined products have improved in the second half of 2024, with gasoline and diesel diesel inventories, both currently below five-year average gasoline and diesel demand are essentially in line with five-year averages, while refined product exports have remained above 2 million barrels per day.
one of the key issues for the U.S. refining in 2024 has been utilization levels that it had to average more than two percentage points higher than the five-year average over the course of the year. So far in the fourth quarter, we've seen utilization rates for the US refining fleet declined from a low to mid 90s, down to the mid 80s during the fall turnaround season.
While this is encouraging, ultimately, we believe we need to see additional refining capacity rationalization and both in both the U.S. and globally in order to for crack spreads, tools make us sustaining move higher in the fertilizer segment. We believe we are currently under more of a mid-cycle type of environment after the peaks we saw over the past few years, and we are encouraged to see ammonia and UAN prices for the third quarter increase relative to the third quarter of last year.
Our fall harvest is ahead of schedule nearing completion and conditions look favorable for the fall ammonia application. Nitrogen fertilizer prices for the Ford fourth quarter are up approximately $50 per ton for ammonia and $10 per ton for UAN compared to the fourth quarter of 2023. Finally, in renewables, we are pleased with the third quarter results from when you would DC or renewable diesel unit.
With this being the first full quarter of operations with the RD. unit with a pretty treater. Our discussions with interested parties counterparties related to a decent to 100% SAF. are ongoing. As we said before, we would not expect to move forward with the conversion without developing an offtake structure for us to have that would provide us downside protection and minimize our reliance on government credits.
Looking at the fourth quarter of 2024 quarter to date, metrics are as follows. Group three 2-1-1 cracks have averaged $18 per barrel for the Brent-TI spread at $3.79 per barrel and the WCS differential at $12.93 per barrel under WTI from hurdle, wiser prices are approximately five 50 per ton for ammonia and to 50 per ton for UAN. As of yesterday, Group three 2-1-1 cracks were $15.83 per barrel.
Brent TI, I was approximately $4.27, and WCS was $12.50 per barrel under WTI. Friends were $4 and $0.29 per barrel. The crack at these levels as well below mid-cycle and the remittance and may remain this way through next year. This creates an opportunity for us to focus on positioning our business for the long term.
So we are best equipped to take advantage of favorable market conditions when they return, as I believe they will. So here is that our plan one straight strengthen our balance sheet to improve our ability to navigate these market conditions. This includes internal cost cutting initiatives and reduced hiring.
Focus also includes focusing our capital spend on projects that are in flight and those critical to safe, reliable operations. And finally, we are exploring and access to capital markets, which could include non-core asset net sales. Suspending the dividend is also part of this, but our Board will continue to look at it each and every quarter.
But we think this shows as we can make the tough decisions necessary to support the Company's future and our goal of increasing value to our stockholders to focusing on executing our upcoming turnaround safely on time and on budget, given market conditions our turnaround time, these is it looks to be very, very well planned.
Our track record for exceptional project execution speaks for itself. Although we've had some hiccups this year, we are great operators and the demonstrated our ability to successfully execute turnarounds in the past three continue exploring ways to optimize our business. We will not ignore accretive opportunities before us and liquidity measures we announced yesterday should help with this for, as always, continue to focus its focus on safe, reliable operations in an environmentally responsible manner.
This should result lower operating costs, better capture rates and ultimately superior financial performance for our shareholders and stakeholders. In summary, despite the weakness in the current refining market, we see continue to believe the US fleet is the most advantage in the world. Given the high complexity access to low-cost crude oil and natural gas, our refineries are very competitive among this fleet. We have tremendous confidence in the future, and we see the actions we announced in our intended path forward as best positioning CVR to take advantage of it.
With that, operator, we're ready for questions.
Operator
(Operator Instructions) Neil Mehta, Goldman Sachs.
Neil Mehta
Good morning, Dave and team, and thanks for taking the time.
Maybe the first question just around how you're thinking about the dividend that you have always had a little bit more of a variable approach to distribution at raising and a strong times and spending it previously.
And some of the weaker tend to just how should we think about the go forward for the data?
And then if we get on the back end of the turnaround and margin environment normalizing, how do you think about resuming at 10 a.m.?
Just your framework would be helpful.
David Lamp
Yes, Neal, I think of I think we've said many times that of our structure, none as such have really lends ourselves to our preferred method of returning cash to shareholders via dividend.
And I don't think anything's changed on that.
Yes, we're a little bit more variable now.
And if you look at our past record of returning cash to shareholders via the dividend, it's pretty strong.
We don't really want to take this action, but I think it's a that's necessary in light of if you look at the forward curve from LA and two and 25, you know, we're printing in the 17 type numbers.
And with the with inflation and everything that's been happening in the marketplace, we view mid-cycle has increased to at least $1 a barrel, if not two.
So we're just being cautious.
If you if you look at the turnaround, we have coming up fits our largest turnaround of the of the sequence of every five years to around $180 million.
Is that about half of our budget, less than half of our budget for turnarounds in that cycle.
And we're just taking the taken at the very cautiously.
Neil Mehta
And then that's helpful data.
And then just your perspective on NAB out on non-core asset sales for the opportunity set because you've talked about accessing the capital markets, you mentioned that you brought up the way.
And in the past, there is an area of potential monetization.
But just curious on what in the portfolio do you think has have in our could be on the table and then have come in and day E&I.
Any sense of how deep into conversations you might be?
David Lamp
Well, if it's really started anything in earnest yet, but the deal non-core assets a week.
As you know, we have about 80 million worth of EBITDA associated with midst of the midstream assets, coding pipelines, trucking and the tankage and others, some of that, that would be considered for sure.
As far as you and goes, we really have no no new news in that area.
And as you know, we own 37% of the units and have a 100% ownership of the non-economic GP.
But nothing really new to report there yet step.
Operator
Matthew Blair, Tudor, Pickering.
Matthew Blair
Thank you and good morning.
Dave, is there potential to file any insurance claims on on the downtime in an effort to recover any of that lost profit opportunity?
David Lamp
Yes, we have we have recovered some money from us to utilize and anticipate that our cost, the so the neighborhood of $25 million.
So we have a deductible.
It comes off of that.
But the but the window of we don't have an answer for it yet.
Exactly how much will get out of that.
Yes, sounds good.
Matthew Blair
And then circling back to the question on the potential access to capital markets on.
So we interpret that to mean that you're considering a potential equity raise.
And then also on the non-core asset sales, you mentioned some of the midstream assets.
But what about the gap clearing system?
What would that be core or non-core for CVR Energy?
David Lamp
Well, I'll take the second part of that.
The the the gathering system is integral to our system, but it could be monetized as if we absolutely needed to add one thing.
I'd be our first choice.
We have joint ventures in pipelines that feed our refineries.
That would probably go first on the liquidity, the yen And Matt, it is as far as capital markets, Scott, I'd say it's pretty premature that discuss exactly what path we're thinking as we're assessing all options, both magnitude and path to the market.
So what we'll be sure to update you guys more when we when we have more of a plant.
Operator
John Royall with JPMorgan.
John Royall
Hi, good afternoon and thanks for taking my questions.
I was just hoping for your updated thoughts on acquisitions.
You've been pretty vocal about looking at acquisitions.
one of the big assets that we knew publicly was out there was Citco, which is now sold to another party.
So how do you view the opportunity set today with that asset now off the market?
And there's the need to preserve liquor liquidity today.
But any inorganic growth ambitions on hold for now?
David Lamp
Well, as I mentioned in the prepared remarks, we're not going to turn down any accretive deals that come up right now. I don't really have any in the pipeline with the with the Cisco situation, but we continue to look at the market for any any opportunities that can I can improve our our our portfolio and as such to diversify it, you can tell you go and we have two refineries that have problems at both that really hits the quarter.
Our and that's that's really our strategy has tried to diversify around the, but I don't know that our current situation that precludes us from looking at anything in the future and will continue to look at the.
John Royall
And then my next question is maybe just a little housekeeping on the hedge program. What should we expect in 4Q in terms of hedging any positive or negative impact as it looks today?
David Lamp
And so in terms of our practice of hedging and you recall, we predominantly close that out in the second quarter, we recognized a realized gain. Those will roll off through the fourth quarter and through 2025, and you'll see it a flip between realized and unrealized. But other than that, no other significant planned to do any other material hedging at this time.
Operator
Manav Gupta, UBS.
Manav Gupta
Morning, guys. I guess I just wanted to focus a little bit on the refining macro.
You kind of made a number of comments.
You did say, you know, even need more refining capacity closures.
You also said the margins could be below mid-cycle in 2025.
I'm just trying to figure out like how does this recovery you lengthen?
The as you also said, will happen happened.
Like I mean, how much capacity do you think globally needs to come in somewhere in U.S. and maybe some outside of new things come Mid-Con capacity needs to shut down.
But I'm just trying to understand the back to me and I'll come back to mid-cycle margins.
What will it take to get there?
Well, I think I characterized the market right now.
David Lamp
Manav is oversupplied. It's not a demand problem as such on that lease demand in the Mid-Con is as strong as it's ever been even after COVID, it was it hasn't really moved much from this part of the United States go as and general demand is back up fairly normal.
The five year levels, almost diesel, maybe a little bit behind, but not much.
So I don't think it's a demand question.
That's really a supply question.
And there's just some of the refining capacity they shut down during COVID has been been added back on line Dallas, supposedly China at the end of this year.
But we'll see if that happens, hasn't yet.
And you look at the loan yield.
So other than announced project in California, the shutdown ILA. refinery.
But because in general that we've almost added back as much as we shut down during COVID.
And frankly, there's penetration of EVs is continues to accelerate.
The English proficiency of the overall fleet, therefore, is improving.
So even though vehicle miles traveled are up on that still the looks like efficiency as is keeping demanded by the same low.
And so I think there are still some topping units that are running, as evidenced by the use the diesel crack where it is at today.
And that probably a those are probably European assets of such as such, then they're just new capacity additions that have come in.
And a couple of new announced the Chinese refineries that are going to be built in three or four years that will further impact of market.
The good news is there's still growth in the US in market to worldwide.
I don't know what how that will divide up among the various regions.
But I would guess that the U.S. will continue to see continued pressure from EV.s and substitution in the LNG. face.
Because if you look at the gap between crude oil and LNG, it's huge, there's plenty of its incentive to convert engines to LNG and other things on the industrial fleet.
So it's going to take of either either grow our way out of it or additional shutdowns to occur.
Operator
Paul Cheng, Scotiabank.
Paul Cheng
Hey, guys, good morning.
Good afternoon.
And then maybe I missed it.
Did you mention what is the 2025 CapEx?
If not, could you give us a rough estimate and I think that will be including cost of fuel on the major turnaround, how many things take time line going to be?
And I think it's all going to be in the first quarter.
Can you the campaign or Dan is going to spill into the second quarter?
That's the first question.
David Lamp
Paul.
It'll be it'll it'll crossover both both quarters, slightly of will start in late February, and it's approximately 45 days.
All the oil, but it will cross over into a first and second quarter, just slightly content.
Paul Cheng
And what's the CapEx for next year?
Current need that you're having in mind given the market condition?
David Lamp
Yes, Paul, would we I typically don't disclose that until later in the year.
We are going through our budgeting process and taking a real hard look at the capital in light of David's comments about focusing on spend in flight and focusing only on growth projects or projects critical to their operation.
But we are we are undergoing that exercise now and I will share that guidance when we have prepared.
Paul Cheng
Then can I ask Pat on what is the minimum you need to spend and nothing that you would just spend a minimum?
I'm just curious, what is the minimum given the major kind of impact you expect that for next year?
What is the minimum?
David Lamp
I don't know that we've prepared something like that. We have a lot of projects that are in flight that take multiple years to complete.
We are not proposing to stop those just because it costs more to stop and then restart them, but they'll add to that number. I don't I don't have it day in the UK. I don't have evidence accessible to me. So we can probably look it up, Paul and get back to you with it.
Paul Cheng
And as I think rate on a second question on, I think a date in the past you have done for the idea that you could even conduit pay out the Pang in Canada that when they went back into our processing coin, one of your key areas that are down in Alabama that they have just come back, Tom, if you do not find a partner to allow you to convert that into FA. app, it was the thought process and the time line for you to make a decision by taking. I want to go into it that way.
David Lamp
Well, I think, Paul, you had it goes back to the discussion of whether how short we are on rents and even with a smaller trial waiver for when he would. We're still substantially short on rents. What the hydrocracker does in renewable diesel services provide us with the relatively low cost runs on on the margins since the capital sunk.
And I think feel that's a strategy we're going to continue to play out. Some were this quarter. We did make money in renewable diesel. And I think with the with the setup we have and with the pre-trade are now we're experiencing good yields. Our biggest issue really is catalyst life, and we continue to explore that.
That will follow take us another year to really understand that in full full throw. But right now, we're refining margins, are we actually make more money in our die on a per-barrel basis and what we do and refining. So we'll probably stay on that service from checkpoint do.
Operator
And we have no further questions at this time. I'd like to turn the floor back over to management for closing comments.
David Lamp
Thank you all for joining our earnings call and your interest in CVR. Additionally, we'd like to thank our employees for their hard work and commitment towards safe, reliable and environmentally responsible operations, and we look forward to reviewing our fourth quarter results with you on the next earnings call.
Thank you and have a great day.
Operator
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
