CVR Energy, Inc. Q1 2010 Earnings Call Transcript

CVR Energy, Inc. Q1 2010 Earnings Call Transcript
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CVR Energy, Inc. (CVI)

Q1 2010 Earnings Call

May 4, 2010 11:00 am ET


Stirling Pack, Jr. – Vice President Investor Relations

John L. Lipiniski – Chairman of the Board, President & Chief Executive Officer

Edward A. Morgan – Chief Financial Officer & Treasurer

Stanley A. Reimann – Chief Operating Officer


Arjun Murti – Goldman Sachs

Paul Sankey – Deutsche Bank Securities

Kathryn O’Connor – Deutsche Bank Securities

Jeff Dietert – Simmons & Company International

Analyst for [Evan Vanderveer – Aegis Financial]



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Welcome to the CRV Energy first quarter 2010 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.

Stirling Pack

, Jr.

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 2010 first 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 managements’ belief and assumptions using currently available information and expectations as of this date that 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 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 first quarter 2010 earnings release which we filed with the SEC yesterday after the close of the market. With that disclosure said I’ll quickly turn the call over to Jack Lipinski, our Chief Executive Officer.

John L. Lipiniski

I won’t spend a lot of time on our numbers today. Ed will highlight them and they are available to you from our news release issued last night. Instead, I want to put in to context the environment in which we found ourselves during the first quarter. Then, I’ll talk more about the positive turn that we’ve seen in our businesses since then. After my remarks Ed Morgan will give you details about our financials and then Ed, Stan Reimann, our Chief Operating Officer and I will take your questions.

Last night, after the market closed, we reported a first quarter loss of $12.4 million or $0.14 per share. These results reflect the economic headwinds refiners faced during the quarter and the fact that our fertilizer business results are based on a forward book of orders that were taken last summer and fall when prices were lower. Refining margins improved in the month of March and have continued to rise since then. Nitrogen fertilizer sales are strong and higher prices have been realized on orders taken this year which will show up on our book next quarter.

As you know, we have two diversified but complementary businesses and I’ll speak to each of them. To understand our first quarter petroleum segment results you have to look directly at refining margins. January and February were particularly difficult. In January and February this year the NYMEX 2:1:1 crack spread averaged $7.54 a barrel which compares to an average of $12.71 during the same period a year ago. Meanwhile, the group 3 crack, and that’s where we operate was $11.87 per barrel in January and February a year ago and it averaged just $5.55 per barrel during the same two month period this year. That’s a really significant change.

Both the NYMEX and Group 3 crack spreads fell from the beginning of the quarter through February before beginning to improve. In March, the average NYMEX crack improved $10.03 and the Group 3 crack improved to $9.22. This improvement however could not offset the low margins realized in January and February. For the quarter, NYMEX and Group 3 cracks averaged $8.48 and $6.93 respectively.

Our refinery is a full [inaudible] sour crude refinery and we rely on sweet sour and heavy light differentials for a portion of our economics. In the first quarter of this year, the sweet sour spread West Texas intermediate West Texas Sour averaged $1.89 per barrel. The light heavy spread which we consider WTI and Western Canadian Select averaged $10.47 per barrel. In April, the sweet sour spread increased marginally to $2.08 and the light heavy differential has been trading between $14 and $16 per barrel. The sweet sour spread has not widened the match in the increase in crude prices.

The contango structure in the crude oil markets during the first quarter was also much weaker than during the first quarter in 2009. In the first quarter 2009 contango averaged $2.99 a barrel. The carry in December was $1.43 and that’s December of ’09, in January the carry was $0.43 and by March it averaged just $0.34. For the first quarter 2010 it averaged $0.38 per barrel. Recently, the contango has widened and this morning it is in excess of $3 a barrel. As a result, we’re once again using our storage capacity and Cushing and our proprietary storage to carry excess crude inventory.

Our refinery ran well in the first quarter although we did reduce runs during low margin periods and during those times we performed opportunistic maintenance. For the first quarter we averaged 105,140 barrels per day of crude oil process and the total throughput was 113,120 barrels a day.

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