Fourth quarter 2014 results compared, as applicable, to third quarter 2014 results were as follows:
As previously disclosed, production during the fourth quarter was 2.0 million barrels of oil equivalent (MMBOE), or 21,308 barrels of oil equivalent (BOE) per day (BOEPD), compared to 20,874 BOEPD, pro forma to exclude production from Mississippi properties sold in July 2014 and volumes associated with a settlement of litigation in the Mid-Continent.
During full-year 2014, pro forma total production increased 22% and oil production increased 35% over full-year 2013.
Realized oil, natural gas liquids (NGLs) and gas prices declined to $69.82 per barrel, $23.43 per barrel and $3.81 per thousand cubic feet (Mcf) from $95.19 per barrel, $31.76 per barrel and $4.17 per Mcf.
Including oil and gas derivatives, oil and gas prices were $77.99 per barrel and $4.03 per Mcf, compared to $89.08 per barrel and $4.19 per Mcf.
Product revenues from the sale of oil, NGLs and natural gas were $101.4 million, or $51.73 per barrel of oil equivalent (BOE), compared to $141.9 million, or $67.91 per BOE.
Including oil and gas derivatives, product revenues were $111.8 million, or $57.03 per BOE, compared to $134.3 million, or $64.29 per BOE.
Production costs, including lease operating expense, gathering, processing and transportation expenses and production and ad valorem taxes, decreased to $22.6 million, or $11.52 per BOE, from $27.8 million, or $13.35 per BOE.
Excluding production and ad valorem taxes, which decreased by $2.2 million due to lower commodity prices, other production costs were $8.72 per BOE, compared to $9.66 per BOE.
Operating loss, excluding impairments and net gains or losses on the sale of assets, was $14.6 million, compared to operating income of $28.5 million.
Adjusted EBITDAX, a non-GAAP (generally accepted accounting principles) measure, was $84.8 million, compared to $97.7 million.
Borrowing base under our revolving credit facility increased to $500 million during the fourth quarter, providing financial liquidity, including cash and equivalents, of $470 million at year-end 2014.
Leverage ratio was 3.0 times at year-end 2014.
The company's third quarter revenue came in at $66.7 million and EBITDA was $21.3 million. Analyst estimates proved too high for both the second and third quarter. For the fourth quarter I see that as the price of UAN rose only in the end of December, most of the product was already sold before with lower prices. Still, if we discount the second quarter unplanned factory stops and instead of a 91.9% utilization rate use 97%, we get a revenue estimate between $70-$75 million for the fourth quarter and a similar EBIDTA prediction between $23-$25 million. These are slightly lower than analyst estimates.
This brings us to the first quarter of 2015. As the price of fertilizers started rising for the last month, we are seeing positive signs for a nice bounce in revenue and earnings. As things progress we could see an increase in revenue by 10%-20% depending on the movements for UAN and ammonia prices. Revenue for the first quarter of 2015 at this rate would be between $77 million-$84 million and EBITDA between $26 million-$30 million, in case there are no more unplanned production stops. At the moment this is about 10% above analyst estimates.
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Future outlook and conclusion
The company is on a solid footing in the current environment and makes almost full use (~99%) of its production capacity, minus the slight possibility of unplanned downtime in plants. The future growth of the company is helped by room for more financing with a low debt-to-equity ratio. Also by a location advantage which manifests in higher margins and fixed input costs for 70% of production until 2027, through the partner company CVR Refineries. Furthermore, it can potentially upgrade its whole production to UAN, which is higher cost than ammonia. The high operating margin will help the company go through rougher times and excel in better times. The company pays out most of its cash, which at the moment yields ~9%. The company's general partner CVR Energy is limited to a regular shareholder status and reserves no special rights to the company's distributions, which are paid out close to 100% each quarter. Due to higher nitrogen fertilizer prices, I estimate about 15% higher revenue and earnings for the fist quarter of 2015 and just a slight increase for the fourth quarter of 2014.
In conclusion, CVR Partners' price increase in the last month reflects the higher expectations for revenue and growth for the first quarter of 2015 and also a possible trend change in fertilizer prices. For the long term this is a stable dividend paying company with a moat and room to grow in the future, but as the margin is mainly better when UAN and ammonia prices are higher, like in the last month, one needs to monitor this trend to be sure it continues before buying.
Fourth Quarter Earnings Announcement Expected: Earnings will tentatively be announced 02/19/2015. With 4 analysts covering UAN, the consensus EPS estimate is $0.23, and the high and low estimates are $0.24 and $0.22, respectively.