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Edited Transcript of CVI earnings conference call or presentation 25-Apr-19 5:00pm GMT

Q1 2019 CVR Energy Inc Earnings Call

SUGAR LAND Apr 29, 2019 (Thomson StreetEvents) -- Edited Transcript of CVR Energy Inc earnings conference call or presentation Thursday, April 25, 2019 at 5:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David L. Lamp

CVR Energy, Inc. - President, CEO & Director

* Jay Finks

CVR Energy, Inc. - VP of Finance & Treasurer

* Tracy D. Jackson

CVR Energy, Inc. - Executive VP & CFO

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Conference Call Participants

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* Jay Scott Tobin

Macquarie Research - Analyst

* Matthew Robert Lovseth Blair

Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - MD of Refining and Chemicals Research

* Neil Singhvi Mehta

Goldman Sachs Group Inc., Research Division - VP and Integrated Oil & Refining Analyst

* Prashant Raghavendra Rao

Citigroup Inc, Research Division - Senior Associate

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Presentation

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Operator [1]

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Greetings, and welcome to the CVR Energy, Inc. First Quarter 2019 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Jay Finks, Vice President of Finance and Treasurer. Thank you. You may begin.

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Jay Finks, CVR Energy, Inc. - VP of Finance & Treasurer [2]

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Thank you, Michelle. Good afternoon, everyone. We very much appreciate you joining us this afternoon for our CVR Energy First Quarter 2019 Earnings Call. with me today are Dave Lamp, our Chief Executive Officer; Tracy Jackson, our Chief Financial Officer; and other members of management.

Prior to discussing our 2019 first 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 that are not statement of historical facts may be deemed to be forward-looking statements. Without limiting the foregoing the words outlook, believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements. You are cautioned that the 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 required by law.

This call 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 2019 first quarter earnings release that we filed with the SEC.

With that said, I'll turn the call over to Dave.

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David L. Lamp, CVR Energy, Inc. - President, CEO & Director [3]

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Thank you, Jay, and good afternoon, everyone, and thank you for joining us on our earnings call. Hopefully, you had the opportunity to listen to the CVR Partners earnings call earlier today.

Yesterday, we reported the first quarter consolidated net income of $102 million as compared to $93 million in the first quarter of '18. EBITDA for the first quarter of '19 was $230 million compared to $205 million for the previous year, driven by safe, reliable operations, wide Brent-TI differentials, rising crude prices, hedging gains, lagging crude oil differentials and improved fertilizer pricing. We also announced the first quarter dividend of $0.75 per share, which will be paid on March 13 to stockholders of record of May 6. On an annualized basis, our current dividend yield of $3 per share represents an industry-leading dividend yield of approximately 7% based on yesterday's closing price.

Now I'll speak to some of the first quarter highlights from each of our business segments. For the Petroleum segment, both plants ran well, and we safely completed the planned turnaround at Wynnewood on time and under budget. Combined total throughput for the first quarter of 2019 was approximately 213,000 barrels per day as compared to 190,000 barrels per day in the first quarter of '18. As a reminder, the first quarter of '18 was impacted by downtime associated with the cat cracker at Coffeyville, while the Wynnewood turnaround affected the current quarter.

Total liquid yield for the quarter was 98%, consistent with prior year period. Our distillate yield as a percentage of total crude oil throughputs was 44% in the first quarter of 2019, also consistent with the prior year period. Our distillate yield consistently ranks in the top quartile among the U.S. independent refiners.

In total, we gathered approximately 119,000 barrels per day of crude oil during the first quarter of 2019 as compared to 113,000 for the same period last year. As we continue to shift our slate to crude oils gathered in our own backyard, we have increased our SCOOP gathering by approximately 40% relative to the first quarter of 2018, while decreasing our gathering activities in other regions.

Now turning to the fertilizer business. During the first quarter, CVR Partners had strong reliable operations at both facilities. Coffeyville's ammonia unit operated at 96% utilization for the first quarter, consistent with the utilization for the quarter of 2018. At East Dubuque, the ammonium plant operated at 69% utilization compared to 90% in the prior year adjusted for turnarounds. We lowered the ammonia rate at East Dubuque during the first quarter to manage storage capacity levels at the plant due to a poor fall -- due to poor fall weather.

The Board of Directors of CVR Partners' general partner declared a first quarter 2019 distribution of $0.07 per common unit, which will be paid on May 13 to unitholders of record of May 6. As CVR Energy owns approximately 34% of the common units of CVR Partners, we will receive a proportionate cash distribution of approximately $3 million.

Now let me turn the call over to Tracy to discuss some of our financial highlights.

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Tracy D. Jackson, CVR Energy, Inc. - Executive VP & CFO [4]

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Thank you, Dave, and good afternoon, everyone. Before I get into our results, I'd like to outline that during the first quarter of 2019, we revised our accounting for turnarounds and presentation of EBITDA. We now will be capitalizing all of our planned turnaround costs in our Petroleum segment, and as a result, we will no longer be using adjusted EBITDA. Prior year amounts have been conformed to align with this new presentation. Management believes this presentation better aligns our financial results to how we evaluate our operations internally and better aligns with industry peers.

We reported consolidated net income of $102 million in the first quarter of 2019 as compared to $93 million in the prior year period. Diluted EPS was $1 for the first quarter of 2019 compared to $0.69 for the prior year period. The effective tax rate for the first quarter of 2019 was 25.5% compared to 16.2% for the prior year period. The increase in income tax rate was due primarily to the decrease in noncontrolling interest as a result of the first quarter equity transaction. We continue to expect that our full year 2019 effective tax rate will be between 20% and 25%.

I will now turn to the specific performance of our 2 business segments impacting our overall quarterly results. The Petroleum segment's EBITDA for the first quarter 2019 was $209 million compared to $192 million in the same period in 2018. The increase in EBITDA year-over-year was driven by safe and reliable operations, wide Brent-WTI differentials, rising crude prices, hedging gains and lagging crude oil differentials.

In the first quarter 2019, our Petroleum segment's refining margin, excluding inventory valuation impacts, was $14.88 per total throughput barrel compared to $16.41 in the same quarter of 2018. The increase in crude oil flat price through the quarter generated a positive inventory valuation impact of $1.67 per barrel during the first quarter of 2019. This compares with $1.17 per barrel positive impact during the same period last year.

The capture rate excluding the inventory valuation impacts was 86% in the first quarter of 2019 compared to 98% in the first quarter of 2018. Capture rate in the first quarter 2018 benefited by approximately 20% related to the reduction in our renewable volume obligation.

The Group 3 2-1-1 crack spread averaged $17.26 per barrel in the first quarter of 2019 as compared to $16.57 in the first quarter of 2018. Crude differentials remain favorable during the quarter with the average differential between WTI and Brent remaining nearly $9 per barrel or over $4.50 per barrel wider than the first quarter 2018.

The WCS differential to WTI tightened in the quarter to $10.51 per barrel largely as a result of production curtailments imposed by the Alberta government. This compares to an average WCS to WTI differential of $25.74 per barrel in the first quarter 2018. With our capacity on multiple pipelines bringing Canadian crude oil into Cushing, we were able to capitalize on the WCS differentials during the quarter by selling those barrels to third parties for higher margin than we would have earned running them through our system.

Although WCS differentials have tightened recently, pipeline capacity out of Canada remains constrained, and we currently expect to see differentials begin to widen out again in the second half of 2019.

Gains on Canadian crude oil positions for the first quarter of 2019 totaled $16 million, which includes unrealized losses of $7 million associated with open purchases that are scheduled for delivery in the second quarter of 2019. In the first quarter of 2018, we had total derivative gains of $59 million, of which $46 million was unrealized at the end of the prior year period.

RINs expense in the first quarter of 2019 was $13 million or $0.68 per barrel of total throughput as compared to the benefit of $23 million or $1.35 per barrel of total throughput in the same period last year. Based upon recent market prices of RINs and current estimates of production rates, we currently estimate that our RINs expense will be approximately $60 million to $70 million in 2019, excluding any potential reductions in Renewable Volume Obligation.

The Petroleum segment's direct operating expenses, were $4.75 per barrel of total throughput in the first quarter of 2019 as compared to $5.39 per barrel in the prior year period. The decrease was primarily associated with lower personnel expenses and higher total throughput volumes as the first quarter of 2018 was impacted by downtime at Coffeyville.

Now turning to our fertilizer segment. For the first quarter of 2019, CVR Partners reported operating income of $9 million, a net loss of $6 million or $0.05 per common unit and EBITDA of $26 million. This is compared to operating losses of $3 million and net loss of $19 million or $0.17 per common unit and EBITDA of $30 million for the first quarter of 2018. The approximate 100% increase year-over-year in EBITDA was primarily due to the improved pricing of 14% and 45% for ammonia and UAN, respectively.

Turning to the consolidated balance sheet. Total consolidated capital spending for the first quarter of 2019 was $29 million, which included $26 million from the Petroleum segment and $3 million from CVR Partners. Of this total, environmental and maintenance capital spending comprised $26 million, including $23 million in the Petroleum segment and $3 million in CVR Partners.

We currently estimate the total consolidated capital spending for 2019 to be approximately $210 million to $240 million of which approximately $150 million to $175 million is environmental and maintenance capital. This includes planned turnaround spending -- this excludes planned turnaround spending for the year, which we estimate will be approximately $48 million.

Our cash position remained strong as we ended the quarter with cash of approximately $467 million on a consolidated basis, which includes $97 million at CVR Partners. As a reminder, the equity transaction that we completed in January resulted in the use of cash during the quarter of approximately $300 million. We feel confident in our strong balance sheet and liquidity position.

Looking ahead, we estimate our total throughput for the second quarter of 2019 to be approximately 217,000 to 227,000 barrels per day. We expect total direct operating expenses for the second quarter to be approximately $85 million to $95 million and total capital spending to range between $35 million and $40 million.

With that, Dave, I will turn the call back to you.

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David L. Lamp, CVR Energy, Inc. - President, CEO & Director [5]

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Thank you, Tracy. In summary, we are proud of our strong results for the first quarter of 2019. Our mission continues to be a top tier North American petroleum refiner and fertilizer company as measured by safe, reliable operations, superior financial performance and profitable growth.

Looking at 2019 and beyond, we currently see a host of market themes that drive our constructive outlook. First, global oil demand is strong and new worldwide refining capacity is being delayed. In the United States, gross domestic product growth is healthy and gasoline demand is steady driven by low unemployment.

IMO 2020 is currently on track for January implementation, and we view the new regulations as positive for both gasoline and diesel. The Brent-TI differential remains healthy, driven by ever-growing domestic shale oil production. And decline in crude -- corn inventories frame an improving outlook of our fertilizer business as nitrogen fertilizer represents about 15% of the farmers' cost structure and significantly improves their yields. We believe CVR Energy is well positioned for 2019 and beyond.

On our last call, I outlined our strategic objectives for 2019. A recap of those objectives are: Continued improvement in all environmental health and safety matters; safety is our #1 priority and safe operations result in reliable operations; profitable growth of our crude gathering and logistics systems by purchasing local crudes in our backyard and building out our pipeline system to supply our refinery operations; continue to increase our internally generated RINs and reduce our RIN exposure. This includes increasing biodiesel blending as well as continuing to explore building a wholesale and retail business; increase liquid yield at our refineries; execute our turnarounds on time and on or under budget; and prudently manage our costs.

In support of these objectives, we have a number of initiatives that we are progressing as previously discussed on our fourth quarter 2018 earnings call. A recap of those initiatives are: Increase liquid yield at Wynnewood by completing the design and evaluation of a new isomerization unit and -- which will increase our production of premium gasoline and improve capture rate. We have also started Schedule A process designed to replace our hydrofluoric acid catalyst in our Wynnewood operation with a solid catalyst. This project is also expected to increase production of premium gasoline at Wynnewood; increase our natural gasoline processing and WCS capacity to 40,000 barrels per day through phased projects at Coffeyville refinery. If approved, all these projects I listed above by our Board will have expected returns of 30% or higher; complete the sale of our Cushing, Oklahoma tank farm as it is an underutilized asset class for us and install an oxygen service system at the Coffeyville fertilizer plant.

As a reminder, we have approximately $50 million to $60 million of profit improvement projects in our capital budgets that require additional approvals by our Board. We continue to develop these initiatives, and as I move forward, I'll provide updates.

As we look at the second quarter of 2019, Group 3 cracks have averaged approximately $21.34 and the Brent-TI spread has averaged $7.37 quarter to date. These market drivers remained strong, and yesterday, they were approximately $21 per barrel on the Group 3 cracks and $8 per barrel on the Brent-TI spread. RIN prices has continued to decline, with ethanol averaging $16 -- $0.16 per quarter to date, down $0.20 -- down from $0.20 in the first quarter, and the biodiesel RINs are averaging $0.37 quarter to date, down from $0.51 last quarter.

With that, operator, we're ready to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Prashant Rao with Citigroup.

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Prashant Raghavendra Rao, Citigroup Inc, Research Division - Senior Associate [2]

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I wanted to start on the crude side. I had a couple of questions about Canadian heavy and then also on Midland. But maybe starting with the Canadian heavy, if you could remind us, your total -- what was your total access stand versus what you ran in the quarter? I'm trying to get a sense of how strategic you were able to be in terms of selling barrels into the market in the quarter, and maybe kind of a magnitude of how much the margin was and the profit was on those barrels. And then secondly, how much might be left? Given that this is a 60-day lag, what's your inventory sort of right now? Or is that pretty much done, given the -- now that crude differentials have tightened up? So some color there. And then a repeat on the -- I think, I just missed it, and I'm sorry about that. The $16 million number that Tracy you called out related to this, just wanted to sort of get those numbers if you can, too.

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David L. Lamp, CVR Energy, Inc. - President, CEO & Director [3]

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Okay. On the WCS capacity, what we have is line space for above 35,000, which we prorate it typically to around 30,000. We typically don't run much of -- if any at all of the WCS in our plants because it's more profitable, solid in Cushing. That price has been very strong lately. We do run some just in order to keep our crude rates at higher rates in our Coffeyville facility and probably averaged around 3% of the slate.

With that said, I forgot the rest of your question.

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Prashant Raghavendra Rao, Citigroup Inc, Research Division - Senior Associate [4]

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Sure. Absolutely. So I just wanted to -- so that's helpful and I was understanding how much was still in 1Q. I guess, if there -- in terms of barrel that you still have to sell that could be profitable, given that it was a 60-day lag on average, is there any more benefit. I think, you mentioned that in the prepared comments into 2Q or is that sort of now that the differentials have tightened is that kind of behind it, and expecting how you are going forward into 2Q sort of tailwind you could get for that WCS, it doesn't make more sense to run it now?

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David L. Lamp, CVR Energy, Inc. - President, CEO & Director [5]

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No. It's still profitable to sell it today. As the prices compress, the price we get in Cushing is also has gone down dramatically. So today, we're trading -- WCS is trading in the $12.50 range with that with about $6 freight to get it to Cushing. We can still sell it at a couple of bucks profit in the Cushing market. And that needs what we can do in the plant.

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Prashant Raghavendra Rao, Citigroup Inc, Research Division - Senior Associate [6]

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Okay. That makes sense. And that 60-day lag, is that usually -- forgive me, if you've already mentioned this before. But is that usually been the lag or part of...?

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David L. Lamp, CVR Energy, Inc. - President, CEO & Director [7]

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Oh yes. Yes, it's 60 days plus. That just depends on how the batches come.

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Prashant Raghavendra Rao, Citigroup Inc, Research Division - Senior Associate [8]

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Okay. Other question then on the light sweet side since you've got more that you're sourcing at your own backyard and it's good STACK. Your Midland barrel, I think, those are on like a 30-day lag. We've seen Mid-Cush differentials come in and outstretched and widened back out again. Would you be selling some of those Midland barrels through taking advantage of differentials as we get some volatility here, now that you've got more SCOOP/STACK in the system, and it's probably not as big as the WCS tactical opportunity? Curious if you're seeing some opportunity there given how the -- this has been moving over the last couple of months?

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David L. Lamp, CVR Energy, Inc. - President, CEO & Director [9]

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Well, of course, the way we run our gathering business is such that we use as an option to supply the refineries. We're buying on a Cushing basis on most of that gathering system. Although we do have about 30,000 barrels of space on the -- historical space on basin pipeline, which does give us a modest amount of exposure to the Midland differential. But generally, we use it as an option, and we will either resell those barrels that we gather in Cushing or run them, depending on what the best mix is. Our overall strategy and our overall gathering system is to buy barrels in our backyard exclusively, but also buy them at the wellhead and be very picky about what we buy and we want to be able to deliver in the need to Cushing and get into our system either to Coffeyville or to Wynnewood.

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Prashant Raghavendra Rao, Citigroup Inc, Research Division - Senior Associate [10]

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Has there been -- related to that, speaking of neat barrels, we've got some questions over the last months, month and half from investors in the market about do you need West Texas Light and I guess, we think of more like a condensate barrel and that being marker for that and what kind of discounts it goes to. Curious your thoughts about the dynamics of what that's doing for Midland pricing, what effect could be going forward as we get some -- maybe some price discovery between Permian grades? There's a sort of a view that all of this has to go to the water and ends up maybe in Asia being used as feedstock there. But given what you said, Tracy, curious to hear what you guys are seeing in the market and how do you think that develops?

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David L. Lamp, CVR Energy, Inc. - President, CEO & Director [11]

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Well, it's starting to shape up as a 3-tier system out there. You've got the 38 to 42 API gravity crudes, which are kind of the what I'll call the WTI regular. And then you have another class that's 43 to up to 48, 50. That's kind of the light. And then you got the ultralight that's 50-plus. And those are -- those historically have not traded with a large discount between them because a lot of them are getting blended off in various ways. But that is all starting to come to an end. And you're starting to see just a good indicator is that WT light, but also as White Cliffs what's happened with that is that's widened out to $1.75, and that's, as far as I can remember is one of the higher numbers in the market at least in the last 3 years. So I think ultimately, the -- these continue to spread as more and more lights are produced, and they have less and less places to go. And that -- we're trying to capitalize on that strategy also because our sweet spot is a little different than others and we are able to make same amount of diesel out of some of these crudes that others cannot. So we don't really have to have the heavy barrel. We don't have to have the light barrel.

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Prashant Raghavendra Rao, Citigroup Inc, Research Division - Senior Associate [12]

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Okay. Makes sense. Last question, and I'll turn it over. M&A environment, obviously, we're still pre-IMO, so I would imagine that we -- the opportunity is not quite there yet. But I wanted to check with you on that and also sort of in the context of now we're seeing some upstream consolidation being integrated to getting involved and there's some questions about will they need more downstream capacity to help with their integrated model, does that change the picture at all? And I will say, what's going on with Chevron and Anadarko and Occi, but there's an expectation that that shale value will be able to create more upstream consolidation in majors versus than the key players. Is there sort of a knock-on effect and what means for the M&A environment for you, guys?

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David L. Lamp, CVR Energy, Inc. - President, CEO & Director [13]

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Well, I think we've stated before that we are probably not a consolidator but a consolidatee. And I think we are a classic case of refining system that is 100% exposure to the Brent TI, and we would be an excellent fit for somebody that needs to manage that risk. And I think that there lies the attraction to these assets that -- and commands the premium that we get today in the marketplace. Nothing's changed in that front or we have not started the process yet or don't know if we will, but we'll see what happens here in the future.

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Prashant Raghavendra Rao, Citigroup Inc, Research Division - Senior Associate [14]

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And just a very last thing, just wanted to catch the number, Tracy, you went over it, but you called out on the WCS. I think it was $16 million in the gain. Could you just repeat those, please?

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Tracy D. Jackson, CVR Energy, Inc. - Executive VP & CFO [15]

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Sure. Sure. We had gains on the Canadian crude oil positions in the first quarter of $16 million, and that include unrealized losses of $7 million for open purchases that we'll have delivered here in the second quarter. And that -- you want the prior year numbers as well?

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Prashant Raghavendra Rao, Citigroup Inc, Research Division - Senior Associate [16]

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Yes. Just to compare.

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Tracy D. Jackson, CVR Energy, Inc. - Executive VP & CFO [17]

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Sure. The first quarter 2018, we had total derivative gains of $59 million, of which $46 million was unrealized at the end of the prior year period.

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Operator [18]

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Our next question comes from the line of Neil Mehta with Goldman Sachs.

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Neil Singhvi Mehta, Goldman Sachs Group Inc., Research Division - VP and Integrated Oil & Refining Analyst [19]

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Really good quarter here, and just wanted to build on your remarks, Dave, as you look to Q2. So when we clean out your 1Q results for onetimers, we kind of get to 80-something cents in EPS. And as you look at 2Q versus 1Q, obviously, we're early in the quarter. And I think you would say that we should think about it as incrementals or decrementals because with crack spread environment, one would think that 2Q setup pretty well.

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David L. Lamp, CVR Energy, Inc. - President, CEO & Director [20]

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Well, I think the comment I'd make Neil is that there were a lot of interruptions in the first quarter by others, not us, other than our turnaround that I think we benefited from that. If you look at the basis between the NYNEX and the Group, it was about as narrow as it's ever been in the first quarter. And I think we benefited strongly from that. Will that repeat? I mean, the basis has already spread out a bit. Just running right now you see it in the NYNEX is almost $23 and the group is $21. Where that'll go, I think, everybody is back up and running and making lots of gasoline. If demand doesn't pick up some more, there's probably some of that basis comes out. But also we're running into the driving season. So I'm pretty optimistic that'll turn around and supply from the Gulf will come up into our markets like it usually does in the second and third quarter.

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Neil Singhvi Mehta, Goldman Sachs Group Inc., Research Division - VP and Integrated Oil & Refining Analyst [21]

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Got it. That's helpful. And I want to talk about the dividend here. You guys, again, trading at a 7% dividend yield. Is the view that there's potential over time for dividend growth as well as long as you trade at this type of yield, we should just hold that sort of $3 dividend flat for the foreseeable future?

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David L. Lamp, CVR Energy, Inc. - President, CEO & Director [22]

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Well, I think, I think we're very comfortable with the $3 dividend. I think, we generate enough cash to support it for long time as well as grow our business. And some of these profit improvement projects, I think, is as good a way to reward our shareholders as it is for the increase in the dividend. So I think, depending on how we do and what the Board approves, that'll determine what happens I think with the dividend going forward.

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Neil Singhvi Mehta, Goldman Sachs Group Inc., Research Division - VP and Integrated Oil & Refining Analyst [23]

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All right. Dave, last question from me. Brent-WTI, I think the data that where it's going to evolve when all these Permian pipes come online and centering in basin, crudes flow to the Cushing, some of that crude get diverted down to the Gulf Coast. As you think about the outlook for Brent-WTI on a normalized basis in transportation economics post the onslaught of all these Permian pipeline, what do you think the new normal is?

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David L. Lamp, CVR Energy, Inc. - President, CEO & Director [24]

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Well, I think I said in my comments, my prepared comments, that the ever-increasing shale oil production, I don't think I see that changing. Particularly with $65 crude, that's going to continue to grow and probably accelerate. Although the E&P companies have seen to get a lot of capital discipline here lately, but generally, my experience there drillers and they like to drill, so that tells me that more shale oil will come on. As far as it manifest itself in the Brent TI, I think, Neil, what you really have here is that as you continue to increase, I think the takeaway capacity in the Gulf Coast is somewhere around 5 million, 5.5 million barrels a day. We're at 3 million, 2.5 million, 3 million. You will see that Brent TI probably have to widen, maybe not widen, but maintain where it is just to keep that flow growing. And frankly, all the Gulf Coast refineries are saturated with light crude. Short of them building some new splitters or something, I don't see how that barrel will clear without reaching farther into the world further away, which to me tells me that the Brent TI space pretty close to where it is or some of the even better has some upside to it.

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Neil Singhvi Mehta, Goldman Sachs Group Inc., Research Division - VP and Integrated Oil & Refining Analyst [25]

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Okay. Let me speak in one last one, I'm sorry. You talked about how you view yourself as the consolidatee and not a consolidator, given the fact that you do trade at a premium relative to the other refiners as you said, why CVI not a logical consolidator yet?

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David L. Lamp, CVR Energy, Inc. - President, CEO & Director [26]

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Well, I don't know that I have a straight answer for that. It's -- I think, they are older structures such that there's some interest in moving on. Although, one of our primary shareholders has own this business for 7 years and is very happy with that and maybe very happy with living with it for another 7 years. I don't know. I think, a little bit of -- it just seems like the market is at a point where if you wanted to exit the business, it's not a bad place to be. So I think that's the way the logic is thinking.

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Operator [27]

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Our next question comes from the line of Matthew Blair with Tudor, Pickering, Holt & Company.

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Matthew Robert Lovseth Blair, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - MD of Refining and Chemicals Research [28]

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Circling back to this $16 million derivative gain in the first quarter relating to WCS, I was under the impression that a lot of your WCS hedges were set to roll off at the end of 2018. So I was curious, did you extend any of these hedges? And can you provide any sort of details on, I guess, future volumes, the strike price and just the overall duration, like is this going to be a continuing event throughout 2019?

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David L. Lamp, CVR Energy, Inc. - President, CEO & Director [29]

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No, we're completely unhedged right now. We did have 10,000 barrels a day, I believe, at, $10.50 or what was it that expired at the end of '18 with some more in that neighborhood $10 I think. That is off now, but just by the nature of how we buy, there's a 2-month lag. So you do have some exposure there, and I'd like to believe that's where a lot of this is coming from.

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Tracy D. Jackson, CVR Energy, Inc. - Executive VP & CFO [30]

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I would just remind you that we have the intermediation agreement that helps move a lot of our barrels and the buying and selling of those gets accounted for a little bit differently when we sell that barrel and don't run it through the refinery. So I very carefully use my words when I said there were gains on Canadian crude oil purchases in the first quarter of this year and they were hedged gains -- gains last first quarter.

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Matthew Robert Lovseth Blair, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - MD of Refining and Chemicals Research [31]

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Okay. Okay. That's helpful. And then I was curious if you could offer any sort of a lost profit opportunity from the Wynnewood turnaround? Normally, it seems like that might have had a bigger impact, just given its hit in the most profitable month of the quarter. But then, David, I think you said something where you thought it actually might have helped you in the quarter. Could you expand on that?

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David L. Lamp, CVR Energy, Inc. - President, CEO & Director [32]

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Well, I said it probably helped because we were cut back at a time when gasoline -- when we started the turnaround, frankly, it was the perfect time gas cracks were in the toilet. And as turnaround progressed, they improved, which we didn't anticipate, but we're glad it happened. The fact that we took barrels off the market where I was saying we contributed to the increase, I don't know that I view it as lost opportunity because it was a planned turnaround and it's something that frankly we wouldn't even calculate it that way. Our total lost opportunities for the refining sector was less than $9 million for the quarter. So it was a very good -- from our standpoint that, that's a pretty low number.

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Matthew Robert Lovseth Blair, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - MD of Refining and Chemicals Research [33]

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Okay. And then last question, I guess, probably for Tracy. Just on the CapEx guidance, I think, you revised it to $210 million to $240 million. And then now with the new accounting system to capitalize turnarounds, should we add in that $48 million of turnaround spending into your CapEx number, so that the final number looks more like, I don't know, $260 million to $290 million, I guess?

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Tracy D. Jackson, CVR Energy, Inc. - Executive VP & CFO [34]

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So there were no revisions to our capital estimates for the year. I believe in your note, you didn't include the corporate amount, you were just adding petroleum and fertilizer together. So the capital estimates from year-end to first quarter end have not changed. Turnaround being capitalized, we are not, including that as a component of our capital spend profile. We will talk about that separately.

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David L. Lamp, CVR Energy, Inc. - President, CEO & Director [35]

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Remember too, though, Jay, there's a lot of money in there for projects that we don't have final Board approval on yet, about $50 million to $60 million as we mentioned. So make sure you factor that into your calculation.

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Matthew Robert Lovseth Blair, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - MD of Refining and Chemicals Research [36]

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Okay. But I guess, just to be clear, the $48 million in turnaround spending, that's going to flow through the cash flow statement, right?

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Tracy D. Jackson, CVR Energy, Inc. - Executive VP & CFO [37]

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Yes.

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Operator [38]

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(Operator Instructions) Our next question comes from the line of Jay Tobin with Macquarie.

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Jay Scott Tobin, Macquarie Research - Analyst [39]

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Great quarter. And I think most of my questions have been brought up. I'll throw one. It looks like Coffeyville rent up its condensate volumes process. Just what's -- a lot of excess light moving around, just curious if there is driver in there that opportunities will take more or less condensate?

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David L. Lamp, CVR Energy, Inc. - President, CEO & Director [40]

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Well you remember, we reversed Red River pipeline this last, I guess, it's really started up in the beginning of first quarter at 4.08. And what the turnaround at Wynnewood, we had the opportunity to move substantial quantity of the SCOOP-type barrels to Coffeyville where they were run. So I think that's what you're seeing in there. By the way, that's our plan going forward, more and more of that is what you're going to see.

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Operator [41]

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Thank you. We have reached the end of our Q&A session. I would turn the call back over to management for any closing remarks.

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David L. Lamp, CVR Energy, Inc. - President, CEO & Director [42]

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Again, we'd like to thank you all for your interest in CVR Energy. Additionally, I'd like to thank our employees for their hard work and commitment towards safe, reliable, environmentally responsible operations. We look forward to reviewing our second quarter results during our next earnings call. Thank you, and have a good day.

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Operator [43]

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Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.