CVR Energy, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2021. CVR Energy operates petroleum refining and nitrogen fertilizer businesses. Financial amounts below are in U.S. dollars; “M” means million and “B” means billion.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $1.883B | $1.005B | $5.129B | $2.811B |
| Operating income (loss) | $175M | ($46M) | $46M | ($206M) |
| Net income (loss) | $106M | ($108M) | $49M | ($241M) |
| Net income (loss) attributable to CVR stockholders | $84M | ($96M) | $39M | ($188M) |
| Diluted earnings (loss) per share | $0.83 | ($0.96) | $0.38 | ($1.87) |
- Cash flow: Nine-month operating cash flow was $382M versus $62M in 2020. Investing used $204M; financing used $279M. Cash, cash equivalents and restricted cash declined $101M to $573M, including $566M of cash and cash equivalents. Management’s non-GAAP free cash flow was $191M versus negative $197M.
- Liquidity and debt: Reported total liquidity was approximately $972M: $566M cash plus $371M available under the Petroleum ABL and $35M under the Nitrogen Fertilizer ABL. Debt and finance lease obligations, including current portions, totaled $1.676B. Current liabilities were $1.035B, including a $442M Renewable Fuel Standard (RFS) obligation. The company reported covenant compliance.
- Balance sheet: Total assets were $3.872B and total equity $765M at September 30, 2021, compared with $3.978B and $1.219B, respectively, at year-end 2020.
- Segment results: Petroleum operating income was $135M in Q3, versus a $39M loss; its nine-month operating loss narrowed to $1M from $161M. Nitrogen Fertilizer operating income was $46M in Q3 versus a $3M loss, and $63M for nine months versus a $34M loss. Petroleum refining margin was $292M, or $15.03 per throughput barrel, in Q3; nine-month margin was $475M, or $8.51 per barrel. Nitrogen fertilizer Q3 realized gate prices were $507/ton for ammonia and $305/ton for UAN.
Changes versus comparable periods
- Revenue and operating results improved substantially as refined-product demand, prices and crack spreads recovered from 2020 lows, while fertilizer prices rose sharply amid strong crop economics and constrained industry supply. Q3 petroleum throughput increased to 210,943 barrels per day from 201,168; fertilizer production utilization declined to 94% from 98% due to supplier and power outages.
- Petroleum results remained exposed to materially higher RFS compliance costs: $335M for the first nine months of 2021 versus $71M in 2020. For Q3, the company recorded a $16M RFS compliance benefit versus $36M expense a year earlier, including a favorable $115M revaluation effect, partly offset by current compliance costs.
- The nine-month result includes an $82M gain on marketable securities, compared with a $13M loss in 2020. CVR distributed substantially all its Delek shareholding in a June special dividend and recognized a $112M gain on the investment through the distribution date.
- Nine-month interest expense declined to $92M from $98M. CVR Partners issued $550M of 6.125% notes due 2028 and redeemed $565M of its 9.25% notes due 2023; management estimated annual interest savings of approximately $19M.
Outlook, commentary and risks
- Management expected cash from operations, existing cash and available borrowing capacity to cover anticipated operating needs for at least 12 months, while noting capital and compliance costs could exceed current expectations.
- Management estimated 2021 RFS compliance costs at $460M–$465M, excluding any small-refinery exemptions. The estimate depends on RIN prices, blending and purchasing activity, regulatory decisions and potential exemptions; the 2021 renewable volume obligation had not yet been set by the EPA as of the filing.
- The Wynnewood renewable diesel project was estimated at $150M, with mechanical completion and startup expected in Q2 2022 and planned capacity of up to 100M gallons annually. After quarter-end, the Board approved a separate $60M pretreatment project, expected to be completed in Q4 2022. Management cautioned economics and policy changes could affect project benefits or operating choices.
- Estimated 2021 capital expenditures were $208M–$223M, including $135M–$140M for the Wynnewood renewable diesel project. Planned refinery and fertilizer turnarounds were deferred into 2022 or 2023; such deferrals may affect future maintenance timing and spending.
- Management cited continued uncertainty from COVID-19 and variants, crude and product price volatility, RIN costs, weather-related interruptions, feedstock and energy costs, and fertilizer market conditions. Hurricane Ida, Winter Storm Uri, Messer air-separation outages and power interruptions affected industry supply or company production.
- Contingencies include ongoing Clean Air Act and consent-decree claims relating to the Coffeyville refinery, uncertainty over a 2017 small-refinery exemption, and post-trial proceedings in Delaware litigation concerning the former CVR Refining partnership call option. The company could not determine the outcomes or potential impacts of these matters. It stated that the described legal proceedings were not expected to have a material impact where it could make such an assessment.
- CVR paid a $492M special dividend in June ($2.40 per share in cash plus Delek shares); no CVR Energy quarterly dividend was declared for Q3. CVR Partners declared a post-quarter distribution of $2.93 per common unit, payable in November 2021.
Important facts for investors to verify
- Track RIN prices, the EPA’s 2021 RVO and exemption decisions, and changes in the $442M recorded RFS liability and management’s 2021 cost estimate.
- Assess whether petroleum margins and fertilizer prices remain strong, and monitor refinery throughput, fertilizer utilization and the effects of outages and deferred turnarounds.
- Verify the renewable diesel and pretreatment projects’ cost, schedule, expected returns and exposure to renewable feedstock prices and policy changes.
- Review cash generation and working-capital movements, available borrowing capacity, refinancing benefits and debt covenant compliance; nine-month cash flow included favorable working-capital changes.
- Monitor the outcomes of the cited legal and regulatory proceedings, which remain uncertain, and the potential implications for liabilities, cash flows and RFS obligations.