CVR Energy, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. CVR Energy operates petroleum refining and nitrogen fertilizer businesses. Icahn Enterprises and affiliates owned approximately 71% of CVR Energy at quarter-end.
Financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $1.463 billion | $1.130 billion |
| Operating loss | $135 million | $135 million |
| Net loss | $55 million | $101 million |
| Net loss attributable to CVR Energy stockholders | $39 million | $87 million |
| Loss per share, basic and diluted | $0.39 | $0.87 |
| Operating cash flow | $96 million | $(58) million |
| Free cash flow | $61 million | $(115) million |
| EBITDA, non-GAAP | $0 | $(38) million |
Revenue increased 29% year over year, while the consolidated operating loss was unchanged. The smaller net loss reflected, in part, a $62 million unrealized gain on marketable securities, compared with $30 million in Q1 2020. Operating cash flow benefited from working-capital movements; management cited a $272 million favorable working-capital change, including effects of higher crude prices and the increased RFS obligation.
- Petroleum: Sales rose to $1.404 billion from $1.057 billion; operating loss narrowed to $115 million from $127 million. Refining margin was $51 million, or $3.05 per throughput barrel, versus $22 million, or $1.52 per barrel. A $66 million favorable inventory valuation impact helped results, but was more than offset by $178 million of RFS compliance expense and a $32 million derivative loss.
- Nitrogen fertilizer: Sales declined to $61 million from $75 million; operating loss widened to $14 million from $5 million. Lower production and sales volumes, including effects of Winter Storm Uri and downtime associated with the Messer air separation plant, outweighed stronger ammonia pricing.
Liquidity, debt and capital
At March 31, cash and cash equivalents were $707 million, total assets were $4.188 billion, and total current liabilities were $995 million. Total debt and finance lease obligations, including current amounts, were $1.691 billion. The filing reported approximately $1.1 billion of liquidity: cash plus $364 million available under the Petroleum ABL and $25 million under the Nitrogen Fertilizer ABL. The company and subsidiaries were in compliance with debt covenants.
Operating cash flow was $96 million; investing cash outflow was $54 million, including $20 million for pipeline assets; financing cash outflow was $2 million. Cash, cash equivalents and restricted cash increased $40 million to $714 million. CVR paid no parent-company dividend in Q1 and declared none for the quarter. The $2 million 2021 Notes matured and were paid on April 15, 2021.
Material changes and outlook
- Refined-product demand and crack spreads improved from the pandemic-affected prior-year quarter; reported throughput increased to 186,093 barrels per day from 156,518. Winter Storm Uri disrupted operations and increased natural gas costs.
- RFS costs rose sharply amid higher RIN prices. The company had an approximately 246 million RIN open obligation for 2020 and 2021 at quarter-end, excluding 32 million RIN purchase commitments, and recorded a $342 million RFS liability. Management estimated 2021 consolidated RFS compliance costs of $420–$430 million, net of estimated $60–$70 million of renewable-diesel RIN generation. These estimates are exposed to market and regulatory uncertainty.
- The Wynnewood renewable diesel project is designed for 100 million gallons of annual capacity. Estimated cost was $135–$140 million, with mechanical completion and startup expected in Q3 2021. Estimated 2021 capital expenditures were $234–$250 million, including $123–$128 million for renewables.
- Management said existing cash, expected operating cash and available borrowing capacity should meet anticipated operating needs for at least 12 months, while noting uncertainty and potential for higher future cash requirements. It deferred or reduced other growth and maintenance spending, postponed the Wynnewood refinery turnaround to spring 2022, and deferred the East Dubuque fertilizer turnaround to 2022.
Risks, contingencies and unusual items
Key risks include volatile refining margins and commodity prices, COVID-19 recovery uncertainty, RIN prices and RFS policy, operational interruptions, feedstock availability, regulation and environmental requirements, and execution of the renewable diesel project. The filing describes ongoing government claims concerning alleged Clean Air Act and consent-decree violations at the Coffeyville refinery, the Supreme Court review of a small-refinery exemption relevant to Wynnewood, and litigation over CVR Refining’s call option. Outcomes and potential financial effects were not clear or estimable in the filing. Management reported no material financial impact from COVID-related contract performance issues as of March 31.
Other notable items include the $62 million unrealized investment gain, the $32 million net derivative loss, and the favorable inventory valuation impact in petroleum. The company acquired pipeline assets for $23 million in February. Management reported disclosure controls were effective and no material changes to internal control over financial reporting.
Important facts for investors to verify
- Whether RIN prices, EPA rulemaking, small-refinery exemptions and the 2021 RVO change actual RFS costs versus management’s estimate.
- Progress, cost and startup timing for the Wynnewood renewable diesel project, and whether expected RIN generation is achieved.
- Whether refining margins and product demand recover sustainably, and how future crude-price and inventory movements affect results.
- Operational recovery and fertilizer volumes following Winter Storm Uri and the Messer-related downtime.
- Cash generation, working-capital needs, debt maturities and liquidity after payment of the 2021 Notes.
- Developments and potential exposure in the refinery environmental claims, RFS exemption matter and call-option lawsuits.