CVR Energy, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 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 performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $1.783 billion | $675 million | $3.246 billion | $1.806 billion |
| Operating income (loss) | $6 million | ($26 million) | ($129 million) | ($160 million) |
| Net income (loss) | ($2 million) | ($32 million) | ($57 million) | ($133 million) |
| Net loss attributable to CVR Energy | ($6 million) | ($5 million) | ($45 million) | ($92 million) |
| Basic and diluted loss per share | ($0.06) | ($0.05) | ($0.45) | ($0.92) |
| Adjusted EBITDA (non-GAAP) | $66 million | $36 million | $93 million | $93 million |
- Segments: Petroleum reported Q2 operating loss of $20 million versus income of $5 million a year earlier; nitrogen fertilizer reported operating income of $30 million versus a $26 million loss. For the first half, petroleum operating loss was $136 million, while nitrogen fertilizer operating income was $16 million.
- Refining: Q2 refining margin was $133 million, or $6.72 per throughput barrel, versus $148 million, or $10.43 per barrel. RFS compliance expense rose to $173 million from $16 million. First-half refining margin was $184 million versus $170 million, but RFS expense increased to $351 million from $35 million.
- Fertilizer: Q2 sales were $138 million versus $105 million, supported by stronger prices. Gate prices were $403 per ton for ammonia and $237 per ton for UAN, compared with $332 and $165, respectively, in Q2 2020.
- Cash flow: First-half operating cash flow was $243 million versus cash used of $49 million; capital expenditures and turnaround expenditures were $126 million and $2 million. Free cash flow, a non-GAAP measure, was $115 million versus negative $273 million. Cash, cash equivalents and restricted cash declined by $148 million to $526 million.
- Balance sheet: June 30 cash and cash equivalents were $519 million; total liquidity was approximately $915 million, including $396 million of available ABL capacity. Total debt and finance lease obligations, including current portions, were $1.693 billion. Current liabilities rose to $1.112 billion from $659 million, driven in part by the RFS liability.
Material changes and notable items
- CVR Partners issued $550 million of 6.125% senior secured notes due 2028 and redeemed $550 million of its 9.25% notes due 2023. The refinancing is expected to save approximately $17 million annually in cash interest; an $8 million debt-extinguishment loss was recorded. The company reported compliance with debt covenants.
- CVR Energy paid a special dividend valued at approximately $492 million, or $4.89 per share, consisting of $241 million cash and approximately 10.54 million Delek shares. The Delek investment distribution generated a reported $112 million gain; investment income on marketable securities was $83 million for the first half.
- The Wynnewood renewable diesel project had estimated total costs of $150–$160 million. First-half capital spending included $124 million for renewables; estimated 2021 capital expenditures were $226–$242 million, including $135–$140 million for the project.
- Revenue and refinery throughput rebounded sharply from Q2 2020, when COVID-related demand weakness and a Coffeyville turnaround affected operations. The comparison also reflects stronger product prices and crack spreads in 2021.
Outlook, risks and contingencies
- Management estimated 2021 consolidated RFS compliance costs of $510–$515 million, net of estimated $30–$40 million in renewable-diesel-generated RIN credits. At June 30, the estimated open position was approximately 291 million RINs, excluding 21 million RINs covered by fixed-price purchase commitments; the recorded RFS liability was $485 million. RIN prices, EPA rulemaking and potential small-refinery exemptions create substantial uncertainty.
- Management believed cash from operations, cash on hand and available borrowings would cover anticipated operating cash needs for at least 12 months, while cautioning that RFS costs, inflation in labor and materials, and operating performance could affect cash requirements.
- Management described signs of recovery in refined-product demand, prices and crack spreads, but warned that COVID-19 variants, changing restrictions, commodity volatility, OPEC+ decisions and refining-market conditions could disrupt recovery. Fertilizer results remain exposed to crop prices, weather, feedstock costs, production interruptions and imports.
- The filing gives inconsistent timing for Wynnewood renewable diesel project mechanical completion and startup: one discussion anticipates Q4 2021 and another Q3 2021. It also notes that operation in conventional hydrocracking mode may be chosen if economics favor it.
- Contingencies include ongoing Clean Air Act and related claims concerning the Coffeyville refinery, with outcome and potential financial impact not estimable; the EPA’s reconsideration of Wynnewood’s 2017 small-refinery exemption; and Delaware litigation over CVR Refining’s call option, for which no ruling had issued as of the filing. The company said the separate related federal lawsuit was voluntarily dismissed.
Important facts for investors to verify
- Subsequent RIN prices, EPA decisions and realized RFS costs versus management’s 2021 estimate; also verify whether the recorded $485 million liability changes materially.
- Actual renewable-diesel project cost, commissioning date, operating economics and expected RIN-credit generation.
- Whether refinery margin and cash generation improve enough to offset compliance costs, and whether fertilizer pricing and production remain strong.
- Developments and potential exposure in the Coffeyville environmental claims, Wynnewood exemption review and Delaware litigation.
- Debt-service, liquidity and distribution capacity after the special dividend and CVR Partners’ refinancing; dividends remain discretionary.