CVR Energy, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a standalone fourth-quarter report; the supplied filing text does not provide clear standalone Q4 financial results.
Business context
CVR Energy is a holding company with two principal businesses: petroleum refining and marketing, and nitrogen fertilizer production. Its two refineries are in Coffeyville, Kansas, and Wynnewood, Oklahoma; fertilizer facilities are in Coffeyville and East Dubuque, Illinois. Icahn Enterprises and affiliates owned approximately 71% of CVR Energy at year-end.
Financial results and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Net sales | $3.930 billion | $6.364 billion |
| Operating income (loss) | $(333) million | $580 million |
| Net income (loss), consolidated | $(320) million | $362 million |
| Net income (loss) attributable to CVR Energy shareholders | $(256) million; $(2.54) per share | $380 million; $3.78 per share |
| Net cash from operating activities | $90 million | $747 million |
| Free cash flow (non-GAAP) | $(193) million | $588 million |
- Sales declined about 38% year over year. The company attributed the downturn primarily to pandemic-related demand destruction, lower product prices and refinery throughput, weak refining margins, and higher renewable-fuel compliance costs.
- Petroleum Segment sales were $3.586 billion, down from $5.968 billion. Operating loss was $281 million versus operating income of $574 million. Refining margin fell to $298 million, or $4.44 per throughput barrel, from $1.203 billion, or $15.26 per barrel. Group 3 2-1-1 crack spread averaged $9.41 per barrel versus $18.22.
- Nitrogen Fertilizer Segment sales were $350 million, down from $404 million; operating loss was $35 million versus operating income of $27 million. Lower realized prices were partly offset by higher sales volumes. Ammonia and UAN pricing at gate was $284 and $152 per ton, respectively, versus $392 and $199.
- Year-end cash and cash equivalents were $667 million. Available borrowing capacity was $365 million under the Petroleum ABL and $20 million under the Nitrogen Fertilizer ABL; reported total liquidity was approximately $1 billion.
- Debt and finance lease obligations, including current portions, totaled approximately $1.691 billion. CVR Energy issued $1 billion of notes in January 2020, with maturities in 2025 and 2028, and used part of the proceeds to redeem $500 million of 2022 notes. The company reported covenant compliance at year-end.
Material changes and unusual items
- Pandemic-driven weakness reduced petroleum demand in the company’s operating region by approximately 10% for 2020. Petroleum throughput fell to 183,295 barrels per day from 215,971.
- RFS compliance expense rose to $190 million from $43 million; the year-end accrued RFS obligation was $214 million, compared with $7 million in 2019. The company reported an open 2020 obligation of approximately 240 million RINs at year-end, subsequently reduced to 221 million in January 2021.
- A $41 million non-cash goodwill impairment was recorded for the Coffeyville fertilizer reporting unit. A $58 million petroleum inventory valuation loss was also recorded in the first quarter.
- Cash from operations fell sharply, while turnaround spending increased: the Coffeyville refinery’s planned 57-day turnaround was completed in April, with $155 million of costs capitalized. Capital and turnaround expenditures together were $283 million.
- The company acquired a 14.9% interest in Delek for approximately $140 million and reported $41 million of investment income, including $34 million of unrealized gains.
- CVR Energy paid $1.20 per share in dividends during 2020, including a payment relating to 2019’s fourth quarter; it declared no dividends for 2020’s second through fourth quarters. CVR Partners made no 2020 distributions.
Outlook, risks, and contingencies
- Management said cash, operating cash flow and available borrowing capacity should be sufficient for anticipated existing-operating needs for at least 12 months, while noting uncertainty and possible higher future cash requirements. No formal earnings guidance is provided.
- Management estimated 2021 RFS compliance costs of $260 million to $280 million, net of estimated $95 million to $105 million of RIN credits from renewable diesel operations. RIN pricing, regulatory decisions, and waiver eligibility could materially change costs.
- The board approved a $110 million renewable diesel unit at Wynnewood, targeting completion in June 2021 and annual capacity of 100 million gallons. Conversion is expected to reduce the refinery’s crude capacity by approximately 17,000 barrels per day. Estimated 2021 capital spending was $215 million to $230 million, including $95 million to $100 million for the project.
- Management described longer-term U.S. nitrogen fertilizer industry fundamentals as supportive, while noting commodity-price, weather, feedstock-cost, and seasonal-demand uncertainty.
- Key risks include volatile refining margins and commodity prices; COVID-19 effects; RIN costs and changing regulation; concentrated customers and geographic exposure; operational outages and supplier or transport interruptions; environmental and climate regulation; debt restrictions; and Icahn-affiliate control.
- Material unresolved matters include government claims alleging Clean Air Act and related violations at Coffeyville; class-action litigation concerning the CVR Refining call option, including an insurer coverage suit; and Supreme Court review of the Wynnewood small-refinery exemption. Outcomes and potential financial effects were not clear in the filing.
- Environmental remediation accruals were approximately $11 million at year-end. The company also reported $766 million of unconditional purchase obligations over multiple years.
Most important facts for investors to verify
- Whether refining margins, throughput, and regional fuel demand recover, and how much of the recovery reaches operating cash flow.
- Actual 2021 RFS expense and the outcomes of the RIN obligation, refinery waiver proceedings, and Supreme Court case.
- Renewable diesel project cost, timing, production, RIN generation, and the effect of lower Wynnewood crude capacity.
- Cash requirements for debt service, turnarounds, and capital spending relative to liquidity; note that reported free cash flow was negative in 2020.
- Potential exposure from the Coffeyville enforcement matter, call-option lawsuits, insurance coverage dispute, and environmental obligations.