CVR Energy, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. CVR Energy operates petroleum refining and marketing and nitrogen fertilizer businesses. Figures are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $2,699 | $1,883 | $8,216 | $5,129 |
| Operating income | $103 | $175 | $726 | $46 |
| Net income | $80 | $106 | $472 | $49 |
| Net income attributable to CVR Energy stockholders | $93 | $84 | $351 | $39 |
| Diluted EPS | $0.92 | $0.83 | $3.49 | $0.38 |
| Net cash provided by operating activities | $156 | $139 | $868 | $382 |
- Margins and segments: Petroleum refining margin was $307 million ($16.56 per throughput barrel) in Q3 and $1.083 billion ($19.82 per barrel) for nine months. Petroleum segment operating income was $137 million in Q3 and $564 million year to date. Nitrogen Fertilizer segment recorded a $12 million Q3 operating loss, versus $46 million income a year earlier; nine-month operating income was $218 million.
- Cash flow and investment: Nine-month free cash flow, as defined by the company, was $649 million after $145 million of capital expenditures and $74 million of capitalized turnaround spending. Investing cash outflow was $217 million.
- Liquidity and debt: Cash and equivalents were $618 million at September 30, up from $510 million at year-end 2021. Reported total liquidity was approximately $900 million, including $247 million available under the Petroleum ABL and $35 million under the Nitrogen Fertilizer ABL. Debt and finance lease obligations, including current portions, totaled $1.593 billion. The company reported compliance with debt covenants.
Material changes versus comparable periods
- Revenue increased substantially in both periods, largely reflecting higher petroleum product prices and fertilizer prices. Nine-month petroleum results also benefited from stronger refining margins; prior-year results were affected by Winter Storm Uri.
- Q3 consolidated operating income declined $72 million year over year despite higher sales. Petroleum operating income was slightly higher, but fertilizer results fell sharply as planned turnarounds and unplanned equipment downtime reduced output and increased expenses.
- Nine-month operating income rose from $46 million to $726 million. Petroleum and fertilizer segment earnings improved, while reported 2021 results included an $82 million gain on marketable securities; 2022 included a $79 million estimated Call Option Lawsuits settlement charge.
- Operating cash flow increased to $868 million from $382 million, primarily reflecting stronger operating performance. Financing outflows increased, including $342 million of dividends to CVR Energy stockholders and $118 million of distributions to CVR Partners’ noncontrolling holders.
Outlook, risks and unusual items
- Management said cash from operations, cash on hand and available borrowing capacity were expected to cover anticipated operating requirements for at least the next 12 months. It cautioned that capital and other cash needs could exceed expectations, including due to inflation, labor and materials costs, and Renewable Fuel Standard (RFS) requirements.
- The company estimated 2022 RFS compliance costs of $390–$400 million, net of estimated $100–$110 million of RIN generation from renewable diesel operations, without assuming small-refinery exemptions. The recorded RFS liability was $715 million at September 30; the company estimated an open position of approximately 423 million RINs, excluding fixed-price purchase commitments.
- The Wynnewood renewable diesel conversion entered service in April 2022, with production still increasing. A pretreater project was estimated at $95 million and expected to be completed in Q3 2023. Estimated 2022 capital expenditures were $204–$234 million.
- Management described potential effects from volatile crude, product, fertilizer and RIN prices; the Russia-Ukraine conflict; inflation and possible recession; COVID-19; weather and operating interruptions; and regulatory and environmental requirements. It expected tight fertilizer and grain market conditions to persist through spring 2023, while noting commodity-cycle volatility.
- The company recognized a $79 million estimated loss for a proposed settlement of Call Option Lawsuits; final court approval was pending. It was pursuing insurance recovery, but outcomes and potential effects were uncertain. RFS exemption and rule challenges, and Clean Air Act claims involving the Coffeyville refinery, also remained unresolved.
- After quarter-end, the board declared a $0.40-per-share regular dividend and a $1.00-per-share special dividend, both payable November 21, 2022. CVR Partners declared a $1.77-per-unit distribution payable that date.
Key facts for investors to verify
- Whether final approval of the $79 million Call Option Lawsuits settlement is obtained and whether insurance litigation changes the company’s net exposure.
- Actual RFS compliance costs, RIN prices and the outcome of the company’s small-refinery exemption and RFS legal challenges.
- Renewable diesel production ramp, expected RIN generation and progress, cost and timing of the Wynnewood pretreater project.
- Recovery from fertilizer turnarounds and Messer-related and other equipment downtime, and the effect on production, costs and distributions.
- Refining margins, commodity volatility, liquidity and capital spending relative to management’s estimates and stated 12-month funding expectation.