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Executives

Stirling Pack – VP, IR

Jack Lipinski – Chairman, President and CEO

Ed Morgan – CFO and Treasurer

Stan Riemann – COO

Analysts

Arjun Murti – Goldman Sachs

Jeff Dietert – Simmons & Company

Kathryn O’Connor – Deutsche Bank

Steven Carpell – Credit Suisse

CVR Energy, Inc. (CVI) Q3 2010 Earnings Conference Call November 2, 2010 11:00 AM ET

Operator

Greetings and welcome to the CVR Energy third quarter 2010 conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions).

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Stirling Pack, Vice President of Investor Relations for CVR Energy. Thank you. Mr. Pack, you may begin.

Stirling Pack

Thank you, Claudia. Good morning, everyone. We very much appreciate you being here for our call this morning. With me today as call participants are Jack Lipinski, our Chief Executive Officer; Ed Morgan, our Chief Financial Officer; and Stan Riemann, our Chief Operating Officer.

Prior to the discussion of our 2010 third quarter results, we are required to make the following Safe Harbor statement. In accordance with Federal Securities laws, the statements in this earnings call relating to matters that are not historical facts are forward-looking statements based on management’s belief and assumptions, using currently available information and expectations as of this date and are not guarantees of future performance and do involve certain risks and uncertainties, including those noted in our filings with the Securities & Exchange Commission.

This presentation also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures including reconciliation to the most directly comparable GAAP financial measures are included in our third quarter 2010 earnings release which we filed with the SEC yesterday after the close of the market.

With that said, I’ll turn the call over to Jack Lipinski, our Chief Executive Officer. Jack?

Jack Lipinski

Thank you, Stirling, and good morning, all. Thanks for joining us. As you can see from the results we released, we had a very good third quarter, reflecting consistent reliable operations at both of our businesses.

We reported a net income of $23.2 million or $0.27 per share for the third quarter on $1.031 million of sales. Taking into account a handful of special items, our adjusted net earnings are $0.28 per share. The results and the details behind these numbers are available on the earnings release issued last night on PR Newswire, and on our website at cvrenergy.com.

In my results today, I will add some context to the numbers and give you our view of what we see coming in the fourth quarter. Ed will then add more detail regarding our financials. After Ed has concluded, I will close with some additional remarks. And Ed, Stan Riemann, our Chief Operating Officer, and I will take your questions.

As you know we have two major businesses, petroleum and nitrogen fertilizers. I’ll start with the petroleum segment. Operations for the third quarter were excellent. We processed an average of 118,350 barrels a day of crude, which is a quarterly record for us. Total throughputs include crude and all other feed stocks and blend stocks average a 128,789 barrels a day also at quarterly record.

Operating costs decreased from $3.59 per barrel of product sold in Q3 2009 to $3.1 per barrel of product sold to the third quarter this year. Operating costs decreased partly due to higher throughputs, but more importantly with increased efficiencies and lower maintenance costs.

Refining margins improved from the first half of the year, averaged $9.84 per barrel. Not only did we see improvement in NYMEX 211, but we saw a geographical improvement compared to group three where we operate. That basis, which has been traditionally positive in our area has been uncharacteristically low for the last three quarters. So we’re glad to see that it’s turned around.

We continue to see strong diesel demand in our area as a result of increased transportation uses as well as agricultural needs. Year-over-year inventory levels in the pipeline systems that we serve has shown a reduction in total volume and in days of supply. Since we’re seeing the increased diesel demand, we increased our diesel production.

We also ran a record amount of heavy Canadian crude this quarter and a differential for heavy crudes volume. We processed 18,600 barrels a day this past quarter as compared to 9,000 barrels a day a year-ago. At the end of the second quarter, heavy Canadian was selling at a discount of about $14 below WTI.

By July, that discount improved to the $17 range. By the latter part of the quarter, with pipeline problems on Enbridge line 6A and 6B, Heavy Canadian became even more heavily discounted and reached levels approaching $30 a barrel below WTI. We were able to acquire some of these cheaper barrels, which will be processed in the fourth quarter.

Another important part of our petroleum business is our crude gathering division. We continue at a record pace. We’ve gathered an excess for 31,500 barrels per day during the quarter. As I mentioned before, these fairly priced gathered barrels remain an important component in our refinery economics.

Now, let me move over to fertilizers where we had very good operations. Gasification was on stream over 99% of the time, our ammonia synthesis look again 99% on stream time, and UAN was about 97% on stream time. We produced 173,800 tons of UAN and 41,000 net tons from Magellan available for sale.

We’ve seen prices move dramatically. In the third quarter, UAN sold for $168 a ton up from $133 a ton during the same quarter a year earlier. Ammonia improved as well selling for $317 a ton compared to $247 per ton in the same period last year.

Recent reductions in world grain stocks largely driven by lower production in Russia have increased world grain price. This in turn has a direct impact on fertilizer price. The current market today is approximately $575 per ton for ammonia and $320 per ton for UAN.

On the last day of the quarter, September 30th, we had an incident at our UAN plant where a high-pressure vessel ruptured. No one was injured and damage was localized, with no significant offside impacts. Fortunately, we were preparing for our biannual turnaround at the fertilizer plant, which thereby minimized downtime.

Last week, we completed the turnaround as planned and resumed production with the exception of our UAN plant, which we will restart later this month.

Giving a little more clarity of the incident, we expect repairs to cost between $7 and $10 million. We have insurance coverage for both property damage and business interruption should we need it that will limit the impact of this incident.

For the next few weeks, we will be producing only ammonia and we’ll honor all our contracts for UAN. So that means that some of the orders we’ve taken this year, will roll into the first and second quarters of next year.

We generated significant free cash flow during the quarter. We closed the third quarter with $162.4 million in cash and cash equivalents with an additional $15 million of our cash invested in the crude contango inventory.

At the end of the second quarter, we had $63.3 million in cash and approximately $34 million invested in contango inventory.

In the fourth quarter, we do have obligations for taxes and have made a $24 million payment for interests on our bonds on October 1st. Even after making this interest payment, we currently have a $152 million of cash, approximately $20 million of our cash dedicated to contango inventory.

Once again WTI contango cushion was a rollercoaster. The second quarter opened with a contango of $0.54 a barrel and ended at $0.98 a barrel. In between, the high was $1.95 and the low was $0.28. For the quarter, it averaged $0.78. As of yesterday, contango sit at $0.74.

When contango reached its well in July, we began to [inaudible] this cash, and then as it increased once again, we began reestablishing our contango position.

Our capital program of the five years is clearly behind us, allowing us to use cash to improve our balance sheet.

At this point, let me turn the program over to Ed for more details about our financial. Ed.

Ed Morgan

Thank you, Jack, and let me take a moment to thank everyone for joining our call today, and we do appreciate your support in CVR Energy.

At CVR we have operated very diligently through unprecedented market and industry challenges. From my perspective of 18 months with the company, the third quarter of this year was really a transitional quarter for CVR, whereby our prior efforts were rewarded with the strongest quarter and liquidity position ever achieved as a company.

As Jack mentioned, we did in the quarter with a $162 million of cash versus $63 million at the start of the quarter, increase of nearly a $100 million.

In addition, to the strong cash flow from our quarterly earnings, the quarterly increase in cash was driven by the following improvements in our balance sheet. First our accounts receivable yielded just over $14 million quarter-to-quarter, offset due to the contango market, our contango crude inventory was lower by $18 million.

In the timing, our interest payments on a refinance long-term debt added $12 million to our cash balance. Additionally, we have not been required to make any estimated Federal income tax payments as of September 30th, and are forecasting a minimal payment during the fourth quarter.

Our total debt at the end of the quarter was $506 million, leaving us with a net debt position of $343 million and a net debt to capital ratio of 29% versus 39% at the beginning of the year. This is an improvement of 10 percentage points. Maintaining ample liquidity, while having excess to significant excess cash flow, will allow us to deleverage our company and will add flexibility to our long-term corporate strategies.

In regards to our improved liquidity, we were still long at the end of the quarter by $15.5 million of contango crude inventory or the equivalent of 213,000 barrels which represent a net reduction of $18 million since the beginning of the quarter.

We will continue to use our working capital on an as needed basis to carry excess inventory and utilize our storage capacity when the market contango pays us to carry inventory. Our capital spending approximated $6.2 million in the third quarter and totals $23 million year-to-date.

During the last earnings call, we did reduce our year-to-date capital plan to $54million. Given this point in the year, we are further reducing our cash basis 2010 capital spending to $44.3 million, and any other 2010 projects not finished by yearend will be carried into 2011.

In 2011, our capital budget is expected to approximate $70 million of which $53 million will be spent at the refinery and primarily sustaining maintenance projects.

Capital expense budgets are generally higher during turnaround years, since we can do projects during turnaround that cannot be done while the equipment is running. Because it is our accounting policy to expense our turnarounds as they are incurred, we also have budgeted to spend $45 million of expense to the fourth quarter of 2011 to conduct the first phase of refinery turnarounds scheduled to begin in October of 2011.

Unlike what was done historically, our unit redundancy will allow us to break the turnaround into two phases. The second phase will occur in the first quarter of 2012 and is budgeted at approximately $15 million. We plan to provide more color on our approved 2011 capital spending plan during the year-end call.

We had a few adjustments that occurred in the third quarter, which reconciled to our adjusted net income. First a portion of our share-based compensation plan for management in direct correlation to the movement in our share price.

During the third quarter, our share price increased 15%, resulting in additional stock-based compensation of $3.5 million after tax. Secondarily, we do account for our inventory on a first-in-first-out or a FIFO basis and a change in commodity prices and inventory volumes during the third quarter resulted in a favorable FIFO impact of $2.1 million after tax.

And finally, the company had to write-off of fertilizer equipment related to the incident occurring at the fertilizer plant on September 30th, which totaled $200,000 after tax. Using our statutory tax rate which is 39.7%, our adjusted net income reflective of these one-time cost to $24.6 million or $0.28 per diluted share.

Regards to our insurance coverage, in its relation to the event of the fertilizer plant, we believe we are adequately insured with $1 billion of property damage coverage and a deductible of $2.5 million or $0.28 per diluted share.

Regards to our insurance coverage and its relation to the advent of the fertilizer plant, we believe we are adequately insured by $1 billion of property damage coverage and a deductible of $2.5 million. $400,000 of this deductible has been met in Q3 with a write-off of equipment related to the fertilizer plant incident.

We also carry business interruption coverage which has a 45-day waiting period. At this time, we are not certain what our eligible recoveries will be under this BI policy, but if they’re material, we’ll report this benefit to the market.

Now, in turning to our operating segments, in the petroleum segment, our realized refining margin excluding the impact of FIFO was $9.52 per barrel, which was $2.70 better than the third quarter of 2009. The FIFO benefit in the current quarter was $3.5 million or the equivalent of $0.32 per barrel of crude throughput.

Our ability to realize an amount in excess of the NYMEX 211 for the third quarter was driven by an improving crude differential which is $2.93 per barrel and a positive location basis which is $3.80 per barrel. This is the first quarter in 2010 where we realized a positive basis in both gasoline and distilleries.

In the fertilizer segment, as Jack mentioned, our gasification utilization rate in the third quarter of 2010 were 100%, had we not realized the fertilizer incident that occurred on September 30th.

For the fertilizer turnaround starting on October 1st, you can expect that our gasification on-stream rates will be reduced by approximately 30% in the fourth quarter. In addition, our fertilizer segment realized an operating income of $10.6 million in the third quarter, which is an improvement of $14.5 million versus what we lost in the same quarter of the prior year.

Our realized sales prices on ammonia and UAN was $70 and $35 per ton higher than the prior year, but were $5 and $37 per ton lower than what we realized in the second quarter of this year.

The primary reason for this decrease in product pricing from the second to third quarter this year is the market transition from planning season to sales season. Historically speaking, we typically realized product pricing in the third and fourth quarters of the year at a discount to what is realized on product delivered in the first half of the year.

At this point, I’ll turn the call back to Jack, for any remaining comments.

Jack Lipinski

Thank you, Ed. As we look to the fourth quarter, let me first talk about the petroleum segment. Margins in October have remained reasonably favorable for this time of the year, but we do see some seasonal weakening in margins which is pretty difficult. What’s different this year is that the inventories in the group are lower than they were last year. And our crude discounts for the fourth quarter will be positively affected by the heavy Canadian barrels repurchased during the Enbridge pipeline problems.

We estimate crude runs to the fourth quarter will average about a 114,000 barrels a day. We are currently operating at a 120,000 barrels a day and have done so for most of the them in October, but we normally do reduce runs as demands softens later in the year.

Let me talk a little bit about nitrogen fertilizers, as Ed noted, operating rates for the fourth quarter will be reduced because of the plant turnaround in the incident at the UAN plant. But as I mentioned earlier, pricing for ammonia is very strong at approximately $575 per ton and which our UAN prices were increased into the $320 per ton level.

Overall, we’re better positioned going into the fourth quarter this year than last year. One final point before we turn this call over for your questions, I want to draw your attention to a Form 8-K we filed this morning. The 8-K addresses some of our plants with respect to our fertilizer business. In accordance with SEC rules, the company cannot comment at this point on matters discussed in the 8-K, but we will do so when appropriate.

Again, we thank you for joining us today, and we’re now ready for any questions. Stirling, over to you.

Stirling Pack

Thank you, Jack. Claudia, we’re prepared now to take any questions that the participants might have.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question is coming from Arjun Murti with Goldman Sachs. Please state your question.

Arjun Murti – Goldman Sachs

Thanks. Jack, I’m probably little afraid you may not be able to answer the questions based on your final comment there, but would it be your intention that CVR, the current company will retain a stake in the MLP, and can you talk at all about timing as well?

Jack Lipinski

Arjun, I’d love to speak to it, but we’re essentially in a quiet period right now in anything regarding the MLP.

Arjun Murti – Goldman Sachs

Anything at all, okay, no problem at all. So in terms of the refining business, can you just talk about just how you’re seeing the acquisition market and facilities out there, anything of interest or is the focus really just on [inaudible] coffee right now?

Jack Lipinski

Well, obviously, we always look. Up to now, we haven’t seen any assets that were exceptional. Early in the downturn cycle people tend to get rid of the plants that just they don’t want. We don’t believe that we’re that much smarter than they are and can take their unprofitable plant make it profitable just by us buying it.

We would expect overtime to see other facilities come up. And if it’s a good fit for coffee, then we’ll obviously look at it, but it has to – anything we would do and obviously have to be accretive and good for our shareholders. But right now I don’t know see anything on the market that’s all that exciting.

Arjun Murti – Goldman Sachs

That’s great. And I think Ed mentioned you’re going to give more meaningful update on 2011 CapEx on the next call. Are they any early thoughts or you want to hold on till the next one?

Jack Lipinski

I mean, we rather hold off till the next one, but we – Ed has kind of pretty much laid out to some degree what our turnaround costs to be and what we expect to spend on CapEx. But clearly our capital program that’s behind this, with the exception of capital intended to be spent during the turnaround, we’re in a maintenance capital mode.

I mean we’ve said it before, somewhere between $45 million and $50 million. There is a normal run rate for sustaining capital for our facilities and given the marketplace where we’re located, we’re pretty happy with the situation we’ll find ourselves in generating free cash.

Arjun Murti – Goldman Sachs

That’s great. Thank you very much.

Jack Lipinski

Thank you.

Operator

Our next question is coming from the line of Jeff Dietert – Simmons & Company. Please state your question.

Jeff Dietert – Simmons & Company

Good morning.

Jack Lipinski

Hi Jeff.

Jeff Dietert – Simmons & Company

Jack, could you give us an update on the ruptured vessel in your efforts to either repair or replace that vessel, and what the timing looks like for giving UAN unit fully backup?

Jack Lipinski

Okay, where we stand today is, the replacement vessel is on its foundation. We don’t have final start date yet, but we would expect it to be certainly in the month of November, hopefully in mid-November if we could – if we can actually get everything put together in time.

But frankly, we’re up and running in making ammonia, and we would expect that the cost of the repair to run somewhere between $7 million to $10 million with an insurance deductible of $2.5 million, that comment tells you roughly what our out of pocket’s going to be $2.5 million.

And as far as run rate or potential losses as a result of this, it’s an opportunity lost just on the premiums between UAN and ammonia. But between the fourth quarter and the first half of next year, we would expect that to be fairly minimal at somewhere between $3 million and $5 million. But that is based on current numbers and an assumption that our UAN plant will be back up next month.

Jeff Dietert – Simmons & Company

Good. And you mentioned in your opening remarks that you’re going to keep your contracts hold, is it possible that you’ll be forced to buy either in the marketplace to fulfill contractual obligations or do you have the flexibility to push those obligations out from 4Q into 1Q or whatever you might need to do.

Jack Lipinski

We will not have to cover in the marketplace, we’ve already spoken to all our customers. And we’re positioned to just to honor all our contracts going into next year. Certainly, it’s just timing issue. Priced tons earlier were less, were cheaper than they are in the current marketplace, so nobody is really complaining.

Jeff Dietert – Simmons & Company

Yes. And could you talk about what you’re expecting on fertilizer – on ammonia and UAN pricing for 4Q. It was my impression that – in that a lot of the volumes were sold before the big price run up, is that accurate? And what can we expect in 4Q?

Jack Lipinski

UAN was pretty sold. As a result of the UAN incident, we found ourselves with a fair bit of additional ammonia to sell which we are now achieving current or near current market, and current market’s $575 a ton. So what the offset really is here is that we’ve given up some UAN premium, but are selling ammonia at fairly prompt numbers, and sell it. It’s moved up to $575, but it’s certainly been in the mid $500s for the last few weeks.

Jeff Dietert – Simmons & Company

Good. On a different topic, you’ve been working on reducing property taxes and I believe there was a decision coming shortly. Could you remind me what the timing is on that?

Jack Lipinski

Hang on one second. Okay, we will have to trial in the early part of the year in January, February, on first year. I wasn’t sure, I wanted to make sure I had the right date, but that’s coming up, and that’s in the year 2008.

Jeff Dietert – Simmons & Company

Okay, very good. Finally, could you comment on what the cash distributions to the general partner have been over the trailing 12-month period?

Jack Lipinski

Zero.

Jeff Dietert – Simmons & Company

Okay.

Jack Lipinski

The general partner owned only IVRs.

Jeff Dietert – Simmons & Company

Got you, got you, okay. All right, thank you for your comments.

Jack Lipinski

Okay. Sorry for the hesitation, but because of the 8-K, I’m trying to be very careful not to overstep my bound.

Jeff Dietert – Simmons & Company

Certainly.

Operator

Our next question is come from the line of Kathryn O’Connor with Deutsche Bank. Please state your question.

Kathryn O’Connor – Deutsche Bank

Hi, good morning.

Jack Lipinski

Good morning, Kathryn.

Kathryn O’Connor – Deutsche Bank

I’m just wondering if you can help us frame out, you have a lot of cash in balance sheet now of over $150 million, and I guess you – and it’s still in a pretty good cash position as we move through the quarter. So can you just talk about the cash, and then your balance between deleveraging which you still talked about on the call, but also acquisition?

Jack Lipinski

Right now our focus is balance sheet, okay? We have no planned acquisition at this moment. Certainly the cash allows us, gives us flexibility to look at acquisitions, but as Ed and I’ve stated, we wanted to get our debt-to-cap ratio down below 30%.

This is the first time we’ve got there and we’re all sleeping at nights. So right now, we have a lot on our plate, there are several things that are going on as you can tell. Our focus is going to be to maintain and improve our cash position, and then see what the market brings us.

Kathryn O’Connor – Deutsche Bank

Okay, and then just, just taking something that is sort of out there in the bond debenture. If you were to succeed in doing what you’re trying to do, you obviously would be – you would have no choice but to delever through taking out some of the bonds, is that right?

Jack Lipinski

That’s – I – Kathryn that’s kind of close to the line on what I can say regarding our 8-K. Currently I would prefer to not answer that and simply refer to you to the documents are in place.

Kathryn O’Connor – Deutsche Bank

Okay, and then just one other thing. Where you are now in terms of thinking about an MLP? Is it where you had been in the past? I mean has any of your thought process changed? You’ve tried to do this once before and looks like you’re obviously trying to do it again. So have your thoughts around in MLP changed at all or is it just the opportunity is the right time in the market if you look at it –?

Jack Lipinski

Again, I cannot comment, sorry.

Kathryn O’Connor – Deutsche Bank

Okay. And then, maybe just, maybe one operational question.

Jack Lipinski

Sure.

Kathryn O’Connor – Deutsche Bank

Will you think about Q3 moving into Q4? I know you said that margins are strong moving into October, but that there were some seasonal weakening. How should we take your comment that you were still able to buy some of that cheaper Canadian crude and it’s going to run through in the fourth quarter? How should we think about that affecting your margins from Q3 to Q4? Directionally, will they be picking that into account the crude that you’re able to purchase, will they be directionally better?

Jack Lipinski

It will be directionally better. Don’t forget, we have a contract for 10,000 barrels a day space on Spearhead. And we buy our heavy Canadian basically through Spearhead or in [inaudible] delivered through a third party.

There are several parcels, 60,00 barrels actually shipments that we purchased at pretty good discounts that we will be processing in the fourth quarter. So directionally year-over-year our crude discount is going to be improved as compared to last year. But again remember that we run 15,000;18,000;20,000 a barrel of heavy Canadian and a portion of that is the barrels we’re talking about, if not all of that. But directionally it’s – we’re in a much better place this year than we were last year.

Kathryn O’Connor – Deutsche Bank

And what about sequentially?

Jack Lipinski

Sorry.

Kathryn O’Connor – Deutsche Bank

Sequentially? I mean you did a year-over-year comparison. If we’re thinking about a sequential effect from because it didn’t –

Jack Lipinski

Yes, quarter-over-quarter, it’d be better.

Kathryn O’Connor – Deutsche Bank

Quarter-over-quarter would also be better, because it didn’t seem like you have that much of an effect from the Enbridge situation in this quarter, so –

Jack Lipinski

No, no, that’s because – and just for everyone on the call, if you actually nominate and here we sit and it’s November, we’re actually nominating December injectors at this point. And then it has to inject and come down which is 30 to 40 days to come down.

So anytime you actually place an order, you’re roughly 60 days or more before you actually physically have the crude. So anything that was purchased two months before and it depends on what time of the month. You’re looking at least 60 days out. So some of the crude that we purchased is what we brought two and three months ago that’s finally showing up.

Kathryn O’Connor – Deutsche Bank

All right. So despite seasonal factors, sequentially, directionally positive moving from Q3 to Q4.

Jack Lipinski

That is correct.

Kathryn O’Connor – Deutsche Bank

Okay, great. Thank you.

Operator

(Operator Instructions). Our next question is coming from Steven Carpell with Credit Suisse. Please state your question.

Steven Carpell – Credit Suisse

Good morning, gentlemen.

Jack Lipinski

Hi, good morning.

Steven Carpell – Credit Suisse

Just to follow on Kathryn’s question, just to make sure I followed that correctly, Q3 to Q4, if you just make sure you’re framing that right, and you’re saying the refining is better from Q3 to Q4, and that takes to account your comments about October as well as I think there’s some negative basis today. I just wanted to come and clarify that. And then the second part to that is, in terms of those what we call stranded barrels that came out of Canada, I think – correct if I’m wrong Jack – I think you have 12,000 a day on Spearhead. So how – I guess I’m trying to understand how many barrels you could have taken or you can take in the quarter, and I think that was only for a week’s where those huge differentials were in place?

Jack Lipinski

Okay, let me break you first down. Crude differentials are improved quarter-over-quarter and year-over-year as going into first quarter. However, cracks are declining from the third quarter to the fourth quarter as seasonally happens every year. I mean if you take a look today, the NYMEX 211, is in the 850, 860 range, and it was $10, $11 or higher in the same period last quarter.

You can see some of our averages where they fall out. So what I’m saying is that we see bases softening already, bases was positive for the average for the month of October, but now it turns negative as it seasonally does.

I like to joke that the low point of the group happens on February the 9th if that’s a work day. So we’ll see if it holds out this year as well as it did last year. But we will see a seasonal decline across the whole sector then matter whether it’s the Mid-Continent or the East Coast or the Gulf Coast, margins soften this time of the year.

Winter comes, people don’t drive, farmers aren’t into the field. When spring comes and sun will shine, and then the product prices will go back up. So we’re going into the seasonal low period. But even so, what I was saying is that our crude differential is improved quarter-over-quarter and year-over-year, because of the Canadian problem.

You are right that we actually ship 12,000 on Spearhead. We have a contract for 10,000 barrels a day, but we – because we have shipped more, we have shippers’ rights for a little bit over 12,000 a day. But not all 12,000 a day of that was committed to the stress barrels, a fair portion was, but everybody went on allocation as well, because everybody was doing the same thing we were.

So we are seeing an improvement and it’s a marked improvement year-over-year and particularly going into this quarter. But be careful, margins are softening as they always have. Bases is not quite as bad as it was last year, because in the Magellan where we have something on the order of 1.2 to 1.3 million barrels – fewer barrels of distillate gasolines and are [inaudible] than we did last year.

And I don’t know if I missed any third part to that question.

Steven Carpell – Credit Suisse

Well, let me follow-up one part of that is, you talked about there was like a 60-day lag or something like that in terms of when receive these barrels, is it fair to say you could only buy two to three week’s worth of what we’ll call the ultra-distress $30 plus levels given that was the timeframe or can you in that two, three week period take 60, 75, 90 day deliveries so you can actually take more than two or three weeks work?

Jack Lipinski

Okay, don’t get it, it’s a bit ask situation.

Steven Carpell – Credit Suisse

Right.

Jack Lipinski

Produced that’s obviously wanted to sell as little as they could during that period, but had to keep moving their current production. And you got to remember too that we were at about $17 level in mid-July and as the pipeline problems continued, it didn’t go from $17 to $30 overnight. It went from $17 to $18, $19, $20, $22, $25 and then your $30. So we were buying all the way in and as it started to decline, we continued to buy. So we’re on saying that there are number of barrels and I actually don’t have at my fingertips the total volume that we took significant side, but I probably shouldn’t anticipated the question.

But sufficed to say that it was significant what we were able to buy. So of it was allocated in the pipeline allocations, limited how much we can actually bring home. Everybody was trying to do the same thing.

Steven Carpell – Credit Suisse

Of course. And I think in your opening comments you said Stan was around, so if not or maybe I’ll direct it to you Jack, given that the downtime I guess, turnaround or maintenance you would – you do have the nitrogen business. What were inventories at kind of quarter end on UAN to try to understand how much of this upside you’re able to take advantage up on pricing just by selling back from inventory?

Stan Riemann

I’m still here, so I’ll go ahead and take that question. Current inventories were basically on the floor. We’re about 2,000 tons of ammonia and about 3,000 tons of UAN in the tanks, but we’re currently as Jack said in production we got product – good product going into ammonia tanks which was the plant. We have the product, we have the plant up and running prior to the ammonia run which we have done. But we were on low inventories going into the turnaround. We had a little bit of excess ammonia which we want to sell, which we did at higher prices which some degree offsets the downtime of the UAM plant. Right now we’re in a build and inventory mode and we’ll be shipping aggressively through the winter.

Steven Carpell – Credit Suisse

So the short story is you’re going to take advantage of bit of – at least a bit of the UAN?

Stan Riemann

Absolutely. We still have more products to sell in the second quarter. We’re not sold out through spring season. So we still have – once we get other runs third ship and we will be back into the market taking orders at the spring type numbers.

Steven Carpell – Credit Suisse

And one other operation questions, natural gas prices are currently low. Can you break out into specifically probably under refining side Jack the impact of some of the low gas prices have been, I know you don’t use that much natural gas but there is some and then Stan I don’t know how you would – you even look at it, may not at all but…

Jack Lipinski

Well let me answer that. We after our capital program and the way we configured the refinery. We used very little natural gas, very little I mean typically we will average somewhere in the range of five to seven million cubic foot year around. A typical refinery of our size would use multiples of that. So if you do the math, a drop in natural gas price is not that significant in our overall operating cost. We just don’t buy that much.

Stan Riemann

On the fertilizer side, you’re right we really don’t – well we monitor it but it’s a not a factor because gas fertilizer prices disconnected several years ago and have not reconnected. So the fertilizer prices is driven by the balances for grain that’s for the price of natural gas. But having said that I think you’ve heard us talk in the past that our breakeven to imported turns [ph] trying to get into our market is in the low threes and that remains today to be true.

Steven Carpell – Credit Suisse

All right and then just one final one, and I know you don’t want to say too much on the filing this morning but just to clarify for the bond guys, would this qualify as a fertilizer business event?

Jack Lipinski

Steve, I’d loved to answer your question but it deals with this our 8-K this morning. So I really can’t.

Steven Carpell – Credit Suisse

Thank you guys.

Jack Lipinski

Thanks very much.

Operator

We do have a follow-up question coming from the line of Kathryn O’Connor with Deutsche Bank.

Kathryn O’Connor – Deutsche Bank

Hi just a question about the 8-K this morning. It says that you guys intent to file an S-1. Do you know when we can expect that?

Jack Lipinski

Kathryn I can’t answer that question. You have to read the 8-K.

Kathryn O’Connor – Deutsche Bank

Okay, well I mean it requires what a few filing likely right?

Jack Lipinski

When the appropriate time is we will make that fairly necessarily filings with the SEC and certainly you’ll be the first to know.

Kathryn O’Connor – Deutsche Bank

Okay, thanks.

Operator

Gentlemen we have no further questions at this time. I’ll turn this call back over to management for closing comments.

Jack Lipinski

Well again thank you all for joining us. I appreciate you being here. We have a lot of work going on at the company. We’re pretty satisfied with where this quarter has taken us and where the company is going. So with that and again thank you all for joining us. Stirling?

Stirling Pack

Thank you Jack and we’ll be around certainly during the course of the day to handle any follow-up questions from shareholders recognizing that’s a required period with respect to the 8-K that Jack has spoken about. So again thank you very much. We had excellent participation this morning and we’ll speak with you soon. Thank you.

Jack Lipinski

Thank you.

Operator

Ladies and gentlemen this does conclude today’s teleconference. You may disconnect your lines at this time. And we thank you for your participation.

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