On September 2. 2014, CVR Refining, LP (CVRR) announced that its Coffeyville refinery resumed normal operations during the last week of August. The refinery had been shut down since July 29 as a result of a fire that damaged its isomerization unit and distributive controls system.
CVR Refining is a growth-oriented, independent downstream energy company (downstream refers to processing and sales to market, while upstream refers to exploration and extracting crude oil). CVR Refining conducts operations to gathers oil crude, refines petroleum products and marketing operations. The company has 2 main operating plants, more than 125 crude oil transports, a network of 336 miles of pipelines, strategically located crude oil gathering tank farms, and more than six million barrels of owned and leased crude oil storage capacity.
The Coffeyville refinery is one of the two refineries the company owns, as the other is in Wynnewood, Oklahoma. The Coffeyville refinery operates a complex full coking medium-sour crude oil refinery with a rated capacity of 115,000 barrels per calendar day (bpcd). The Wynnewood refinery is a medium complexity crude oil refinery with a rated capacity of 70,000 bpcd.
The shut down after the fire on July 29, 2014 through the unspecified date in late August is about 30 days of full costs, plus repairs with no or limited throughput at the refinery. The other refinery and assets were operational, but will not make up for the lost production for those 30 days. The third quarter financial report will absorb the costs as we anticipate a drop in income for the quarter, as operational cost remain constant, with repairs being the additional cash outlay for the quarter. Second quarter, 2014's net income was $180 million on net sales of $2.466 billion. We anticipate the net sales to drop about 20% to near $2.0 billion and the net income to near break even for the quarter. The effect will be announced in the Q3 financial report, but the dividend paid for first and second quarter ($0.98 and $0.96 respectively) is not likely to be paid for third quarter.
We do expect a strong recovery in income and earnings in the Q4, as long as there are no additional incidents at any of the facilities. Historically, the company had a damaged Fluid Catalytic Cracking Unit (FCCU) at the Coffeyville refinery on August 26, 2013, which was limited in operations about 30 days and caused the company to reduce it's distribution to $0.30 for the Q3, 2013 paid in November, 2013. Q4, 2013 the distribution paid was $0.45 as the company recovered and then turned the corner and paid a strong $0.98 for the Q1, 2014. The last 2 quarters have been productive and rewarding to investors at the dividend yield returned to near 15%. We expect it take a very similar timeline to recover and the double-digit yield to return in 2015.
Investors take risk with an investment like CVR Refining due to the limited assets and the chance an incident can stop or slow production that directly cuts income and increases costs. The rewards are high when production is strong and the company returns a double-digit distribution.
We anticipate the stock price will drop from its current price as it opened on September 3, 2014 at $24.46. We expect the drop to hit $22 in November/December of 2014, and recommend caution on any buy-ins at this time. First quarter 2015 should be the turning point for the stock price to start climbing again.
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