Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Jay Finks – Director, Finance

Jack Lipinski – President, Chairman and CEO

Edward Morgan – CFO

Analysts

Jeff Dietert – Simmons

Ed Westlake – Credit Suisse

Joe Citarrella – Goldman Sachs

Sam Margolin – Global Hunter Securities

Chow Chi – Macquarie Capital

CVR Energy, Inc. (CVI) Q3 2011 Earnings Call November 3, 2011 11:00 AM ET

Operator

Greetings and welcome to the CVR Energy Third Quarter 2011 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It’s now my pleasure to introduce your host, Jay Finks, Director of Finance of CVR Energy. Thank you, Finks, you may begin.

Jay Finks

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

Prior to discussing of our 2011 third quarter results, we’re 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 and Exchange Commission.

This presentation 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 2011 third quarter earnings release that we filed with the SEC yesterday after closing the market.

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

Jack Lipinski

Thank you, Jay. Good morning all. Thanks for joining us. As you know from our filings and new releases yesterday, we have a lot to talk about. First – and I will review the earnings we reported after market close yesterday, then I’ll talk about the turnaround that we’re just completing, and then we’ll spend some time putting some color on the acquisition of the Gary-Williams Energy Corporation and its Wynnewood refinery in Wynnewood, Oklahoma.

Let me start with our third quarter earnings. Obviously, we’re pleased with these numbers. These were produced even as we answered a major turnaround at refinery at the end of September. Our consolidated net income was $109.3 million, or a $1.25 for fully diluted share on net sales of $1.35 billion. Adjusted net income was 137.4 million or $1.57 for fully diluted share. Typically, adjustments include FIFO, major turnaround expense, and other items. Ed will provide you more details on the numbers during his remarks.

Today our consolidated businesses had approximately 898 million in cash and cash equivalents and cash invested in excess working inventories added an additional $37 million at the end of the third quarter. Cash on balance sheet has increased nearly $110 million since our last investor call.

Let me start by talking about our petroleum business, which is our largest segment. We had operating income of $179.8 million of net sales of just under $1.3 billion. Adjusted EBITDA for the petroleum segment was $232 million and comparatively, that was $62 million a year ago. For the third quarter, we processed 112,880 barrels a day of crude and total throughput was just a little over 116,000 barrels a day. These numbers are a little bit lower than what we produced last year, and there are a number of reasons.

During the quarter, as you heard on our last investor call, we had operational issues with our CCR, which hampered our crude throughput in the quarter. And more importantly, we reduced crude rate at the end of September to manage inventories as we began shutting down some preparation for our turnaround.

Again, overall, we’re pretty pleased with the way the quarter turned out. We continue to see the NYMEX 2-1-1 crack spreads significantly above historical levels. During the quarter, they averaged $3.92 a barrel and that compares to a little over $9 a barrel a year ago.

Today the NYMEX 2-1-1 cracks stands a little over $25 a barrels and on top of that, we enjoy a positive product basis of almost $3 a barrel. In the third quarter, we realized an average refining margin of $25.3 per throughput barrel and again, just put some color against last year, that was $9.84 last year same quarter.

As you know, we’re a 100% WTI-based refiner and we continue to capture the difference in price between Brandt and WTI crude in our margins. The Brandt-TI relationship will continue to define our market.

Today – or actually at the close business yesterday, the spread was just under $17 a barrel. This year, we’ve seen it range from a low of $3.29 to a high of $27.88.

During the quarter, we did see heavy crude differentials tighten and as a result, we processed heavy barrels during the period. Early in the year, heavy differentials were against $20 a barrels and that’s against WTI. They averaged $14.09 during the second quarter, and today they are slightly above $11.

We have seen the – also – we have also seen the tightening of the sweet hour spreads, and that’s the difference between WTI and WTS. And also, we ran heavy barrels not because of the price differential, but as we have to turnaround we wanted the minimize inventories of heavy and intermediate stocks.

I’d like to mention our expanding gathering business. In the third quarter, we set another quarter with total leased crude volumes averaging 36,700 barrels a day. These early price locally gathered barrels on important turnover refinery economics and costly though and become even more important as we expand our refining footprint with the pending acquisition of Wynnewood refinery, and I’ll talk more about that in a minute.

About turnaround, toward the end of September, again, we began lowering crude rates and preparation for turnaround. Actual maintenance work began in the first week of October as scheduled. Remember from our prior calls, this is a bifurcated turnaround with about two-thirds of all of the work being accomplished this fall and the remainder will be accomplished in the first quarter of 2012.

The turnaround proceeded well. All units have been turned over as of this morning for operations for restart. But during a restart on our CCR, we experienced major mechanical problem with our recycle compressor which is going to delay us recovering to full crude rates for 10 to 12 more days. This was completely unexpected, especially following maintenance. And previously indicated that we would run between 90,000 and 95,000 barrels a day for the fourth quarter. We expect that now to be more in the range of 80,000 to 85,000 barrels a day. We should have the compressor repair. It’s in the shop right now, and the refinery back at full rate by – hopefully by the end of next week.

There are always a few surprises in turnaround. We did expect to find work and we did. As a result, the first phase of the turnaround will cost about $62 million as opposed to our original forecast of about 54 million. Don’t forget that we do expense our turnaround costs as they are incurred, so when you look forward to our next two quarters, we will running not only fewer barrels, but have increased expenses as well.

Talking about nitrogen fertilizers, I’ll be brief because CVR Partners, CEO, Byron Kelley has already given you the details during his conference call earlier this week I hope you listened in.

The Fertilizer segment had a net income of 37.5 million. Our net sales of 77.2 million. And Ed will give you further details on these numbers as well. Last week, our CVR Partners announced their third quarter distribution of $0.0572 per common unit payable on November 14 to unit holders as of record of November the 7th.

Those of you who listened to Byron’s call heard that these results give us confidence in our original IPO guidance of $1.92 per unit, which we have reaffirmed. And also recall that we own approximately 70% of the common units in CVR Partners. So therefore we will receive a proportional amount of distributions when they occur.

We continue to see stability in the ad markets. We’re sold out UAN in Q4 at an average net back of about $330 a ton. Our booked first quarter 2012 sales are above $350 a ton and again that’s on net back basis.

Ed, I’ll turn the call over to you and then we’ll talk about the Wynnewood acquisition we announced last night.

Edward Morgan

Thank you, Jack and good morning everybody. Just to recap some of the financial results. At the consolidated level, our net income was 109.3 million or $1.25 per diluted share versus 23.2 or $0.27 per diluted share in the third quarter of last year.

Adjusted earnings per share were $1.57 versus $0.29 per diluted share last year. We do believe and feel that the adjusted earnings is a meaningful metric for analyzing the performance in our business and will provide a better comparison to the market expectation.

In the third quarter, these adjustments and calculating adjusted earnings included FICO inventory accounting, unrealized gains or losses on the derivatives, turnaround expenses and share based compensation.

I give brief in each, the first being related to the increase – decrease in inventory values realized under first in, first out or FICO inventory accounting. In the third quarter of 2011 we released unfavorable FICO impact of 15.8 million after tax or $0.18 per share.

Secondly, we had an adjustment to net income on an unrealized derivative loss of $6 million after tax or $0.07 per diluted share. In the quarter, the company had 2,000 contracts in place that we originated in the second quarter in support of our turnaround activities.

The third after tax adjustment to net income was turnaround expenses of 4.8 million or $0.07 per share. We have previously guided the market to expect after tax turnaround cost of 1.8 million. But due to the advance turnaround preparation at the end of September, these additional costs fell into the third quarter.

Our final adjustment relates to stock-based compensation, of which 1.5 million after tax or $0.02 per share was the impact in the third quarter.

In addition to the adjustments, our quarterly results were also impacted by our turnaround event and related inventory management. In the quarter, we decided to limit sales of our current production over the last two weeks of September to support our rack business in the turnaround in October. The deferment of the sales had a negative impact to our third quarter refining contribution margin equaled $8 million.

Having realized these sales, our adjusted earnings per share would have increased by $0.09 per share on a pre-tax business. In support of what Jack said about the fertilizer business, we reported in the third quarter adjusted EBITDA of 43.3 million, a net income of 36.3 million or $0.50 per common unit.

We also announced the distribution of $57.2 per common unit payable on November 14th to unit holders on record as of November 7th.

Moving to capital expenditures, the third quarter 2011 totaled 25.7 million versus for 6.2 million for the same period in 2010. The majority of the increase year-over-year is related to our UEA expansion at the Nitrogen Fertilizers plant in Cushing tank farm project.

Our total 2011 capital spending forecast is expected to be 156 million of which 36 million is related to the UEA expansion.

Of the total, 108 million is budgeted for the petroleum business, which does include for the Cushing Oklahoma tank farm. We do expect to placing crude oil to the new Cushing tanks at the end of the first quarter in 2012.

The UEA expansion project continues on schedule to be completed in the fourth quarter of 2012, and we have initiated construction of 10,000 ton storage tank in (inaudible), Kansas to expand our fertilizer distribution logistics.

We also expect to expend in 2011 approximately 60.2 million at the refinery in connection with the turnaround that are taken last month. The overall cost for turnaround is up slightly versus our previous guidance, primarily as a result necessary repairs identifiable only throughout in the turnaround process.

With that, Jack, I’d like to turn the call back over to you.

Jack Lipinski

Thank you, Ed. and now let’s talk about Wynnewood. At the time we announced earnings last night, we also announced the acquisition of Gary-Williams Energy Corporation and it refinery in Wynnewood, Oklahoma and that was for a purchase price of $525 million plus working capital. We intend to close on this deal by year end.

Posted on our website, you can find a presentation in the Investor Relation section giving additional information about this acquisition. These are quality refining assets that represent a highly complementary acquisition for CVR energy.

The strategic financial and operational attributes of the transaction are compelling and will drive shareholder value, both in the near-term and for years to come. With $70,000 a day of crude throughput capacity, the Wynnewood refinery provides an immediate and meaningful increase in the scale and stability of our operations.

Once completed, CVR Energy will have more than 185,000 barrels a day of refining capacity in two major locations serving group. It will let us take even greater advantage of our growing crude oil gathering business in the region as well as our crude storage position in Cushing.

And we will be able to benefit from continuing production from domestic share oils – sorry, we’re getting a little bit of feedback here – and we’ll be able to benefit from the production from domestic share oils in Canadian crudes, which are forecasted to be produced in ever larger volume.

We’ll immediately realize increased operating cash flow which is added any impressive cash flow being generated at Coffeyville refinery. The transaction is expected to be accretive to analysts’ estimates for EPS by more than 25% in 2012.

Diversification of our asset and customer basis should reduce any tendency to a single location discount that some investors have factored into their evaluation CVR Energy stock to date.

We’ll accomplish this transaction through a combination of existing cash and approximately 250 million in additional debt financing. This acquisition makes operational sense. We will capitalize on CVR Energy’s operational expertise, and the bench strength of our employee team.

We believe there are opportunities of Wynnewood for a number of operational improvements, much as we saw when we acquired the Coffeyville refinery six years ago. We expect the combination of the businesses to result in expanded opportunities for our employees as well to grow their careers, and result in greater retention of both Coffeyville and Wynnewood’s best employees.

In short, I’m excited about this acquisition and hope most shareholders will be as well. Acquiring Wynnewood represents exactly what we’ve been saying we’ve been looking for.

It’s accretive to earnings and built shareholder value. It’s located in group three where the Brandt-TI spread is an advantage, and it’s a quality asset that complements our existing business. We look forward to integrating Gary-Williams into our family of companies.

Okay. With that, operator, we’ll take questions.

Question-and-Answer Session

Operator

Thank you. We’ll now be conducting the question-and-answer session. (Operator Instructions) Thank you. Our first question is from Jeff Dietert of Simmons. Please state your question.

Jeff Dietert – Simmons

Good morning.

Jack Lipinski

Good morning, Jeff.

Jeff Dietert – Simmons

Congratulations on the acquisition. I know when you purchased Coffeyville, you implemented a pegging program, and there was significantly more debt associated with the Coffeyville acquisition in a different structure, but are there any plans to hedge a portion of this to lock in the economics?

Jack Lipinski

There actually has been discussions and we likely will place hedges. Not sure how much at this point. Certainly, this is attractive – the current margins are attractive. But yes, the short answer is yes. We will hedge a portion of it. Not nearly as large or as long as what we had originally done to support the credit facilities. Our debt facilities, when we acquired Coffeyville or Coffeyville Resources at the time.

Jeff Dietert – Simmons

Got you. You mentioned that the previous owner spent a fair amount of capital on the assets, and could you talk about what they have done? I believe there’s an upgrade to capacity and perhaps more than that, and do you see the opportunity for future investment in this asset?

Jack Lipinski

All right. Well, a couple of things about the asset. Gary-Williams spent well over $100 million in the last few years. They are compliant on both ultra-low sulfur and ultra-low sulfur gasoline. They completed an expansion. They added a sour crude train. So now the plant which used to be basically a sweet crude plant now can produce, or will consume probably 25 or 30% sour going forward. So we will look using our current logistics to get the proper blends between both plants. We do have synergies between the plants at Coffeyville. If you look at some of the prior investor information we’ve put out, we had surplus capacity in our cocker and hydro treaters. And so while Wynne would produce this asphalt, and the asphalt market gets soft we have the ability to cope that.

We do expect to find pretty much the same thing we did at Coffeyville. There will be some low hanging fruit. There will be some investments we can make, and these were small. We’re not looking to do a major investment. Frankly, our five-year plan going forward estimates that the total CapEx over the next years including sustaining in environmental is in the range of 180 to $190 million, 30to 40 a year.

So we’re not planning on any major expansion. We’ll parlay the excess capacity that we have at Coffeyville into exchanging feedstocks and blend stocks. The Wynnewood plant does have a continuous catalytic reforming unit. It’s not a semi-region unit, which is a big advantage. They do have a Rose unit, which makes asphalt production easier, and we’re able to accommodate different crudes and still makes that product. They’ve a great management team in place, and again, kudos to the folks at Gary-Williams. They have really turned this into a really nice plant.

Jeff Dietert – Simmons

Very well, thank you, Jack. Congratulations.

Jack Lipinski

Thank you.

Operator

Thank you. Our next question is from Ed Westlake with Credit Suisse. Please state your question.

Ed Westlake – Credit Suisse

Good morning, Jack and Ed, congratulations on finding a refinery on a multiple that’s cheaper than CBIs on a trailing basis.

Jack Lipinski

Well, we said we were going to do it, and we did.

Ed Westlake – Credit Suisse

Can you talk a little bit about the process? I mean, did you approach them? Did they approach you whether other bidders involved in looking at the assets?

Edward Morgan

Well, as far as other bidders, this was not an auction process. It was a private sale. We believe there were other people in the process somewhere along the line. Don’t know exactly who they were or what. But the fact of the matter is I guess it was back in April. We started looking at the asset seriously, and frankly, over the years, we have been talking to them on and off. If you go back to 2006, deal was never consummated, but this has been a long time in coming. We have been very familiar with the asset, simply because our looking at it so long. Frankly, the actual deal was pretty much put to bed only about two weeks ago.

Ed Westlake – Credit Suisse

Yeah. And just maybe on the specific details around the EBITDA, so you gave a 12 month trailing average of $261 million. Unless I’m doing the math wrong, on one of your slides, you sort of say 193 of EBIT going forward, you add back 40 million DD&A and you get sort of 233, and that’s including the synergies on the forward crack. It seems like the last 12 months relative to the next 12 months, things would actually get better on the forward cracks than they were historically. So is there anything else we’re missing in terms of that slight decline in EBITDA that you’re projecting?

Jack Lipinski

Yes, there’s a turnaround at Wynnewood, next year.

Ed Westlake – Credit Suisse

Right. Okay.

Jack Lipinski

And you’re going to lose 30 to 40 days of operation while the whole plant comes down, plus the costs.

Ed Westlake – Credit Suisse

Okay. And so when you – when is that and how long do you think?

Jack Lipinski

I believe its third quarter. Yeah, third quarter, thank you Stan. It’s third quarter next year.

Ed Westlake – Credit Suisse

Great. Okay. Thanks very much.

Operator

Thank you. Our next question is from the line of Joe Citarrella with Goldman Sachs. Please state your question.

Joe Citarrella – Goldman Sachs

Thanks. Jack from high level when you would closes and likely here to be incremental to your free cash flow generation, can you speak to how – what your latest thoughts are on uses of free cash flow when it closes and kind of in 2012. And let’s we get too far ahead of ourselves, is this – it on the refinery acquisition side? You’re contemplating or looking at anything else potentially, and I guess that would also extend into logistics assets and how you’re thinking about acquisitions there?

Jack Lipinski

All right. Well, number one, we want to absorb this one first. Okay. I’ve said it, and I’ll say it again, we always look at everything that comes on the market. And we don’t always buy. It took us six years to get the right one. We believe we got the right one, so I wouldn’t say that we’re in the market for another refinery right now.

I’ve said it before that what’s the proper amount of cash to keep on our balance sheet and I said number was $150 million to $200 million of cash is what we would like to keep. Probably having the second refinery like another $50 million or so just to keep in our back pocket for the unexpected. Beyond that, uses of cash, I will be in discussions with the Board of Directors on the proper way to use the strong cash flow to the benefit of our shareholders.

Joe Citarrella – Goldman Sachs

Any thoughts on priority between buybacks or dividends or are you thinking about things there?

Jack Lipinski

No. I’ll let Ed talk to our debt-to-cap ratio that we’ve always been targeting. Paying down a little debt, obviously looking at dividends or stock buybacks is going to be something that’s going to be part of the discussions with the board. But would you like to comment on our debt-to-cap?

Edward Morgan

Really just, Joe, kind of follow up, it’s a – this transaction really doesn’t change our leverage scenario at all. We ended the quarter on the one time and this – I think this on a pro forma basis has us in that same spot as of 9:30. As Jack said, we’d like to pay down some debt kind of lower that debt-to-capital or targeting some just south of 30% over the long-term. And we’re still not there yet. But we target being there in 2012.

Jack Lipinski

But again, we have a shareholder friendly board. We have been cautious on what we’ve have been doing. And I trust my board will do the right thing, as we look forward, what to do with the strong cash flow that we expect to have at CVR Energy.

Joe Citarrella – Goldman Sachs

It’s very helpful. Thank you.

Operator

Thank you. Our next question is from the line of Sam Margolin with Global Hunter Securities. Please state your question.

Sam Margolin – Global Hunter Securities

Hey guys, good morning.

Jack Lipinski

Good morning, Sam.

Sam Margolin – Global Hunter Securities

I was just wondering if Wynnewood comes with any gathering assets or any incremental EBITDA generation, may be on the mid-stream side, you guys have talked in your analyst day earlier this year about reaching a level of critical mass. I think it was around $50 million in mid stream EBITDA when you start to think about monetizing balance, there was not there you need any balance sheet support, but just something else down the road if there was any incremental additions with that?

Jack Lipinski

The Gary Williams Company does have a Louisiana crude purchase and resale operation, which is somewhat like gathering. But it’s basically, it’s leased but it’s immediately. So, we will roll that into our business portfolio.

The location in Southern Oklahoma is perfect for our gathering business. The further we go into Oklahoma, the more difficult it was to get the crude to Coffeyville. Now we can expand our gathering footprint even further, much further, and utilize those facilities there, and there’s even an opportunity on our fertilizer business to use our Wynnewood, location to expand the footprint of our fertilizer marketing directly out of Wynnewood.

Sam Margolin – Global Hunter Securities

Yeah. That’s the other thing I was going to ask. Is that cut into your third party, is there a cocker there? Does it cut into your third party coke purchases and keep it all internal?

Jack Lipinski

No. I mean there’s no cocker at Wynnewood. They’re an asphalt refinery, and they make about – it’s in our presentation. Roughly about 10% heavy oil as asphalt.

Sam Margolin – Global Hunter Securities

Great. And just lastly still no plan for retail expansion, right?

Edward Morgan

Not right now. Retail very often becomes a necessary outlet for refinery in an area where other opportunities reside. The interesting thing about this acquisition is, our customer base is very much different. Our largest customers are not the largest customers from Gary Williams refining. So it’s a very nice situation in that. We’ll have a footprint largely in the area of Oklahoma City and Wynnewood. That does not cause any issues with the customer base that we have up in Coffeyville north.

Sam Margolin – Global Hunter Securities

Okay. Great. Thanks a lot guys, enjoy the weekend.

Edward Morgan

Thank you.

Operator

Thank you. (Operator Instructions) Our next question is from line of Chow Chi with Macquarie Capital. Please go ahead with your question.

Chow Chi – Macquarie Capital

Great. Thanks, gentlemen. Good morning.

Jack Lipinski

Good morning.

Chow Chi – Macquarie Capital

A couple of more questions on Wynnewood. Maybe be Ed was refereeing this earlier, but is there going to be a step up in DD&A from what you show on your slides?

Jack Lipinski

Yes. Yes, we’ll be able to step up basis and DD&A will go up.

Chow Chi – Macquarie Capital

Any sort of level you’re thinking about there?

Edward Morgan

Yeah, kind of – trying to think the best way to answer this Chi. It’s definitely not in the presentation, but they were private companies, it will change a little bit. I think Jack talked about our capital spend and that equates about $30 million to $40 million a year, so typically you see sustaining maintenance capital in support of you D&A. To try to give you a sense of the range it could probably easily double.

Jack Lipinski

Again, we’re trying to be somewhat cautious until we actually close on this facility and we own it. There will be significantly more information coming out as we get to closing.

Chow Chi – Macquarie Capital

Okay. And along those lines, can you give us any sort of idea on operating expenses at the plant, what we can expect?

Jack Lipinski

The operating expenses per barrel are actually slightly lower than Coffeyville. But again, they’re less complex. If you recall, Coffeyville’s complex is about 12.9, this is 9.3. On the complexity of barrel slightly higher because we have higher economy of scale at the Coffeyville footprint. But overall, it’s in the same range, some $4 a barrel.

Chow Chi – Macquarie Capital

Okay. Great. You mentioned the turnaround at the plant, third quarter next year, do you estimated cost?

Jack Lipinski

The initial indication is around $60 million. But again, this is – once we actually close on the facility, we will take the turnaround team that we have at Coffeyville and combine the two, and take a closer look and probably have something better in the first quarter.

Chow Chi – Macquarie Capital

Okay. Thanks. Jack, that was 60, 6, 0 you said?

Jack Lipinski

Yeah.

Chow Chi – Macquarie Capital

Got it. Okay. And finally, you talked about potential UAN opportunities with the plant in place. Can you explain that further?

Jack Lipinski

It’s logistics. You recall when we took UAN public, one of the things that Byron and his team are currently working on is expanding the amount of storage off-site from the Coffeyville nitrogen fertilizer facility. And there is a price change. If you noticed, I mentioned prices earlier. Fourth quarter, we’re at 330, our current book. The first quarter is 350. Actually, much earlier in the year, in June, when the prices are at their lowest, and when the fertilizer producers take fill orders, you can end up with $50, $60, $70 price differences or more between what you could sell in June and what you can realize if you are able to hold those tons until the actual application season. By looking at the storage there or building new storage, we can expand CVR Partners off-site storage of fill UAN. So they can capture the margin there. That’s part of the business plan at Partners, but actually having location that is rail accessible. And again, when we own it, having control of the facility makes it an interesting opportunity. Not huge, but just another thing. We chase the pennies and nickels and eventually put them together and make dollars.

Chow Chi – Macquarie Capital

Those are important. Okay. Thanks, Jack, appreciate it.

Jack Lipinski

Thank you.

Operator

Thank you. Our next question is from the line of Mike (inaudible). Please go ahead with your question.

Unidentified Analyst

Good morning. When you look at the Wynnewood on long-term basis on terms of what you were willing to pay, you did provide some pro forma data. But I was just curious as to – maybe we should talk in terms of WTI brent spread. What’s your sort of long-term assumption about say that spread that you incorporated into your decision making in buying this?

Jack Lipinski

Okay. If you were to look mid-cycle at Wynnewood, it would remain profitable. Profitable and low cash at mid-cycle cracks. Now if you – and if follow, cracks has expanded almost dollar for dollar with the Brent/WTI spread. So if you were to take – if you were to say, and I’ve said this before, and this is one man’s view, this is my view of where I think Brent and WTI will equilibrate. It will equilibrate to cost transport Mid Continent shale oils and other oils to the Gulf Coast, and I believe that will be somewhere between 3.50 and $4 a barrel. So if you were to simply add $4 a barrel to the mid-cycle run rates, this refinery runs approximately 25 million barrels a year. So if – couple of assumptions, if the crack spread expense to my $4 Brent/TI, $4 times 25 million is $100 million of incremental EBITDA over historical mid-cycle cracks. Is that helpful?

Unidentified Analyst

Yes. And you say at mid-cycle, this particular operation was break-even? Did I hear you say that?

Jack Lipinski

No, it was profitable in float cash.

Unidentified Analyst

Okay, thank you.

Jack Lipinski

Thanks.

Operator

Thank you. There are no further questions at this time. I would like to turn the floor back to management for closing comments.

Jack Lipinski

Again, I would like to thank everyone for joining us today to discuss earnings call and the acquisition of Gary-Williams. Thank you. Thank you all.

Operator

This concludes today’s teleconference. You may now disconnect your lines at this time and we thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: CVR Energy's CEO Discusses Q3 2011 Results - Earnings Call Transcript
This Transcript
All Transcripts