CVR ENERGY, INC. The following discussion and analysis of our financial condition, results of operations and cash flow should be read in conjunction with our consolidated financial statements and related notes and with the statistical information and financial data included elsewhere in this Report. References to "CVR Energy", "CVR", the "Company", "we", "us", and "our" may refer to consolidated subsidiaries ofCVR Energy , includingCVR Partners , as the context may require. This discussion and analysis covers the years endedDecember 31, 2022 and 2021 and discusses year-to-year comparisons between such periods. The discussions of the year endedDecember 31, 2020 and year-to-year comparisons between the years endedDecember 31, 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 filed onFebruary 23, 2022 , and such discussions are incorporated by reference into this Report. Reflected in this discussion and analysis is how management views the Company's current financial condition and results of operations along with key external variables and management's actions that may impact the Company. Understanding significant external variables, such as market conditions, weather, and seasonal trends, among others, and management actions taken to manage the Company, address external variables, among others, which will increase users' understanding of the Company, its financial condition and results of operations. This discussion may contain forward looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this Report.
Company Overview
CVR Energy is a diversified holding company primarily engaged in the petroleum refining and marketing industry (the "Petroleum Segment") and the nitrogen fertilizer manufacturing industry through its interest inCVR Partners, LP , a publicly traded limited partnership (the "Nitrogen Fertilizer Segment" or "CVR Partners "). The Petroleum Segment does not have crude oil exploration or production operations (an "independent petroleum refiner") and is a marketer of high value transportation fuels primarily in the form of gasoline and diesel fuels.CVR Partners produces and markets nitrogen fertilizers primarily in the form of urea ammonium nitrate ("UAN") and ammonia. We also produce and market renewable diesel. Our renewable diesel operations are not part of our reportable segments discussed below.
We operate under two reportable segments: petroleum and nitrogen fertilizer, which are referred to in this document as our "Petroleum Segment" and our "Nitrogen Fertilizer Segment," respectively.
Renewables Business
EffectiveFebruary 1, 2023 , in connection with our growing focus on decarbonization, we transformed our business to segregate our renewables business. As part of this transformation, in the first quarter of 2022, we formed 16 new indirect, wholly-owned subsidiaries ("NewCos") ofCVR Energy . In addition, inApril 2022 , in connection with our Corporate Master Service Agreement effectiveJanuary 1, 2020 , by and among our wholly-owned subsidiary,CVR Services, LLC ("CVR Services"), and certain other of our subsidiaries, including but not limited toCVR Partners and its subsidiaries, pursuant to which CVR Services provides the service recipients thereunder with management and other professional services (the "Corporate MSA"), the NewCos were joined as service recipients under the Corporate MSA. The Company also transferred certain assets to these NewCos to, among other purposes, better align our organizational structure with management, financial reporting, and our goal to maximize our renewables focus.
Potential Spin-Off of Nitrogen Fertilizer Business
OnNovember 21, 2022 , we announced thatCVR Energy's board of directors (the "Board") had authorized management to explore a potential spin-off of our interest in the nitrogen fertilizer business into a newly created and separately traded publicDecember 31, 2022 | 43
-------------------------------------------------------------------------------- Table of Contents company. If completed, upon effectiveness of the potential spin-off transaction,CVR Energy stockholders would own shares of bothCVR Energy , holding the refinery and renewables businesses, and a holding company, holdingCVR Energy's current ownership of the general partner interest in, and approximately 37% of the common units (representing limited partner interests) ofCVR Partners . If we proceed with the spin-off, it would be intended to be structured as a tax-free, pro-rata distribution to all ofCVR Energy's stockholders as of a record date to be determined by the Board. Completion of any potential spin-off would be subject to various conditions, including final approval of our Board, and there can be no assurance that the potential spin-off will be completed in the manner described above, or at all. We expect to incur significant costs in connection with exploring the potential spin-off transaction of our nitrogen fertilizer business into a newly created and separately traded public company. Spin-off exploration costs include legal, accounting, and advisory fees, implementation and integration costs, duplicative costs for subscriptions and information technology systems, employee and contractor costs, and other incremental separation costs related to the potential spin-off of the nitrogen fertilizer business. The potential spin-off transaction results in operating expenses that would not otherwise have been incurred by us in the normal course of our organic business operations, and we expect to incur additional spin-off exploration costs in future periods.
Strategy and Goals
The Company has adopted Mission and Values, which articulate the Company's expectations for how it and its employees do business each and every day.
Mission and Core Values
Our Mission is to be a top tier North American renewable fuels, petroleum refining, and nitrogen-based fertilizer company as measured by safe and reliable operations, superior performance and profitable growth. The foundation of how we operate is built on five core Values:
•Safety - We always put safety first. The protection of our employees, contractors and communities is paramount. We have an unwavering commitment to safety above all else. If it's not safe, then we don't do it.
•Environment - We care for our environment. Complying with all regulations and minimizing any environmental impact from our operations is essential. We understand our obligation to the environment and that it's our duty to protect it.
•Integrity - We require high business ethics. We comply with the law and practice sound corporate governance. We only conduct business one way-the right way with integrity.
•Corporate Citizenship - We are proud members of the communities where we operate. We are good neighbors and know that it's a privilege we can't take for granted. We seek to make a positive economic and social impact through our financial donations and the contributions of time, knowledge and talent of our employees to the places where we live and work. •Continuous Improvement - We believe in both individual and team success. We foster accountability under a performance-driven culture that supports creative thinking, teamwork, diversity and personal development so that employees can realize their maximum potential. We use defined work practices for consistency, efficiency and to create value across the organization.
Our core Values are driven by our people, inform the way we do business each and every day and enhance our ability to accomplish our mission and related strategic objectives.
Strategic Objectives
We have outlined the following strategic objectives to drive the accomplishment
of our mission:
December 31, 2022 | 44--------------------------------------------------------------------------------
Table of Contents Environmental, Health & Safety ("EH&S") - We aim to achieve continuous improvement in all EH&S areas through ensuring our people's commitment to environmental, health and safety comes first, the refinement of existing policies, continuous training, and enhanced monitoring procedures.
Reliability - Our goal is to achieve industry-leading utilization rates at our facilities through safe and reliable operations. We are focusing on improvements in day-to-day plant operations, identifying alternative sources for plant inputs to reduce lost time due to third-party operational constraints, and optimizing our commercial and marketing functions to maintain plant operations at their highest level.
Market Capture - We continuously evaluate opportunities to improve the facilities' realized pricing at the gate and reduce variable costs incurred in production to maximize our capture of market opportunities.
Financial Discipline - We strive to be as efficient as possible by maintaining low operating costs and disciplined deployment of capital.
Achievements
From the beginning of the fiscal year through the date of filing, we successfully executed a number of achievements in support of our strategic objectives shown below:
Safety Reliability Market Capture Financial Discipline
Corporate:
Achieved reduction in total recordable incident ü rate of 63% compared to 2021 Declared a quarterly cash dividend of$0.50 per share for the fourth quarter of 2022, bringing total dividends declared, including special ü ü dividends, to date of$5.30 per share related to 2022 Completed plan to transform our business to ü ü segregate our renewables operations Safely completed the conversion of the Wynnewood ü ü ü hydrocracker to renewable diesel service Began the exploration of a potential spin-off of ü ü our Nitrogen Fertilizer business Published our first external ESG Report for 2021 ü
ü
Petroleum Segment: Achieved a reduction in total recordable incident rate of 20% and maintained a level number of ü
ü
environmental events compared to 2021 Operated our refineries safely and reliably ü
ü
Safely completed the planned turnaround at the
refinery in Wynnewood, Oklahoma (the "Wynnewood ü ü ü ü
Refinery") on time and on budget
Completed an amendment and extension of the CVR
Refining, LP ("CVR Refining") Asset Based Credit ü
Agreement in June 2022
Achieved record truck-gathered crude oil volumes ü
in the third quarter of 2022
Nitrogen Fertilizer Segment:
Achieved reductions in process safety management
tier 1 incidents and total recordable incident ü ü
rate of 37% and 86%, respectively, compared 2021
December 31, 2022 | 45
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Safety Reliability Market Capture Financial Discipline
Safely completed the planned turnarounds at both
fertilizer facilities on time and on budget, as ü ü ü ü
well as inspected, repaired and replaced major
equipment as necessary during this downtime
Achieved record UAN production volumes at the ü ü
Coffeyville Fertilizer Facility in March 2022
Achieved record ammonia production at the East ü ü
Dubuque Fertilizer Facility in December 2022
Completed transaction intended to monetize 45Q
tax credits and received an initial upfront ü
payment, net of expenses, of $18 million in
January 2023
Declared cash distribution of $10.50 per common
unit for the fourth quarter of 2022, bringing ü ü
cumulative distributions declared to date of
$24.58 per common unit related to 2022
Achieved average reduction in CO2e emissions of
over 1 million metric tons per year since 2020 ü
for CVR Partners
Completed CVR Partners' targeted $95 million debt
reduction plan with the repayment of the
remaining $65 million balance of its 9.25% Senior
Secured Notes, due 2023 (the "2023 UAN Notes") in ü
the first quarter of 2022 for a total reduction
in annual cash interest expense of approximately
$9 million
Repurchased over 111,000 CVR Partners common ü
units for $12 million Environmental, Social & Governance ("ESG") Highlights
In the past year, we achieved numerous milestones through our commitment to sustainability, including environmental and safety stewardship, diversity and inclusion, community outreach and sound corporate governance. InDecember 2022 , we published our first public report based on theSustainability Accounting Standards Board standards. Our 2021 Environmental, Social & Governance Report ("2021 ESG Report") is available atCVR Energy's website at www.CVREnergy.com. Our 2021 ESG Report does not constitute a part of, and is not incorporated by reference into, this Annual Report on Form 10-K or any other report we file with (or furnish to) theSEC , whether made before or after the date of this Annual Report on Form 10-K.
Industry Factors and Market Indicators
General Business Environment
Russia-Ukraine Conflict and Global Market Conditions - InFebruary 2022 ,Russia invadedUkraine , disrupting the global oil, fertilizer, and agriculture markets, and leading to heightened uncertainty in the worldwide economy recovering from the COVID-19 pandemic. In response, many countries have formally or informally adopted sanctions on a number of Russian exports, including Russian oil and natural gas, and individuals affiliated with Russian government leadership. These sanctions resulted in oil price volatility and elevated natural gas prices during 2022, and should continue to impact commodity prices in the near-term, which could have a material effect on our financial condition, cash flows, or results of operations. A global recession stemming from market volatility and higher price levels could result in demand destruction. The ultimate outcome of theRussia -Ukraine conflict and any associated market disruptions, as well as the potential for high inflation and/or economic recession, are difficult to predict and may materially affect our business, operations, and cash flows in unforeseen ways. COVID-19 - The economic effects from the COVID-19 pandemic on our business were and may again be significant. Although our business has recovered since the onset of the pandemic inMarch 2020 , there continues to be uncertainty and unpredictability about the lingering impacts to the worldwide economy, including in connection with the spread of variants of COVID-19 and resulting restrictions, that could negatively affect our business, financial condition, results of operations , and liquidity in future periods.December 31, 2022 | 46 -------------------------------------------------------------------------------- Table of Contents Petroleum Segment The earnings and cash flows of the Petroleum Segment are primarily affected by the relationship between refined product prices and the prices for crude oil and other feedstocks that are processed and blended into refined products together with the cost of refinery compliance. The cost to acquire crude oil and other feedstocks and the price for which refined products are ultimately sold depends on factors beyond the Petroleum Segment's control, including the supply of and demand for crude oil, as well as gasoline and other refined products which, in turn, depend on, among other factors, changes in domestic and foreign economies, driving habits, weather conditions, domestic and foreign political affairs, production levels, the availability or permissibly of imports and exports, the marketing of competitive fuels and the extent of government regulation. Because the Petroleum Segment applies first-in first-out accounting to value its inventory, crude oil price movements may impact net income because of changes in the value of its unhedged inventory. The effect of changes in crude oil prices on the Petroleum Segment's results of operations is partially influenced by the rate at which the processing of refined products adjusts to reflect these changes. The prices of crude oil and other feedstocks and refined products are also affected by other factors, such as product pipeline capacity, system inventory, local and regional market conditions, inflation, and the operating levels of other refineries. Crude oil costs and the prices of refined products have historically been subject to wide fluctuations. Widespread expansion or upgrades of third-party facilities, price volatility, international political and economic developments, and other factors are likely to continue to play an important role in refining industry economics. These factors can impact, among other things, the level of inventories in the market, resulting in price volatility and a reduction in product margins. Moreover, the refining industry typically experiences seasonal fluctuations in demand for refined products, such as increases in the demand for gasoline during the summer driving season and for volatile seasonal exports of diesel from theUnited States Gulf Coast . Specific factors impacting the Company's operations are outlined below:
Current Market Outlook
•After substantial declines in demand for gasoline and diesel due to the COVID-19 pandemic in 2020, the combination of improving demand, declining inventories, loss of domestic and foreign operating refining capacities, and conversions to renewable diesel facilities led to an increase in refined products prices and crack spreads during 2021 and 2022. While the refining market has largely recovered, refined product demand declined 5% nationwide inJanuary 2023 from the 2022 average. However, distillate crack spreads have remained elevated to date in 2023. •Warmer winter weather inEurope has significantly reduced natural gas prices in the region fromDecember 2022 toJanuary 2023 , which has flattened the global cost curve and has hurtU.S. refiners' advantage. •Contributing to the ultra-low sulfur diesel ("ULSD") supply constraints is theInternational Maritime Organization's new limit on the sulfur content in the fuel oil used on board ships ("bunker fuel") effectiveJanuary 1, 2020 , which lowered the sulfur limit of bunker fuel from 3.5% to 0.5% (the "IMO 2020 Regulations"), which necessitated blending ULSD into bunker fuel to meet the new specifications. The resulting reduction of supply for traditional ULSD demand was initially muted by the pandemic-induced demand contraction.
•Due to the IMO 2020 Regulations, heavy crude differentials have widened, particularly for WCS. However, the expansion of the Trans Mountain Pipeline currently expected to be completed in 2023 should potentially narrow this differential going forward.
•Shale oil production continues to increase in the shale oil basins, including theAnadarko Basin . Crude oil exports peaked in the fourth quarter of 2022 at over 5 million bpd, and we believe the Petroleum Segment benefits from these exports through the Brent crude differential to WTI, as well as all refineries in PADD II.
•Drilled but uncompleted wells inventory in
•Significant capacity additions are expected in 2023, headlined by major projects scheduled to start up in theMiddle East ,Asia , andAfrica . Some of the capacity additions could be offset with a likely economic rebound inChina amid easing COVID-19 restrictions but refined product consumption is slowing inthe United States and remains weak inEurope . •The Russia-Ukraine conflict creates additional uncertainty, as sanctions on Russian oil exports, specifically diesel exports, have significantly influenced commodity markets in 2022 and into 2023. Resolution of this conflict could continue to affect markets going forward. Based on these factors, current inventory levels have remained low, particularly for distillate, with the days of supply for distillate and jet fuel at approximately 3.8 and 6.1 days,December 31, 2022 | 47 --------------------------------------------------------------------------------
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respectively, below the seasonally adjusted five-year averages. Furthermore, planned and unplanned outages at domestic refineries are continuing to contribute to further inventory tightening and volatility.
Regulatory Environment
•We continue to be impacted by significant volatility and excessive RIN prices
related to compliance requirements under the Renewable Fuel Standard ("RFS"),
proposed climate change laws, and regulations. Coffeyville Resources &
Marketing, LLC ("CRRM") and Wynnewood Refining Company, LLC ("WRC" and, together
with CRRM, the "obligated-party subsidiaries"), are subject to the RFS, which,
each year, absent exemptions or waivers, requires blending "renewable fuels"
with transportation fuels or purchasing renewable identification numbers
("RINs"), in lieu of blending, or otherwise be subject to penalties. Our cost to
comply with the RFS is dependent upon a variety of factors, which include the
availability of ethanol and biodiesel for blending at our refineries and
downstream terminals or RINs for purchase, the price at which RINs can be
purchased, transportation fuel and renewable diesel production levels, and the
mix of our products, all of which can vary significantly from period to period,
as well as certain waivers or exemptions to which we may be entitled. Our costs
to comply with the RFS depend on the consistent and timely application of the
program by the Environmental Protection Agency ("EPA "), such as timely
establishment of the annual renewable volume obligation ("RVO"). RIN prices have
been highly volatile and remain high due in large part to the EPA 's unlawful
failure to establish the 2021, 2022, and 2023 RVOs by their respective statutory
deadlines, the EPA 's delay in issuing decisions on pending small refinery
hardship petitions, and subsequent denial thereof. The price of RINs has also
been impacted by market factors and the depletion of the carryover RIN bank, as
demand destruction during the COVID-19 pandemic resulted in reduced ethanol
blending and RIN generation that did not keep pace with mandated volumes,
requiring carryover RINs from the RIN bank to be used to settle blending
obligations. As a result, our costs to comply with RFS (excluding the impacts of
any exemptions or waivers to which the Petroleum Segment's obligated-party
subsidiaries may be entitled) increased significantly throughout 2021 and
remained significant in 2022.
•In April 2022 , the EPA denied 36 small refinery exemptions ("SRE") for the 2018
compliance year, many of which had been previously granted by the EPA , and also
issued an alternative compliance demonstration approach for certain small
refineries (the "Alternate Compliance Ruling") under which they would not be
required to purchase or redeem additional RINs as a result of the EPA 's denial.
On June 3, 2022 , the EPA revised the 2020 RVO and finalized the 2021 and 2022
RVOs. The EPA also denied 69 petitions from small refineries seeking SREs,
including those submitted by WRC for 2017 through 2021, and applied the
Alternate Compliance Ruling to three such petitions. The price of RINs did not
respond to the EPA announcement and continues to remain elevated, and as a
result, we continue to expect significant volatility in the price of RINs during
2023 and such volatility could have material impacts on the Company's results of
operations, financial condition and cash flows.
•In
Company Initiatives
•InApril 2022 , we completed the renewable diesel project at ourWynnewood Refinery by converting theWynnewood Refinery's hydrocracker to a RDU, at a total cost of$179 million , which is capable of producing approximately 100 million gallons of renewable diesel per year and generating approximately 170 to 180 million RINs annually. The production of renewable diesel is expected to significantly reduce our future net exposure to the RFS. Further, the RDU has enabled us to capture additional benefits associated with the existing blenders' tax credit, which has been extended to the end of 2024, and growing Low Carbon Fuel Standard ("LCFS") programs across the country, with programs in place inCalifornia andOregon and new programs anticipated to be implemented over the coming years. •InNovember 2021 , the Board approved the pretreater project at theWynnewood Refinery , which is currently expected to be completed in the third quarter of 2023 at an estimated cost of$95 million . The pretreatment unit should enable us to process a wider variety of renewable diesel feedstocks at theWynnewood Refinery , most of which have a lower carbon intensity than soybean oil and generate additional LCFS credits. When completed, the collective renewable diesel efforts could effectively mitigate a substantial majority, if not all, of our future RFS exposure, assuming we receive SREs for ourWynnewood Refinery which we believe we are legally entitled to and are pursuing in the courts. However, impacts from recent climate change initiatives under theBiden Administration , actions taken by the courts, resulting administration actions under the RFS, and market conditions, could significantly impact the amount by which our renewable diesel business mitigates our costs to comply with the RFS, if at all.December 31, 2022 | 48
-------------------------------------------------------------------------------- Table of Contents As ofDecember 31, 2022 , we have an estimated open position (excluding the impacts of any exemptions or waivers to which we may be entitled) under the RFS for 2020, 2021 and 2022 of approximately 397 million RINs, excluding approximately 34 million of net open, fixed-price commitments to purchase RINs, resulting in a potential liability of$692 million . The Company's open RFS position, which does not consider open commitments expected to settle in future periods, is marked-to-market each period and thus significant market volatility, as experienced in late 2021 and 2022, could impact our RFS expense from period to period. We recognized expense of approximately$435 million , net of the RINs generated from our renewable diesel operations of$103 million , and$435 million for the years endedDecember 31, 2022 and 2021, respectively, for the Company's obligated-party subsidiaries compliance with the RFS. The increase in 2022 compared to 2021 was driven by an increase in RINs pricing through the fourth quarter of 2022. Of the expense recognized during the years endedDecember 31, 2022 and 2021, an expense of$135 million and$63 million relates to the revaluation of our net RVO position as ofDecember 31, 2022 and 2021, respectively. The revaluation represents the summation of the prior period obligation and current period commercial activities, marked at the period end market price. Based upon recent market prices of RINs inJanuary 2023 , current estimates related to other variable factors, including our anticipated blending and purchasing activities, and the impact of the open RFS positions and resolution thereof, our estimated consolidated cost to comply with the RFS (without regard to any SREs the obligated-party subsidiaries may receive) is$230 to$240 million for 2023, net of the estimated RINs generation from our renewable diesel operations of$240 to$250 million . Market Indicators NYMEX WTI crude oil is an industry wide benchmark that is utilized in the market pricing of a barrel of crude oil. The pricing differences between other crudes and WTI, known as differentials, show how the market for other crude oils such as WCS, White Cliffs ("Condensate"), Brent Crude ("Brent"), and Midland WTI ("Midland") are trending. Due to the COVID-19 pandemic, theRussia -Ukraine conflict, and, in each case, actions taken by governments and others in response thereto, refined product prices have experienced extreme volatility. As a result of the current environment, refining margins have been and will continue to be volatile. As a performance benchmark and a comparison with other industry participants, we utilizeNYMEX and Group 3 crack spreads. These crack spreads are a measure of the difference between market prices for crude oil and refined products and are a commonly used proxy within the industry to estimate or identify trends in refining margins. Crack spreads can fluctuate significantly over time as a result of market conditions and supply and demand balances. The NYMEX 2-1-1 crack spread is calculated using two barrels of WTI producing one barrel of NYMEX RBOB Gasoline ("RBOB") and one barrel of NYMEX NY Harbor ULSD ("HO"). The Group 3 2-1-1 crack spread is calculated using two barrels of WTI crude oil producing one barrel of Group 3 sub-octane gasoline and one barrel of Group 3 ultra-low sulfur diesel. Both NYMEX 2-1-1 and Group 3 2-1-1 crack spreads increased during 2022 compared to 2021. The NYMEX 2-1-1 crack spread averaged$42.60 per barrel in 2022 compared to$19.45 per barrel in 2021. The Group 3 2-1-1 crack spread averaged$38.18 per barrel in 2022 compared to$18.14 per barrel in 2021. Average monthly prices for RINs increased 12.4% during 2022 compared to 2021. On a blended barrel basis (calculated using applicable RVO percentages), RINs approximated$7.54 per barrel during 2022 compared to$6.71 per barrel during 2021.December 31, 2022 | 49
-------------------------------------------------------------------------------- Table of Contents The tables below are presented, on a per barrel basis, by month throughDecember 31, 2022 : Crude Oil Differentials against WTI (1)(2) [[Image Removed: cvi-20221231_g6.jpg]] NYMEX Crack Spreads (2) [[Image Removed: cvi-20221231_g7.jpg]]December 31, 2022 | 50
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PADD II Group 3 Product Crack Group 3 Differential
against NYMEX
Spread and RIN Pricing (2)(3) ($/bbl) WTI (1)(2) ($/bbl)[[Image Removed: cvi-20221231_g8.jpg]][[Image Removed: cvi-20221231_g9.jpg]]
(1)The change over time in NYMEX - WTI, as reflected in the charts above, is illustrated below.
Average Average Average
(in $/bbl) Average 2020 December 2020 Average 2021 December 2021 Average 2022 December 2022
WTI $ 39.34 $ 47.07 $ 68.11 $ 71.69 $ 94.41 $ 76.52
(2)Information used within these charts was obtained from reputable market
sources, including the New York Mercantile Exchange ("NYMEX"), Intercontinental
Exchange, and Argus Media, among others.
(3)PADD II is the Midwest Petroleum Area for Defense District ("PADD"), which
includes Illinois , Indiana , Iowa , Kansas , Kentucky , Michigan , Minnesota ,
Missouri , Nebraska , North Dakota , Ohio , Oklahoma , South Dakota , Tennessee , and
Wisconsin .
Nitrogen Fertilizer Segment
Within the Nitrogen Fertilizer Segment, earnings and cash flows from operations
are primarily affected by the relationship between nitrogen fertilizer product
prices, utilization, and operating costs and expenses, including pet coke and
natural gas feedstock costs.
The price at which nitrogen fertilizer products are ultimately sold depends on
numerous factors, including the global supply and demand for nitrogen fertilizer
products which, in turn, depends on, among other factors, world grain demand and
production levels, inflation, global supply disruptions, changes in world
population, the cost and availability of fertilizer transportation
infrastructure, local market conditions, operating levels of competing
facilities, weather conditions, the availability of imports, the availability
and price of feedstocks to produce nitrogen fertilizer, impacts of foreign
imports and foreign subsidies thereof, and the extent of government intervention
in agriculture markets. These factors can impact, among other things, the level
of inventories in the market, resulting in price volatility and a reduction in
product margins. Moreover, the industry typically experiences seasonal
fluctuations in demand for nitrogen fertilizer products.
As a result of the Russian invasion of Ukraine , the Black Sea , a major export
point for nitrogen fertilizer and grains from these countries, has been closed
to exports, which prompted tightening global supply conditions for nitrogen
fertilizer in advance of spring planting and wheat and corn availability, two
major exports from this region. Further, while fertilizers have not been
formally sanctioned by countries, many customers are either unwilling to
purchase Russian fertilizers or logistics make it too costly to import these
fertilizers. Additionally, natural gas supplied from Russia to Western Europe
has been constrained, and natural gas prices have remained elevated since
September 2021 , causing a significant portion of European nitrogen fertilizer
production capacity to be curtailed or costs to be elevated compared to
competitors in other regions of the world. Overall, these events have caused
grain and fertilizer prices to rise, and we currently expect these conditions to
persist through the spring of 2023.
December 31, 2022 | 51
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Market Indicators
While there is risk of shorter-term volatility given the inherent nature of the
commodity cycle, the Company believes the long-term fundamentals for the U.S.
nitrogen fertilizer industry remain intact. The Nitrogen Fertilizer Segment
views the anticipated combination of (i) increasing global population, (ii)
decreasing arable land per capita, (iii) continued evolution to more
protein-based diets in developing countries, (iv) sustained use of corn and
soybeans as feedstock for the domestic production of ethanol and other renewable
fuels, and (v) positioning at the lower end of the global cost curve should
provide a solid foundation for nitrogen fertilizer producers in the United
States over the longer term.
Corn and soybeans are two major crops planted by farmers in North America . Corn
crops result in the depletion of the amount of nitrogen within the soil in which
it is grown, which in turn, results in the need for this nutrient to be
replenished after each growing cycle. Unlike corn, soybeans are able to obtain
most of their own nitrogen through a process known as "N fixation." As such,
upon harvesting of soybeans, the soil retains a certain amount of nitrogen which
results in lower demand for nitrogen fertilizer for the following corn planting
cycle. Due to these factors, nitrogen fertilizer consumers generally operate a
balanced corn-soybean rotational planting cycle as evident by the chart
presented below for 2022, 2021, and 2020.
The relationship between the total acres planted for both corn and soybeans has
a direct impact on the overall demand for nitrogen products, as the market and
demand for nitrogen increases with increased corn acres and decreases with
increased soybean acres. Additionally, an estimated 11.6 billion pounds of
soybean oil is expected to be used in producing cleaner renewables in marketing
year 2022/2023. Multiple refiners have announced renewable diesel expansion
projects for 2023 and beyond, which will only increase the demand for soybeans
and potentially for corn and canola.
The United States Department of Agriculture ("USDA") estimates that in spring
2022 farmers planted 88.6 million acres of corn, representing a decrease of 5.1%
in corn acres planted as compared to 93.4 million corn acres in 2021. Planted
soybean acres were estimated to be 87.5 million acres, representing a 0.3%
increase in soybean acres planted as compared to 87.2 million soybean acres in
2021. The estimated combined corn and soybean planted acres of 176.1 million in
2022 is a 2.5% decrease from the total acreage planted in 2021, which was the
highest in history. Due to higher input costs for corn planting and increased
demand for soybeans, particularly for renewable diesel production, it was more
favorable for farmers to plant soybeans compared to corn. The lower planted corn
acres in 2022 and lower corn production are expected to be supportive of corn
prices for 2023.
Ethanol is blended with gasoline to meet renewable fuel standard requirements
and for its octane value. Since 2006, ethanol production has consumed
approximately 36% of the U.S. corn crop, so demand for corn generally rises and
falls with ethanol demand, as evidenced in the charts below.
[[Image Removed: cvi-20221231_g10.jpg]][[Image Removed: cvi-20221231_g11.jpg]]
(1)Information used within this chart was obtained from the EIA throughDecember 31, 2022 . (2)Information used within this chart was obtained from theUSDA , National Agricultural Statistics Services, as ofDecember 31, 2022 .December 31, 2022 | 52 -------------------------------------------------------------------------------- Table of Contents Weather continues to be a critical variable for crop production. Even with high planted acres and trendline yields per acre inthe United States , inventory levels for corn and soybeans remain below historical levels and prices have remained elevated. With tight grain and fertilizer inventory levels driven by theRussia -Ukraine conflict, prices for grains and fertilizers are expected to remain elevated through the spring of 2023. While the weather conditions were difficult early in spring 2022, farmers were able to complete the crop planting later than normal. Demand for nitrogen fertilizer, as well as other crop inputs, was strong for the spring 2022 planting season. During the summer 2022 growing season, severe drought conditions were experienced inAsia ,Europe , and parts of theU.S. As a result, crop yields are projected to be below expectations and grain inventories are projected to be at the low end of historical levels, causing grain prices to rise. We expect tight grain inventories to positively impact planted acreage for the spring of 2023 and boost the demand for nitrogen fertilizer. OnJune 30, 2021 ,CF Industries Nitrogen, L.L.C. ,Terra Nitrogen, Limited Partnership , andTerra International (Oklahoma) LLC filed petitions with theU.S. Department of Commerce ("USDOC") and theU.S. International Trade Commission (the "ITC") requesting the initiation of antidumping and countervailing duty investigations on imports of UAN fromRussia andTrinidad and Tobago ("Trinidad"). OnJuly 18, 2022 , the ITC made a negative final injury determination concerning its investigation of imports fromRussia andTrinidad despite USDOC's final determination in June that UAN is subsidized and dumped in the U.S. market by producers in both countries. Since the decision inJuly 2022 , we have observed minimal impact on the supply or demand for nitrogen fertilizer as a result of these actions.
The charts below show relevant market indicators for the Nitrogen Fertilizer
Segment by month through
Ammonia and UAN Market Pricing (1) Natural Gas and Pet Coke Market Pricing (1)
[[Image Removed: cvi-20221231_g12.jpg]][[Image Removed: cvi-20221231_g13.jpg]]
(1)Information used within these charts was obtained from various third-party
sources including Green Markets (a
Results of Operations
Consolidated
The following sections should be read in conjunction with the information
outlined within the previous sections of this Part II, Item 7 and the
consolidated financial statements and related notes thereto in Part II, Item 8
of this Report. Our consolidated results of operations include renewable fuels,
certain other unallocated corporate activities, and the elimination of
intercompany transactions and therefore do not equal the sum of the operating
results of the Petroleum and Nitrogen Fertilizer Segments.
December 31, 2022 | 53
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Consolidated Financial Highlights
Operating Income (Loss) Net Income (Loss) Attributable to CVR Energy
Stockholders
[[Image Removed: cvi-20221231_g14.jpg]][[Image Removed: cvi-20221231_g15.jpg]]
Earnings (Loss) per Share EBITDA (1)
[[Image Removed: cvi-20221231_g16.jpg]][[Image Removed: cvi-20221231_g17.jpg]]
(1)See "Non-GAAP Reconciliations" section below for reconciliations of the non-GAAP measure shown above.
Overview - The Company's operating income and net income were$963 million and$644 million , respectively, for the year endedDecember 31, 2022 , increases of$876 million and$570 million , respectively, compared to operating income and net income of$87 million and$74 million , respectively, for the year endedDecember 31, 2021 . These increases were driven by an improvement in operating income of$746 million within the Petroleum Segment and$186 million within the Nitrogen Fertilizer Segment for the year endedDecember 31, 2022 compared toDecember 31, 2021 . Refer to our discussion of each segment's results of operations below for further information. Investment Income onMarketable Securities - OnJune 10, 2021 , the Company distributed substantially all of its holdings in Delek US Holdings, Inc. ("Delek") (NYSE: DK), of which the Company was the largest stockholder holding approximately 14.3% of Delek's outstanding common stock, as part of a special dividend. OnJanuary 18, 2022 , the Company divested its remaining nominal holdings in Delek, and as ofDecember 31, 2022 , the Company did not hold an investment in other marketable securities of Delek. There was no dividend income received during the years endedDecember 31, 2022 and 2021. The Company did not recognize a gain or loss on the investment during the year endedDecember 31, 2022 compared to a recognized gain of$81 million for the year endedDecember 31, 2021 .December 31, 2022 | 54
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Other Income (Expense), Net - The Company's Other (expense) income, net, was an expense of$77 million for the year endedDecember 31, 2022 compared to income of$15 million for the year endedDecember 31, 2021 . The change was primarily attributable to the settlement of litigation. Refer to Part II, Item 8, Note 11 ("Commitments and Contingencies") of this Report for further discussion of this settlement. Income Tax Expense (Benefit) - The income tax expense for the year endedDecember 31, 2022 was$157 million , or 19.6% of income before income taxes, as compared to income tax benefit for the year endedDecember 31, 2021 of$8 million , or (12.4)% of income before income taxes. The fluctuation in income tax expense was due primarily to an increase in overall pretax earnings and state income tax expense. In addition, the change in the effective tax rate was due primarily to the changes in pretax earnings attributable to noncontrolling interests and an increase in state income tax expense.
Petroleum Segment
The Petroleum Segment utilizes certain inputs within its refining operations. These inputs include crude oil, butanes, natural gasoline, ethanol, and bio-diesel (these are also known as "throughputs").
Refining Throughput and Production Data by Refinery Throughput Data Year Ended December 31, (in bpd) 2022 2021 2020Coffeyville Regional crude 53,237 28,270 34,652 WTI 38,265 62,695 51,656 WTL 407 511 - WTS 462 - - Midland WTI 642 452 - Condensate 12,159 7,911 8,243 Heavy Canadian 6,847 3,695 1,020 DJ Basin 15,607 17,980 5,151 Other feedstocks and blendstocks 11,556 10,788 8,321 Wynnewood Regional crude 46,159 60,287 56,932 WTL 2,323 3,430 6,235 WTS 143 202 - Midland WTI 1,073 2,107 1,262 Condensate 13,283 7,360 6,207 Other feedstocks and blendstocks 3,125 3,396 3,616 Total throughput 205,288 209,084 183,295 December 31, 2022 | 55
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Table of Contents Production Data Year Ended December 31, (in bpd) 2022 2021 2020Coffeyville Gasoline 72,478 71,070 59,419 Distillate 58,104 53,441 43,209 Other liquid products 4,789 4,481 3,999 Solids 4,700 4,246 3,073 Wynnewood Gasoline 35,027 39,858 38,640 Distillate 23,690 31,662 30,638 Other liquid products 5,712 2,862 2,629 Solids 11 21 25 Total production 204,511 207,641 181,632 Light product yield (as % of crude throughput) (1) 99.3 % 100.6 % 100.3 % Liquid volume yield (as % of total throughput) (2) 97.3 % 97.3 % 97.4 % Distillate yield (as % of crude throughput) (3) 42.9 % 43.7 % 43.1 % (1)Total Gasoline and Distillate divided by total Regional crude, WTI, WTL, Midland WTI, WTS, Condensate, Heavy Canadian andDJ Basin throughput. (2)Total Gasoline, Distillate, and Other liquid products divided by total throughput. (3)Total Distillate divided by total Regional crude, WTI, WTL, Midland WTI, WTS, Condensate, Heavy Canadian andDJ Basin throughput.
Petroleum Segment Financial Highlights
Overview - Petroleum Segment operating income and net income for the year endedDecember 31, 2022 were$719 million and$759 million , respectively, an improvement of$746 million and$755 million , respectively, compared to an operating loss and net income of$27 million and$4 million , respectively, for the year endedDecember 31, 2021 . The improvement in both operating income and net income compared to the prior period was primarily a result of favorable refining margins resulting from improved crack spreads pricing in the current period, partially offset by increased RFS compliance costs.Net Sales Operating Income (Loss) [[Image Removed: cvi-20221231_g18.jpg]] [[Image Removed: cvi-20221231_g19.jpg]]December 31, 2022 | 56
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Net Income (Loss) EBITDA (1)
[[Image Removed: cvi-20221231_g20.jpg]][[Image Removed: cvi-20221231_g21.jpg]]
(1)See "Non-GAAP Reconciliations" section below for reconciliations of the non-GAAP measure shown above.
Net Sales - For the year endedDecember 31, 2022 , net sales for the Petroleum Segment increased by$3.2 billion when compared to the year endedDecember 31, 2021 . The increase in net sales was due to increased prices resulting from tight inventory levels and the ongoingRussia -Ukraine conflict for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . Further, net sales in 2021 were impacted by Winter Storm Uri, resulting in reduced production rates at both refineries. Refining Margin (1) Refining Margin (excluding Inventory Valuation Impacts (1)
[[Image Removed: cvi-20221231_g22.jpg]][[Image Removed: cvi-20221231_g23.jpg]]
(1)See "Non-GAAP Reconciliations" section below for reconciliations of the non-GAAP measures shown above.
Refining Margin - For the year endedDecember 31, 2022 , refining margin was$1.4 billion , or$19.09 per throughput barrel, as compared to$621 million , or$8.14 per throughput barrel, for the year endedDecember 31, 2021 . The increase in refining margin of$810 million was primarily due to an increase in product crack spreads. The Group 3 2-1-1 crack spread increased by$20.04 per barrel relative to the year endedDecember 31, 2021 driven by tight inventory levels, increased European demand for diesel, and supply concerns due to the ongoingRussia -Ukraine conflict. Offsetting these impacts for the year endedDecember 31, 2022 , throughput volumes declined by 3,796 bpd due to theWynnewood turnaround in the first quarter of 2022, the startup of the RDU limiting crude unit capacity, and minor plant outages during 2022. This was combinedDecember 31, 2022 | 57 -------------------------------------------------------------------------------- Table of Contents with favorable inventory valuation impacts totaling$22 million , or$0.29 per total throughput barrel, compared to favorable inventory valuation impacts of$127 million , or$1.66 per total throughput barrel, in 2021. While impacts were favorable, the decline in inventory valuation impacts year over year was a result of crude oil price increases in the prior year exceeding crude oil price increases in 2022. The Petroleum Segment's obligated-party subsidiaries recognized costs to comply with RFS of$403 million , or$5.38 per throughput barrel, which excludes the RINs revaluation expense impact of$135 million , or$1.80 per total throughput barrel, for the year endedDecember 31, 2022 . This is compared to RFS compliance costs of$372 million , or$4.87 per throughput barrel, which excludes the RINs revaluation expense impact of$63 million , or$0.83 per total throughput barrel, for the year endedDecember 31, 2021 . For the year endedDecember 31, 2022 , the Petroleum Segment's RFS compliance costs included$103 million of RINs purchased from our renewable diesel operations. The increase in both RFS compliance costs and RINs revaluation in 2022 was primarily related to increased RINs prices for the year endedDecember 31, 2022 compared to the prior period. This was combined with derivative losses of$47 million recognized during the year endedDecember 31, 2022 , a result of unfavorable crack spread swaps, partially offset by gains on WCS sales, compared to derivative losses of$45 million recognized during the year endedDecember 31, 2021 , also a result of unfavorable crack spread swaps, partially offset by gains on WCS sales. Direct Operating Expenses (1) [[Image Removed: cvi-20221231_g24.jpg]]
(1)Exclusive of depreciation and amortization expense.
Direct Operating Expenses (Exclusive of Depreciation and Amortization) - For the year endedDecember 31, 2022 , direct operating expenses (exclusive of depreciation and amortization) were$426 million compared to$369 million for the year endedDecember 31, 2021 . The increase in the current period was primarily due to personnel costs, repairs and maintenance expense, electricity costs, and natural gas costs. On a total throughput barrel basis, direct operating expenses increased to$5.68 per barrel from$4.83 per barrel, as a function of the increased expense in 2022, compounded by the decrease in total throughput in 2022 compared to 2021 caused by theWynnewood turnaround in the first quarter of 2022, the startup of the RDU in the second quarter of 2022, and minor plant outages during 2022.December 31, 2022 | 58 --------------------------------------------------------------------------------
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Depreciation and Amortization Expense Selling, General, and Administrative
Expenses, and Other
[[Image Removed: cvi-20221231_g25.jpg]][[Image Removed: cvi-20221231_g26.jpg]]
Depreciation and Amortization Expense - For the year ended December 31, 2022 ,
depreciation and amortization expense decreased $16 million compared to the year
ended December 31, 2021 , primarily due to assets being fully depreciated in 2021
and early 2022.
Selling, General, and Administrative Expenses, and Other - For the year ended
December 31, 2022 , selling, general and administrative expenses and other was
$99 million compared to $76 million for the year ended December 31, 2021 . The
increase was primarily a result of increased personnel costs, driven primarily
by increased share-based and incentive-based compensation, and loss on asset
disposals in 2022 as compared to 2021.
Nitrogen Fertilizer Segment
Utilization and Production Volumes - The following tables summarize the ammonia utilization at the Nitrogen Fertilizer Segment's facility inCoffeyville, Kansas (the "Coffeyville Fertilizer Facility") andEast Dubuque, Illinois (the "East Dubuque Fertilizer Facility"). Utilization is an important measure used by management to assess operational output at each of the Nitrogen Fertilizer Segment's facilities. Utilization is calculated as actual tons of ammonia produced divided by capacity. Utilization is presented solely on ammonia production, rather than each nitrogen product, as it provides a comparative baseline against industry peers and eliminates the disparity of facility configurations for upgrade of ammonia into other nitrogen products. With production primarily focused on ammonia upgrade capabilities, we believe this measure provides a meaningful view of how we operate. Gross tons produced for ammonia represent the total ammonia produced, including ammonia produced that was upgraded into other fertilizer products. Net tons available for sale represent the ammonia available for sale that was not upgraded into other fertilizer products. Production for the year endedDecember 31, 2022 was impacted by unplanned downtime associated with the Messer air separation plant (the "Messer Outages") at the Coffeyville Fertilizer Facility and various pieces of equipment at the East Dubuque Fertilizer Facility in 2022, along with the completion of the planned turnarounds at both December 31, 2022 | 59 -------------------------------------------------------------------------------- Table of Contents fertilizer facilities during the third quarter of 2022. The table below presents all of these Nitrogen Fertilizer Segment metrics for the years endedDecember 31, 2022 , 2021, and 2020: Year Ended December 31, 2022 2021 2020 Consolidated Ammonia Utilization 81 % 92 % 98 % Production Volumes (in thousands of tons) Ammonia (gross produced) 703 807 852 Ammonia (net available for sale) 213 275 303 UAN 1,140 1,208 1,303 On a consolidated basis, the Nitrogen Fertilizer Segment's utilization decreased 11% to 81% for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . This decrease was primarily due to the completion of planned turnarounds at both fertilizer facilities in the third quarter of 2022, along with unplanned downtime in 2022 associated with the Messer Outages at the Coffeyville Fertilizer Facility and various pieces of equipment at the East Dubuque Fertilizer Facility, compared to unplanned downtime at theCoffeyville Fertilizer Facility and the East Dubuque Fertilizer Facility in July andSeptember 2021 , respectively, due to externally driven power outages and downtime at the East Dubuque Fertilizer Facility inOctober 2021 for equipment repair. Sales and Pricing per Ton - Two of the Nitrogen Fertilizer Segment's key operating metrics are total sales volumes for ammonia and UAN, along with the product pricing per ton realized at the gate. Product pricing at the gate represents net sales less freight revenue divided by product sales volume in tons and is shown in order to provide a pricing measure comparable across the fertilizer industry. Year Ended December 31, 2022 2021 2020 Consolidated sales (thousand tons) Ammonia 195 269 332 UAN 1,144 1,196 1,312 Consolidated product pricing at gate (dollars per ton) Ammonia$ 1,024 $ 544 $ 284 UAN 486 264 152 For the year endedDecember 31, 2022 , total product sales volumes were unfavorable, driven by lower production at both facilities due to the planned turnarounds in the third quarter of 2022, as well as increased downtime from the Messer Outages at the Coffeyville Fertilizer Facility and various pieces of equipment at the East Dubuque Fertilizer Facility in 2022, as compared to 2021. For the year endedDecember 31, 2022 , total product sales were favorable driven by sales price increases of 88% for ammonia and 84% for UAN. Ammonia and UAN sales prices were favorable primarily due to continued tight market conditions due to lower fertilizer supply driven by ongoing impacts from theRussia -Ukraine conflict, including reduced production fromEurope as a result of the high energy price environment, and higher crop pricing. December 31, 2022 | 60 -------------------------------------------------------------------------------- Table of Contents Feedstock - Our Coffeyville Fertilizer Facility utilizes a pet coke gasification process to produce nitrogen fertilizer. Our East Dubuque Fertilizer Facility uses natural gas in its production of ammonia. The table below presents these feedstocks for both facilities within the Nitrogen Fertilizer Segment for the years endedDecember 31, 2022 , 2021, and 2020: Year
Ended
2022 2021 2020
Petroleum coke used in production (thousand tons) 425 514 523
Petroleum coke (dollars per ton) $ 52.88 $ 44.69 $ 35.25
Natural gas used in production (thousands of MMBtu) 6,905 8,049 8,611
(1)
Natural gas used in production (dollars per MMBtu)
3.95 $ 2.31
(1)
Natural gas in cost of materials and other (thousands 6,701 7,848 9,349
of MMBtu) (1)
Natural gas in cost of materials and other (dollars $ 6.37 $ 3.83 $ 2.35
per MMBtu) (1)
(1)The feedstock natural gas shown above does not include natural gas used for fuel. The cost of fuel natural gas is included in Direct operating expenses (exclusive of depreciation and amortization).
Nitrogen Fertilizer Segment Financial Highlights
Overview - The Nitrogen Fertilizer Segment's operating income and net income for the year endedDecember 31, 2022 were$320 million and$287 million , respectively, representing improvements of$186 million and$209 million , respectively, compared to operating income and net income of$134 million and$78 million , respectively, for the year endedDecember 31, 2021 . These improvements were primarily driven by higher product sales prices for UAN and ammonia in 2022, partially offset by reduced sales volumes, increased costs associated with the two planned turnarounds during the third quarter of 2022, and increased feedstock prices in 2022.Net Sales Operating Income (Loss) [[Image Removed: cvi-20221231_g27.jpg]][[Image Removed: cvi-20221231_g28.jpg]]December 31, 2022 | 61
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Net Income (Loss) EBITDA (1)
[[Image Removed: cvi-20221231_g29.jpg]][[Image Removed: cvi-20221231_g30.jpg]]
(1)See "Non-GAAP Reconciliations" section below for reconciliations of the non-GAAP measures shown above.
Net Sales - The Nitrogen Fertilizer Segment's net sales increased by$303 million to$836 million for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . This increase was primarily due to favorable UAN and ammonia pricing conditions which contributed$348 million in higher revenues, partially offset by decreased sales volumes, which reduced revenues by$54 million compared to the year endedDecember 31, 2021 . For the years endedDecember 31, 2022 and 2021, net sales included$35 million and$31 million in freight revenue, respectively, and$11 million and$11 million in other revenue, respectively.
The following table demonstrates the impact of changes in sales volumes and
pricing for the primary components of net sales, excluding urea products,
freight, and other revenue, for the year ended
Price Volume
(in millions) Variance Variance
UAN $ 254 $ (14)
Ammonia 94 (40)
For the year ended December 31, 2022 compared to the year ended December 31,
2021 , ammonia and UAN sales prices were favorable primarily due to continued
tight market conditions due to lower fertilizer supply driven by ongoing impacts
from the Russia -Ukraine conflict, including reduced production from Europe as a
result of the high energy price environment, and higher crop pricing. Total
product sales volumes were unfavorable driven by lower production due to
unplanned downtime associated with the Messer Outages at the Coffeyville
Fertilizer Facility and various pieces of equipment at the East Dubuque
Fertilizer Facility in 2022, along with the completion of the planned
turnarounds at both fertilizer facilities during the third quarter of 2022.
Cost of Materials and Other - Cost of materials and other for the year ended
December 31, 2022 was $131 million , compared to $98 million for the year ended
December 31, 2021 . The $33 million increase was driven primarily by increases in
purchases of nitrogen and ammonia of $17 million , increased natural gas costs of
$14 million , and higher distribution costs of $4 million . These increases were
partially offset by an inventory build contributing $2 million .
Direct Operating Expenses (exclusive of depreciation and amortization) - For the
year ended December 31, 2022 , direct operating expenses (exclusive of
depreciation and amortization) were $270 million compared to $199 million for
the year ended December 31, 2021 . The $72 million variance was primarily due to
higher turnaround costs incurred during the planned turnarounds at both
fertilizer facilities during 2022, which increased turnaround expenses by
$31 million , increased repair and maintenance expenses by $15 million , and
increased personnel costs by $3 million . In addition to these turnaround related
increases, there were $14 million of higher prices for natural gas for fuel
purposes, $4 million of increased operating materials
December 31, 2022 | 62
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and office costs, $4 million related to higher electricity pricing, and
$3 million of higher insurance costs. These increases were partially offset by
an inventory build contributing $3 million .
Non-GAAP Measures
Our management uses certain non-GAAP performance measures, and reconciliations to those measures, to evaluate current and past performance and prospects for the future to supplement our financial information presented in accordance with accounting principles generally accepted inthe United States ("GAAP"). These non-GAAP financial measures are important factors in assessing our operating results and profitability and include the performance and liquidity measures defined below.
The following are non-GAAP measures we present for the year ended
EBITDA - Consolidated net income (loss) before (i) interest expense, net, (ii) income tax expense (benefit) and (iii) depreciation and amortization expense.
Petroleum EBITDA and Nitrogen Fertilizer EBITDA - Segment net income (loss) before segment (i) interest expense, net, (ii) income tax expense (benefit), and (iii) depreciation and amortization.
Refining Margin - The difference between our Petroleum Segment net sales and cost of materials and other.
Refining Margin, adjusted for Inventory Valuation Impacts - Refining Margin adjusted to exclude the impact of current period market price and volume fluctuations on crude oil and refined product inventories purchased in prior periods and lower of cost or net realizable value adjustments, if applicable. We record our commodity inventories on the first-in-first-out basis. As a result, significant current period fluctuations in market prices and the volumes we hold in inventory can have favorable or unfavorable impacts on our refining margins as compared to similar metrics used by other publicly-traded companies in the refining industry. Refining Margin and Refining Margin adjusted for Inventory Valuation Impacts, per Throughput Barrel - Refining Margin and Refining Margin adjusted for Inventory Valuation Impacts divided by the total throughput barrels during the period, which is calculated as total throughput barrels per day times the number of days in the period. Direct Operating Expenses per Throughput Barrel - Direct operating expenses for our Petroleum Segment divided by total throughput barrels for the period, which is calculated as total throughput barrels per day times the number of days in the period. Adjusted EBITDA, Adjusted Petroleum EBITDA and Adjusted Nitrogen Fertilizer EBITDA - EBITDA, Petroleum EBITDA and Nitrogen Fertilizer EBITDA adjusted for certain significant non-cash items and items that management believes are not attributable to or indicative of our on-going operations or that may obscure our underlying results and trends. Adjusted Earnings (Loss) per Share - Earnings (loss) per share adjusted for certain significant non-cash items and items that management believes are not attributable to or indicative of our on-going operations or that may obscure our underlying results and trends.
Free Cash Flow - Net cash provided by (used in) operating activities less capital expenditures and capitalized turnaround expenditures.
Net Debt and Finance Lease Obligations - Net debt and finance lease obligations is total debt and finance lease obligations reduced for cash and cash equivalents.
Total Debt and Net Debt and Finance Lease Obligations to EBITDA Exclusive of Nitrogen Fertilizer - Total debt and net debt and finance lease obligations is calculated as the consolidated debt and net debt and finance lease obligations less the Nitrogen Fertilizer Segment's debt and net debt and finance lease obligations as of the most recent period ended divided by EBITDA exclusive of the Nitrogen Fertilizer Segment for the most recent twelve-month period. We present these measures because we believe they may help investors, analysts, lenders and ratings agencies analyze our results of operations and liquidity in conjunction with ourU.S. GAAP results, including but not limited to our operating performance as compared to other publicly-traded companies in the refining and fertilizer industries, without regard to historicalDecember 31, 2022 | 63 -------------------------------------------------------------------------------- Table of Contents cost basis or financing methods and our ability to incur and service debt and fund capital expenditures. Non-GAAP measures have important limitations as analytical tools, because they exclude some, but not all, items that affect net earnings and operating income. These measures should not be considered substitutes for their most directly comparableU.S. GAAP financial measures. See "Non-GAAP Reconciliations" included herein for reconciliation of these amounts. Due to rounding, numbers presented within this section may not add or equal to numbers or totals presented elsewhere within this document.
Factors Affecting Comparability of Our Financial Results
Our historical results of operations for the periods presented may not be comparable with prior periods or to our results of operations in the future for the reasons discussed below.
Petroleum Segment
Coffeyville Refinery - The next planned turnaround of the refinery inCoffeyville, Kansas (the "Coffeyville Refinery ") is expected to start in the spring of 2023, with pre-planning expenditures of$14 million capitalized for the year endedDecember 31, 2022 .Wynnewood Refinery -The Wynnewood Refinery began a major scheduled turnaround in lateFebruary 2022 that was completed in earlyApril 2022 . We capitalized expenditures of$67 million and$7 million related to turnaround activities for the years endedDecember 31, 2022 and 2021, respectively.
Nitrogen Fertilizer Segment
Coffeyville Fertilizer Facility - A planned turnaround at theCoffeyville Fertilizer Facility commenced inJuly 2022 and was completed inmid-August 2022 . For the year endedDecember 31, 2022 , we incurred turnaround expense of$12 million . For the year endedDecember 31, 2021 , we incurred turnaround expense of less than$1 million related to planning for the Coffeyville Fertilizer Facility's turnaround completed during the third quarter of 2022. During the planning and execution of this turnaround, we updated the estimated useful lives of certain assets, which resulted in additional depreciation expense of$6 million during the year endedDecember 31, 2022 . Additionally, the Coffeyville Fertilizer Facility had planned downtime during the fourth quarter of 2021 at a cost of$2 million . East Dubuque Fertilizer Facility - A planned turnaround at theEast Dubuque Fertilizer Facility commenced inAugust 2022 and was completed inmid-September 2022 . For the year endedDecember 31, 2022 , we incurred turnaround expense of$21 million . For the year endedDecember 31, 2021 , we incurred turnaround expense of$1 million related to planning for the East Dubuque Fertilizer Facility's turnaround completed during the third quarter of 2022. During the planning and execution of this turnaround, we updated the estimated useful lives of certain assets, which resulted in additional depreciation expense of$6 million and$5 million during the years endedDecember 31, 2022 and 2021, respectively.December 31, 2022 | 64
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Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA
Year Ended December 31,
(in millions) 2022 2021 2020
Net income (loss) $ 644 $ 74 $ (320)
Interest expense, net 85 117 130
Income tax expense (benefit) 157 (8) (95)
Depreciation and amortization 288 279 278
EBITDA 1,174 462 (7)
Adjustments:
Revaluation of RFS liability 135 63 59 Gain on marketable securities - (81) (34) Unrealized loss (gain) on derivatives, net 5 (16) 9
Inventory valuation impacts, (favorable) unfavorable (24)
(127) 58
Goodwill impairment - - 41
Call Option Lawsuits settlement (1) 79 - -
Adjusted EBITDA $ 1,369 $ 301 $ 126
Reconciliation of Basic and Diluted Earnings (Loss) per Share to Adjusted
Earnings (Loss) per Share
Year Ended December 31,
2022 2021 2020
Basic and diluted earnings (loss) per share $ 4.60 $ 0.25 $ (2.54)
Adjustments: (2)
Revaluation of RFS liability 1.00 0.46 0.43
Gain on marketable securities - (0.59) (0.25)
Unrealized loss (gain) on derivatives, net 0.04 (0.12) 0.07
Inventory valuation impacts, (favorable) unfavorable (0.18) (0.93) 0.43
Goodwill impairment (3) - - 0.07
Call Option Lawsuits settlement (1) 0.58 - -
Adjusted earnings (loss) per share $ 6.04 $ (0.93) $ (1.79)
(1)Refer to Part II, Item 8, Note 11 ("Commitments and Contingencies") of this
Report for further discussion of this settlement.
(2)Amounts are shown after-tax, using the Company's marginal tax rate, and are
presented on a per share basis using the weighted average shares outstanding for
each period.
(3)Amount is shown exclusive of noncontrolling interests.
Reconciliation of Net Cash Provided By Operating Activities to Free Cash Flow
Year Ended December 31,
(in millions) 2022 2021 2020
Net cash provided by operating activities $ 967 $
396
Less:
Capital expenditures (191) (224) (124)
Capitalized turnaround expenditures (83)
(5) (159)
Free cash flow $ 693 $ 167 $ (193)
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Reconciliation of Petroleum Segment Net Income (Loss) to EBITDA and Adjusted
EBITDA
Year Ended December 31,
(in millions) 2022 2021 2020
Petroleum net income (loss) $ 759 $ 4 $ (271)
Interest income, net (41) (21) (5)
Depreciation and amortization 187 203 202
Petroleum EBITDA 905 186 (74)
Adjustments:
Revaluation of RFS liability 135 63 59 Unrealized loss (gain) on derivatives, net 3 (16) 9 Inventory valuation impacts, (favorable) unfavorable (1) (2) (22) (127) 58 Petroleum Adjusted EBITDA$ 1,021 $ 106 $ 52
Reconciliation of Petroleum Segment Gross Profit (Loss) to Refining Margin and Refining Margin Adjusted for Inventory Valuation Impact
Year Ended December 31,
(in millions) 2022 2021 2020
Net sales $ 9,919 $ 6,721 $ 3,586
Less:
Cost of materials and other (8,488) (6,100) (3,288)
Direct operating expenses (exclusive of depreciation
and amortization) (426) (369) (319)
Depreciation and amortization (182) (197) (194)
Gross profit (loss) 823 55 (215)
Add:
Direct operating expenses (exclusive of depreciation
and amortization) 426 369 319
Depreciation and amortization 182 197 194
Refining Margin 1,431 621 298Inventory valuation impacts, (favorable) unfavorable (1) (2)
(22) (127) 58
Refining margin, adjusted for inventory valuation
impacts $ 1,409 $ 494 $ 356
(1)The Petroleum Segment's basis for determining inventory value under GAAP is
First-In, First-Out ("FIFO"). Changes in crude oil prices can cause fluctuations
in the inventory valuation of crude oil, work in process and finished goods,
thereby resulting in a favorable inventory valuation impact when crude oil
prices increase and an unfavorable inventory valuation impact when crude oil
prices decrease. The inventory valuation impact is calculated based upon
inventory values at the beginning of the accounting period and at the end of the
accounting period. In order to derive the inventory valuation impact per total
throughput barrel, we utilize the total dollar figures for the inventory
valuation impact and divide by the number of total throughput barrels for the
period.
(2)Includes an inventory valuation charge of $58 million recorded in the first
quarter of 2020, as inventories were reflected at the lower of cost or net
realizable value. No adjustment was necessary during the years ended December
31, 2022 or December 31, 2021 or any other period in 2020.
Reconciliation of Petroleum Segment Total Throughput Barrels
Year Ended
2022 2021 2020
Total throughput barrels per day 205,288 209,084 183,295
Days in the period 365 365 366
Total throughput barrels 74,930,140 76,315,701 67,085,913
December 31, 2022 | 66--------------------------------------------------------------------------------
Table of Contents Reconciliation of Petroleum Segment Refining Margin per Total Throughput Barrel
Year Ended December 31,
(in millions, except per total throughput barrel) 2022 2021 2020
Refining margin $ 1,431 $ 621 $ 298
Divided by: total throughput barrels 75 76 67
Refining margin per total throughput barrel $ 19.09 $
8.14
Reconciliation of Petroleum Segment Refining Margin Adjusted for Inventory Valuation Impact per Total Throughput Barrel
Year Ended December 31,
(in millions, except per total throughput barrel) 2022 2021 2020
Refining margin, adjusted for inventory valuation
impact $ 1,409 $ 494 $ 356
Divided by: total throughput barrels 75 76 67
Refining margin adjusted for inventory valuation
impact per total throughput barrel $ 18.80 Reconciliation of Petroleum Segment Direct Operating Expenses per Total Throughput Barrel
Year Ended December 31,
(in millions, except per total throughput barrel) 2022 2021 2020
Direct operating expenses (exclusive of depreciation and amortization)
$ 426 $ 369 $ 319 Divided by: total throughput barrels 75 76 67
Direct operating expenses per total throughput barrel
Reconciliation of Nitrogen Fertilizer Segment Net Income (Loss) to EBITDA and
Adjusted EBITDA
Year Ended December 31,
(in millions) 2022 2021 2020
Nitrogen Fertilizer net income (loss) $ 287 $ 78 $ (98)
Interest expense, net 34 61 63
Depreciation and amortization 82 74 76 Nitrogen Fertilizer EBITDA 403 213 41 Adjustments: Goodwill impairment - - 41 Nitrogen Fertilizer Adjusted EBITDA$ 403 $ 213 $ 82 December 31, 2022 | 67
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Table of Contents Reconciliation of Total Debt and Net Debt and Finance Lease Obligations to EBITDA Exclusive of Nitrogen Fertilizer
Year Ended
(in millions) December 31, 2022
Total debt and finance lease obligations (1) $ 1,591
Less:
Nitrogen Fertilizer debt and finance lease obligations (1) $ (547)
Total debt and finance lease obligations exclusive of Nitrogen Fertilizer
1,044
EBITDA exclusive of Nitrogen Fertilizer $ 771
Total debt and finance lease obligations to EBITDA exclusive of Nitrogen Fertilizer
1.35
Consolidated cash and cash equivalents $ 510
Less:
Nitrogen Fertilizer cash and cash equivalents (86) Cash and cash equivalents exclusive of Nitrogen Fertilizer 424
Net debt and finance lease obligations exclusive of Nitrogen Fertilizer (2)
$ 620
Net debt and finance lease obligations to EBITDA exclusive of Nitrogen
Fertilizer (2) $ 0.80
(1)Amounts are shown inclusive of the current portion of long-term debt and
finance lease obligations.
(2)Net debt represents total debt and finance lease obligations exclusive of
cash and cash equivalents.
Three Months Ended Year Ended
September 30, December 31, December 31, 2022
(in millions) March 31, 2022 June 30, 2022 2022 2022 (1)
Consolidated
Net income $ 153 $ 239 $ 80 $ 172 $ 644
Interest expense, net 24 23 19 18 85
Income tax expense 34 66 7 50 157
Depreciation and amortization 67 73 75 73 288
EBITDA $ 278 $ 401 $ 181 $ 313 $ 1,174
Nitrogen Fertilizer
Net income (loss) $ 94 $ 118 $ (20) $ 95 287
Interest expense, net 10 8 8 8 34
Depreciation and amortization 19 21 22 19 82
EBITDA $ 123 $ 147 $ 10 $ 122 $ 403
EBITDA exclusive of Nitrogen
Fertilizer $ 155 $ 254 $ 171 $ 191 $ 771
(1)Due to rounding, numbers within this table may not add or equal to totals
presented.
December 31, 2022 | 68-------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources Our principal source of liquidity has historically been cash from operations. Our principal uses of cash are for working capital, capital expenditures, funding our debt service obligations, and paying dividends to our stockholders, as further discussed below. Following the significant declines in demand and pricing for crude oil and refined products in 2020 due to the COVID-19 pandemic, market conditions improved steadily throughout 2021 and into 2022. In the first quarter of 2022, following the Russian invasion ofUkraine , crude oil and refined product prices increased and have been volatile over concerns of a reduction in global supply of these products due to sanctions placed on Russian exports by theU.S. and numerous other countries. Despite the extreme volatility in commodity pricing, the increase in refined product pricing during 2021 and 2022 has had a favorable impact on our business and has not significantly impacted our primary source of liquidity. While we believe demand for crude oil and refined products has stabilized, there is still uncertainty on the horizon due to the potential for recession driven demand destruction and any potential resolution of theRussia -Ukraine conflict. We continue to maintain our focus on safe and reliable operations, maintain an appropriate level of cash to fund ongoing operations, and protect our balance sheet. As a result of these factors, the Board elected to declare cash dividends of$0.40 for the first, second, and third quarters of 2022 and$0.50 for the fourth quarter of 2022. The Board also elected to declare special dividends equal to$2.60 and$1.00 during the second and third quarters of 2022, respectively. No quarterly dividends were declared for the fourth quarter of 2021. These decisions support the Company's continued focus on financial discipline through a balanced approach of evaluation of strategic investment opportunities and stockholder dividends while maintaining adequate capital requirements for ongoing operations throughout the environment of uncertainty. The Board will continue to evaluate the economic environment, the Company's cash needs, optimal uses of cash, and other applicable factors, and may elect to make additional changes to the Company's dividend (if any) in future periods. Additionally, in executing financial discipline, we have successfully implemented and are maintaining the following measures: •Deferred the majority of our growth capital spending, with the exception of the RDU project and construction of the renewables feedstock pretreater project at theWynnewood Refinery ;
•Focused refining maintenance capital expenditures to only include those projects which are a priority to support continuing safe and reliable operations, or which we consider required to support future activities;
•Focused future capital allocation to high-return assets and opportunities that advance participation in the energy industry transformation;
•Continued to focus on disciplined management of operational and general and administrative cost reductions; and
•For the Petroleum Segment, deferred the turnaround at the refinery in
When considering the market conditions and actions outlined above, we currently believe that our cash from operations and existing cash and cash equivalents, along with borrowings, as necessary, will be sufficient to satisfy anticipated cash requirements associated with our existing operations for at least the next 12 months. However, our future capital expenditures and other cash requirements could be higher than we currently expect as a result of various factors including, but not limited to, rising material and labor costs, the costs associated with complying with the Renewable Fuel Standard's outcome of litigation and other factors. Additionally, our ability to generate sufficient cash from our operating activities and secure additional financing depends on our future operational performance, which is subject to general economic, political, financial, competitive, and other factors, some of which may be beyond our control. Depending on the needs of our business, contractual limitations and market conditions, we may from time to time seek to issue equity securities, incur additional debt, issue debt securities, or redeem, repurchase, refinance, or retire our outstanding debt through privately negotiated transactions, open market repurchases, redemptions, exchanges, tender offers or otherwise, but we are under no obligation to do so. There can be no assurance that we will seek to do any of the foregoing or that we will be able to do any of the foregoing on terms acceptable to us or at all. OnFebruary 22, 2022 ,CVR Partners redeemed the remaining$65 million in aggregate principal amount of its 2023 UAN Notes at par, plus accrued and unpaid interest. This transaction represents a significant and favorable change inCVR Partners' cash flow and liquidity position, with annual savings of approximately$6 million in future interest expense. OnJune 30, 2022 , CVR Refining and certain of its subsidiaries entered into Amendment No. 3 to the Amended and Restated ABL CreditDecember 31, 2022 | 69
-------------------------------------------------------------------------------- Table of Contents Agreement (as amended, the "Petroleum ABL"). The Petroleum ABL is a senior secured asset based revolving credit facility in an aggregate principal amount of up to$275 million and a maturity date ofJune 30, 2027 . Refer to Part II, Item 8, Note 6 ("Long-Term Debt and Finance Lease Obligations") of this Report for further discussion. The Company, and its subsidiaries, were in compliance with all applicable covenants under their respective debt instruments as ofDecember 31, 2022 , as applicable.
We do not have any "off-balance sheet arrangements" as such term is defined
within the rules and regulations of the
Cash and Other Liquidity
As ofDecember 31, 2022 , we had total liquidity of approximately$797 million which consisted of consolidated cash and cash equivalents of$510 million ,$252 million available under the Petroleum ABL, and$35 million available under the Asset Based Credit Agreement ("Nitrogen Fertilizer ABL"). As ofDecember 31, 2021 , we had$510 million in cash and cash equivalents. (in millions) December 31, 2022 December 31, 2021CVR Partners : 9.25% Senior Secured Notes, due June 2023 (1) $ - $ 65 6.125% Senior Notes, due June 2028 550 550 Unamortized discount and debt issuance costs (3) (4)Total CVR Partners debt $ 547 $ 611 CVR Energy: 5.25% Senior Notes, due February 2025 $ 600 $ 600 5.75% Senior Notes, due February 2028 400 400 Unamortized debt issuance costs (4) (5) Total CVR Energy debt $ 996 $ 995 Total long-term debt 1,543 1,606
(1)The
As ofDecember 31, 2022 , the Nitrogen Fertilizer Segment has the 6.125% Senior Secured Notes, dueJune 2028 (the "2028 UAN Notes") and the Nitrogen Fertilizer ABL, the proceeds of which may be used to fund working capital, capital expenditures, and for other general corporate purposes. Refer to Part II, Item 8, Note 6 ("Long-Term Debt and Finance Lease Obligations") of this Report for further discussion. CVR Refining
As of
As ofDecember 31, 2022 ,CVR Energy has the 5.25% Senior Notes, due 2025 (the "2025 Notes") and the 5.75% Senior Notes, due 2028 (the "2028 Notes" and together with the 2025 Notes, the "Notes"), the net proceeds of which may be used for general corporate purposes, which may include funding acquisitions, capital projects, and/or share repurchases or other distributions to our stockholders. Refer to Part II, Item 8, Note 6 ("Long-Term Debt and Finance Lease Obligations") of this Report for further discussion.December 31, 2022 | 70 -------------------------------------------------------------------------------- Table of Contents Capital Spending We divide capital spending needs into two categories: maintenance and growth. Maintenance capital spending includes non-discretionary maintenance projects and projects required to comply with environmental, health, and safety regulations. Growth capital projects generally involve an expansion of existing capacity and/or a reduction in direct operating expenses. We undertake growth capital spending based on the expected return on incremental capital employed. InApril 2022 , we completed the renewable diesel project at ourWynnewood Refinery by converting the refinery's hydrocracker to a RDU capable of producing approximately 100 million gallons of renewable diesel per year at a total cost of$179 million . InNovember 2021 , the Board approved the renewable feedstock pretreater project at theWynnewood Refinery , which is expected to be completed in the third quarter of 2023 at an estimated cost of$95 million .
Our total capital expenditures for the year ended
2022 Actual 2023 Estimate (1)
Maintenance Growth Total(in millions) Maintenance Growth Total Low High Low High Low High
Petroleum $ 84 $ 2 $ 86 $ 91 $
100
Renewables (2) 2 67 69 - 1 39 47 39 48
Nitrogen Fertilizer 40 1 41 31 33 2 3 33 36
Other 7 - 7 7 8 - - 7 8
Total $ 133 $ 70 $ 203 $ 129 $ 142 $ 71 $ 83 $ 200 $ 225
(1)Total 2023 estimated capitalized costs include approximately $6 million of
growth related projects that will require additional approvals before
commencement.
(2)Renewables reflects spending on the Wynnewood Refinery's RDU and renewable
feedstock pretreater projects. As of December 31, 2022 , Renewables does not meet
the definition of a reportable segment as defined under Accounting Standards
Codification Topic 280.
Our estimated capital expenditures are subject to change due to unanticipated
changes in the cost, scope, and completion time for capital projects. For
example, we may experience unexpected changes in labor or equipment costs
necessary to comply with government regulations or to complete projects that
sustain or improve the profitability of the Refineries or Facilities. We may
also accelerate or defer some capital expenditures from time to time. Capital
spending for CVR Partners is determined by the board of directors of its general
partner (the "UAN GP Board"). We will continue to monitor market conditions and
make adjustments, if needed, to our current capital spending or turnaround
plans.
The Petroleum Segment began a major scheduled turnaround at the Wynnewood
Refinery in late February 2022 that was completed in early April 2022 . We
capitalized expenditures of $67 million and $7 million for the years ended
December 31, 2022 and 2021, respectively. The Petroleum Segment's next planned
turnaround at the Coffeyville Refinery is currently expected to start in the
spring of 2023, with pre-planning expenditures of $14 million capitalized for
the year ended December 31, 2022 .
The Nitrogen Fertilizer Segment's planned turnaround at the Coffeyville
Fertilizer Facility commenced in July 2022 and was completed in mid-August 2022 .
The planned turnaround at the East Dubuque Fertilizer Facility commenced in
August 2022 and was completed in mid-September 2022 . For the years ended
December 31, 2022 and 2021, we incurred turnaround expense of $12 million and
less than $1 million , respectively, at the Coffeyville Fertilizer Facility and
$21 million and $1 million , respectively, at the East Dubuque Fertilizer
Facility. Additionally, the Coffeyville Fertilizer Facility had planned downtime
for certain maintenance activities during the fourth quarter of 2021 at a cost
of $2 million .
Dividends to CVR Energy Stockholders
Dividends, if any, including the payment, amount and timing thereof, are
determined at the discretion of our Board. IEP, through its ownership of the
Company's common stock, is entitled to receive dividends that are declared and
paid by the Company based on the number of shares held at each record date. The
following table presents quarterly dividends, excluding any special dividends,
paid to the Company's stockholders, including IEP, during 2022 (amounts
presented in table below may not add to totals presented due to rounding):
December 31, 2022 | 71
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Table of Contents
Quarterly Dividends Paid (in millions)
Quarterly Dividends Public
Related Period Date Paid Per Share Stockholders IEP Total
2022 - 1st Quarter May 23, 2022 $ 0.40 $ 12 $ 28 $ 40
2022 - 2nd Quarter August 22, 2022 0.40 12 28 40
2022 - 3rd Quarter November 21, 2022 0.40 12 28 40
Total 2022 quarterly dividends $
1.20 $ 35
No quarterly dividends were paid during the first quarter of 2022 related to the fourth quarter of 2021, and there were no quarterly dividends declared or paid during 2021 related to the first, second, and third quarters of 2021 and fourth quarter of 2020. During the year endedDecember 31, 2020 , the Company paid quarterly dividends totaling$1.20 per common share, or$121 million . Of these dividends, IEP received$85 million due to its ownership interest in the Company's shares.
On
OnMay 26, 2021 , the Company announced a special dividend of approximately$492 million , or equivalent to$4.89 per share of the Company's common stock, to be paid in a combination of cash (the "Cash Distribution") and the common stock of Delek US Holdings, Inc. ("Delek") held by the Company (the "Stock Distribution"). OnJune 10, 2021 , the Company distributed an aggregate amount of approximately$241 million , or$2.40 per share of the Company's common stock, pursuant to the Cash Distribution, and approximately 10,539,880 shares of Delek common stock, which represented approximately 14.3% of the outstanding shares of Delek common stock, pursuant to the Stock Distribution. IEP received approximately 7,464,652 shares of common stock of Delek and$171 million in cash. The Stock Distribution was recorded as a reduction to equity through a derecognition of our investment in Delek, and the Company recognized a gain of$112 million from the initial investment in Delek through the date of the Stock Distribution. For the fourth quarter of 2022, the Company, upon approval by the Company's Board onFebruary 21, 2023 , declared a cash dividend of$0.50 per share, or$50 million , which is payableMarch 13, 2023 to shareholders of record as ofMarch 6, 2023 . Of this amount, IEP will receive$36 million due to its ownership interest in the Company's shares.
Distributions to
Distributions, if any, including the payment, amount and timing thereof, are subject to change at the discretion of the UAN GP Board. The following tables present distributions paid byCVR Partners toCVR Partners' unitholders, including amounts received by the Company, as ofDecember 31, 2022 and 2021 (amounts presented in tables below may not add to totals presented due to rounding): Quarterly Distributions Paid (in millions) Quarterly Distributions Related Period Date Paid Per Common Unit Public Unitholders CVR Energy Total 2021 - 4th Quarter March 14, 2022 $ 5.24 $ 35$ 20 $ 56 2022 - 1st Quarter May 23, 2022 2.26 15 9 24 2022 - 2nd Quarter August 22, 2022 10.05 67 39 106 2022 - 3rd Quarter November 21, 2022 1.77 12 7 19 Total 2022 quarterly distributions $ 19.32 $ 129$ 75 $ 205 December 31, 2022 | 72
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Table of Contents
Quarterly Distributions Paid (in millions)
Quarterly
Distributions
Related Period Date Paid PerCommon Unit Public Unitholders CVR Energy Total 2021 - 2nd Quarter August 23, 2021 $ 1.72 $ 11 $ 7$ 18 2021 - 3rd Quarter November 22, 2021 2.93 20 11 31 Total 2021 quarterly distributions $ 4.65 $ 31$ 18 $ 50 There were no quarterly distributions declared or paid byCVR Partners related to the first quarter of 2021 and the fourth quarter of 2020. During the year endedDecember 31, 2020 , there were no quarterly distributions declared or paid byCVR Partners . For the fourth quarter of 2022,CVR Partners , upon approval by the UAN GP Board onFebruary 21, 2023 , declared a distribution of$10.50 per common unit, or$111 million , which is payableMarch 13, 2023 to unitholders of record as ofMarch 6, 2023 . Of this amount,CVR Energy will receive approximately$41 million , with the remaining amount payable to public unitholders.
Capital Structure
OnOctober 23, 2019 , the Board authorized a stock repurchase program (the "Stock Repurchase Program"). The Stock Repurchase Program would enable the Company to repurchase up to$300 million of the Company's common stock. Repurchases under the Stock Repurchase Program may be made from time-to-time through open market transactions, block trades, privately negotiated transactions or otherwise in accordance with applicable securities laws. The timing, price and amount of repurchases (if any) will be made at the discretion of management and are subject to market conditions as well as corporate, regulatory, debt maintenance and other considerations. While the Stock Repurchase Program currently has a duration of four years, it does not obligate the Company to acquire any stock and may be terminated by the Board at any time. As ofDecember 31, 2022 , the Company has not repurchased any of the Company's common stock under the Stock Repurchase Program. OnMay 6, 2020 ,CVR Partners announced that the UAN GP Board, on behalf ofCVR Partners , authorized a unit repurchase program (the "Unit Repurchase Program"), which was increased onFebruary 22, 2021 . The Unit Repurchase Program, as increased, authorizedCVR Partners to repurchase up to$20 million ofCVR Partners' common units. During the years endedDecember 31, 2022 and 2021,CVR Partners repurchased 111,695 and 24,378 common units, respectively, on the open market in accordance with a repurchase agreement under Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934, as amended, at a cost of$12 million and$1 million , respectively, exclusive of transaction costs, or an average price of$110.98 and$21.69 per common unit, respectively. As ofDecember 31, 2022 ,CVR Partners had a nominal authorized amount remaining under the Unit Repurchase Program. This Unit Repurchase Program does not obligateCVR Partners to acquire any common units and may be cancelled or terminated by the UAN GP Board at any time. Cash Flows The following table sets forth our consolidated cash flows for the periods indicated below: Year Ended December 31, (in millions) 2022 2021 2020 Net cash provided by (used in): Operating activities$ 967 $ 396 $ 90 Investing activities (271) (238) (423) Financing activities (696) (315) 355 Net increase (decrease) in cash, cash equivalents and restricted cash $ -$ (157) $ 22 December 31, 2022 | 73
-------------------------------------------------------------------------------- Table of Contents Operating Activities The change in net cash provided by operating activities for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 was primarily due to a$712 million increase in EBITDA during 2022 as a result of stronger operations during 2022 compared to 2021. This is partially offset by a decrease in working capital of$209 million primarily associated with lower liability variances in 2022 compared to 2021.
Investing Activities
The change in net cash used in investing activities for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 was primarily due to an increase in our turnaround expenditures of$78 million in 2022 compared to 2021 related to the planned turnaround at theWynnewood Refinery completed in 2022 and a reduction in the proceeds from the sale of assets of$7 million . These are partially offset by a reduction in capital expenditures of$33 million , as theWynnewood Refinery's RDU was completed inApril 2022 , and a$20 million acquisition of pipeline assets in 2021 with no corresponding asset purchases in 2022.
Financing Activities
The change in net cash used in financing activities for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 was primarily due to an increase in dividends paid toCVR Partners non-controlling interest holders andCVR Energy stockholders of$98 million and$242 million , respectively, during 2022 compared to 2021, a change of$33 million in the redemption of the remaining balance of the 2023 UAN Notes in 2022 compared to the partial redemption of the 2023 UAN Notes and the 6.5% UAN Notes dueApril 2021 during 2021, and an increase of$11 million in unit repurchases ofCVR Partners' common units in 2022 compared to 2021.
Recent Accounting Pronouncements
Refer to Part II, Item 8, Note 2 ("Summary of Significant Accounting Policies")
of this Report for a discussion of recent accounting pronouncements applicable
to the Company.
Critical Accounting Estimates
We prepare our consolidated financial statements in accordance with GAAP
requiring management to make judgments, assumptions, and estimates based on the
best available information at the time. Accounting estimates are considered to
be critical if (1) the nature of the estimates and assumptions is material due
to the levels of subjectivity and judgment necessary to account for highly
uncertain matters or the susceptibility of such matters to change; and (2) the
impact of the estimates and assumptions on financial condition or operating
performance is material. Actual results could differ from the estimates and
assumptions used.
Inventory Valuation
The cost of our petroleum and nitrogen fertilizer product inventories is determined under the FIFO method. Our FIFO inventories are carried at the lower of cost or net realizable value. We compare the estimated realizable value of inventories to their cost by product at each of our facilities. In our Petroleum Segment, to determine the net realizable value of our inventories, we assume that crude oil and other feedstocks are converted into refined products, which requires us to make estimates regarding the refined products expected to be produced from those feedstocks and the conversion costs required to convert those feedstocks into refined products. We also estimate the usual and customary transportation costs required to move the inventory from our plants to the appropriate points of sale, if material. We then apply an estimated selling price to our inventories based primarily on actual prices observed subsequent to the end of the reporting period with any remaining volumes' selling price estimated using indicative market pricing available as of the time the estimate is made. If the net realizable value is less than cost, we recognize a loss for the difference in our statements of operations. For our Nitrogen Fertilizer Segment, depending on inventory levels, the per-ton realizable value of our fertilizer products is estimated using pricing on in-transit orders, pricing for open, fixed-price orders that have not shipped, and, if volumes remain unaccounted for, current management pricing estimates for fertilizer products. Management's estimate for current pricing reflects up-to-date pricing in each facility's market as of the end of each reporting period. Reductions to selling prices for unreimbursed freight costs are included to arrive at net realizable value, as applicable. During the year endedDecember 31, 2020 , we recognizedDecember 31, 2022 | 74
-------------------------------------------------------------------------------- Table of Contents losses on inventory of$59 million to reflect net realizable value, primarily associated with our Petroleum Segment. No amounts were recognized for the years endedDecember 31, 2022 and 2021. Due to the amount and variability in volume of inventories maintained, changes in production costs, and the volatility of market pricing for our products, losses recognized to reflect inventories at the lower of cost or net realizable value could have a material impact on the Company's results of operations. Impairment of Long-lived Assets Long-lived assets used in operations are assessed for impairment whenever changes in facts and circumstances indicate a possible significant deterioration in future expected cash flows. If the sum of the undiscounted expected future cash flows of an asset group is less than the carrying value, including applicable liabilities, the carrying value is written down to its estimated fair value. Individual assets are grouped for impairment purposes based on a judgmental assessment of the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other assets (for example, at a refinery or fertilizer facility level). In addition, when preparing the expected future cash flows or estimating the fair value of impaired assets, we make several estimates that include subjective assumptions related to future sales volumes, commodity prices, operating costs, discount rates, and capital expenditures, among others.
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