00:03 Greetings and welcome to the CVR Energy Inc. Fourth Quarter 2021 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. 00:22 I would now like to turn the conference over to your host, Richard Roberts, Vice President of FP&A and Investor Relations for CVR Energy. Thank you, sir. You may begin.

00:30 Thank you, Melissa. Good afternoon, everyone. We very much appreciate you joining us this afternoon for our CVR Energy fourth quarter 2021 earnings call. With me today are Dave Lamp, our Chief Executive Officer; Dane Neumann, our Chief Financial Officer; and other members of management. 00:45 Prior to discussing our 2021 fourth quarter and full year results, let me remind you that this conference call may contain forward-looking statements, as that term is defined under federal securities laws. For this purpose, any statements made during this call that are not statements of historical facts, may be deemed to be forward-looking statements. You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. 01:09 As a result, actual operations or results may differ materially from the results discussed in the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law. Let me also remind you that CVR Partners completed a 1-for-10 reverse split of its common units on November 23, 2020. Any per unit references made on this call are on a split-adjusted basis. 01:34 This call also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures, are included in our 2021 fourth quarter earnings release that we filed with the SEC and Form 10-K for the period and will be discussed during the call. 01:50 With that said, I'll turn the call over to Dave.

01:53 Thank you, Richard. Good afternoon, everyone and thank you for joining our earnings call. This morning, we reported CVR Energy's full-year and fourth quarter results for the full year of ’21. We reported a net income of $74 million inclusive of non-controlling interest or $25 million of attributable to CVI shareholders. 02:16 Earnings per diluted share were $0.25 for the full year of 2021. For the fourth quarter, we reported net income of $25 million inclusive of non-controlling interest and a net loss attributable to the CVI shareholders of $14 million. Loss per diluted share was $0.14 for the fourth quarter. EBITDA for the year was $462 million and for the quarter it was $116 million. 02:46 While RIN prices remained stubbornly high and weighted on our refining results, fertilizer markets fundamentals continue to improve and drove another quarter of strong results for CVR’s fertilizer business. Despite the challenges in the refining market in 2021, we continue to focus on safe, reliable operations. We continue to achieve significant year-over-year improvements in environmental health and safety metrics, including a 42% year-over-year reduction in environmental events. 03:21 We are providing more ESG disclosures and we published our first internal ESG report for 2020. Work is progressing on a 2021 report that we plan to release publicly later this year. We also returned capital to our shareholders through a significant special dividend in the second quarter totaling the equivalent of $492 million or $4.89 per share. 03:51 Turning to the fourth quarter results. For our Petroleum segment, the combined total throughput for the fourth quarter of 2021 was approximately 222,000 barrels per day as compared to 219,000 barrels per day for the fourth quarter of 2020. Both facilities ran well during the quarter and we increased WCS processing at the Coffeyville refinery…

06:47 Thank you, Dave and good afternoon, everyone. Our consolidated fourth quarter net income of $25 million and loss per diluted share of $0.14, includes a negative mark-to-market impact on our estimated outstanding RFS obligation of $9 million and favorable inventory valuation impacts of $17 million. Excluding these impacts, our fourth quarter 2021 adjusted EPS was a loss of $0.20 and adjusted EBITDA was $109 million. 07:14 The Petroleum segment's EBITDA for the fourth quarter of 2021 was $27 million compared to a negative $66 million in the same period in 2020. The year-over-year EBITDA increase was driven by the significant increase in crack spreads, offset somewhat by elevated rent prices. Excluding the mark-to-market impact on our estimated outstanding RFS obligation of $9 million, and inventory valuation impacts of $17 million, our Petroleum segment adjusted EBITDA was $19 million. 07:44 In the fourth quarter of 2021, our Petroleum segment's reported refining margin was $7.13 per barrel. Excluding inventory valuation impacts, unrealized derivative losses and the mark-to-market impact of our estimated outstanding rent obligation, our refining margin would have been approximately $6.70 per barrel. 08:01 On this basis, capture rate for the fourth quarter of 2021 was approximately 39% compared to 59% in the fourth quarter of 2020. Our capture rate for the fourth quarter of 2021 was negatively impacted by elevated RINs prices and a less favorable crude differential mostly due to the steep [indiscernible] in the crude oil market. 08:24 RINs expense in the fourth quarter of 2021 was $100 million or $4.89 per barrel of total throughput, compared to $120 million for the same period last year. As a reminder, our reported RINs expense does not include the impact of any waivers or exemptions. Our fourth quarter RINs expense includes a $9 million mark-to-market impact on our estimated…

14:43 Thank you, Dane. In summary, over the course of 2021, we saw a material recovery in the refining market fundamentals. Between the reduction in refining capacity due to announced closures downtime associated with winter storms and hurricanes and product demand mostly returning to pre-COVID levels, product inventories have tightened significantly, which led to a sustained rebound in crack spreads. Unfortunately, RINs remain stubbornly high and could continue to drag on refining margins and an unnecessary increase in the price of transportation fuels. 15:22 Fortunately for CVR, our rent exposure should be reduced significantly in the near term as we complete the renewable diesel unit at Wynnewood, which we currently plan to have online by middle of April and at full rates during the second quarter. Initially, we plan to run a mix of pre-treated soybean oil and corn oil and we currently have feedstock inventories on hand. As a reminder, we expect to generate approximately 170 million to 180 million RINs a year from this renewable diesel production, which should bring our net RIN exposure to under 100 million RINs per year assuming no waivers or exemptions. 16:03 On our last earnings call, I discussed our increased focus on renewables and decarbonization. We are pleased to report that our Board of Directors has approved a comprehensive plan to reorganize our company to facilitate the segregation of renewables, including the formation of new entities and ultimately the transfer of assets. We currently expect to execute this plan over the next 12 months, subject to any required authorizations and look forward to reporting on milestones as we progress. This step significantly advances the focus on renewables, we outlined several quarters ago and once complete should provide significant optionality for maximizing value. 16:50 We also continue to advance various projects. We anticipate…

23:46 Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Phil Gresh with JP Morgan. Please proceed with your question.

24:13 Hey. Good afternoon, Dave. Thanks for taking my question.

24:15 Hi, Phil

24:17 So, just stepping back and kind of looking at the fourth quarter results, it seems that Gulf Coast refiners have put up much better margins quarter-over-quarter than the Mid-Con. You talked about some of the factors that could be influencing that. Just curious if you think are those transitory factors in your view or structural factors like Brent-TI, backwardation et cetera. So just any thoughts you have there? Thanks.

24:46 Sure, Phil. Well, it's not uncommon for the Mid-Con to go long product during the winter season, so not only the effect of higher RVP, which is allowed under the law, but also just the fact that -- with the Brent-TI at the numbers, it's had, it's still has an incentive to -- everybody has an incentive to run wide open. And demand typically falls, a little bit, although, not much, but the production of gasoline goes up dramatically, that and a little bit of the volatility in crude price you mentioned backwardation and the fact that there were no real significant refinery interruptions in our market, the base is just kind of blew out and reduced our profitability appropriately therefore. 25:39 So if you look at the Magellan inventories on gas, they're fairly high right now and that's seasonally typical. That's the reason we're doing our Wynnewood turnaround in the first quarter, which is usually the weakest season. I do expect it to recover once demand picks up in the area and the RVP starts to go back down. As far as the Brent-TI goes it's really related directly to the production of shale oil, which is increasing, but not nearly as much as we would have expected at these kind of crude prices.

26:23 Got it. That's very thorough. Thank you. My follow-up is just around capital allocation. I'm just trying to get my arms around where CVI is headed here because you have the renewable objectives that could require more capital spending. If you look at Coffeyville or other opportunities, we also -- are talking about maybe segregating that business? And then you think about kind of cash flow generation of the parent company, the RINs liability that's outstanding, so could you just kind of walk through how you're thinking about capital allocation. Is there a scenario where you consider reinstating dividends or buybacks or do you feel like with these other things that you have on your plate that now is not the right time to look at that?

27:10 Well, I think from a capital allocation, CVI has always been a cash machine and it's all about cash flow and is what we're all about. I think you've heard us mention that we spent 435 million complying with the -- or at least booked it on our balance sheet of rent expense. And when you put that in the equation that it kind of just takes our cash flow to a level, we don't really like. So with some rectification to RINs has got to happen and we kind of outlined, a lot of the things that we think we're going to take steps on, but that 435 just kind of wipes out anything we can do. Our balance sheet is still strong, however and I think we are not far from a position of thinking about dividends again and I know the board talks about it every quarter and that those conversations will continue. 28:12 As far as breaking out the renewables business, I think the thought here is and I think we're all starting to see it in this business anybody is in a fossil fuel businesses that raising money going forward is going to be difficult, and not to mention that renewables probably commands a little higher multiple. Those two factors, I think are a lot behind our strategy here of breaking this -- change in our corporate structure and breaking it out, or we can raise money under decarbonization flag and have access to the capital markets where the -- a lot of them are being shut by ESG concerns and other things.

28:58 Okay. Great. Thanks for your thoughts.

29:00 You're welcome.

29:03 Thank you. Our next question comes from the line of Manav Gupta with Credit Suisse. Please proceed with your question.

29:08 Hey, Dave. Thanks for all the update on the renewables side. I have a question here. Some of your peers and others, what they're doing is, that they're building the renewable diesel business, they are bringing in sometimes financial partners who are offering the CapEx and giving some preferred equity, other times they are bringing in a feedstock provider who probably is not offering a CapEx but offering you guaranteed supply of feedstock, and then taking some part of the profits. And I'm just trying to understand as you build this business out, will it be more like it will be your -- do it yourself or are you open to bringing in financial partners or feedstock partners like how do you plan to build this business alone or with partners?

29:54 Well, I think we're not real good at sharing but we probably could, in some of these cases and we're not shutting out of that optionality is going forward, particularly in the oil, in the area of bean oil supply or other feedstocks, I think it's having people with something a little more dollars in the skin in the game, if you want to say it that way is not a bad way to go and we're evaluating several deals, several crushers now that look very promising and not only that it's to help us break kind of the monopoly of bean oil where it's controlled by three big players, the ag players and will give us of a lot more optionality than more like you have with the refining business than you do with the vegetable -- vegetable business itself, so we're not opposed to it, but we haven't found those deals yet.

30:53 Okay. And the second question is, you talked about a little bit, help us understand some of the factors which are driving these fertilizer prices so high. Is it the fact that Europe is struggling to make fertilizer with natural gas prices? What are the, some of the reasons why this high nitrogen or fertilizer price environment could last in 2022 or maybe even 2023?

31:16 Well, I think you've got to start with the price of corn and soybeans, Manav, and then if you look at soybeans they’re approaching $16 a bushel corn over $6, farmers are pretty flush with incentives to farm and the RFS is broken and continues to put a big demand on corn and if you look worldwide, there is a drought in South America. All factors are leading towards more demand for these two grains, which drive -- mainly drives fertilizer and even though the cost of fertilizer has gone up, most of our customers are more worried about getting allocated supply, than they are the price. 32:03 And the other reasons the price has gone up so much is what I mentioned in the prepared remarks is the natural gas in Europe has made -- for making fertilizer they’re unprofitable. So about 40% of the plants over there are shut down due to economics. And you have China and Russia and Egypt, basically hording their what they’re usually exporters and they're hording their production for their own use. So all those factors together and not to mention the Winter Storm Uri and hurricanes that shut down a lot of the U.S. production. 32:40 And the other factor is, there was a trade case against Russia and Trinidad at -- that the U.S. won and there is going to be tariffs on those, those products which are probably going to limit imports for the next year or maybe even five years, just because those tariffs are fairly steep. So that's kind of the perfect storm I was referring to.

33:06 Perfect. And last, very quick one, I've asked you this before, looks like EPA is tilting towards declining all SREs, you have fought them before, you even taken them to Supreme Court and won. So are you guys getting ready for around 2 for what you believe is rightfully yours?

33:23 Yeah. I mean the comment period is up on their proposed denial of all small refinery waivers. And I think the responses were pretty, pretty dramatic. If I know EPA, they'll basically ignore them all and just go like they want to and the next day we will -- as soon as they deny in the Federal Register all these small refinery waivers will be filing our lawsuit that minute.

33:52 Thank you so much.

33:53 You're welcome.

33:56 Thank you. Our next question comes from the line of Carly Davenport with Goldman Sachs. Please proceed with your question.

34:01 Hi. Good afternoon. Thanks for taking the questions. Just wanted to start on the decarbonization strategy, you mentioned in the prepared remarks. You’ve talked a lot about the renewable fuels piece, but wanted to get your thoughts on some of the other decarbonization efforts you're considering. Is there anything to share on the CCS side or SAF that you think would be a good fit for your business?

34:23 Well, it's early yet Carly, but what we are looking at is, and I think we're uniquely positioned to once again for this because of today, we do have -- in our Fertilizer business, we do sequester CO2 for enhanced oil recovery and we have a pipeline system. We're connected to a pipeline system is owned by a third-party. But there isn't any reason we can extend that to both of our refineries and use RECOVER available CO2 that is as out there today. So for example, I’ll give you a couple of examples, like the RD unit at Wynnewood that we're building requires the hydrogen plant to run, which makes a 35%, 40% concentrated CO2 stream which we can purify further and stick in either that pipeline or a new pipeline getting to it and sequester that recover 45Q credits. Not only that monetize it in the low-carbon fuel standard credits through R&D and that's just one example. We also have a concentrated stream in our FCC stacks of CO2. We could recover those. So there is a slew of stuff there, and there is also a real case to be considered on using hydrogen as fuel instead of natural gas itself within a refinery that it really hit Scope one and Scope 2. We would likely look at that in some detail and look at building a utility business around that to decarbonize the fuel refineries use. So there's a lot of options here that that we think are exciting and we'll be pursuing over the next couple of years.

36:05 Great. Thanks for that color and the context. The follow-up is just around backwardation and you flagged some of the impacts on capture rates there during the quarter. Is that something you're able to quantify what the impact was on capture in the quarter? Are there any kind of sensitivity you can provide as, we think about go forward captures given the current curve structure?

36:27 Well, it's pretty much a one for one proposition that's comes right off of your crack. So what right now, we're about $1.20 -- between $1.20 and $1.50 of backwardation. I would just make the assumption that's that comes right off the crack.

36:47 Great. I appreciate that.

36:51 You’re welcome.

36:54 Thank you. Our next question comes from the line of Matthew Blair with Tudor, Pickering, Holt. Please proceed with your question.

37:00 Hey. Good morning. I was hoping you could help us think about fertilizer pricing realization for the first quarter here, it looks like in Q4 is only about 60% or so of the benchmarks and normally you're closer to 80%. Just wondering, if we can pencil-in 80% for Q1 or if there are other -- some other moving parts we need to take into consideration?

37:26 Well, we do have an industrial business, that's part of one of our plants, that's fairly large. So those, those are formula prices that take a while to ramp up. As far as the open book goes, as most of the stuff that we've booked in the spring and the early first half of the year, I should say are all at these higher prices. So you'll see it factor in largely in the first quarter and second quarter. And then it's kind of a question where does the market go from there? It's not atypical for fertilizer to see a drop in price post the summer time side-dress and other activities at farmers do until the harvest occurs and then they start to apply ammonia again. So we think it's pretty still pretty strong. But it's hard to say exactly what will happen in that second half, just because we have the order book is pretty much complete on a vast majority of the ammonia we're going to make in UAN, we're going to make in the first half.

38:31 Great. Okay. Sounds good. And then on the, on the R&D front, Dave, how would you assess the availability of RBDs soybean oil for your upcoming start up. We saw last year where the pricing really blew out relative to the crude soybean oil. So, has there been a material improvement in overall supplier or you kind of, watching that kind of careful on what your start might do to that RBD market?

39:05 Well, you remember Matt that we postponed, we could have started this up last year and we postponed because the basis for bean oil was so high, it’s over $0.30 a pound. It's down in the $0.14 now and it's kind of maintained there, it took a while for all the trade flows to rebalance, but they have done that now and it's pretty steady at that, I'll call it $0.14 to $0.20 somewhere in that range. And at that point, we're profitable where we're at now and that's why we're doing the conversion now. So I don't see a real big problem with the availability of it. We'll have to look for other feedstocks as we've always said. And with our pretreater it gives us that option. But we've also got a pretty good source of corn oil that's that is suitable to run without a pretreater and it's -- it has a little higher basis than what bean oil has, but it's also a lower CI. So with that mix, we feel we can make money in the short-haul and offset a lot of revs.

40:19 So if that basis flows out again after you start up your plant, what do you, do you shut your plan in response to economics or do you just keep producing until your pretreater comes on?

40:32 Well, we probably keep running, but I don't anticipate that happening. Our move is not huge. And some of the others coming on are claiming they're easing used oil and tallow and other things. And the fact of the matter is we have about a two months of feedstock and inventory. So we're not going to shock the market like it was seen last time.

40:58 Great. Thank you.

40:59 A lot of these are getting delayed to Matt. Some of them are coming on later and later. So that would just help rebalance trade flows.

41:08 Right. Good point. Thank you for all the color.

41:12 Thank you. Our next question comes from the line of Paul Cheng with Scotiabank. Please proceed with your question.

41:20 Hey, guys. Good afternoon.

41:23 Hey, Paul.

41:25 I think -- how do you, you're saying that you are going to reorganize and that partly done by early next year. That means that from a financial reporting, you're going to way until then before you start reporting the RBD profit in your quarterly results or that anyway you would go ahead and start doing that before them? And also, you're talking about that become a different business. Will you be looking at a merging the plan outside your refinery location and also that when you're looking at future, what comp payback period and IRR requirement for those investments?

42:12 sure, Paul. The, probably the latter. first, as I think we would look at probably the same return, we look at in refining businesses. I don't view the -- I think the renewable business is going to be just as competitive as the refining, it's ultimately going to trade that way. So there's really no difference in that from our approach standpoint of that. Your other question on what we were reporting as a separate segment, yes, as soon as appropriate. We'll have optionality with this restructuring. We don't have to spin it off as a separate company. We couldn’t keep it under where we are, or we have the option to do that, if the market dictates that that should be done. Again, the reason we're doing this is we think renewables commands a higher multiple as well as we're worried as much as anything about our financing going forward as more ESG takes, hard and we're already starting to see banks not want to participate in fossil fuel type businesses. So that's what we're planning for the future.

43:24 And Dave, when you looking at, even it is anticipation or RD plan. I mean, the next one, obviously, you're looking at cost of you, and after that, are you guys looking how inside your refinery location as good would as [indiscernible] or that or are you going to look at for RD and then you would be looking at all basically other opportunities like what you say CSF and other things?

43:51 Well, I think I think a lot of this decarbonization is going to turn into an opportunity of people that want to participate in that value chain as a -- as potentially installing us for other plants and taking an ownership it's no different than the hydrogen plants today are owned by third-parties typically, I can see decarbonization owned by third-parties just as a like and that helps us refiner decarbonize as well as monetizing that through a separate corporation. We have a wide-open space.

44:30 Okay. And then I just wanted to go back, you're saying that you could -- we put them as a separate segment when it is appropriate. That means that is -- this year that you're going to start up in the second quarter, should we assume by the second quarter, you will start doing it or that it’s going to take a number of quarters before you do that?

44:52 Well, I think, that would be an appropriate time, just what I'd call it is to start reporting that as soon as we can get our ducks in a row and have that happen.

45:01 Okay. And since that you're plan always on at least for Wynnewood is that once you have the plan and you will have the flexibility for them to switch depends on the market condition go back into the conventional refining versus out the mixing? How long is the lag effect -- how long it take in order for you to make that switch in terms of that –

45:32 About 30 days to make the switch once you decide, but the practicality of it is, you're going to do it in some kind of cycle is the fact of matter is you're replacing catalyst on the RD of every, probably every year or less and that gives you a chance to look at it, each time that that happens. Once you put -- back in hydrocracker service you probably want to have a good runway to run it. So you're not going to do that on without a lot of thought and a whole lot of thought around what the market forward is on refining.

46:09 So in practical matter is probably not more than once a year that and if you do make the switch you end up that has to be convinced for the subsequent 12 months that you will run in that particular form?

46:23 Yeah, that's right.

46:26 And also that, can you tell us that once that you start up the RD, how we find the Wynnewood refinery. I think you will reduce the capacity by 19,000 barrels per day, so how the throughput and also the product yield is going to change to?

46:47 Yeah. And well, that 18,000 barrels is an old number. We've really come back to about – well around about 70 at Wynnewood with RD and we'll go to a like feedstock to accomplish that. So what we're after there is naphtha to make hydrogen to make RD with and that we are uniquely positioned there, because we can gather those kinds of crudes in the field and bring them in with our proprietary pipelines.

47:16 Do you have an estimate, what is your gasoline and business view will look like after you make the switch?

47:24 Yeah. Well distillate yield won't go down, and that's the main opportunity cost here is, because we will lose the hydrocracker which is a big distillate maker. So you're going to rely more on cat cracking post RD than you do today and you'll see switch you'll probably see loss of 15% of the diesel yield as a result.

47:47 Thank you.

47:48 You’re welcome, Paul.

47:51 Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I will turn the floor back over to management for any final comments.

47:59 Again, I'd like to thank you for your interest in CVR Energy. Additionally, I'd like to thank all our employees for their hard work and their commitment towards safe, and reliable environmentally responsible operations. We look forward to reviewing our first quarter 2022 results during our next earnings call. Thank you.

48:20 Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.