CVR ENERGY, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Annual Report on Form 10-K for the year endedDecember 31, 2022 filed with theU.S. Securities and Exchange Commission (the "SEC") onFebruary 22, 2023 (the "2022 Form 10-K"), and the unaudited condensed consolidated financial statements and related notes and with the statistical information and financial data appearing in this Report. Results of operations, and cash flows for the three months endedMarch 31, 2023 are not necessarily indicative of results to be attained for any other period. See "Important Information Regarding Forward-Looking Statements." References to "CVR Energy ," the "Company," "we," "us," and "our," may refer to consolidated subsidiaries ofCVR Energy , includingCVR Refining, LP orCVR Partners, LP , as the context may require. 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, 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 OverviewCVR 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 public 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 potentialMarch 31, 2023 | 24
-------------------------------------------------------------------------------- Table of Contents 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:
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.
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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:
EH&S Reliability Market Capture Financial Discipline
Corporate:
Achieved a reduction in process safety management tier
1 incidents of 100% compared to the first three months ü
of 2022
Declared a quarterly cash dividend of $0.50 per share
related to the first three months of 2023 to be paid in ü ü
May 2023
Completed plan to transform our business to segregate ü ü
our renewables operations
Continued the exploration of a potential spin-off of ü ü
our Nitrogen Fertilizer business
Petroleum Segment:
Achieved a reduction in process safety management tier
1 incidents of 100% compared to the first three months ü
of 2022
Operated our refineries reliably and at high ü ü
utilization rates
Began the planned turnaround at the Coffeyville ü ü
Refinery, which was completed in April 2023
Increased crude oil gathering volumes by over 12% ü ü
compared to the first three months of 2022
Nitrogen Fertilizer Segment:
Operated both fertilizer facilities safely and at high ü ü ü
utilization rates
Achieved record combined ammonia and UAN production for ü ü
the first quarter of 2023
Achieved record truck shipments from the Coffeyville ü ü
Fertilizer Facility in
ü ü
ü ü
Facility in
Industry Factors and Market Indicators
General Business Environment
Russia-Ukraine Conflict - InFebruary 2022 ,Russia invadedUkraine , disrupting the global oil, fertilizer, and agriculture markets, and leading to heightened uncertainty in the worldwide economy. These disruptions and uncertainty 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 March 31, 2023 | 26
-------------------------------------------------------------------------------- Table of Contents 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.
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 2022 and the first quarter of 2023. While the refining market has largely recovered, refined product demand declined 5% nationwide in the first quarter of 2023 from the 2019 average pre-pandemic demand. Group 3 demand has been relatively strong compared to other parts of the country post the pandemic. •Warmer winter weather inEurope has significantly reduced natural gas prices in the region, which contributed to the flattening of the global cost curve and has reduced theU.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. •Recently, industrial production has slowed, as well as truck tonnage and freight volumes, which has reduced distillate pricing heading into the second quarter of 2023. However, improving gasoline pricing has somewhat offset this decline in distillate pricing. •Heavy and sour crude differentials have compressed with the announcement ofOPEC production cuts. The expansion of the Trans Mountain Pipeline currently expected to be completed in 2023 and will potentially narrow WCS differentials further 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 4 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. •Significant capacity additions are expected in 2023 and 2024, headlined by major projects scheduled to start up in theMiddle East ,Asia , andAfrica . Some of the capacity additions could be offset renewable diesel conversions, planned shutdowns, and a likely economic rebound inChina amid easing COVID-19 restrictions, but refined product consumption is slowing inthe United States and remains weak inEurope .March 31, 2023 | 27
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•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 5.3 and 4.1 days, 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. •Heavy turnaround activity during the first quarter of 2023 resulted in strong refining margins. With the completion of these turnarounds and higher utilization, prices are likely to be affected in the second and third quarters of 2023.
•Renewable identification numbers ("RINs") remain high at
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 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 EPA , such as timely
establishment of the annual 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 2022 and remained significant in the first quarter of
2023.
•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
•In 2022, we filed suit in theU.S. Court of Appeals for the Fifth Circuit ("Fifth Circuit") asking that the court overturn theEPA 's improper denial of theWynnewood Refinery's SRE for the 2017 through 2021 compliance years. InApril 2023 , the Fifth Circuit granted our motion to stay enforcement of the RFS against theWynnewood Refinery until our lawsuit against theEPA relating to our SREs is resolved. This ruling limits theEPA 's ability to seek enforcement and penalties against theWynnewood Refinery for noncompliance with the RFS while our lawsuit progresses Company Initiatives •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$91 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 weMarch 31, 2023 | 28 --------------------------------------------------------------------------------
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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. As ofMarch 31, 2023 , 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, 2022, and 2023 of approximately 363 million RINs, excluding approximately 43 million of net open, fixed-price commitments to purchase RINs, resulting in an estimated liability of$582 million as ofMarch 2023 . 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 2022 and 2023 to date, could impact our RFS expense from period to period. We recognized an expense of approximately$39 million and$107 million for the three months endedMarch 31, 2023 and 2022, respectively, for the Petroleum Segment's obligated-party subsidiaries compliance with the RFS. The change in 2023 compared to 2022 was driven by a reduction in our outstanding obligation in the current period versus an increase in our outstanding obligation in the prior period, coupled with a decrease in the change in RINs pricing during the current period versus the prior period impacting the mark-to-market adjustment. Of the expense recognized during the three months endedMarch 31, 2023 ,$56 million , relates to the revaluation benefit of our net RVO position as ofMarch 31, 2023 . 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 inMarch 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$140 to$150 million for 2023, net of the estimated RINs generation from our renewable diesel operations of$205 to$215 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 the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 . The NYMEX 2-1-1 crack spread averaged$38.37 per barrel during the three months endedMarch 31, 2023 compared to$28.67 per barrel in the three months endedMarch 31, 2022 . The Group 3 2-1-1 crack spread averaged$34.16 per barrel during the three months endedMarch 31, 2023 compared to$22.20 per barrel during the three months endedMarch 31, 2022 . Average monthly prices for RINs increased 32.6% during the first quarter of 2023 compared to the same period of 2022. On a blended barrel basis (calculated using applicable RVO percentages), RINs approximated$8.11 per barrel during the first quarter of 2023 compared to$6.11 per barrel during the first quarter of 2022.March 31, 2023 | 29
-------------------------------------------------------------------------------- Table of Contents The charts below are presented, on a per barrel basis, by month throughMarch 31, 2023 : Crude Oil Differentials against WTI (1)(2) [[Image Removed: 15617]] NYMEX Crack Spreads (2) [[Image Removed: 15621]]March 31, 2023 | 30
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and RIN Pricing (2)(3) ($/bbl) WTI (1)(2) ($/bbl)
[[Image Removed: 15625]][[Image Removed: 15626]]
(1)The change over time in NYMEX - WTI, as reflected in the charts above, is illustrated below.
Average 2021 Average Average 2022 Average Average 2023 Average March
(in $/bbl) December 2021 December 2022 2023
WTI $ 68.11 $ 71.69 $ 94.41 $ 76.52 $ 76.02 $ 73.37
(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, was largely
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, in 2022. Export restrictions
have since been relaxed on grain exports from Russia and Ukraine from the Black
Sea , which is one of the factors that has led to lower grain prices from the
elevated levels in the spring and summer 2022. Additionally, natural gas
supplied from Russia to Western Europe has been constrained, and natural gas
prices have remained elevated since September 2021 , causing European nitrogen
fertilizer production capacity to be curtailed or costs to be elevated compared
to competitors in other regions of the world.
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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 U.S. 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 as of March 31, 2023 .
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 renewable fuels 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
2023 farmers will plant 92.0 million corn acres, representing an increase of
3.8% as compared to 88.6 million corn acres in 2022. Planted soybean acres are
estimated to be 87.5 million, representing no increase as compared to 87.5
million soybean acres in 2022. The combined corn and soybean planted acres of
179.5 million is an increase of 1.9% compared to the acreage planted in 2022.
Due to lower input costs in 2023 for corn planting and the relative grain prices
of corn versus soybeans, economics favor planting corn compared to soybeans.
Lower inventory levels of corn and soybeans are expected to be supportive of
corn prices for the remainder of 2023.
Ethanol is blended with gasoline to meet renewable fuel standard requirements
and for its octane value. Ethanol production has historically consumed
approximately 36% of the U.S. corn crop, so demand for corn generally rises and
falls with ethanol demand, as evidenced by the charts below through March 31,
2023 .
[[Image Removed: 21300]][[Image Removed: 21301]]
(1)Information used within this chart was obtained from the EIA through March
31, 2023 .
(2)Information used within this chart was obtained from the USDA , National
Agricultural Statistics Services as of March 31, 2023 .
Weather continues to be a critical variable for crop production. Even with high
planted acres and trendline yields per acre in the U.S. , inventory levels for
corn and soybeans remain below historical levels and prices have remained
elevated. With tight grain and fertilizer inventory levels driven by the war in
Ukraine , prices for grains are expected to remain elevated through the
March 31, 2023 | 32
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spring of 2023, although below the elevated prices experienced in the spring of
2022. Demand for nitrogen fertilizer, as well as other crop inputs, is expected
to be strong for the spring 2023 planting season. With grain inventory levels
expected to be near historical lows, we anticipate it to positively impact
planted acreage for the spring of 2023 and boost the demand for nitrogen
fertilizer.
Fertilizer input costs have been volatile since the fall of 2021. Natural gas
prices were elevated in the fall of 2022 due to shortages in Europe and demand
being driven by building natural gas storage for winter. Winter 2022/2023
weather was warmer than average in Europe and when combined with natural gas
conservation measures caused demand and prices for natural gas in Europe to fall
significantly in the first quarter of 2023. The decline in natural gas prices
has led to a significant reduction in the price for nitrogen fertilizer globally
due to lower input costs. While we expect that natural gas prices might remain
below the elevated prices in 2022 in the near term, we believe that the
structural shortage of natural gas in Europe will continue to be a source of
volatility for the rest of 2023. Petcoke prices remain elevated compared to
historical levels, but we believe that if natural gas prices remain lower than
2022 that petcoke prices will likely decline later in 2023.
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: 23475]][[Image Removed: 23476]]
(1)Information used within these charts was obtained from various third-party
sources, including Green Markets (a
Results of Operations
Consolidated
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 Segment and Nitrogen Fertilizer Segment.
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Consolidated Financial Highlights (Three Months Ended
Net Income Attributable to CVR
Operating Income Energy Stockholders
[[Image Removed: 71]][[Image Removed: 72]]
Earnings per Share EBITDA (1)
[[Image Removed: 76]][[Image Removed: 77]]
(1)See "Non-GAAP Reconciliations" section below for reconciliations of the non-GAAP measures shown above.
Three Months Ended
Overview - For the three months endedMarch 31, 2023 , the Company's operating income and net income were$330 million and$259 million , respectively, an increase of$110 million and$106 million , respectively, compared to operating income and net income of$220 million and$153 million , respectively, during the three months endedMarch 31, 2022 . Refer to our discussion of each segment's results of operations below for further information. Income Tax Expense - Income tax expense for the three months endedMarch 31, 2023 was$56 million , or 17.8% of income before income tax as compared to income tax expense for the three months endedMarch 31, 2022 of$34 million , or 18.0% of income before income tax. The increase in income tax expense was due primarily to an increase in pretax earnings from the three months endedMarch 31, 2022 to the three months endedMarch 31, 2023 .March 31, 2023 | 34 -------------------------------------------------------------------------------- Table of Contents 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
Three Months Ended
Throughput Data March 31,
(in barrels per day ("bpd")) 2023 2022
Coffeyville
Regional crude 45,353 39,766
WTI 37,664 47,815
Midland WTI - 2,602
Condensate 9,174 11,352
Heavy Canadian 4,121 6,761
DJ Basin 13,813 18,035
Other feedstocks and blendstocks 13,235 11,344
Wynnewood
Regional crude 49,822 43,403
WTL 3,957 344
Midland WTI - 1,634
WTS - 578
Condensate 15,930 10,285
Other feedstocks and blendstocks 3,425 3,425
Total throughput 196,494 197,344
Three Months Ended
Production Data March 31,
(in bpd) 2023 2022
Coffeyville
Gasoline 64,489 75,050
Distillate 50,160 54,665
Other liquid products 5,112 4,988
Solids 3,345 4,359
Wynnewood
Gasoline 39,987 29,366
Distillate 25,254 22,518
Other liquid products 6,282 5,134
Solids 10 20
Total production 194,639 196,100
Light product yield (as % of crude throughput) (1) 100.0 % 99.5 %
Liquid volume yield (as % of total throughput) (2) 97.3 % 97.2 %
Distillate yield (as % of crude throughput) (3) 41.9 % 42.3 %
(1)Total Gasoline and Distillate divided by total Regional crude, WTI, WTL,
Midland WTI, WTS, Condensate, Heavy Canadian, and DJ 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, and DJ Basin throughput.
March 31, 2023 | 35
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Petroleum Segment Financial Highlights (Three Months Ended
Overview - For the three months endedMarch 31, 2023 , the Petroleum Segment's operating income and net income were$237 million and$259 million , respectively, improvements of$107 million and$133 million , respectively, compared to operating income and net income of$130 million and$126 million , respectively, for the three months endedMarch 31, 2022 . These improvements were primarily due to improved crack spreads and lower RFS related expenses, partially offset by favorable inventory impacts in the prior period and increased direct operating expenses related to repairs and maintenance and personnel costs.Net Sales Operating Income [[Image Removed: 590]] [[Image Removed: 592]] Net Income EBITDA (1) [[Image Removed: 596]][[Image Removed: 597]]
(1)See "Non-GAAP Reconciliations" section below for reconciliations of the non-GAAP measures shown above.
Net Sales - For the three months endedMarch 31, 2023 , net sales for the Petroleum Segment decreased$161 million when compared to the three months endedMarch 31, 2022 . The decrease in net sales was driven by decreased refined product prices due to prices normalizing and decreased sales volumes driven by the planned turnaround at our refinery inCoffeyville, Kansas (the "Coffeyville Refinery ") during the three months endedMarch 31, 2023 , compared to the three months endedMarch 31, 2022 .March 31, 2023 | 36
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Refining Margin (excluding Inventory
Refining Margin (1) Valuation Impacts) (1)
[[Image Removed: 1159]][[Image Removed: 1160]]
(1)See "Non-GAAP Reconciliations" section below for reconciliations of the non-GAAP measures shown above.
Refining Margin - For the three months endedMarch 31, 2023 , refining margin was$411 million , or$23.24 per throughput barrel, as compared to$297 million , or$16.75 per throughput barrel, for the three months endedMarch 31, 2022 . The increase in refining margin of$114 million was primarily due to an increase in product crack spreads. The Group 3 2-1-1 crack spread increased by$11.96 per barrel relative to the first quarter of 2022, driven by tight inventory levels and supply concerns due to the ongoingRussia -Ukraine conflict. The Petroleum Segment's obligated-party subsidiaries recognized costs to comply with RFS of$95 million , or$5.36 per throughput barrel, which excludes the RINs revaluation benefit impact of$56 million , or$3.17 per total throughput barrel, for the three months endedMarch 31, 2023 . This is compared to RFS compliance costs of$88 million , or$4.93 per throughput barrel, which excludes the RINs revaluation expense impact of$19 million , or$1.08 per total throughput barrel, for the three months endedMarch 31, 2022 . For the three months endedMarch 31, 2023 , the Petroleum Segment's RFS compliance costs included$50 million of RINs purchased from our renewable diesel operations. The increase in RFS compliance costs in 2023 was primarily related to a higher renewable volume obligation for the three months endedMarch 31, 2023 compared to the prior period. The favorable RINs revaluation in 2023 was a result of a mark-to-market benefit in the the current period due to a decline in RINs prices and a lower outstanding obligation in the current period compared to the 2022 period. The Petroleum Segment also recognized a net gain on derivatives of$39 million during the three months endedMarch 31, 2023 compared to a net gain on derivatives of$8 million during the three months endedMarch 31, 2022 . Our derivative activity was primarily a result of inventory hedging activity, Canadian crude forward purchases and sales, and crack spread swaps. Offsetting these impacts, crude oil prices decreased for the three months endedMarch 31, 2023 , which led to an unfavorable inventory valuation impact of$12 million , or67 cents per total throughput barrel, compared to a favorable inventory valuation impact of$133 million , or$7.51 per total throughput barrel for the three months endedMarch 31, 2022 .March 31, 2023 | 37
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Direct Operating Expenses (1)
[[Image Removed: 4778]]
(1)Exclusive of depreciation and amortization expense.
Direct Operating Expenses (Exclusive of Depreciation and Amortization) - For the three months endedMarch 31, 2023 , direct operating expenses (exclusive of depreciation and amortization) was$104 million , as compared to$99 million for the three months endedMarch 31, 2022 , respectively. The increases were primarily due to increased repairs and maintenance expense, personnel costs, and electricity expense, offset by decreased natural gas costs. On a total throughput barrel basis, direct operating expenses increased to$5.90 per barrel, for the three months endedMarch 31, 2023 , from$5.57 per barrel, for the three months endedMarch 31, 2022 . Selling, General and
Administrative
Depreciation and Amortization Expenses, and Other
[[Image Removed: 5744]][[Image Removed: 5745]]
Depreciation and Amortization Expense - For the three months ended March 31,
2023 , depreciation and amortization expense remained flat, compared to the three
months ended March 31, 2022 .
Selling, General, and Administrative Expenses, and Other - For the three months
ended March 31, 2023 , selling, general and administrative expenses and other was
$24 million , compared to $22 million , for the three months ended March 31, 2022 .
The increase was primarily a result of legal accruals, and is partially offset
by decreased personnel costs primarily attributable
March 31, 2023 | 38
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to share-based compensation as a result of a decrease in market prices for CVR
Energy's common shares during the three months ended March 31, 2023 .
Nitrogen Fertilizer Segment
Utilization and Production Volumes - The following tables summarize the consolidated ammonia utilization from the Nitrogen Fertilizer Segment's facilities 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 on 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 represents the ammonia available for sale that was not upgraded into other fertilizer products. The table below presents all of these Nitrogen Fertilizer Segment metrics for the three months endedMarch 31, 2023 and 2022: Three Months Ended March 31, 2023 2022 Consolidated Ammonia Utilization 105 % 88 % Production Volumes (in thousands of tons) Ammonia (gross produced) 224 187 Ammonia (net available for sale) 62 52 UAN 366 317 On a consolidated basis for the three months endedMarch 31, 2023 , the Nitrogen Fertilizer Segment's utilization increased to 105% compared to 88% for the three months endedMarch 31, 2022 . The increase was primarily due to more reliable operations following 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 air separation plant (the "Messer Outages") at the Coffeyville Fertilizer Facility and various pieces of equipment at the East Dubuque Fertilizer Facility. 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. Total product sales volumes were favorable driven by increased production at both fertilizer facilities due to operating reliably after the planned turnarounds in the third quarter of 2022, as well as increased downtime from the Messer Outages at theCoffeyville Fertilizer Facility and various pieces of equipment at theEast Dubuque Fertilizer Facility in 2022. For the three months endedMarch 31, 2023 , total product sales prices were unfavorable, driven by sales price decreases of 16% for ammonia and 8% for UAN. Ammonia and UAN sales prices were unfavorable primarily by lower natural gas prices and deferred fertilizer demand at the retail level. 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. March 31, 2023 | 39 --------------------------------------------------------------------------------
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Three Months Ended
March 31,
2023 2022
Consolidated sales (thousand tons)
Ammonia 42 40
UAN 359 322
Consolidated product pricing at gate (dollars per ton)
Ammonia $ 888 $ 1,055
UAN 457 496
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 fertilizer facilities within the Nitrogen Fertilizer Segment
for the three months ended March 31, 2023 and 2022:
Three Months Ended
March 31,
2023 2022
Petroleum coke used in production (thousand tons) 131 108
Petroleum coke used in production (dollars per ton)
$ 56.46 Natural gas used in production (thousands of MMBtu) (1) 2,102 1,761
Natural gas used in production (dollars per MMBtu) (1)
$ 5.54 Natural gas in cost of materials and other (thousands of 1,315 1,528 MMBtu) (1) Natural gas in cost of materials and other (dollars per$ 7.79 $ 5.62 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 (Three Months Ended
Overview - For the three months endedMarch 31, 2023 , the Nitrogen Fertilizer Segment's operating income and net income were$109 million and$102 million , respectively, representing improvements of$5 million and$8 million , respectively, compared to operating income and net income of$104 million and$94 million , respectively, for the three months endedMarch 31, 2022 . These increases were primarily driven by increased production and sales volumes, offset by lower product sales prices compared to the three months endedMarch 31, 2022 .Net Sales Operating Income [[Image Removed: 3848290703238]][[Image Removed: 3848290703239]]March 31, 2023 | 40
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Net Income EBITDA (1)
[[Image Removed: 3848290703232]][[Image Removed: 3848290703233]]
(1)See "Non-GAAP Reconciliations" section below for reconciliations of the non-GAAP measures shown above.
Net Sales - For the three months endedMarch 31, 2023 , the Nitrogen Fertilizer Segment's net sales increased by$3 million to$226 million compared to the three months endedMarch 31, 2022 . The increase was primarily due to favorable UAN and ammonia sales volumes which contributed$22 million in higher revenues, partially offset by decreased sales prices which reduced revenues by$21 million , compared to the three months endedMarch 31, 2022 .
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 three months ended
(in millions) Price Variance Volume Variance
UAN $ (14) $ 19
Ammonia (7) 3
The $167 and $39 per ton decreases in ammonia and UAN sales pricing,
respectively, for the three months ended March 31, 2023 compared to the three
months ended March 31, 2022 were primarily attributable to lower natural gas
prices and deferred fertilizer demand at the retail level in the current period.
The increases in UAN and ammonia sales volumes for the three months ended March
31, 2023 compared to the three months ended March 31, 2022 were primarily
attributable to increased production at both fertilizer facilities due to
operating reliably after 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.
Cost of Materials and Other - For the three months ended March 31, 2023 , cost of
materials and other was $37 million compared to $30 million for the three months
ended March 31, 2022 . The increase was driven primarily by increased petroleum
coke feedstock costs and natural gas costs of $4 million and $2 million ,
respectively, in the current period.
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.March 31, 2023 | 41
-------------------------------------------------------------------------------- Table of Contents The following are non-GAAP measures we present for the period endedMarch 31, 2023 :
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 noncash 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 noncash 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 historical 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.March 31, 2023 | 42 -------------------------------------------------------------------------------- Table of Contents Non-GAAP Reconciliations
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
Three Months Ended
March 31,
(in millions) 2023 2022
Net income $ 259 $ 153
Interest expense, net 18 24
Income tax expense 56 34
Depreciation and amortization 68 67
EBITDA
401 278
Adjustments:
Revaluation of RFS liability
(56) 19
Unrealized gain on derivatives, net
(31) (6)
Inventory valuation impacts, unfavorable (favorable) 20 (136) Adjusted EBITDA$ 334 $ 155 Reconciliation of Basic and Diluted Earnings per Share to Adjusted Earnings per Share Three Months Ended March 31, 2023 2022 Basic and diluted earnings per share$ 1.94 $ 0.93 Adjustments: (1) Revaluation of RFS liability (0.42) 0.14 Unrealized gain on derivatives, net
(0.23) (0.05)
Inventory valuation impacts, unfavorable (favorable)
0.15 (1.00)
Adjusted earnings per share$ 1.44 $ 0.02 (1)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. Reconciliation of Net Cash Provided By Operating Activities to Free Cash Flow Three Months Ended March 31, 2023 2022 Net cash provided by operating activities$ 247 $ 322 Less: Capital expenditures (45) (26) Capitalized turnaround expenditures (8) (15) Return on equity method investment 19 - Free cash flow$ 213 $ 281 March 31, 2023 | 43
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Reconciliation of Petroleum Segment Net Income to EBITDA and Adjusted EBITDA
Three Months Ended
March 31,
(in millions) 2023 2022
Petroleum net income $ 259 $ 126
Interest income, net (20) (5)
Depreciation and amortization 46 46
Petroleum EBITDA 285 167
Adjustments:
Revaluation of RFS liability (56) 19 Unrealized gain on derivatives, net (31) (5) Inventory valuation impacts, unfavorable (favorable) (1) 12 (133) Petroleum Adjusted EBITDA $
210
Reconciliation of Petroleum Segment Gross Profit to Refining Margin and Refining Margin Adjusted for Inventory Valuation Impact
Three Months Ended
March 31,
(in millions) 2023 2022
Net sales $ 1,993 $ 2,154
Less:
Cost of materials and other (1,582) (1,857)
Direct operating expenses (exclusive of depreciation and amortization)
(104) (99)
Depreciation and amortization (46) (46)
Gross profit 261 152
Add:
Direct operating expenses (exclusive of depreciation and amortization) 104 99 Depreciation and amortization 46 46 Refining margin 411 297 Inventory valuation impacts, unfavorable (favorable) (1) 12 (133) Refining margin, adjusted for inventory valuation impacts$ 423 $ 164 (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.
Reconciliation of Petroleum Segment Total Throughput Barrels
Three Months Ended
March 31,
2023 2022
Total throughput barrels per day 196,494 197,344
Days in the period 90 90
Total throughput barrels 17,684,480 17,760,998
March 31, 2023 | 44
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Reconciliation of Petroleum Segment Refining Margin per Total Throughput Barrel
Three Months Ended
March 31 ,(in millions, except per total throughput barrel) 2023 2022 Refining margin$ 411 $ 297 Divided by: total throughput barrels 18 18 Refining margin per total throughput barrel$ 23.24 $ 16.75
Reconciliation of Petroleum Segment Refining Margin Adjusted for Inventory Valuation Impact per Total Throughput Barrel
Three Months Ended
March 31,
(in millions, except per total throughput barrel) 2023 2022
Refining margin, adjusted for inventory valuation impact $ 423 $ 164
Divided by: total throughput barrels 18 18
Refining margin adjusted for inventory valuation impact per
total throughput barrel $ 23.91 $ 9.24
Reconciliation of Petroleum Segment Direct Operating Expenses per Total
Throughput Barrel
Three Months Ended
March 31,
(in millions, except per total throughput barrel) 2023 2022
Direct operating expenses (exclusive of depreciation and amortization)
$ 104 $ 99 Divided by: total throughput barrels 18 18 Direct operating expenses per total throughput barrel $
5.90
Reconciliation of Nitrogen Fertilizer Segment Net Income to EBITDA and Adjusted
EBITDA
Three Months Ended
March 31,
(in millions) 2023 2022
Nitrogen Fertilizer net income
Interest expense, net 7 10
Depreciation and amortization 15 19
Nitrogen Fertilizer EBITDA and Adjusted EBITDA $ 124 $ 123 March 31, 2023 | 45
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Table of Contents Reconciliation of Total Debt and Net Debt and Finance Lease Obligations to EBITDA Exclusive of Nitrogen Fertilizer
Twelve Months Ended
(in millions) March 31, 2023
Total debt and finance lease obligations (1) $ 1,590
Less:
Nitrogen Fertilizer debt and finance lease obligations (1) $ 547
Total debt and finance lease obligations exclusive of Nitrogen Fertilizer
1,043
EBITDA exclusive of Nitrogen Fertilizer $ 893
Total debt and finance lease obligations to EBITDA exclusive of Nitrogen Fertilizer
1.17
Consolidated cash and cash equivalents $ 601
Less:
Nitrogen Fertilizer cash and cash equivalents 121 Cash and cash equivalents exclusive of Nitrogen Fertilizer 480
Net debt and finance lease obligations exclusive of Nitrogen Fertilizer (2)
$ 563
Net debt and finance lease obligations to EBITDA exclusive of Nitrogen
Fertilizer (2) 0.63
(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.
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