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 toCVR Energy , the Company, "we," "us," and "our" may refer to consolidated subsidiaries ofCVR Energy , including CVR Refining orCVR Partners , as the context may require. This discussion and analysis covers the years endedDecember 31, 2020 and 2019 and discusses year-to-year comparisons between such periods. The discussions of the year endedDecember 31, 2018 and year-to-year comparisons between the years endedDecember 31, 2019 and 2018 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, 2019 filed onFebruary 20, 2020 , 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.
Strategy and Goals
Mission and Core Values
Our Mission is to be a top tier North American 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.
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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:
Safety - We aim to achieve continuous improvement in all environmental, health and safety 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
We successfully executed a number of achievements in support of our strategic
objectives shown below through the date of this filing despite the challenges
experienced by the industry during 2020 as a result of the COVID-19 pandemic:
Safety Reliability Market Capture Financial Discipline
Corporate:
Increased liquidity and extended debt maturity with the January issuance of$1.0 billion of Senior Unsecured Notes due in 2025 and 2028, and ü the redemption of$0.5 billion CVR Refining Senior Notes due in 2022. Operated our Petroleum Segment and Nitrogen Fertilizer Segment facilities safely and reliably ü ü ü and maintained financial discipline amid COVID-19 pandemic. Reduced consolidated operating and SG&A expenses ü by over 12% compared to 2019. Reduced lost profit opportunities by$46 million ü ü ü compared to 2019. Achieved over 19% reduction in environmental ü events compared to 2019. Reduced capital spending by over$21 million ü compared to initial spending plans. Petroleum Segment: Safely completed the planned turnaround of the Coffeyville Refinery in April 2020, limiting ü ü ü ü exposure to the volatile margin environment. Received Board approval to proceed with construction of the Renewable Diesel Unit ("RDU") ü ü project at theWynnewood Refinery . Announced agreement to acquire Oklahoma crude oil ü ü pipeline business from Blueknight Energy. Reduced operating and SG&A expenses by 13% ü compared to 2019. Reduced lost profit opportunities by$32 million ü ü ü compared to 2019. December 31, 2020 | 38
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Safety Reliability Market Capture Financial Discipline
Reduced capital spending by $20 million compared ü
to initial spending plans.
Achieved over 40% reduction in environmental ü
events compared to 2019.
Nitrogen Fertilizer:
Maintained high asset reliability and a combined
utilization rate of 98% at both facilities ü ü ü
through the fourth quarter of 2020.
Achieved record shipments of ammonia from the
East Dubuque Fertilizer Facility during April ü ü
2020.
Reduced lost profit opportunities by$14 million ü ü ü compared to 2019. Generated Coffeyville Fertilizer Facility's first carbon offset credits related to N2O ü ü abatement and continued sequestration of CO2 for enhanced crude oil recovery. Reduced operating and SG&A expenses by over 12% ü in 2020 as compared to 2019. Reduced capital spending by$9 million compared ü to initial spending plans. Amended and extended the Nitrogen Fertilizer ABL ü during the third quarter of 2020. Completed Messer contract renewal with favorable ü conditions including new O2 tank. Repurchased$7 million of CVR Partners common ü units during 2020.
Industry Factors and Market Conditions
General Business Environment
InMarch 2020 , theWorld Health Organization categorized COVID-19 as a pandemic, and the President ofthe United States declared the COVID-19 outbreak a national emergency. The COVID-19 pandemic and actions taken by governments and others in response thereto has negatively impacted the worldwide economy, financial markets, and the energy and fertilizer industries. The COVID-19 pandemic has also resulted in significant business and operational disruptions, including business closures, liquidity strains, destruction of non-essential demand, as well as supply chain challenges, travel restrictions, stay-at-home orders, and limitations on the availability of the workforce. Actions taken by theU.S. government to provide stimulus to individuals and businesses have helped mitigate the short-term impacts of the downturn caused by COVID-19. Vaccination efforts underway domestically and internationally also provide promise for near-term economic recovery. However, it is too early to determine the extent or timing by which the stimulus and vaccinations along with other government actions will benefit the overall business environment in the long-term.
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. The cost
to acquire crude oil and other feedstocks and the price for which refined
products are ultimately sold depend 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 of
imports, 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 in the
short term because of changes in the value of its unhedged inventory. The effect
of changes in crude oil prices on the Petroleum Segment results of operations is
partially influenced by the rate at which the process of refined products adjust
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 market conditions, and the operating levels of other refineries. Crude oil
costs and the prices
December 31, 2020 | 39-------------------------------------------------------------------------------- Table of Contents of refined products have historically been subject to wide fluctuations. Widespread expansion or upgrades of competitors' 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 markets. As a result of the government actions taken to curb the spread of COVID-19 and significant business interruptions observed, the demand for gasoline and diesel in the regions in which our Petroleum segment operates declined 10% for the year endingDecember 31, 2020 versus the same period in 2019. Significant demand destruction was observed into the late summer, however, as government restrictions have been eased, demand has improved modestly in the second half of 2020. Throughout 2020, fundamental changes have occurred across the U.S. market as gasoline demand remains approximately 1 million barrels per day lower than 2019 due to a decrease in vehicle miles driven, jet fuel demand has declined significantly due to reductions in air travel for both business and leisure, which in turn, has resulted in reduced diesel crack spreads, and crude oil and refined product inventories remain in focus given current demand indicators. As a result of these market changes, a number of refinery closures totaling approximately 5 million barrels per day globally (approximately 1 million barrels per day in theU.S. ) have been announced. Potential exists for further capacity rationalization as demand remains at or below current levels, and given the lower crack spread environment, refineries are competing primarily on operating costs per barrel. In addition to current market conditions discussed above, we have experienced significant volatility during 2020 and expect continued volatility in 2021 due to compliance requirements under the RFS, proposed climate change laws and regulations, and increased mileage standards for vehicles. The petroleum business is subject to the RFS, which, each year, 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 for blending at our refineries and downstream terminals or RINs for purchase, the price at which RINs can be purchased, transportation fuel production levels, and the mix of our products, all of which can vary significantly from period to period. Additionally, our costs to comply with the RFS depend on the consistent and timely application of the program by theEPA , such as timely establishment of annual renewable volume obligation ("RVO"). Due to recent uncertainty resulting from the ruling of theU.S. Court of Appeals for the 10th Circuit , (the "10th Circuit") inJanuary 2020 relating to small refinery exemptions under the RFS, recent broad rejections of waiver requests by theEPA , delays in establishing the 2021 RVO, and the recent change in administration, we have experienced significant volatility in the price of RINs and as a result, our costs to comply with RFS have increased significantly compared to 2019.The U.S. Supreme Court is currently slated to review the 10th Circuit's decision inApril 2021 , which could materially impact the price of RINs and existing waiver applications we have submitted for 2019 and 2020 related to ourWynnewood Refinery . InDecember 2020 , our Board of Directors approved the renewable diesel project at ourWynnewood Refinery , which would convert theWynnewood Refinery's hydrocracker to a renewable diesel unit capable of producing 100 million gallons of renewable diesel per year (the "RDU") and approximately 170 to 180 million RINs annually. Total estimated costs for the project are currently$110 million and completion of the RDU is expected inJune 2021 . As a result of conversion of the hydrocracker to RDU service, the crude oil capacity of theWynnewood Refinery would be reduced by approximately 17,000 bpd to 57,500 bpd. The production of renewable diesel and reduction to our crude oil throughput is expected to significantly reduce our net exposure to the RFS. Further, the RDU enables us to capture additional benefits associated with the existing blenders' tax credit currently set to expire at the end of 2022 and low carbon fuel standard programs in states such asCalifornia . We have additional plans to add pretreating capabilities for the RDU atWynnewood and construction of a similar facility at ourCoffeyville Refinery subject to Board and other approvals. These collective renewable diesel efforts could effectively mitigate our RFS exposure. However, actions taken by theSupreme Court , resulting administration efforts under the RFS, such as denial of existing or previous waiver applications, and market conditions could significantly impact the amount by which our renewable diesel business mitigates our costs to comply with the RFS. As ofDecember 31, 2020 , with the unknown resolution of items discussed above, we have an open obligation under the RFS for 2020 of approximately 240 million RINs, which was subsequently reduced to 221 million RINs as ofJanuary 2021 . Under accounting rules, the open RFS obligation is marked-to-market each period and thus can result in significant volatility in our RFS expense from period to period. We recognized an expense of approximately$190 million ,$43 million , and$60 million for the years endedDecember 31, 2020 , 2019, and 2018, respectively, for the Petroleum Segment's compliance with the RFS. The increase in 2020 was driven primarily by the significant increases in RINs pricing, especially during the fourth quarter of 2020, and our open position with respect to the 2020 obligation. Based upon recent market prices of RINs, current estimates related to other variable factors, including our anticipated blending and purchasing activities, and the impact of the open 2020December 31, 2020 | 40 -------------------------------------------------------------------------------- Table of Contents obligation and resolution thereof, our estimated cost to comply with the RFS is$260 to$280 million for 2021, net of the estimated RINs credit generation from renewable diesel operations of$95 to$105 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, 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 could continue to be significantly reduced.
As a performance benchmark and a comparison with other industry participants, we
utilize NYMEX 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 decreased during 2020 compared
to 2019. The NYMEX 2-1-1 crack spread averaged $11.73 per barrel in 2020
compared to $19.93 per barrel in 2019. The Group 3 2-1-1 crack spread averaged
$9.41 per barrel in 2020 compared to $18.22 per barrel in 2019.
The tables below are presented, on a per barrel basis, by month through December
31, 2020 :
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[[Image Removed: cvi-20201231_g7.jpg]][[Image Removed: cvi-20201231_g8.jpg]][[Image Removed: cvi-20201231_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 2018 December 2018 Average 2019 December 2019 Average 2020 December 2020
WTI $ 64.77 $ 48.98 $ 57.03 $ 61.06 $ 39.34 $ 47.07 (2)Information used within these charts was obtained from
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, changes in world population, the cost and availability of
fertilizer transportation infrastructure, weather conditions, the availability
of imports, and the extent of government intervention in agriculture markets.
December 31, 2020 | 42-------------------------------------------------------------------------------- Table of Contents Nitrogen fertilizer prices are also affected by local factors, including local market conditions and the operating levels of competing facilities. An expansion or upgrade of competitors' facilities, new facility development, political and economic developments, and other factors are likely to continue to play an important role in nitrogen fertilizer 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 industry typically experiences seasonal fluctuations in demand for nitrogen fertilizer products. As a result of the overall decline in global demand for liquid transportation fuels driven by the broader impacts of the COVID-19 pandemic and actions taken by the government to mitigate its spread, ethanol production, which is a significant driver of demand for fertilizer has declined, causing many plants to reduce production or idle, evidenced by a decline in the fourth quarter 2020 average ethanol production of 10% compared to the fourth quarter of 2019. Additionally, due to the shift by refineries to processing more light sweet crude oil, the Coffeyville Fertilizer Facility has become more reliant on third-party pet coke as compared to pet coke produced at ourCoffeyville Refinery .
As ofDecember 31, 2019 , the Nitrogen Fertilizer Segment's Coffeyville Fertilizer Facility reporting unit had a goodwill balance of$41 million for which the estimated fair value had been in excess of carrying value based on our 2018 and 2019 assessments. As a result of lower expectations for market conditions in the fertilizer industry, the market performance ofCVR Partners' common units, a qualitative analysis, and additional risks associated with the business, the Company concluded a triggering event had occurred that required an interim quantitative impairment assessment of goodwill for this reporting unit during the second quarter of 2020. The results of the impairment test indicated that the carrying amount of the Coffeyville Fertilizer Facility reporting unit exceeded the estimated fair value of the reporting unit, and a full impairment of the asset was required. Significant assumptions inherent in the valuation methodologies for goodwill include, but are not limited to, prospective financial information, growth rates, discount rates, inflationary factors, and cost of capital. To evaluate the sensitivity of the fair value calculations for the reporting unit, the Company applied a hypothetical 1% favorable change in the weighted average cost of capital, and separately, increased the revenue projections by 10%, holding gross margins steady. The results of these sensitivity analyses confirmed the need to record a non-cash impairment charge of$41 million during 2020. There is no goodwill remaining as ofDecember 31, 2020 . With the adverse economic impacts discussed above and the uncertainty surrounding the COVID-19 pandemic, there is a heightened risk that amounts recognized, including other long-lived assets, may not be recoverable. While our assessment in 2020 did not identify the existence of an impairment indicator for the Nitrogen Fertilizer Segment's long-lived asset groups, we continue to monitor the current environment, including the duration and breadth of the impacts that the pandemic will have on demand for our fertilizer products, to assess whether qualitative factors indicate a quantitative assessment is required. If a quantitative test is performed, the extent to which the recoverability of our long-lived assets could be impaired is unknown. Such impairment could have a significant adverse impact on our results of operations; however, an impairment would have no impact on our financial condition or liquidity.
Market Indicators
While there is risk of shorter-term volatility given the inherent nature of the commodity cycle and the impacts of the global COVID-19 pandemic, the Company believes the long-term fundamentals for theU.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 as feedstock for the domestic production of ethanol, and (v) positioning at the lower end of the global cost curve should provide a solid foundation for nitrogen fertilizer producers in theU.S. over the longer term. While weather conditions in 2020 exhibited normal patterns, weather significantly impacted the timing of the planting season for corn and soybeans in 2019. Due to excessive wet conditions, crops were planted later than normal in the spring which led to a late harvest of these crops in the fall of 2019. As a result, the ammonia application season in the fall of 2019 was shortened. This created a surplus of ammonia inventory in the market during the winter of 2019 leading into 2020. UAN continues to be impacted by the imposition of import duties on UAN product by theEuropean Union (the "EU").This has resulted in shifts in UAN trade flows for product that had previously been shipped to the EU. In 2020, natural gas prices across the world declined significantly as compared to 2019; however, since the summer of 2020, forward market prices indicate significantly higher prices for 2021 versus historically low prices in 2020. Natural gas is the primary feedstock for production of nitrogen fertilizers. As a result of these factors, in the fourth quarter of 2020, the Nitrogen Fertilizer Segment has started toDecember 31, 2020 | 43 -------------------------------------------------------------------------------- Table of Contents see an uptrend in pricing related to these products, with the expectation that product prices will continue to see an uptrend into the first quarter of 2021. Corn and soybean are two major crops planted by farmers inNorth America . Corn crops result in the depletion of the amount of nitrogen and ammonia within the soil in which it is grown, which in turn, results in the need for these nutrients to be replenished after each growing cycle. Unlike corn, soybeans are able to obtain 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 through the chart presented below for 2020, 2019, and 2018. The relationship between the total acres planted for both corn and soybean has a direct impact on the overall demand for nitrogen products. As the number of corn acres increases, the market and demand for nitrogen also increases. Correspondingly, as the number of soybean acres increases, the market and demand for nitrogen decreases. Additionally, an estimated 8 billion pounds of soybean oil is expected to go towards producing cleaner biodiesel in 2020 and 2021. Multiple refiners have announced biodiesel expansion projects for 2021 and beyond, which will only increase the demand and capacity for soybeans. Due to the uncertainty of how these factors will truly affect the soybean market, it is not yet known how the nitrogen business will be impacted. Ethanol is blended with gasoline to meet renewable fuel standard requirements and for its octane value. Ethanol production has historically consumed approximately 35% of theU.S. corn crop, so demand for corn generally rises and falls with ethanol demand. There has been a decline in ethanol demand in 2020 due to decreased demand for transportation fuels as a result of the COVID-19 pandemic. However, the lower ethanol demand did not alter the spring 2020 planting decisions by farmers as evidenced in the charts below.
[[Image Removed: cvi-20201231_g10.jpg]][[Image Removed: cvi-20201231_g11.jpg]]
(1)Information used within this chart was obtained from the
The 2020USDA reports on corn and soybean acres planted indicated farmers planted approximately 91.0 million acres of corn, representing an increase of 1.4% in corn acres planted as compared to 89.7 million corn acres in 2019. Planted soybean acres are estimated to be 83.1 million acres, representing a 9.2% increase in soybean acres planted as compared to 76.1 million soybean acres in 2019. Since the summer of 2020, adverse weather conditions in parts of the Midwest caused theUSDA to lower estimated crop yields, particularly for corn. Further, higher demand for soybeans and corn and lower grain inventories have led to a rally in crop prices for 2020 and 2021 and significantly improved farmer economics. As a result, we experienced strong demand for ammonia for fall application and fertilizer crop inputs for the spring of 2021. Prices for natural gas, the primary input for nitrogen fertilizer production, rose in the fourth quarter of 2020 in theU.S. and rose even more significantly in international markets. The increase in natural gas prices in theU.S. has been more than offset by higher product pricing, and the competitiveness ofU.S. nitrogen producers has improved considerably.December 31, 2020 | 44 --------------------------------------------------------------------------------
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The table below show relevant market indicators for the Nitrogen Fertilizer
Segment by month through
[[Image Removed: cvi-20201231_g12.jpg]][[Image Removed: cvi-20201231_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, the consolidated financial statements, and related notes thereto in Part II, Item 8 of this Report. Our consolidated results of operations include 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.
Consolidated Financial Highlights
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(1)See "Non-GAAP Reconciliations" section below for reconciliations of the non-GAAP measures shown above.
Overview - The Company's operating loss and net loss were$333 million and$320 million , respectively, for the year endedDecember 31, 2020 , decreases of$913 million and$682 million , respectively, compared to operating income and net income of$580 million and$362 million , respectively, for the year endedDecember 31, 2019 . These decreases were driven by declines in operating income of$855 million within the Petroleum Segment and$62 million within the Nitrogen Fertilizer Segment for the year endedDecember 31, 2020 compared toDecember 31, 2019 , respectively. Refer to our discussion of each segment's results of operations below for further information. Investment Income fromMarketable Securities - During the first quarter of 2020, we acquired a 14.9% ownership interest in Delek US Holdings, Inc. ("Delek") (NYSE ticker symbol: DK). For the year endedDecember 31, 2020 , we received$7 million in dividend income and recognized$34 million in unrealized gains related to the associated common shares owned. Income Tax Expense - Income tax benefit for the year endedDecember 31, 2020 was$95 million , or 23.0% of loss before income taxes, as compared to income tax expense for the year endedDecember 31, 2019 of$129 million , or 26.2% of income before income taxes. The fluctuation in income tax (benefit) expense was due primarily to changes in pretax income between all periods presented. In addition, the change in the effective tax rate was due primarily to the effects of the Nitrogen Fertilizer Segment's goodwill impairment recorded during 2020 and changes in pretax earnings attributable to noncontrolling interests between all periods presented.
Segment Financial Highlights and Results of Operations
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").
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Refining Throughput and Production Data by Refinery Throughput Data Year Ended December 31, (in bpd) 2020 2019 2018 Coffeyville Regional crude 34,652 49,093 31,350 WTI 51,656 67,382 66,952 WTL - 473 - Midland WTI - 3,888 15,893 Condensate 8,243 4,331 4,992 Heavy Canadian 1,020 4,711 5,302 Other Crude Oil 5,151 - - Other feedstocks and blendstocks 8,321 9,160 8,369 Wynnewood Regional crude 56,932 53,848 54,746 WTI - 3 2,354 WTL 6,235 668 - Midland WTI 1,262 10,995 10,332 Condensate 6,207 7,666 7,237 Other feedstocks and blendstocks 3,616 3,753 5,068 Total throughput 183,295 215,971 212,595 Production Data Year Ended December 31, (in bpd) 2020 2019 2018 Coffeyville Gasoline 59,419 71,817 67,091 Distillate 43,209 57,549 56,307 Other liquid products 3,999 5,810 5,737 Solids 3,073 4,573 5,190 Wynnewood Gasoline 38,640 38,864 40,291 Distillate 30,638 32,380 33,442 Other liquid products 2,629 3,223 4,025 Solids 25 30 41 Total production 181,632 214,246 212,124 Light product yield (as % of crude throughput) (1) 100.3 % 98.8 % 99.0 % Liquid volume yield (as % of total throughput) (2) 97.4 % 97.1 % 97.3 % Distillate yield (as % of crude throughput) (3) 43.1 % 44.3 % 45.1 %
(1)Total Gasoline and Distillate divided by total Regional crude, WTI, WTL, Midland WTI, Condensate, and Heavy Canadian 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, Condensate, and Heavy Canadian throughput.
December 31, 2020 | 47
-------------------------------------------------------------------------------- Table of Contents Financial Highlights Overview - Petroleum Segment operating loss and net loss for the year endedDecember 31, 2020 was$281 million and$271 million , respectively, compared to operating income and net income of$574 million and$559 million , respectively, for the year endedDecember 31, 2019 . The declines during both periods were primarily driven by lower sales volumes and unfavorable refining margins when compared to the prior periods. [[Image Removed: cvi-20201231_g18.jpg]] [[Image Removed: cvi-20201231_g19.jpg]]
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(1)See "Non-GAAP Reconciliations" section below for reconciliations of the non-GAAP measures shown above.
Net Sales - For the year endedDecember 31, 2020 , net sales for the Petroleum Segment decreased by$2.4 billion when compared to the year endedDecember 31, 2019 . This decline was primarily driven by lower sales volumes and prices as a result of reduced demand and excess supply caused by the COVID-19 pandemic. Further, during the second quarter of 2020, theCoffeyville Refinery completed a full, planned turnaround, which began in the first quarter of 2020 and lasted 57 days. Utilization rates were reduced at both refineries throughout the majority of the second quarter of 2020 given market dynamics and remained below full capacity in the second half of 2020 due to naphtha processing constraints driven by tighter heavy crude oil differentials favoring a very light crude slate.December 31, 2020 | 48 --------------------------------------------------------------------------------
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(1)See "Non-GAAP Reconciliations" section below for reconciliations of the non-GAAP measures shown above.
Refining Margin - For the year endedDecember 31, 2020 , refining margin was$298 million , or$4.44 per throughput barrel, as compared to$1.2 billion , or$15.26 per throughput barrel, for the year endedDecember 31, 2019 . The decrease in refining margin of$905 million was primarily driven by the 41% decline in the Group 3 2-1-1 crack spread caused by the overall economic downturn and demand destruction observed in 2020, higher costs to comply with RFS compared to 2019, and unfavorable inventory valuation impacts totaling$58 million , or87 cents per total throughput barrel driven by lower pricing in the first half of 2020 with some offsetting increases observed through the end of the year. This loss on inventory valuation in 2020 compares to a favorable inventory valuation impact of$43 million from the crude oil price change during 2019. The Company recognized expense of$190 million , or$2.84 per throughput barrel, and$43 million , or55 cents per throughput barrel, for the years endedDecember 31, 2020 and 2019, respectively, reflecting our costs to comply with RFS. The significant increase in 2020 is primarily related to significantly higher RIN prices during the year endedDecember 31, 2020 caused by price volatility for RINs, including significant increases in market prices during the fourth quarter, and our open mark-to-market position for the 2020 compliance year of approximately 240 million RINs as ofDecember 31, 2020 . Offsetting these reductions to refining margins were increased gains in derivatives of$55 million recognized during the year endedDecember 31, 2020 compared to$19 million recognized during the year endedDecember 31, 2019 . Our derivative gains are primarily derived from the sale of WCS barrels atCushing , hedges of excess inventories, crack spreads swaps, and hedges entered into during 2019 that fixed WCS to WTI differentials for a portion of the WCS barrels we received in 2020. [[Image Removed: cvi-20201231_g24.jpg]]
(1)Exclusive of depreciation and amortization expense.
December 31, 2020 | 49
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Direct Operating Expenses (Exclusive of Depreciation and Amortization) - For the
year ended December 31, 2020 , direct operating expenses on a total throughput
barrel basis increased to $4.76 per barrel from $4.56 per barrel, largely due to
decreased throughput volumes with the Coffeyville Refinery being in a full,
planned turnaround beginning in March 2020 and completed during April 2020 , and
reduced rates carried through the end of 2020. Direct operating expenses
(exclusive of depreciation and amortization) were $319 million and $359 million
for the years ended December 31, 2020 and 2019, respectively. The decrease was
primarily due to lower natural gas and electricity usage from the refineries
running at reduced rates, coupled with a decrease in personnel costs and repairs
and maintenance expense resulting from our cost reduction efforts.
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Selling, General, and Administrative Expenses, and Other - For the year ended
December 31, 2020 , selling, general and administrative expenses and other was
$58 million compared to $68 million for the year ended December 31, 2019 . The
decrease was primarily a result of lower personnel costs and other
administrative expense in 2020 as compared to 2019 due to our cost reduction
efforts, lower stock-based compensation expense driven by lower share prices in
2020, and a $10 million gain on the sale of Cushing tank assets reflected in the
2019 amounts.
Nitrogen Fertilizer Segment
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 produced divided by capacity adjusted for planned
maintenance and turnarounds.
The presentation of our utilization is on a two-year rolling average which takes
into account the impact of our planned and unplanned outages on any specific
period. We believe the two-year rolling average is a more useful presentation of
the long-term utilization performance of the Nitrogen Fertilizer Segment's
Facilities.
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 efforts primarily focused on ammonia upgrade
capabilities, we believe this measure provides a meaningful view of how well we
operate. The following table summarizes the ammonia utilization at the
Coffeyville and East Dubuque Facilities.
Ammonia Utilization
Two Years Ended December 31
2020 2019
Consolidated 95 % 93 %
Coffeyville Fertilizer Facility 95 % 94 %
East Dubuque Fertilizer Facility 95 % 91 %
On a consolidated basis, the Nitrogen Fertilizer Segment's utilization increased
2% to 95% for the two years ended December 31, 2020 compared to the two years
ended December 31, 2019 . This increase was primarily a result of ammonia storage
capacity constraints at the East Dubuque Fertilizer Facility in the first
quarter of 2019 due to inclement weather
December 31, 2020 | 50
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impacting customers' ability to apply ammonia and the turnaround at the East
Dubuque Fertilizer Facility in the fourth quarter of 2019.
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. The table below presents this metric
for the years ended December 31, 2020 , 2019, and 2018.
Production Volumes
Year Ended December 31,
(in thousands of tons) 2020 2019 2018
Ammonia (gross produced) 852 766 794
Ammonia (net available for sale) 303 223 246
UAN 1,303 1,255 1,276
Sales and Pricing per Ton - Two of the Nitrogen Fertilizer Segment's key
operating metrics are total sales for ammonia and UAN along with the product
pricing per ton realized at the gate. Total sales for ammonia and UAN were
favorable due to strong demand during the spring application coupled with heavy
fill orders from the summer through year end caused by higher crop prices
increasing farmer demand. Additionally, higher total utilization for 2020
increased the total products available for sale for ammonia and UAN. This
increase in production is coupled with an increased draw of ammonia and UAN
inventory for 2020. Product pricing at 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
2020 2019 2018
Consolidated sales (thousand tons)
Ammonia 332 241 202
UAN 1,312 1,261 1,289
Consolidated product pricing at gate (dollars per
ton)
Ammonia $ 284 $ 392 $ 328
UAN 152 199 173
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 ended December 31, 2020 , 2019, and 2018.
Year
Ended
2020 2019 2018
Pet coke used in production (thousand tons) 523 535 463
Pet coke (dollars per ton) $ 35.25 $ 37.47 $ 28.41
Natural gas used in production (thousands of MMBtu) 8,611 6,856 7,933
(1)
Natural gas used in production (dollars per MMBtu)
2.88 $ 3.28
(1)
Natural gas in cost of materials and other (thousands 9,349 6,961 7,122
of MMBtu) (1)
Natural gas in cost of materials and other (dollars $ 2.35 $ 3.08 $ 3.15
per MMBtu) (1)
(1)The feedstock natural gas shown above does not include natural gas used for fuel. The cost of natural gas used for fuel is included in Direct operating expenses (exclusive of depreciation and amortization).
Financial Highlights
Overview - For the year ended
December 31, 2020 | 51 -------------------------------------------------------------------------------- Table of Contents cash impairment of$41 million driven primarily by the lower pricing environment observed in 2020. These impacts were offset by higher sales volumes and reductions to operating expense.
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(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 decreased by$54 million to$350 million for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 . This decrease was primarily due to unfavorable pricing conditions which contributed$99 million in lower revenues offset with increased sales volumes contributing$46 million as compared to the year endedDecember 31, 2019 . For the years endedDecember 31, 2020 and 2019, net sales included$33 million in freight revenue, respectively, and$10 million and$8 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 $ (63) $ 10
Ammonia (36) 36
The decrease in UAN and ammonia sales pricing for the year ended December 31,
2020 compared to the year ended December 31, 2019 was primarily attributable to
competitive pricing pressures seen throughout the domestic and international
markets. For UAN, a softening natural gas market, which is the typical feedstock
for nitrogen plants, shifting trade flows in UAN due to the imposition of import
duties on UAN in the EU contributed to lower prices. Additionally, lower corn
prices due to decreased demand for corn for ethanol blending further contributed
to lower UAN prices. For ammonia, lower natural gas and corn prices and reduced
demand for industrial uses of ammonia contributed to lower prices. The increase
in UAN and
December 31, 2020 | 52-------------------------------------------------------------------------------- Table of Contents ammonia sales volumes for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 was primarily attributable to strong demand during the 2020 spring application period coupled with heavy fill orders beginning in the summer of 2020 through year end. Additionally, higher crop prices in the second half of 2020 led to greater farmer demand, which was also aided by favorable weather conditions for application. Cost of Materials and Other - Cost of materials and other for the year endedDecember 31, 2020 was$91 million , compared to$94 million for the year endedDecember 31, 2019 . The$3 million decrease was comprised primarily of a$2 million decrease in pet coke costs at our Coffeyville Fertilizer Facility due to lower purchases of pet coke from theCoffeyville Refinery , a decrease in freight expenses and distribution costs of$1 million due to higher 2019 freight charges on sales agreements, a decrease in other feedstocks purchases of$1 million due to lower purchases of hydrogen and nitrogen, and a decrease related to a draw in our ammonia and UAN inventories contributing$1 million driven by higher crop prices leading to greater farmer demand coupled with favorable weather for application through year end, offset by an increase in purchases of third-party ammonia at the Coffeyville Fertilizer Facility of$2 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 GAAP financial information presented in accordance withU.S. 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 recognized in prior periods and lower of cost or market reserves, 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.
Free Cash Flow - Net cash provided by (used in) operating activities less capital expenditures and capitalized turnaround expenditures.
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 industry, 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.December 31, 2020 | 53 --------------------------------------------------------------------------------
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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
Major Scheduled Turnaround Activities
Coffeyville Refinery - Beginning inMarch 2020 , theCoffeyville Refinery had a planned, full facility turnaround lasting 57 days, which was completed inApril 2020 . During the year endedDecember 31, 2020 , we capitalized costs of$155 million related to this planned turnaround. During the fourth quarter of 2019, ourCoffeyville Refinery capitalized costs of$15 million related to preparations for the same planned turnaround.Wynnewood Refinery - During the first quarter of 2019, the second phase of the fourth quarter 2017 turnaround on theWynnewood Refinery hydrocracking unit was completed and$24 million was capitalized.
Nitrogen Fertilizer Segment
Major Scheduled Turnaround Activities
Coffeyville Fertilizer Facility - During 2018, the Coffeyville Fertilizer
Facility had a planned, full facility turnaround lasting 15 days and incurred
approximately
East Dubuque Fertilizer Facility - During 2019, the East Dubuque Fertilizer
Facility had a planned, full facility turnaround lasting 32 days and cost
approximately
Goodwill Impairment
As a result of lower expectations for market conditions in the fertilizer industry, the market performance of the Nitrogen Fertilizer Segment's common units, a qualitative analysis, and additional risks associated with the business, the Nitrogen Fertilizer Segment concluded a triggering event had occurred that required an interim quantitative impairment assessment of goodwill for this reporting unit as ofJune 30, 2020 . Significant assumptions inherent in the valuation methodologies for goodwill include, but are not limited to, prospective financial information, growth rates, discount rates, inflationary factors, and cost of capital. The results of the impairment test indicated that the carrying amount of the Coffeyville Fertilizer Facility reporting unit exceeded the estimated fair value of the reporting unit, and a full impairment of the asset was required. No such charge was recognized during 2019.
Insurance Recovery
During the fourth quarter of 2018, the Partnership recognized a
December 31, 2020 | 54 -------------------------------------------------------------------------------- Table of Contents Non-GAAP Reconciliations
Reconciliation of Net (Loss) Income to EBITDA
Year Ended December 31,
(in millions) 2020 2019 2018
Net (loss) income $ (320) $ 362 $ 366
Add:
Interest expense, net 130 102 102
Income tax (benefit) expense (95) 129 79
Depreciation and amortization 278 287 274
EBITDA $ (7) $ 880 $ 821
Reconciliation of Net Cash (Used In) Provided By Operating Activities to Free
Cash Flow
Year Ended December 31,
2020 2019 2018
Net cash provided by operating activities $ 90 $ 747 $ 628
Less:
Capital expenditures (124) (121) (102)
Capitalized turnaround expenditures (159) (38) (8) (Negative) Free cash flow$ (193) $ 588 $ 518
Reconciliation of Petroleum Segment Net (Loss) Income to EBITDA
Year Ended December 31,
(in millions) 2020 2019 2018
Petroleum net (loss) income $ (271) $ 559 $ 511
Add:
Interest (benefit) expense, net (5) 27 41
Depreciation and amortization 202 202 196
Petroleum EBITDA $ (74) $ 788 $ 748
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Reconciliation of Petroleum Segment Gross (Loss) Profit to Refining Margin and
Refining Margin Adjusted for Inventory Valuation Impact
Year Ended December 31,
(in millions) 2020 2019 2018
Net sales $ 3,586 $ 5,968 $ 6,780
Less:
Cost of materials and other 3,288 4,765 5,602
Direct operating expenses (exclusive of depreciation
and amortization) 319 359 356
Depreciation and amortization 194 199 192
Gross (loss) profit (215) 645 630
Add:
Direct operating expenses (exclusive of depreciation
and amortization) 319 359 356
Depreciation and amortization 194 199 192
Refining margin 298 1,203 1,178Inventory valuation impact, unfavorable (favorable) (1) (2)
58 (43) 33
Refining margin, excluding inventory valuation
impacts $ 356 $ 1,160 $ 1,211
(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 $58 million recorded in the first
quarter of 2020, as inventories were reflected at the lower of cost or net
realizable value. No adjustment was necessary for any other period in 2020,
2019, or 2018.
Reconciliation of Petroleum Segment Total Throughput Barrels
Year Ended
2020 2019 2018
Total throughput barrels per day 183,295 215,971 212,595
Days in the period 366 365 365
Total throughput barrels 67,085,913 78,829,441 77,597,175
Reconciliation of Petroleum Segment Refining Margin per Total Throughput Barrel
Year Ended (in millions, except per total throughput barrel) 2020 2019 2018
Refining margin$ 298 $
1,203
Divided by: total throughput barrels 67 79 78 Refining margin per total throughput barrel$ 4.44 $
15.26
Reconciliation of Petroleum Segment Refining Margin Adjusted for Inventory Valuation Impact per Total Throughput Barrel
Year Ended (in millions, except per total throughput barrel) 2020
2019 2018
Refining margin, excluding inventory valuation impact
Divided by: total throughput barrels 67 79 78 Refining margin per total throughput barrel$ 5.31 $ 14.71 $ 15.60 December 31, 2020 | 56
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Table of Contents Reconciliation of Petroleum Segment Direct Operating Expenses per Total Throughput Barrel
Year Ended December 31,
(in millions, except per total throughput barrel) 2020 2019 2018
Direct operating expenses (exclusive of depreciation and amortization)
$ 319 $ 359 $ 356 Divided by: total throughput barrels 67 79 78
Direct operating expenses per total throughput barrel
Reconciliation of Nitrogen Fertilizer Segment Net Loss to EBITDA
Year Ended December 31,
(in millions) 2020 2019 2018
Nitrogen fertilizer net loss $ (98) $ (35) $ (50)
Add:
Interest expense, net 63 62 62
Depreciation and amortization 76 80 72
Nitrogen fertilizer EBITDA $ 41 $ 107 $ 84 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. The effects of the COVID-19 pandemic have resulted in a significant and swift reduction inU.S. economic activity. For our industry, these effects have predominately resulted in significant changes in crude oil supply, decreases in crude oil and refined product pricing due to dramatic reductions in demand for crude oil and our refined products, primarily gasoline and jet fuel, all of which have caused significant volatility and disruption of the commodity and financial markets. This period of extreme economic disruption, low crude oil and refined product prices, and reduced demand has and is likely to continue to have an impact on our business, results of operations, and access to sources of liquidity. In view of the uncertainty of the depth and extent of the contraction in demand due to the COVID-19 pandemic, combined with the weaker commodity price environment, we remain focused on safe and reliable operations, cash conservation, and protecting the balance sheet. As a result of these factors, and in light of the uncertainty of the current environment as well as potential future cash requirements of the Company,CVR Energy's board of directors (the "Board") reduced the cash dividend declared for the first quarter of 2020 to$0.40 per share and elected not to declare a cash dividend for the second, third, and fourth quarters of 2020. These decisions support the Company's continued focus on financial discipline through a balanced approach of stockholder distributions and strategic investments while providing additional flexibility to weather the uncertain environment. 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 exercising financial discipline, we have announced the following proactive measures: •The deferment of the majority of our growth capital spending, with the exception of theRDU Project at theWynnewood Refinery ; •A reduction in the amount of maintenance capital expenditures in 2020 to only include those projects which are a priority to support continuing safe and reliable operations, or which we consider are critical to support future activities; •A reduction in operational and general and administrative costs; •For the Petroleum Segment, the deferment of theWynnewood Refinery turnaround from the spring of 2021 to the spring of 2022, resulting in the delay of long-lead expenditures into 2021; •For the Nitrogen Fertilizer Segment, the deferment of the Coffeyville Fertilizer Facility turnaround from the fall of 2020 to the summer of 2021 and the East Dubuque Fertilizer Facility turnaround from 2021 to 2022;December 31, 2020 | 57 -------------------------------------------------------------------------------- Table of Contents •The application of or utilization of certain tax benefits under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") by deferring certain payroll taxes that were otherwise required to be paid in 2020, increasing our business interest deduction, and carrying back our net operating loss generated in 2020; and •The amendment of the Nitrogen Fertilizer ABL extending its term toSeptember 30, 2022 , optimizing the borrowing capacity and fee structure, and revising certain provisions to provide an improved credit facility for the Nitrogen Fertilizer Segment. When paired with the actions outlined above and prudently managing our operating costs and capital expenditures in 2021, we believe that our cash from operations and existing cash and cash equivalents, along with borrowings, as necessary, under CVR Refining's Amended and Restated ABL Credit Agreement (the "Petroleum ABL") andCVR Partners' ABL Credit Agreement, formerly the AB Credit Facility (the "Nitrogen Fertilizer ABL"), 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. 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 otherwise refinance our existing debt. 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.
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, 2020 , we had consolidated cash and cash equivalents of$667 million ,$365 million available under the Petroleum ABL and$20 million available under the Nitrogen Fertilizer ABL, we had total liquidity of approximately$1 billion as ofDecember 31, 2020 . As ofDecember 31, 2019 , we had$652 million in cash and cash equivalents. (in millions) December 31, 2020 December 31, 2019CVR Partners : 9.25% Senior Secured Notes, due June 2023 $ 645 $ 645
6.50% Senior Notes, due
- 2
Unamortized discount and debt issuance costs (11) (15)
Total CVR Partners debt $ 634 $ 632
CVR Refining:
6.50% Senior Notes, due November 2022 (2) $ - $ 500
Unamortized debt issuance cost - (3)
Total CVR Refining debt $ - $ 497
CVR Energy:
5.25% Senior Notes, due February 2025 $ 600 $ -
5.75% Senior Notes, due February 2028 400 -
Unamortized debt issuance cost (6) -
Total CVR Energy debt $ 994 $ -
Total long-term debt 1,628 1,129
Current portion of long-term debt (1) 2 -
Total long-term debt, including current portion $ 1,630 $ 1,129
(1)The 6.50% Notes, due
December 31, 2020 | 58 -------------------------------------------------------------------------------- Table of Contents (2)OnJanuary 27, 2020 , the Company redeemed all of the 6.50% Senior Notes, dueNovember 2022 (the "2022 Notes") for a redemption price equal to 101.083%, plus accrued and unpaid interest, on the redeemed notes.
The Nitrogen Fertilizer Segment has 9.25% Senior Secured Notes, due 2023, 6.50% Senior Notes, due 2021, and the Nitrogen Fertilizer ABL, the proceeds of which may be used to fund working capital, capital expenditures, and for other general corporate purposes. The Nitrogen Fertilizer Segment amended and extended the Nitrogen Fertilizer ABL inSeptember 2020 . Refer to Note 6 ("Long-Term Debt and Finance Lease Obligations") for further discussion.
CVR Refining
As ofDecember 31, 2020 , the Petroleum Segment has the Petroleum ABL, the proceeds of which may be used to fund working capital, capital expenditures, and for other general corporate purposes. As discussed above, the Company redeemed all of the 2022 Notes inJanuary 2020 . Refer to Note 6 ("Long-Term Debt and Finance Lease Obligations") for further discussion.
OnJanuary 27, 2020 ,CVR Energy issued the 5.25% Senior Notes, dueFebruary 2025 (the "2025 Notes"), and 5.75% Senior Notes, dueFebruary 2028 (the "2028 Notes"). A portion of the net proceeds from the 2025 Notes and 2028 Notes were used to fund the redemption of the 2022 Notes. The remaining net proceeds will be used for general corporate purposes, which may include funding (i) acquisitions, (ii) capital projects, and/or (iii) share repurchases or other distributions to our stockholders. Refer to Note 6 ("Long-Term Debt and Finance Lease Obligations") for further discussion of the issuance of these new notes and the redemption of the 2022 Notes. The Company, and its subsidiaries, were in compliance with all applicable covenants under their respective debt instruments as ofDecember 31, 2020 . Refer to Note 6 ("Long-Term Debt and Finance Lease Obligations") in Part II, Item 8 for further information. 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. InDecember 2020 , our Board of Directors approved the renewable diesel project at ourWynnewood Refinery , which would convert the refinery's hydrocracker to a renewable diesel unit capable of producing 100 million gallons of renewable diesel per year (the "RDU"). Total estimated costs for the project are currently$110 million and completion of the RDU is expected inJune 2021 .
Our total capital expenditures for the year ended
2020 Actual 2021 Estimate (1)(3)
Maintenance Growth Total
Maintenance Growth Total Low High Low High Low High
Petroleum $ 77 $ 13 $ 90 $ 94 $ 100 $ - $ - $ 94 $ 100
Nitrogen Fertilizer 12 4 16 18 20 5 6 23 26
Other (2)(3) 3 12 15 3 4 95 100 98 104
Total $ 92 $ 29 $ 121 $ 115 $ 124 $ 100 $ 106 $ 215 $ 230
(1)Total 2021 estimated capitalized costs include approximately $3 to 4 million
of growth related projects that will require additional approvals before
commencement.
(2)Includes total 2020 RDU capital expenditures of $12 million .
December 31, 2020 | 59
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(3)Includes total 2021 estimated RDU capital expenditures of between $95 and
$100 million .
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 nitrogen fertilizer
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").
During the year ended December 31, 2020 , the Petroleum Segment completed its
scheduled turnaround at the Coffeyville Refinery in April 2020 with total
capitalized expenditures of $155 million . The next planned turnaround is at the
Wynnewood Refinery , where the pre-planning expenditures are expected to start in
the spring of 2021 with an estimate of $6 million expected to be incurred in
2021. The next expected turnaround is at the Coffeyville Refinery , where
pre-planning expenditures are expected to start in the fall of 2021 with an
estimate of $5 million expected to be incurred in 2021. As for the Nitrogen
Fertilizer Segment, in light of the changing environment and proactive
maintenance performed during several outages at the third-party owned and
operated air separation unit at our Coffeyville Fertilizer Facility during the
first quarter of 2020, we moved our turnaround from the previously planned time
frame of the fall of 2020 to the fall of 2021, with an estimated cost of $7 to
$9 million . We will continue to monitor market conditions and make adjustments,
if needed, to our current capital spending or turnaround plans.
Dividends to CVR Energy Stockholders
Dividends, if any, including the payment, amount and timing thereof, are subject to change at the discretion of the Company's Board of Directors. IEP, through its ownership of the Company's common shares, 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 dividends paid to the Company's stockholders, including IEP, during the year endedDecember 31, 2020 (amounts presented in tables below may not add to totals presented due to rounding). Dividends Paid (in millions) Related Period Date Paid Dividend Per Share Stockholders IEP Total 2019 - 4th Quarter March 9, 2020 $ 0.80 $ 23$ 57 $ 80 2020 - 1st Quarter May 26, 2020 0.40 12 28 40 Total $ 1.20 $ 35$ 85 $ 121 No dividends were paid for the second, third, or fourth quarters of 2020. During the years endedDecember 31, 2019 and 2018, the Company paid dividends totaling$3.05 and$2.50 per common share, or$306 million and$238 million , respectively. Of these dividends, IEP received$218 million and$179 million , respectively, for the same periods.
Distributions to
Distributions, if any, including the payment, amount and timing thereof, are subject to change at the discretion of the UAN GP Board. There were no distributions declared or paid byCVR Partners during the year endedDecember 31, 2020 related to the fourth quarter of 2019 or the first, second, and third quarters of 2020, and no distributions were declared for the fourth quarter of 2020. During the year endedDecember 31, 2019 , the Partnership paid distributions totaling$4.00 per common unit on a split-adjusted basis, or$45 million . Of these distributions,CVR Energy received$16 million for the year endedDecember 31, 2019 . The Partnership did not pay distributions during the year endedDecember 31, 2018 . 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 durationDecember 31, 2020 | 60
-------------------------------------------------------------------------------- Table of Contents 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, 2020 , the Company has not repurchased any of the Company's common stock under the Stock Repurchase Program. OnMay 6, 2020 , the UAN GP Board, on behalf ofCVR Partners , authorized a unit repurchase program (the "Unit Repurchase Program"). The Unit Repurchase Program enablesCVR Partners to repurchase up to$10 million of its common units. During the year endedDecember 31, 2020 , on a split-adjusted basis,CVR Partners repurchased 623,177 common units, on the open market at a cost of$7 million , inclusive of transaction costs, or an average price of$11.35 per common unit. AtDecember 31, 2020 ,CVR Partners had$3 million in authority remaining under the Unit Repurchase Program. OnFebruary 22, 2021 , the UAN GP Board authorized an additional$10 million for the Unit Repurchase Program. This Unit Repurchase Program does not obligateCVR Partners to acquire any common units and may be cancelled, terminated, amended, or extended by the UAN GP Board at any time. As a result of the unit repurchases during 2020,CVR Energy's ownership ofCVR Partners increased from 34% to 36%. Additionally, onNovember 2, 2020 ,CVR Partners announced that the UAN GP Board had approved a 1-for-10 reverse split ofCVR Partners' common units that was completed onNovember 23, 2020 , pursuant to which each ten common units ofCVR Partners would be converted into one common unit of the Partnership (the "Reverse Unit Split"). Following the Reverse Unit Split, the number ofCVR Partners common units outstanding decreased from approximately 111 million common units to approximately 11 million common units, with proportionate adjustments to the common units underCVR Partners' long-term incentive plan and outstanding awards thereunder. The Reverse Unit Split did not impactCVR Energy's ownership inCVR Partners .
Cash Flows
The following table sets forth our consolidated cash flows for the periods
indicated below:
Year Ended December 31,
(in millions) 2020 2019 2018
Net cash provided by (used in):
Operating activities $ 90 $ 747 $ 628
Investing activities (423) (121) (108)
Financing activities 355 (642) (334)
Net increase (decrease) in cash and cash equivalents
and restricted cash $ 22 $ (16) $ 186
Operating Activities
The change in operating activities for the year ended December 31, 2020 , as
compared to the year ended December 31, 2019 , was primarily due to a reduction
in operating results, excluding non-cash items, of $677 million , offset by
favorable changes in working capital of $19 million and favorable changes in
non-current assets and liabilities of $1 million .
Investing Activities
The change in investing activities for the year endedDecember 31, 2020 , as compared to the year endedDecember 31, 2019 , was primarily due to the purchase of Delek common stock for$140 million , an increase in turnaround expenditures of$121 million relating to theCoffeyville Refinery turnaround beginning inMarch 2020 and completed duringApril 2020 , a decrease in proceeds from the sale of assets of$36 million , and an increase in capital expenditures of$3 million .
Financing Activities
The change in net cash provided by financing activities for the year endedDecember 31, 2020 , as compared to the net cash used in financing activities for year endedDecember 31, 2019 was primarily due to increased cash inflows from the private offering of the 2025 Notes and 2028 Notes totaling$1 billion , a decrease inCVR Energy's dividends andCVR Partners' distributions of$185 million and$30 million , respectively, along with a decrease in cash outflows from the purchase of remaining CVR Refining units outstanding of$301 million during the year endedDecember 31, 2019 with no corresponding amounts paid in 2020. Cash provided by financing activities is partially offset by payments of$500 million for the redemptionDecember 31, 2020 | 61 -------------------------------------------------------------------------------- Table of Contents of the outstanding 2022 Notes,$5 million in a call premium on the extinguishment of the senior notes, the repurchase of CVR Partner' common units of$7 million , and an increase in other financing activities of$7 million .
Recent Accounting Pronouncements
Refer to Note 2 ("Summary of Significant Accounting Policies") in Part II, Item 8 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 recognized losses on inventory of$59 million to reflect net realizable value, primarily associated with our Petroleum Segment. No amounts were recognized in 2019 or 2018. 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 and
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). The Company tests goodwill for impairment annually onNovember 1 of each year, or more frequently if events or changes in circumstances indicate the asset might be impaired. One of our reporting units, the Coffeyville Fertilizer Facility, had a goodwill balance of$41 million atDecember 31, 2019 . During the second quarter of 2020, following completion of the spring planting season, the market pricing for ammonia and UAN, which are the facility's two primary products, experienced significant pricing declines driven by updated market expectations around supply and demand fundamentals which were expected to continue into the second half of 2020. Additionally, significant uncertainty remained as to the nature and extent of impacts to be seen on the overall demand for corn and soybean given reduced ethanol production and broader economicDecember 31, 2020 | 62 -------------------------------------------------------------------------------- Table of Contents conditions which had negatively impacted demand. Therefore, in connection with the preparation of the financial statements for the three months endedJune 30, 2020 , given the pricing declines experienced in the second quarter of 2020, further muting of our near-term economic recovery assumptions, including management's revised forecasts for product pricing in 2020 and beyond, and market price performance of our common units, we concluded an impairment indicator was present and a triggering event under theFinancial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 350, Intangibles-Goodwill and Other, had occurred as ofJune 30, 2020 and an interim quantitative impairment assessment was performed. Significant assumptions inherent in the valuation methodologies for goodwill included, but are not limited to, prospective financial information, growth rates, discount rates, inflationary factors, and cost of capital. Based on the interim quantitative analysis, it was determined that the estimated fair value of the Coffeyville Fertilizer Facility reporting unit did not exceed its carrying value. As a result, we recorded a non-cash impairment charge of$41 million during 2020. There is no goodwill remaining as ofDecember 31, 2020 . We performed our annual impairment reviews of goodwill for 2019 and 2018, onNovember 1 of each such year and concluded no impairments. For the period endedDecember 31, 2019 , we performed a qualitative assessment and concluded there were no events or circumstances which would trigger the performance of a quantitative analysis after reviewing all factors impacting the Coffeyville Facility reporting unit, including improved market conditions and financial results in 2019 as compared to the financial forecasts from those used in the fair value analysis atDecember 31, 2018 , where the estimated fair value of the Coffeyville Fertilizer Facility reporting unit exceeded its carrying value by approximately 36% based upon the results of our quantitative goodwill impairment test.
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