CVR Energy (CVI) Q2 2026 earnings call transcript

I would now like to turn the call over to Richard Roberts, Interim Chief Financial Officer and Vice President of FPNA and Investor Relations. Sir, please go ahead.

Thank you. Good afternoon, everyone. We very much appreciate you joining us this afternoon for our CBR Energy 2nd Quarter 2026 earnings call. With me today, our Dane Newman, our Chief Executive Officer, Mike Wright, our Chief Operating Officer and other members of Management. Prior to discussing our 2026 second quarter results, let me remind you that this conference call may contain forward-looking statements at that term as defined under federal securities laws. For this purpose, any statements made during this call that are not statements of historical facts may be deemed before-looking statements.

Your caution of these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and our latest earned release. As a result, actual operations or results may differ materially from the results discussed in the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except for the extent required by law.

This call also includes various non-GAP financial measures. The disclosures related to such non-GAP measures, including in reconciliation to the most directly comparable GAP financial measures, are included in our 2026 second quarter earnings release that we thought of the SEC and Form 10Q for the period, and will be discussed during the call. That's it. I'll turn the call over to Dane.

Thank you, Richard. Good afternoon, everyone. Thank you for joining our earnings call. We posted another quarter of strong operating results with crude utilization of 98% and ammonia plant utilization of 99%. The ongoing global conflicts have created tightness across energy and fertilizer markets, which directly benefited our asset base during the second quarter. We are pleased to announce the second quarter-26 dividend of $0.10 per share, and we believe current market conditions could present opportunities to reduce leverage and add value for our shareholders.

Now, let me turn the call over to Richard to discuss our financial highlights.

Thank you, Dane, and good afternoon, everyone. For the second quarter of 2026, our consolidated net income was $46 million, losses per share were $0.3, and even though it was $151 million. Our second quarter results include an unfavorable change in our RFS liability of $73 million, favorable inventory valuation impacts of $19 million, and an unreliable rate of gains of $6 million.

Excluding the above mentioned items, adjusted even though for the quarter was $209 million, and adjusted earnings per share was $0.34.

Adjusted even though the petroleum segment was $106 million for the second quarter compared to $38 million for the second quarter of 2025.

Elevated group three crack spreads and higher throughput volumes drove the majority of the increase from the prior year period offset somewhat by higher-run expenses, significant backwardation and WTI, and realized relative losses. Combined to over-output, but the second quarter of 2026 was approximately $213,000 per day.

For utilization for the quarter was approximately 98% of nameplate capacity, and light product yield was 92% on total throughput volumes.

Benchmark cracks for the second quarter of 2026 increase from the prior year period, with the group 3211 averaging $44.91 per barrel, compared to $24.02 per barrel in the second quarter of 2025.

Our second quarter realized margin adjusted for the change in RFS liability, inventory valuation, and unreliable relative gains with $12.43 per barrel, representing a 28% capture rate on the group 3211 benchmark.

Rain prices increased significantly from second quarter to 2025 levels up over 125% to average nearly $14 per barrel for the second quarter of 2026. Nefrin's expense for the quarter, excluding the change in RFS liability, was $216 million, or $11.16 per barrel, which negatively impacted our capture rate for the quarter by approximately 25%. The estimated accrued RFS obligation on the balance sheet was $408 million at June 30th, representing a $169 million rent marked a market at an average price of $2.41.

EPA has still not ruled in our pending 2025 petition, and as such, we will continue to recognize 100% of when we're finding companies rent obligation in our financials, which for the second quarter of 2026 was approximately $77 million. Had Winnie Wooder finding company received the 100% SRE we believe it is entitled to, our consolidated capture rate for the quarter would have been improved by approximately 9%.

EPA is now nine months delinquent, and ruling on Winnie Wooder finding company's 2025 SRE petition. The current compliance date for 2025 is approximately one month away, and we still do not know what our compliance obligation will be. The rent prices have gotten completely out of hand due to the blending obligations EPA established in set two, effectively creating a short market that will require imported biofuels in order to potentially meet the required obligations, the complete opposite of the stated intent of the RFS.

Meanwhile, rent prices are adding nearly $0.40 a gallon of the price of gasoline in the U. S. , and RFS compliance costs are more than twice all the other combined operating costs for many of our binaries. As we have stated numerous times, if the administration is serious about lowering fuel prices, it should start with the RFS.

Our second quarter of 2026 results included the root of losses totaling $75 million comprised of an $81 million realized loss and a $6 million unrealized game.

The realized loss for the quarter was whether the crack spread swap that we discussed on the first quarter call. We settled approximately 4.4 million barrels of crack spread swap positions during the second quarter, leaving open positions totaling approximately 8.2 million barrels. For the remainder of 2026, there were approximately 4.6 million barrels of diesel hedged and 400,000 barrels of gasoline hedged, but the diesel exposure fairly split between the third and fourth quarters and all of the gasoline exposure in the third quarter.

The total emotional value of the open crack spread swaps to the third quarter is approximately 102 million. For 2027, we were approximately 3.2 million barrels of diesel hedged fairly rateably across the year. We continue to actively monitor these positions and plan to be opportunistic in managing our exposure going forward, which could include closing out these positions or adding other positions, depending on market conditions.

Direct operating expenses in the petroleum segment were $5.93 per barrel for the second quarter, compared to $6.45 per barrel in the second quarter of 2025.

The decrease in direct operating expenses per barrel was primarily due to increased throughput volumes as the coffee floor binary was coming out of turn around in the second quarter of 2025.

Adjusted even down the fertilizer segment was 107 million for the second quarter, compared to 67 million for the prior year period. Among utilization rate with 99%, but both plants running well and experiencing minimal downtime during the quarter, the board of directors of CVR partners general partner declared a distribution of $6.08 per common unit for the second quarter of 2026.

As CVR energy owns approximately 37% of CVR partners common units, we will receive a proportion cash distribution of approximately 24 million cash flow from operations, but the second quarter of 2026 was 307 million and free cash flow was 264 million. Significant uses of cash in the quarter included 43 million of capital spending, 27 million paid for the non-controlling interest portion of the CVR partners first quarter 2026 distribution, 20 million for cash interest, and 10 million for dividends.

Total consolidated capital spending on a accrual basis was 46 million, which included 29 million in the petroleum segment and 17 million in the fertilizer segment. For the four-year 2026, we have to make total consolidated capital spending to be approximately 215 to 240 million.

Turning to the balance sheet, we ended the quarter with a consolidated cash balance of 737 million, which includes 137 million of cash in the fertilizer segment. Total liquidity as of June 30, excluding CVR partners was approximately 1.1 billion, which was comprised primarily of 600 million of cash and availability under the ABL facility of 540 million. We remain committed to our deleveraging goal in planning to continue working towards a gross leverage target of 1 billion, excluding debt at CVR partners.

Looking ahead to the third quarter of 2026, for our petroleum segment, we estimate total throughput to be approximately 205 to 220,000 barrels per day. Direct operating expenses to range between 110 and 120 million, and total capital spending to be between 41 and 50 million. For the fertilizer segment, we estimate our amount utilization rate to be between 75 and 80%, which will be impacted by the upcoming planned turnaround at the ECD facility.

We estimate direct operating expenses, including inventory and turnaround impacts, to be between 57 and 62 million, turnaround expenses be between 30 and 35 million, and total capital spending to be between 40 and 49 million.

With that, Dane, I'll turn it back over to you.

Thank you, Richard. In summary, we had another good quarter of operations in our refining and fertilizer businesses. We are optimistic about the near-term outlook for both segments, and believe we could remain above mid-cycle conditions well into 2027. The ongoing geopolitical conflicts across the globe continue to create volatility. However, the U. S. has remained fairly insulated and able to benefit from these conditions with its relatively abundant supplies of available crude oil, natural gas, and critical refining infrastructure.

Starting with the refining segment, the ongoing conflicts in the Middle East have so far been more impactful for refined products than crude oil. In addition to reduced flows of crude oil from the closure of the Strait of Hormuz, a number of refineries in the Middle East have been damaged, and the status of those repairs and timelines on potential restarts remains unknown.

Outside of the Middle East, Ukraine has stepped up its attacks on Russian refineries over the past few months, with reports estimating a third to nearly half of Russia's refining capacity could be offline. As a result, refined product exports from Russia have been effectively shut off, while China has also halted refined product exports for several months.

Looking at the U. S. , the tightness and global refined product supply has created opportunities for increased refined product exports. U. S. exports of gasoline, diesel, and jet fuel have increased 16% compared to the same period last year, so over 2.6 million barrels per day on average. Meanwhile, U. S. demand for refined products has remained resilient, driving gasoline and diesel inventories near or below five-year lows on a days of supply basis.

In the mid-con where we operate, we are seeing similar trends with days of supply hovering near five-year lows for the past several months. While cracks were strong in the second quarter, quarter-to-day cracks have increased further, and we should see some improvements to capture as crude oil, backwardation, narrows in the third quarter.

In the fertilizer segment, the spring planting season went well, and demand for nitrogen was strong overall. Grain prices have increased some recently, with expectations for lower carryout inventories driven by a combination of hot and dry conditions across the Western Corn Belt, increased export demand, and a smaller than expected corn crop in Argentina.

Summer fail and fall pre-pay for ammonia occurred in late June, and U. N. fill was completed in early July. Overall, we saw strong demand for both products, and were able to secure a solid book of business for the second half of 2026 at a track in pricing.

We expect to start the plan turnaround at East Dubuque in late August, during which we intend to complete the brownfield capacity expansion, which we believe should increase its ammonia production capacity by approximately five percent.

We also expect to finalize a detailed design and construction plan this year intended to allow the plan to utilize natural gas as an alternative feedstock and third-party pet coke. Looking at quarter-day pricing metrics for the third quarter of 2026, Group 3 211 cracks have averaged $58.70 per barrel, with the Brent WTI spread at $4.82 per barrel, and the WCS differential at $14.04 per barrel under WTI.

Prompt fertilizer prices are $650 to $700 per tonne for ammonia, and $325 to $350 per tonne for U. N. After eight years at the company, I've seen the benefits of focusing on safety, reliability, cost management, and prudent capital allocation. We have a strong team in place, and I look forward to continuing executing on the strategy we laid out earlier this year. In addition to our constant focus on safe and reliable operations, we remain committed to working to improve margin capture in our base business, and we are laser focused on pursuing a creative growth opportunities that would add value for our shareholders.

With that operator, we are ready for questions.

Yes. Thanks for now. Our strategies, obviously, we still believe that the CVI needs to grow in barrels and diversify from its core region of the southern mid-con. As it relates to the growing cash balances, obviously, we want to continue to focus on reducing the debt levels of CVI to our base business. And also, as we continue to look at commercial opportunities, we're mindful that we may come across a couple of smaller quality material opportunities to advance our logistics footprint.

I don't really consider the cash at this time as potentially being a meaningful impact to any M&A. If there's an opportunity out there, we do believe the capital markets are open. Obviously, I think the world's learned a very valuable lesson on the value of the US refining complex. And, frankly, we're going backwards in capacity when we should be going forward.

So I kind of consider them separate topics and would look to fund alternatively other than using cash on the balance sheet.

Most of your peers don't hedge as much or don't admit to hedging that much. So you can walk us through the hedging strategy that you have in place for the next few quarters and the next year. Thank you. Yeah, sure. So historically, we'd get board authorizations to target around 30% of our production and usually for around a calendar year.

I would say historically, when opportunities are presented themselves, we would layer into the market and we'd often miss the timing of it and kind of not get the hedges on that we wanted. Unfortunately, this time around, we learned from the past went really, really fast. And the conflict obviously is still ongoing. So, you know, a great example of past performance, not indicative of future results.

As we look forward, I think for our book for the rest of the year, we're satisfied with where the levels are at. Twenty, twenty sevens of much smaller amounts. If we did look at any closures, it'd be, you know, looking at the twenty, twenty seven area. Obviously, nothing that we would know actually that we've taken and just discussing it.

Going forward, I think that we will probably look to lower what type of authorizations we get. 30% maybe, maybe a little high on a go forward basis.

And just continue to continue to assess as we go forward. And then, you know, be a little more cautious as we layer in.

Thank you, sir.

Hey, Matthew, Richard. And you're right on the two Q impact. So it was 81 million of a realized loss, which was about four, 16 a barrel and that was about nine percent hit to capture.

We did say in the prepared remarks, so two Q was the largest volume exposure that we had of all the hedges that we had in place. That's behind us now, which is nice. We stepped down in three Q, we stepped down again in four Q, and then for twenty seven, it's a lot smaller. For three Q, total exposure for about two point seven million barrels and the, the notional value of that position right now is a hundred and two million, as I mentioned earlier. So if you want to try to back into it, you know, we, I think we talked about the last quarter. We put these hedges on pretty early when the rain conflict started, you know, call it late February, early March.

So if you wanted to look at, you know, where we're 3Q, 4Q, 9X, diesel, cracks, trading around that time, you can probably get a sense of where we would have locked in. To try to get, you know, order a magnitude of where we are versus where we, where we enter into.

We are harming consumers. And we are, you know, just just not giving any clarity on how to plan businesses as a relay CPA and their waivers deadlines, etc. So, yeah, I don't, I don't know how the EPA could let the rent bank go short, like they're forcing us to comply with something. They will have to take some level of action. It's just untenable that they could do what they've done or let it get worse.

As it relates to rent buying, you know, our plan is always ratable. I think when in two queue here, when the prices really started to get out of control, we slowed down a little bit. Just because we think the EPA has to take some action here that strategies paid off a little bit as we've seen some softness and rent the last few days. And we'll continue to focus on on ratable buying and with a little bit of catch up here in the third quarter.

And can I just clarify for for Winnie would, are you currently buying 50% of your expected 2026 obligation? Yes. So we are intending on buying 50% of the obligation for Winnie would, although we still intend and have proven out using the DOE scoring methodology that we deserve a 100% waiver of Winnie would.

Thank you. You know, the leadership transition has been great. You know, we have a really strong team in place. You know, I've obviously been at the company a long time and as a number of other senior leaders. The team I had in the CFO organization is very, very strong. And then obviously bringing Richard up to help us out here has been, I think, a great move. So I don't really feel like we missed a beat.

The team I have is capable of wearing many hats has very broad experience and frankly have made it relatively easy to manage through strategically. I don't think anything really changes. You know, we do want to focus on the core commercial business improving capture and then just a creative opportunities to shareholders. So we're marching forward on that and hopefully we have some information to share soon.

And then as a follow up, just wanted to ask on capital allocation. Can you talk a little bit more about how you guys are thinking about balancing a dividend with debt reduction? And then as you look at the potentials to scale up refining, what does the M&A landscape look like right now? Sure. So for capital allocation, consistent with what we previously said, we really want to get back to that base, base level of billion dollars of debt, excluding CVR partners. So that remains priority.

I would say similar to the past, you know, we always said we didn't have to get that balance gone before we return a dividend and we delivered on that in the first quarter. You know, if we can make meaningful progress, which we have a line of sight to doing on the remaining balance of that debt, there's certainly opportunity to discuss, you know, all of some incremental increase to the dividend with the market conditions the way they are.

I don't see us returning to the high, high historical levels, but something that, you know, is sustainable and regular throughout the cycle. So we'll continue to provide updates on that front. You know, M&A perspective, yeah, I think this to me almost feels like somewhat of an ideal time for folks to take action, looking to rebalance portfolios.

You know, now more than ever, I think the ability for refining refineries to trade at a mid cycle level, which over a long term is where people should transact, presents an opportunity. You know, historically, the data has been very, very wide, but this gives you a scenario where value can be achieved in risk reward can be balanced as well.

I want to now turn the call back over to Dane Newman for closing remarks. Again, I would like to thank you all for your interest and CVR energy and our employees for their hard work and commitment towards safe, reliable and environmentally responsible operations. And we look forward to reviewing our third quarter 2026 results during our next earnings call. Have a safe day.