Greetings, and welcome to the CVR Energy, Inc. Third Quarter 2022 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Richard Roberts, Vice President of FP&A and IR. Thank you, Mr. Roberts, you may begin.

Thank you, Camilla. Good afternoon, everyone. We very much appreciate you joining us this afternoon for our CVR Energy third quarter 2022 earnings call. With me today are Dave Lamp, our Chief Executive Officer; Dane Neumann, our Chief Financial Officer; and other members of management. Prior to discussing our 2022 third quarter results, let me remind you that this conference call may contain forward-looking statements as that term is defined under federal securities laws. For this purpose, any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements. You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law. Let me also remind you that CVR Partners completed a one-for-ten reverse split of its common units on November 23, 2020. Any per unit references made on this call are on a split-adjusted basis. This call also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures are included in our 2022 third quarter earnings release that we filed with the SEC and Form 10-Q for the period and will be discussed during the call. With that said, I'll turn the call over to Dave.

Thank you, Richard. Good afternoon, everyone, and thank you for joining our earnings call. Yesterday, we reported third quarter consolidated net income of $80 million and earnings per share of $0.92. EBITDA for the quarter was $181 million. Our strong results for the quarter were driven primarily by the refining segment due to high distillate cracks and our best-in-class distillate yield, somewhat offset by turnarounds at both fertilizer plants during the quarter. We are pleased to announce the Board of Directors has authorized a third quarter regular dividend of $0.40 per share and a special dividend of $1 per share, both of which will be paid on November 21 to shareholders of record at the close of market on November 14. Year-to-date, the Board has authorized regular and special dividends totaling $4.80 per share, representing a yield of over 12% based on yesterday's close price. In our Petroleum segment, combined total throughput for the third quarter of 2022 was approximately 202,000 barrels per day and light product yield was 97% on crude oil processed. Benchmark crack spreads remained elevated during the quarter with Group 3 2-1-1 averaging $43.94 per barrel. The distillate crack remained significantly above the gas crack in the quarter, and we continued to operate our refineries in MAX distillate mode. RIN prices also remained stubbornly high at $8 per barrel, thereby adding approximately $0.30 per gallon to fuel costs at the pump due to the EPA's continued mismanagement of the RFS regulation. We have filed petitions in the Fifth Circuit seeking judicial review of the EPA's unjustified denial of Wynnewood's small refinery exemptions for the years 2017 through 2021. We will continue to fight for the rights we believe Wynnewood is entitled to as intended by Congress when the RFS regulation was passed and became the law of the land. We expect to file for an exemption for 2022 soon. We continue to increase throughput rates at the Wynnewood renewable diesel unit in the quarter, processing approximately 18 million gallons of vegetable oil feedstock. The HOBO spread averaged a negative $1.48 per gallon for the third quarter, an improvement of approximately $0.50 per gallon from the second quarter. For the third quarter, our financial results also improved for the renewable diesel business, which we are currently including in our corporate and other segment. In the fertilizer segment, we completed planned turnarounds at both facilities in the third quarter. We currently do not drive any other planned turnaround schedule for fertilizer until fall of '24. Fertilizer markets remain tight, and we have seen a steady increase in prices over the past few months, which we expect to carry through the fall and into 2023. Now let me turn the call over to Dane to discuss our financial highlights.

Thank you, Dave, and good afternoon, everyone. For the third quarter of 2022, our consolidated net income was $80 million, earnings per share was $0.92 and EBITDA was $181 million. Our third quarter results include an unfavorable inventory valuation impact of $114 million, a negative mark-to-market on our estimated outstanding RIN obligation of $38 million and unrealized derivative gains of $20 million. Excluding the above-mentioned items, adjusted EBITDA for the quarter was $313 million and adjusted earnings per share was $1.90. Adjusted EBITDA in the petroleum segment was $306 million for the third quarter, driven by high utilization rates at our refineries and strong product cracks in the Mid-Con. Our third quarter realized margin, adjusted for inventory valuation unrealized derivative gains and RIN mark-to-market impacts was $23.05 per barrel, representing a 52% capture rate on the Group 3 2-1-1 benchmark. RINs expense for the quarter, excluding the mark-to-market impact, was $98 million or $5.28 per barrel, which negatively impacted our capture rate for the quarter by approximately 12%. And note, this excludes the approximately $50 million worth of RINs generated by the renewable diesel unit in the third quarter. The estimated accrued RFS obligation on the balance sheet was $715 million at September 30, and was mark-to-market at an average rent price of $1.69. As a reminder, our estimated outstanding RIN obligation excludes the impact of any small refinery exemptions. Direct operating expenses in the Petroleum segment were $5.53 per barrel for the third quarter compared to $4.52 per barrel in the third quarter of 2021. The increase in direct operating expenses was primarily due to higher repair and maintenance expenses and increased natural gas and electricity costs. Adjusted EBITDA in the Fertilizer segment was $10 million for the third quarter, with results impacted by lower production volumes and elevated operating expenses as a result of the two planned turnarounds completed in the quarter as well as approximately 11 days of downtime at the Coffeyville facility due to outages at the third-party air separation plant. The partnership declared a distribution of $1.77 per common unit for the third quarter of 2022. As CVR Energy owns approximately 37% of CVR Partners common units, we will receive a proportionate cash distribution of approximately $7 million. Cash provided by operations for the third quarter of 2022 is $156 million, and free cash flow was $93 million. Total consolidated capital spending was $68 million, which included $23 million in the Petroleum segment, $25 million in the Fertilizer segment and $16 million on the pretreatment unit for the RDU. For the full year 2022, we estimate total consolidated capital spending to be approximately $204 million to $234 million and turnaround spending to be approximately $80 million to $85 million. Turning to the balance sheet, we ended the quarter with a consolidated cash balance of $618 million, which includes $119 million of cash in the fertilizer segment. Total liquidity as of September 30, excluding CVR Partners, was approximately $746 million, which was comprised primarily of $499 million of cash and availability under the ABL facility of $247 million. Looking ahead to the fourth quarter of 2022 for our Petroleum segment, we estimate total throughput to be approximately 200 to 220,000 barrels per day, direct operating expenses to range between $100 million and $110 million, and total capital spending to be between $30 million and $35 million. For the Fertilizer segment, we estimate our fourth quarter 2022 ammonia utilization rate to be between 93% and 98%, direct operating expenses to be approximately $60 million to $70 million, excluding inventory impacts, and total capital spending to be between $5 million and $10 million. For renewables, we estimate fourth quarter 2022 total throughput to be approximately 14 million to 17 million gallons for the quarter due to a catalyst change. Direct operating expenses for the fourth quarter are expected to be between $5 million and $7 million. With that, Dave, I'll turn it back over to you.

Thanks, Dane. In summary, we had another strong quarter driven by the refining segment. We were pleased to return another $1.40 per share of dividends to our shareholders. Market conditions are currently very strong across all our businesses, and we believe we are well positioned to benefit from the structural changes we see taking place. Starting with refining, the strength in the cracks this year has largely been driven by tight supply conditions caused by refined product inventories well below 5-year average levels. Between lost production capacity as a result of refinery closures and significantly increased operating costs for many refineries outside the United States, we are currently seeing record exports of gasoline and diesel out of the U.S. while imports have mostly stayed flat. In addition, planned and unplanned downtime at refineries across the U.S. has caused refined product supplies to tighten further and cracks to move higher, despite the declines we are experiencing in gasoline and diesel demand. Forward distillate cracks are heavily backward dated but are currently over $45 per barrel for all of 2023. On the crude side of the equation, inventories are also low on the low end of the 5-year averages and continued releases from the strategic petroleum reserves are impacting differentials. Shale oil production volumes are up and we believe most incremental barrels are going to exports, which is supportive of a wider Brent TI differential. We are seeing volumes on our gathering system stabilize at around 125,000 barrels per day and new projects have been announced in our gathering areas that could offer additional upside potential. Turning to the fertilizer segment, nitrogen fertilizer production in Europe has been significantly reduced due to an increase in natural gas and energy prices over the past year, creating an opportunity for U.S. producers to export fertilizers to Europe. As a result, domestic fertilizer supply is tighter, and we've seen a steady increase in prices since summer. We have sold product through the end of the year and into the first part of 2023, and we believe prices for the spring of 2023 could be similar to the highs that we saw in the spring of 2022. We currently believe strong fundamentals in the fertilizer market could persist for several years, and with turnarounds now complete, we are looking at the potential for brownfield capacity expansion at both our plants, which we think could be done at a much lower cost than greenfield capacity. Finally, in our renewable business, we continue to ramp up production on the renewable diesel unit and have reached design capacity of 315,000 gallons per stream day of feed in early October before taking the unit down for a catalyst change. Yields have recently been above 90% for renewable diesel production as a percentage of vegetable feedstock, and with the catalyst change currently in process, we expect to add additional isomerization catalysts which should increase catalyst life by a few months. Construction on the PTU is progressing, and we are currently expecting the in-service date to be early to mid-third quarter of 2023. With the addition of the PTU, we expect to see between $0.50 and $1 per gallon increase in our renewable diesel margins. Looking at the fourth quarter of 2022, quarter-to-date metrics are as follows: Group 2-1-1 cracks have averaged $52.54 per barrel with a Brent TI spread at $5.33 per barrel and the Midland differential at $1.90 over WTI. WTI differential has averaged $1.21 over TI and the WCS differential has averaged $25.77 per barrel under WTI. Fertilizer prices remained strong as well, with ammonia prices over $1,100 per ton and UAN prices over $50 per ton. As of yesterday, Group 3 2-1-1 cracks were $46.71 per barrel. The Brent TI spread was $7.87 per barrel, WCS was $29.15 under WTI, and RINs were approximately $8.60 per barrel. As I mentioned, we believe many factors driving the strong market conditions in our refining and fertilizer business are structural, and we are optimistic about the outlook for the rest of the year and 2023. Our focus remains unchanged. We strive to operate our plants in a safe, reliable, and environmentally responsible manner, and continue to focus on growing our renewables business. Our transformation to segregate the renewables business remains on track, and we expect completion in the first half of 2023. We also continue to explore opportunities to invest in projects where we believe we can earn an attractive return, both in renewables and in our refining business. We have identified some diesel recovery projects that we believe could increase our industry-leading distillate yield to close to 50% on crude processed. I look forward to providing additional details on these projects as they develop. With that, Operator, we're ready for questions.

Good morning Dave. Congrats on the strong capital returns to shareholders. I had a question on your WCS share at Coffeyville. It looks like it stayed fairly low, I think, just around 6% of your total feedstock slate despite some attractive WCS discounts. So is that going to be the case going forward that even if WCS spreads widen out, the refinery will process some, but then you'll resell some WCS at Cushing?

Well, I think this quarter, we'll be maximizing the non-WCS we run because, as you mentioned, the spreads did widen out. In the first part of the quarter, it was actually fairly narrow, and we were better off to sell it. So that’s what we have adjusted for. Then we had some work we needed to do on the coker and sulfur plant that took some of the WCS as a slate for a while. We do have a turnaround on the coker next year that will affect our WCS runs, but I expect us to run up to the maximum we can within sulfur and ten limits of our process equipment.

Sounds good. And then, Dave, do you have any expectations for this upcoming RVO from the EPA? There's a thought that things actually might look pretty different going forward. The EPA might issue a 2023 to 2025 RVO. And there's also some talk about how this $15 billion ethanol blending rate requirement is going away and the EPA might have more flexibility to reduce the ethanol requirements. Do you have any thoughts on that?

Well, I do, Matt. None of them are good. Most would agree that the EPA has completely mismanaged the entire RFS program, starting with this unjustified denial of all small refinery waivers. It gives me no confidence that they'll do anything that makes sense. I don't know how in the world you can issue an RVO for the next three years when you don't even know what gasoline demand is or distillate demand is. A lot of factors can change those, as you well know. I don't know, I'm sure you've noticed, but RIN prices have drifted up ever since the RVO was announced for '21, '22, and it's done nothing but go up, representing the fact that they maintained this $15 billion ethanol requirement despite the market's inability to blend that much. The economics for blending ethanol are very strong right now, particularly with $1.71 D6 RIN. But my confidence level in them to do anything that makes any sense is low. They seem concerned about gas prices while there is $0.30 now, probably $0.35, frankly, of cost built into blending ethanol, and it doesn't really need a subsidy. It's profitable to do on its own.

Makes sense. Thanks for all the color.

You're welcome.

Thank you. Our next question is from John Royall with JPMorgan. Please proceed with your question.

Hi, good afternoon. Thanks for taking my question. If you could potentially get into the potential brownfield expansions in fertilizer, any further detail there, what size we're talking about, anything on potential cost or return expectations?

Well, we're in the early phases of looking at this. We just completed two major turnarounds for both plants. After we get all lined out from all that, which we're pretty close to, we'll start the feasibility studies on these. I think you're looking at a modest increase somewhere less than 15%. I don't know the exact numbers yet because we just really haven't done the work yet. But I would estimate that they are less than $100 million for each expansion. We probably won't do them if the expenses exceed that. But 15% is a good walking number, capacity on East Dubuque is around 1,100 tonnes a day and Coffeyville is about 1,350 or so tonnes per day. So that gives you some numbers to work with.

Yes. That's really helpful. Thank you. And then just thinking about the special dividend and how it ties into the balance sheet, how do you feel about your net leverage right now? I think it's just under $1 billion of net debt. Do you think that's the right level for this business? Or could you actually draw down some cash with the special dividend in excess of cash flows and lever up a little?

Well, with the current EBITDA, it's probably—I think we could afford some more debt, but there’s a little bit of concern about what the interest rates are going to be going forward. We do have one tranche of our bonds due to 2025. So, we'll be looking at refinancing somewhere in 2024 due to those. We are always keeping the option open to buy down some of that if interest rates are too high. It's too early to know what will be at this point, but we've always maintained the belief that we are a cash machine, and we pay—if we earn it, we're going to pay it out to shareholders, and I think we've shown that in the last two quarters—that is truly what we march to.

Thank you.

You're welcome.

Thank you. Our next question is from Carly Davenport with Goldman Sachs.

Hey, good afternoon. Thanks for taking the question. I wanted to just start on the capital return side. Can you talk a little bit about where you view the optimal regular dividend level over time? Is there potential to grow that in the near to medium term? Or is there more of a preference to continue to utilize the special dividend as a flywheel in this robust margin environment?

Well, Carly, I think the interesting fact is that I think this is the first time in history we've had both businesses hitting on full stride. We're finding at the same time that fertilizer and refining are performing well simultaneously. That is a little bit of the rationale for the special dividends because the fertilizer cycle will turn at some point. I don't know if refining will. I think it's structurally short for quite a long time. But I think we used to have a regular dividend around $0.80, and we'd love to get back to that number. The Board looks at it every quarter to see if it makes sense to increase the regular and decrease the specials. But right now, with both segments hitting simultaneously, history would indicate that this doesn't last forever, so we remain cautious on that.

Got it. That makes sense. And then the follow-up is just on renewable diesel. I recognize that the process to build that out and eventually break the business out is ongoing. But can you talk a little bit about what you're seeing from a unit margin perspective at the business as you think about how Q3 tracked and where Q4 has been tracking?

Sure. Q3, I think probably September was a good month for us. The OVO, as I mentioned, was off $0.50 and some of the basis has come in to some degree. I always thought refining was a wild business, but I’ll tell you, renewables are wilder than any of it. There are so many variables involved, especially with low carbon fuel standards at $60, which when we started the unit were almost $200. This has largely been offset by rent increases, but we're still optimistic. I think we printed a positive number in September, and we still don't have the final pathway for LCFS completed, so we're on a provisional basis still as we work to get that certified. We have the capacity, and we have demonstrated full capacity. We still have some challenges around that in the refinery, but I believe we'll be successful there, and we should have a pretty good run in '23, assuming we can lengthen the catalyst life a bit by adding more catalyst to the mix. So, we're very positive on it. With the PTU, PTU is going to be between $0.50 and $1 uptick, and that just adds right to the bottom line.

Great that color. Thank you.

Welcome.

Thank you. Our next question is from Paul Cheng from Scotiabank.

Hey there. Can you talk a little bit about the project you mentioned of the distillate yield improvement? What is the capacity, the yield, the timing, and also which facility and what CapEx spending may look like?

Paul, we're in the early phases of looking at this, but we're confident there’s at least 6,000 barrels available to pick up over what we do today. We typically yield about 44% on crude, and we're trying to push that number toward 50%. The molecules are there; we just need to debottleneck all three of our distillate hydrotreaters and add some hardware on our vacuum towers to recover this distillate. I'm confident it's achievable. The cost is still under study.

And Dave, what is the earliest that the project will get sanctioned? Any timeline that you can share?

It’s going to take us another six months to fully define it. Then, it's a question of whether we need downtime to make the changes; those will have to coincide with our turnarounds or if we deem it more opportunistic to do it. Most likely, it will require a turnaround to implement these changes since we have to modify the vacuum towers. I would guess it will take a minimum of two years, maybe three million dollars. But as I mentioned, we believe distillate is short for a long time structurally.

Right. And David, for the renewable diesel, you're saying that you're going to have a catalyst change in the fourth quarter. That only seems to be a very short duration. Has that come as a surprise?

No. That was our design basis, which was six months at full rate. I think the first load may have gone a little quicker due to start-up issues, but we've got a good handle on it now. I think we'll stretch that out; I'm confident we'll get another two months at least, so hopefully, we'll only have one catalyst change next year. We're budgeting for one but hoping only for one.

And how expensive is it when you change the catalyst each time?

The catalyst costs about $2 million, and the change-out is roughly $3 million, for a total of about $5 million.

Okay. And final question: any preliminary estimate for 2023 CapEx and turnaround expenses? I believe you do have a turnaround plan for next year? Also, what is the current liability on the balance sheet?

We don't typically disclose estimates. We will provide guidance for the next quarter on what we plan to do. As far as the RIN short, Dane, do you want to cover that?

Yes. So the short as of the end of the month or end of the quarter, Paul, was $422 million RINs; just under $423 million RINs was $715 million.

And that has come down since the second quarter because we are aggressively buying for the Coffeyville situation to close out the Coffeyville refinery RVO.

And out of the $423 million, what’s the component related...

Yes. Of the $423 million, around $295 million RINs are Wynnewood; just under $0.5 billion.

Thank you.

There are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Again, we'd like to thank you all for your interest in CVR Energy. Additionally, I'd like to thank our employees for their hard work and commitment towards safe, reliable, and environmentally responsible operations. We're proud of the work we do and of providing the American public with the fuels they need to enjoy modern life. We look forward to reviewing our fourth quarter results in the next earnings call. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.