CVR reports strong nitrogen results for 4Q, year; UAN expansion deferred

CVR Energy Inc.’s nitrogen business excelled in the fourth quarter and the year ending Dec. 31, 2008, to help offset some negative numbers from the company’s refining business. Even in the fourth quarter, which included the economic downturn, the nitrogen business reported operating income of $21.2 million on sales of $67.4 million, up from the year-ago $11.7 million and $50.8 million, respectively. While nitrogen tons sold were off slightly, higher selling prices kept the unit ahead of the year-ago quarter.

Nitrogen operating income for the year was $116.8 million on sales of $263.0 million, up from 2007’s $46.6 million and $165.9 million, respectively.

CVR reported fourth-quarter net income of $11.1 million ($.13 per diluted share) on sales of $699.7 million, versus the year-ago loss of $24.5 million ($.28 per share) and $1.15 billion. For the year, net income was $163.9 million ($1.90 per share) and $5.02 billion, versus 2007’s loss of $67.6 million ($.78 per share) and $3.0 billion.

2007 results were affected by a major turnaround and expansion at the company’s refinery, as well as significant downtime and costs associated with a major flood.

CVR took a goodwill impairment loss of $42.8 million in the refinery unit in the fourth quarter 2008. Results were also impacted by a planned turnaround at the nitrogen plant, an unplanned outage affecting the refinery’s fluid catalytic cracking unit, and a loss on extinguishment of debt of about $10 million associated with amending the company’s credit facility.

The refinery had a fourth-quarter operating loss of $153.8 million on sales of $636.4 million, versus the year-ago income of $22.6 million and $1.1 billion, respectively. For the year, it had operating income of $31.9 million on sales of $4.8 billion, versus 2007’s $144.9 million and $2.8 billion, respectively.

As a nod to the current economic climate, CVR told analysts that it has deferred the completion of its UAN expansion, as well as some smaller discretionary projects. The UAN expansion was to increase current capacity by 50 percent, to over 1 million st/y. CVR has also moved a 2010 refinery turnaround into 2011, and is focused on minimizing costs and aggressively managing capital expenditures.

Stan Riemann, chief operating officer, said the current order book for UAN is approximately 90,000 st, at an average price of just over $380/st. He said the company is not locking in forward prices, but is selling prompt. He indicated that recent prompt ammonia sales have been at $350/st FOB and UAN at $220-$230/st FOB, and he said those numbers have been creeping up as it gets closer to the spring season.

He expects pricing to be more similar to 2007 numbers than the blow-out numbers of 2008. “And quite frankly, in our area on nitrogen….we just have not seen producers cut back on wheat or on the corn. They seem to be going after it with, as you would expect them to, to get bushels off the acres.” He said based on this reading, CVR is feeling good about nitrogen.