CVR income dips on record production; Rentech acquisition expected by March 31

CVR Partners LP reported fourth-quarter net income of $18.7 million ($0.26 per diluted share) on sales of $66 million, down from the year-ago $24.8 million ($0.34 per share) and $74.4 million, respectively. Full-year income was $62 million ($0.85 per share) on sales of $289.2 million, down from $76.1 million ($1.04 per share) and $298.7 million.

CVR told analysts that the primary drivers for the decrease were lower UAN pricing and ammonia sales, partially offset by higher UAN sales volumes. CVR said in late June/early July it was able to lock in UAN pricing for a significant majority of 2015 second-half production before prices declined.

“We are pleased with the operating performance of our Coffeyville plant,” said Mark Pytosh, CVR CEO. “During our turnaround in the third quarter of 2015, we performed maintenance and made upgrades across the entire facility. As a result of these efforts, we experienced record production levels for both ammonia and UAN for the fourth quarter of 2015.

“Also during the 2015 quarter, we continued to make progress in planning for the integration of Rentech Nitrogen’s East Dubuque facility,” Pytosh added. “Earlier this week, Rentech Nitrogen’s unitholders approved the completion of the merger subject to the sale or spin-out of Rentech Nitrogen’s Pasadena facility prior to close. We currently anticipate closing by March 31, 2016. The strategic rationale for the merger (GM Aug. 17, 2015) remains firmly in place, and we are excited about the opportunities to expand CVR Partners’ footprint into new markets and customer relationships.

“From a market perspective, the current pricing environment for nitrogen fertilizer is more challenging than in recent years, however the underlying demand for product in the United States remains intact,” Pytosh continued. “Based on a number of industry sources, we expect a similar amount of corn acres will be planted this year as compared to 2015. As a result, we expect solid demand for nitrogen fertilizer for spring planting.”

As for lower nitrogen prices, Pytosh attributed those to the economic slowdowns in China and Brazil, weather issues in various parts of the world, less-than-normal U.S. fall application, and large imports of urea into the domestic market. He estimated that only 50-60 percent of the typical amount of nitrogen was applied in the fall, and that a significant amount will be needed this spring.

For the second half of 2016, CVR expects to grow its ammonia production once a new hydrogen plant comes online at the adjacent CVR refinery. It expects to produce 50-75 st/d of additional ammonia, which the company said it will sell into the fertilizer market.

CVR Partners announced a fourth-quarter distribution of $0.27 per common unit, payable March 7, 2016. The cumulative payment for the year was $1.11 per unit.

In other news last week, Rentech declared a cash distribution of $0.10 per common unit for fourth-quarter 2015, payable on Feb. 29, 2016, with a cumulative cash distribution of $1.71 per unit. The distribution was reduced by approximately $0.09 per unit, or $3.4 million, of cash reserves held for working capital, and by approximately $0.03 per unit, or $1.1 million, in transaction costs.

Rentech said its own revenues for the quarter were lower than expectations due to limited spot ammonia sales as a result of a wet fall, followed by cold temperatures and snow that abbreviated the fall ammonia application season. In addition, prepaid UAN deliveries were lower than expected. As a result, the partnership expects higher-than-budgeted deliveries of these two products in the first quarter of 2016 because it anticipates selling the majority of the ammonia tons that carried over from the fourth quarter and delivering the unshipped prepaid UAN tons. Fourth-quarter and full-year Rentech results will be released March 16.