CVR Energy Inc (CVI) 2008 Q2 法說會逐字稿

Greetings and welcome to the CVR Energy second-quarter conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Stirling Pack, Vice President of Investor Relations for CVR Energy. Thank you, Mr. Pack; you may begin.

Thank you, Latonya. Good afternoon, everyone. Thank you for joining us on this conference call. We appreciate very much your time this afternoon and hope you will find this to be a very useful conference call and reporting session.

Prior to the call, I want to introduce the participants. We will have with us this afternoon Mr. Jack Lipinski, the CEO of CVR Energy; Mr. Stan Riemann, the Chief Operating Officer of CVR Energy; and Mr. Tim Rens, the Chief Financial Officer of CVR Energy; and of course, myself.

Now prior to discussion of our 2008 second-quarter results, we are required to make the following Safe Harbor statement. In accordance with federal securities laws, the statements in this earnings call relating to matters that are not historical facts are forward-looking statements based on management's beliefs and assumptions using currently available information and expectations as of this date, and are not guarantees of future performance, and do involve certain risks and uncertainties, including those filed with the Securities and Exchange Commission.

This presentation also includes non-GAAP financial measures. The disclosures related to such non-GAAP measures required by Regulation G can be located in our website at www.CVREnergy.com or on Form 8-K, which we filed today.

Now we will first hear from Jack Lipinski, our Chief Executive Officer. Jack?

Thank you, Stirling, and thank you all for joining us on this call. This afternoon we will provide some additional context to CVR's second-quarter earnings release and respond to your questions.

Before moving into the reported results I would like to take this opportunity to comment on our business. We have two sound business segments, petroleum and nitrogen fertilizers.

Our petroleum business is centered around our revamped Coffeyville, Kansas, refinery with its associated crude gathering, storage, and product distribution assets. We produce primarily high-value transportation fuels in a product-short region.

We also own substantially all of the interest in a Limited Partnership which holds our adjacent nitrogen fertilizer operation. It is the newest and lowest-cost producer and marketer of ammonia and UAN, urea ammonium nitrates, nitrogen solution, in North America. It receives its principal feedstock, petroleum coke, directly from our refinery.

Our goal is to enhance the value of these assets. They are in different phases of their respective business cycles and they trade in equity markets under different valuation metrics. But our goal is to enhance each asset we have.

During today's call, Tim Rens will review CVR's financials, and Stan Riemann will discuss some operating results of our fertilizer business. I will follow Stan with an overview of refining and conclude with additional perspective on the second half of this year and an initial look into the first half of 2009 for our consolidated Company.

I would like to turn it over to Tim at this point. Tim?

Thank you, Jack. As reported, CVR Energy's second-quarter net income was $31 million or $0.36 per diluted share, compared to $101 million or $1.16 per share pro forma for the second quarter of 2007.

Losses on derivatives for the second quarter include an unrealized loss from the cash flow swap net of taxes of about $9.6 million or $0.11 per share, compared to a pretax unrealized loss of $41.4 million or $0.48 per share pro forma for the second quarter of 2007. The quarterly results also include a realized loss on the cash flow swap of $52.4 million, compared to $88.7 million in the same period of 2007.

Consolidated operating income for the second quarter, which I will discuss in more detail by segment, was $123 million compared to $177.8 million for the comparable period in 2007.

Starting with the petroleum segment, operating income was $101.9 million for the second quarter of 2008 compared to $166.3 million for the second quarter of 2007.

Refining margins per barrel, including the FIFO impact for the quarter, was $18.23 compared to $27.67 for the second quarter of 2007. Adjusted for the impact of a $74 million FIFO gain, refining margins for the quarter were $10.46 per barrel compared to $26.11 per barrel for 2007, excluding a FIFO gain of $13.5 million.

Refining margins per barrel, adjusted for the FIFO impact, were negatively impacted by higher crude prices and low crack spreads in the comparable period in 2007, offset somewhat by an increase in crude oil throughput.

We realized the benefit of the capital invested in our expansion program, which was completed in the spring of 2007, and were not burdened by the impact of a turnaround as we were in the second quarter of 2007. For the current quarter, crude oil input was throughput was 9.5 million barrels which is about a 10% increase over the 8.6 million barrels processed in the second quarter of 2007.

Refinery direct operating expenses exclusive of depreciation and amortization were $42.7 million or $4.49 per barrel of crude throughput for the current quarter compared to $44.5 million or $5.17 per barrel for the same period in 2007. The positive variance was primarily the result of a lack of the refinery turnaround expense that was flowing through the second quarter of 2007, partially offset by increases in repairs and maintenance, utilities, and some energy-related expenses.

Moving to the fertilizer segment, revenue for the quarter increased by about 64.2% to $58.8 million, compared to $35.8 million for the comparable quarter in 2007.

Approximately $2.6 million of this increase in revenue resulted from an accounting change related to hydrogen transfers to the refinery. In 2007, hydrogen transfers were recognized as a byproduct credit in cost of product sold, instead of as intercompany sales as they are in 2008.

Operating income was $23.1 million for the nitrogen segment for the second quarter of 2008 compared to $11.7 million for the second quarter of 2007. Higher prices for ammonia and UAN contributed favorably to the fertilizer segment results. For the quarter, ammonia and UAN prices were $528 per ton and $303 per ton, respectively, compared to $366 per ton for ammonia and $218 per ton for UAN in the comparable period of 2007.

Direct operating expenses were $19.7 million for the quarter compared to $16.5 million in 2007, with the increase primarily the result of property taxes and catalyst expense.

SG&A expense for the quarter was $14.8 million compared to $14.9 million for the second quarter of 2007.

I will now speak briefly regarding cash flow and current liquidity. As of June 30, 2008, total outstanding debt under our credit facility was $508.2 million, which includes $21.5 million from our revolving credit facility but excludes the $123.7 million owed to J. Aron's under the terms of a one-year deferral agreement entered in connection with the flood, and the estimated unrealized mark on our long-term cash flow swap of $242.2 million.

To provide additional liquidity in this volatile crude market, we announced a convertible debt offering and revised the settlement deferral with J. Aron's. The proposed convertible issue includes the option to satisfy the obligation in cash or shares and at this time offers the best financial option to meet our needs in any currently foreseeable crude oil price.

We hope to complete this offering by the end of the third quarter, subject of course to market conditions and clearing with the SEC. The revised settlement deferral with J. Aron will defer $87.5 million that is currently owed on August 31 until December 15, 2008; or until July 31, 2009, if the Company consummates its proposed convertible debt offering.

As of August 11, 2008, total outstanding debt under our credit facility was $485.5 million. The Company had $44.5 million of cash on hand, resulting in a net debt balance of about $441 million.

Capital expenditure for the second quarter of 2008 were $23.5 million compared to $106.7 million in the second quarter of 2007. The reduction is the result of completing much of the Company's $522 million capital plan that was started in July of 2005.

We still anticipate a significant insurance recovery related to the flood damage and lost production, as represented by the $80.9 million accounts receivable that was recorded on our balance sheet as of June 30, 2008. We have signed a settlement agreement on coverage with the property insurance carriers, representing about 32.5% of the property insurance claim, and are working through the adjustment process with those carriers.

On July 10, 2008, we filed two lawsuits against some of our insurance carriers. One of the lawsuits was filed against the property carriers that were not part of the settlement agreement. The second lawsuit was filed against the environmental carriers.

Turning to income taxes, income tax expense for the quarter ended June 30, 2008, was $4.1 million or 11.68% of income before income taxes, as compared to an income tax benefit of $93.7 million for the three months ended June 30, 2007.

The Company under GAAP accounting requirements is required to calculate income tax expense for quarterly periods on an expected annual effective tax rate for the full year. Under this method, the Company calculates its effective tax rate based upon its expected pretax income, with modifications for nondeductible and other items, and with the inclusion of some expected tax credits that we anticipate earning for the year.

Total estimated gross tax credits for 2008 are approximately $59 million. The estimated annual effective tax rate is applied to the actual pretax quarterly earnings to derive quarterly income tax expense.

In the end, on an annualized basis, the Company expects to recognize tax expense at a statutory rate of approximately 40% on pretax earnings and the benefit from tax credits of approximately $59 million.

Finally, with respect to some recent developments, SemGroup, LP, a customer of our petroleum segment, filed for Chapter 11 bankruptcy. We have potential exposure to SemGroup of about $3.7 million and we are currently -- we do plan to seek repayment. We have fully reserved that amount in our second-quarter results.

Stan Riemann, our COO, will now discuss quarterly results for our nitrogen fertilizer segment. Stan?

Thank you, Tim. As Tim reported in the financial review, the nitrogen fertilizer business is benefiting from extremely strong demand from agricultural production. This demand is driven both by food supply demand as well as increased use of biofuels. We benefit not only from those overall market conditions but also from our use of low-cost petroleum coke as a feedstock in lieu of natural gas, which is a more typical feedstock for fertilizer production.

Our petroleum coke competitive cost advantage is further amplified by the higher natural gas price for the quarter. The second-quarter 2008 NYMEX natural gas prices averaged $11.47 per million BTU compared to $7.66 for the same period in 2007.

This rise in natural gas price implies a minimum increase of $120 per ton in production costs in the second quarter for the North American producer, in an environment which our production costs remain substantially unchanged. Additionally, our Midwest location provides prompt, [direct] assets with freight advantage to our primary markets and minimized shipping cost.

With respect to the 2008 quarterly results, we reported ammonia production of 79,500 tons versus 82,800 tons for the second quarter of 2007. The second quarter of 2008 UAN production was 139,100 tons compared with 138,900 tons in 2007.

This production was below expectations in the second quarter of 2008 due to catalyst changeout and unscheduled downtime of the main as well as the spare gasifiers. This occurred mainly in late May and early June in the time frame.

Ammonia sales during the quarter totaled 19,100 tons in the second quarter versus 13,400 tons in the 2007 period. UAN sales were 138,600 tons compared to 126,800 tons in the second quarter of 2007.

To get further indication as to current prices that we are seeing in the market and provide additional context to the strength of the business, I can state that current ammonia orders are exceeding $800 per ton for crop shipment and $1,000 per ton for spring delivery. And UAN orders are exceeding $500 per ton.

Independent third-party industry price forecasts indicate continued strength for the next several years. As an example, a major delivery market for CVR is the mid-cornbelt. Mid-cornbelt spot price forecasts for the second half of 2008 and for the first half of 2009 for ammonia are in the $1,075 per ton range. Forecasts for UA during the same period are in the $540 per ton range.

For the future, we continue with plans for full conversion of our ammonia production to UAN and for expansion of total UAN capacity from 2,000 to 3,000 tons per day. In conclusion, we see this business segment as a very solid contributor to CVR's overall growth strategy.

Jack will now provide additional perspective on CVR as a consolidated entity and discuss our refining business before we move into your questions. Jack?

Thank you, Stan and Tim. As reported, consolidated results for CVR Energy in the second quarter of this year reflect the changing business cycles in our fertilizer and petroleum businesses. As Stan noted, our nitrogen fertilizer business is benefiting from an operating environment of historically high fertilizer prices. These realized prices have provided considerable offset to weak refining margins in our petroleum business, and should continue to do so, based on our current fertilizer order book, for the remainder of 2008 and into 2009.

Conversely, our petroleum business is impacted by lower refining margins, reduced demand, and our cash flow swap. While improving somewhat from their recent flows, midcontinent refining margins remain below historic metrics when factoring in the high cost of crude. Increased throughput at our recently-expanded refinery provides offset to these factors.

Historically, the strongest refining margins occur in the second and third quarters, based on gasoline and diesel demand. While crude oil prices have declined sharply from their recent highs, crack spreads have not yet improved in line with the crude price declines due to continuing gasoline demand weakness.

Our midcontinent location has historically provided higher margins than the Gulf Coast and East Coast markets. Even so, the operating environment for CVR's petroleum segment during the second quarter of 2008 was challenging. Our historically advantage remained to a large degree; but globally lower margins and higher crude costs affected our results.

Relatively strong middle distillate cracks provide an offset to weak gasoline margins. About 40% of our total production is distillate, which also provides us some tax credits under the 2004 American Jobs Creation Act. We continue to maximize distillate production, which comprises 40.3% of our production versus 38.7% of our production in the first quarter of 2008.

Gasoline production makes up about 44% of our production, which is down slightly from 47.5% in the first quarter of 2008.

Other products including petroleum coke and LPGs comprise the remaining production. Pet coke is the principal feedstock for our adjacent nitrogen fertilizer plant. This provides a secure outlook outlet for the refinery pet coke and a significant endproduct upgrading capability at the fertilizer plant.

Selected industry metrics provide further context for CVR's refining performance. WTI crude averaged $65.02 a barrel in the second quarter of last year; and in the second quarter of this year that averaged $123.80 a barrel, a significant increase.

NYMEX 2-1-1 cracks as a percentage of crude price were calculated about 34% of WTI in the second quarter of 2007 compared with only 14% in the second quarter of 2008.

The Group 3 basis differential averaged $0.28 a barrel in the second quarter of 2008. Comparatively, this was $7.83 a barrel in the same period in 2007. The Group 3 basis has returned to positive territory after being negative recently, and was $4.15 per barrel positive on August 12. This $4.15 value is in line with the three-year average basis for our area.

Another metric for evaluating our relative refining operating environment is to compare the WCS, Western Canadian Select, which is a heavy Canadian crude, against WTI, which is the marker crude in the midcontinent, and look at that differential. The differential reflects the relative prices of heavy sour crude versus light sweet crude.

In the second quarter of 2007, the differential was $17.99 a barrel below WTI. For the second quarter of 2008, the differential averaged $22.94 a barrel below WTI. On a percentage basis, however, this metric averaged 72% of WTI in the 2007 period versus 82% in the second quarter of 2008. Clearly as a percentage of crude, heavy sours have gotten more expensive; but they remain economically attractive.

A full coking, highly-complex, medium sour refinery such as ours benefits from the ability to process discounts at heavy Canadian crudes. In this low-margin environment, as Tim mentioned, our petroleum business generated operating income for the quarter of $101.9 million compared with $166.3 million in the same quarter last year.

These results reflect in part refinery hardware expansions completed in the past year, particularly the CCR addition and our coker expansion. The CCR produces significantly more hydrogen than the unit it replaced. As a result, the refinery now purchases little, if any, hydrogen from the fertilizer plant, thus allowing the fertilizer plant in turn to use that hydrogen to produce very high-value ammonia.

The results also reflect various optimizing strategies, such as substituting more economic vacuum tower bottoms, or VTBs, for some portion of our heavy crude inputs.

Our crude oil throughput averaged 104,600 barrels a day during the second quarter. Our total production, however, was 119,500 barrels a day, comprising approximately 52,000 barrels a day of gasoline; 48,200 barrels a day of distillate; and 19,300 equivalent barrels a day of other products, which also include coke and sulfur. These total production volumes reflect the impact of feedstock and blendstocks to fill out our expanded refinery.

Our cash flow swap ramps down in mid-2009 when hedged oil volumes will decline from approximately 6.2 million barrels per quarter to 1.5 million barrels per quarter. Again, that begins in the third quarter of 2009. This will improve our profitability.

Finally, we overcame some of the continuing startup issues with our CCR in late April and early May, as discussed in last quarter's conference call, which caused some downtime for that unit as well as associated units.

Our nitrogen fertilizer business reporting an operating income of $23.1 million as compared to $11.7 million in the same period in 2007.

Ammonia gate prices averaged $528 per ton in the quarter compared with $366 per ton in 2007. UAN prices averaged $303 a ton versus $218 per ton in the comparable period.

We have taken orders recently for our first-quarter 2009 order book in the $1,000 range for ammonia and $500 range for UAN.

Our fertilizer segment operating environment is favorable and, based on third-party forecasts, appears to be heading toward an even higher price environment. The Board of Directors of the fertilizer GP have approved a $120 million UAN expansion project, which will convert all of our ammonia to UAN. This project is scheduled for completion in 2010.

We fully expect that as our long-term cash swap substantially reduces in midyear 2009, and as higher fertilizer prices are realized from our order book, we should see further improve results.

We have reported a profitable second quarter and a challenging environment for our petroleum segment and, as we discussed, the importance of our fertilizer operations to CVR's consolidated earnings. With respect to refining, even at depressed margin levels we have remained profitable. We will strive to improve our operating performance and control our costs.

Sustained recovery for the wider R&M industry will, however, require a period of more stable crude prices and the reestablishment of a market supply and demand equilibrium.

In closing, we believe we have the financial strength and operating flexibility to proceed with announced plans and attack opportunities as they arise in each of our businesses.

I will turn the call back to Stirling for any questions you may have. Stirling?

Thank you, everyone. Latonya, we are ready then to take statements. I understand you have some people in the queue at this point, so if you will just announce who they are, we will take them accordingly.

(Operator Instructions) Jeff Dietert with Simmons.

Good afternoon. Jeff Dietert with Simmons. Within the constraints of your current filings, could you provide some clarity associated with your financing strategy and plans for future corporate structure?

Tim?

Jeff, I think if you are talking about the current filing we have, which is the convert, the Company still is focused on adding some liquidity in the current period of very volatile crude prices.

As on the good side we continue to put extra barrels, additional barrels through the refinery, we think it is important that we add some additional liquidity out to what we see as kind of foreseeable high-side crude prices.

I guess on the other side of the debt equation, when you talk about capital I guess you look at the equity side of the balance sheet. I think recently you have seen the announcement that a secondary had been pulled; and beyond that there are really no current plans to do anything additional on the equity side.

So I think in the short run, as we look forward at capital moves, we think it is important to add some additional liquidity and currently plan to do that in the form of a convert offering.

Your intention would be to do that sooner rather than later?

It would be, yes.

Secondly, on the fertilizer business, I appreciate the pricing information that you provided. In the third quarter and the fourth quarter, you're substantially into pricing a number of your -- a lot of your products.

Could you give us a feel for what product is priced already and how exposed you are to some of the spot pricing that you mentioned in your entry comments?

I guess, Jeff, I will kind of throw out some numbers. Our book on UAN is approximately $320 to $325 a ton going forward. Stan, what is the book on ammonia for the second half of this year?

It would be in the $750 range, Jeff. Then the size of the book on UAN will be over 340,000 right now, 340,000.

We are essentially sold out. There are some spot barrels that we always hold to move into markets. But we are essentially sold out through 2008 and have a reasonably sizable order book for the first quarter of 2009.

As we mentioned, starting in July we started taking ammonia orders for Q1 '09 above $1,000 on ammonia and above $500 on UAN.

On the new CCR, you mentioned in the first-quarter call that there were some startup issues, but that it was running smoothly by the time of the call.

How has the performance of that unit been through the second quarter and to date?

Just shortly after our second-quarter call we had another problem with our regeneration section. This is a licensed unit. The licensor brought a whole team of folks in; took us several days to work through.

Ever since then the unit has been running essentially at capacity and as expected for the most part since that bubble.

Again, it relates not to anything extraordinary other than just shaking out the unit. It has been running near capacity and the refinery has been purchasing little if any hydrogen. Hopefully in the next quarter we may actually see a situation where may be slightly net positive hydrogen on the refinery side and may have an opportunity to shift 1 million or 2 million cubic foot a day over to the fertilizer side.

Very good. Last question for Tim, on the $242 million of liabilities associated with the cash flow swap, did that include both short-term and long-term liabilities?

Yes, Jeff, it did. It did not include the realized portion, which would have been about $52 million on our June 30 balance sheet. So it included the unrealized mark; and that unrealized is split some in long-term and some in short-term.

Very good. Thank you. Appreciate the comments.

(Operator Instructions) Vance Shaw with Credit Suisse Group.

Credit Suisse on the buy side. Just a couple of questions. Unfortunately, I couldn't write fast enough earlier when you were speaking about this stuff. But what is your draw on your revolver as of the end of the quarter?

At the end of the quarter, it was a little over $20 million. Let me flip back and I can get you that exact number. But it was slightly over $20 million. Then as of a couple days ago and as of today, it is nothing.

Okay; and your availability? You must have -- you have an LC facility, though, in addition to the revolver.

Yes, availability is basically $112 million. It is a $150 million facility with some LCs applied against it, and brings the available drawdown to about $112 million.

I got you. Was there any capitalized interest during the quarter?

There was capitalized interest during the quarter. To be honest, I don't know that what that number was off the top of my head, but it was --

It was like $1 million last quarter, I think.

Yes; it would probably be down a little bit because the CCR was closed out. So we wouldn't -- and we really don't have any significant projects that we are continuing to capitalize against.

I got you. So if anything, it is in [from pencil]?

Yes.

I got you. Another question, the FIFO accounting gain of $74 million. That is basically computed by comparing what the situation would have been under LIFO versus FIFO?

No, it's not. What it really does is it takes our opening inventory volumes and multiplies those volumes times the change in inventory carrying value from the beginning of the period to the ending period.

So what it is really meant to do is identify and come back to a metric that we think is more comparable to a -- and what management uses it for is to develop a metric that is more comparable to a refinery crack spread.

Yes, so you are just saying that that portion of our apparent gross margin was really due to the change in prices --

That's right.

(multiple speakers) between the beginning of the period versus the end of the period.

That's correct.

I got you.

To give you a little more clarity also on our cash position, as of this morning we have a little over $75 million in cash on hand.

Okay, well, that's great. It's really good to hear that.

Another question. What percentage of the stock does Goldman Sachs own at this point? Do you guys know?

Yes, if you were to take -- there is approximately 63 million shares outstanding there, it's a little over 63. Those are equally owned by PIA group of Goldman Sachs and Kelso & Company.

Okay.

So, it is 30-some-odd-%, but those are the numbers. It is basically $63 million split between those two entities as our controlling shareholders.

Now, on that, there is some management interest in that as well. There is a beneficial ownership table that is part of some of the filings that is probably the best reference for the exact beneficial ownership of Goldman.

Okay, I got you. Thank you very much. I'm sorry, I know you guys mentioned this before, but it went by real fast.

How much money do you guys owe to J. Aron now at this point? I know you said there's $87.5 million that (multiple speakers) forward; but how much is the total?

I'm going to break it into three pieces. There is the deferral, which is a little over $123.5 million plus interest on that, that is due August 31, of which we have deferred $87.5 million.

Okay.

In addition to that, as of the end of June we owed them $52 million for the second-quarter realized loss. We paid that money on July 5, so that is no longer outstanding.

As of the same day, we had the $242 million that was unrealized and owed. Now that it is a variable obligation that continues to move around as forward crack spreads move.

Sure, of course. So you won't know really what it is till the end of the quarter.

So each quarter it settles.

Yes, I got you. Okay, guys. Thank you very much.

[Vijay Prasad], [Lions] Capital Management.

Thanks for the call. Just a couple of quick questions. Just a follow-up on the question that was asked before on the FIFO adjustment.

So the right refining margin, or the more appropriate refining margin to look at is the one without the FIFO?

Honestly, the most prominent number that we can show you is the refining margin that is part of our financial statements. But we can tell you that management thinks it's important to look at numbers adjusted for the FIFO; and that that most closely approximates what earnings we are deriving from existing market conditions.

Okay. On the cash flow swap, if the convertible didn't go through before, say, end of the year, do you have -- just can you give me a sense for sufficient liquidity to pay the swap?

Yes, and in our disclosure you will see that the Company does feel like it has adequate liquidity through both cash on hand, the ability to manage its working capital position, and certain guarantees that have been offered by third parties.

This is Jack Lipinski. If you were to just understand why the convertible -- we cannot predict where crude is going to move. Just as it moved up rapidly, it recently moved down.

We have intended for this convertible to cover any liquidity needs this Company may have, even at extraordinary crude prices. It is better to have the liquidity before you actually need it than to go asking for it when you are up against perhaps $200 crude prices.

Okay, make sense. Just one last question. Your cash on hand was $20.6 million at the end of June 30.

No, that wasn't cash on hand. That was the amount we were into the revolver, right? Oh, no; you're correct.

You just mentioned that as of now cash is about $25 million. So it just increases just from working down the working capital?

No, I think one of the things you have to understand about our business is that the cash account can move around substantially kind of inter-period. When you look at the way our business is set up, we only pay the cash flow swap quarterly. There are certain crudes, gathered crude, that you only pay for on the 20th of every month, so there are periods where you will see significant cash generation kind of prior to making monthly crude payments or quarterly swap payments.

Understood. How much does, on average, your not current crude levels -- how much does your payables tend to be around the 20th of every month?

The payables, it can vary. Last month I think it was approximately $75 million, and that was relative to the crude price at that time. It would be slightly more this month. Clearly as crude is coming off it would be less next month.

Great, okay. Thank you.

Peter Park with Park West Asset Management.

A couple of questions. Could you help bridge cash from the $20 million at June 30 to the $75 million you have now?

And can you do the same thing for debt again, please?

Again, it is kind of the comment I just made. The cash number is a number that in our business you look daily. When crude was at $145, your daily expenditure for crude oil was in excess of $13 million a day. So I don't know that there is an exact bridge that is probably any better than the cash flow statement that will come out when we present the financial statements.

But as you look through the months, to the monthly cycle, we will generate significant cash up through the 20th; then we will pay for the prior periods, the prior month's crude oil; and then we will start to build cash again pay for it. And that cycle will repeat itself monthly.

Quarterly, you will collect from the market the physical crack spread. Then at the end of every quarter, you will pay your counterparty for the realized hedge loss.

So I don't have an exact bridge from a single day to another day, other than to point out one event would be that you are looking at cash today at a better time in the month than looking at a month-end balance.

Okay, but that cash includes the $52 million that you paid to J. Aron?

Yes, we paid that on July -- I think around July 7.

And the amount of debt outstanding went down as well from the end of the second quarter?

It is really just that we are out of the revolver. So it's really more just again part of that monthly cash cycle.

Okay, great. Then the second question has to do with midcontinent demand for diesel. Can you give us a sense? Obviously, the basis is coming our way again.

Can you give us a sense seat of the impact of the floods and what you are seeing in terms of general demand, to put more color around that positive basis now? Thank you.

Okay. Early on, the upper Midwest was impacted by the rains, which even if they weren't flooded it impacted to a certain degree how much work went on in the field.

We are still a generally product-short market both for gasoline and for diesel. We have seen a return to normalcy of late. I mean that is our -- the nominal $4 that we are seeing currently above NYMEX 2-1-1.

We see some stability in diesel demand now. It is not that it is -- nationwide both gasoline and diesel are somewhat under pressure.

But in our group, it seems that since we are product-short and we know currently that there are some refinery problems in the Chicago area, that is drawing product away from our area. Generally Gulf Coast refiners will either move up to us or to Tulsa or move into the Chicago area. Right now, those product flows are going to the Chicago area.

It is hard to say exact numbers. We don't try to track. We pretty much track inventories in the Magellan system, which we are a shipper on; and they are reasonably stable. Not oversupplied, in our view, right now.

So from a farm use standpoint, you are seeing good normal demand?

Right. As you go into the harvest season you will see that again. Generally diesel runs for us primarily in the -- early when plantings are going on and late when harvesting is going on.

Yes, this is Stan. The flood activity, although it impacted a lot of area, it really didn't impact our specific geography. We anticipate a good demand for harvest. The crop acres are there. We expect a good demand for fall application.

So I think Jack hit the nail on the head, is that our distillate demand for our area is pretty much normal and will be robust for the next 90 days as Ag activity picks up for the harvest.

Then last topic, in terms of the UAN and ammonia sales volumes, I thought I heard you say a number for tons for the rest of the year and that you were sold out.

Could you say that number again? I must have heard it wrong.

Stan, go ahead, if you want to use say the number that we have remaining in our book. We just have to be careful that we are not talking our total book; we are talking the '08 book versus the '09 book.

Yes, we are fundamentally -- if you look at our production of roughly 2,000 tons a day, 55,000, 60,000 a month, we are sold for at least like the next five months roughly. We are sold into February of next year.

Okay, thank you very much.

Gentlemen, there are no further questions in queue at this time. I would like to turn it back over to management for closing comments.

We have one question just jumped into queue. Brian Swerdloff from Sigma Capital Group.

One of the questions I wanted to ask you is regarding -- you mentioned some production downtime. How much did that hurt you guys in the second quarter? Would you guys kind of quantify that if that is possible?

Okay, you have round numbers, lost opportunity was somewhere between $5 million and $10 million for the quarter on the refining side. On the fertilizer side, we took our unit down to change out what is called a shift catalyst. That took about three days of production, three, three and a half days of production out. And our third-party supplier of oxygen and nitrogen was impacted by a couple of lightning strike power failures.

So I would guess for the quarter, we lost something on the order of 5% of our production might be a good number on the fertilizer side; and on a dollar metric somewhere between $5 million and $10 million on the refining side is lost opportunity.

Those are all running fine now, so those are not expected to repeat?

No. They are running fine now. Our second-quarter operating rate was just under 105,000 barrels a day. We are running above that rate right now. We are running just shy -- just a little over call it 114,000 of crude. Total inputs are running in the range of 128,000 barrels a day.

For the quarter, we would expect those numbers to be something like 110,000 to 112,000 on crude, and perhaps 120,000 to 125,000 on total inputs.

One of the things that we are doing is this new CCR, which is now shook out and is running as we would have expected it to probably a few months earlier, is not only producing additional hydrogen; it is producing significant amounts of additional octane. We are using that excess octane to buy gasoline blendstocks called natural gasoline, which are highly discounted, low-quality, low octane stocks, and upgrade them to gasoline.

Our numbers right now are running -- we will estimate somewhere between 5,000 and 7,000 barrels a day of that. We are buying that material at $0.40 to $0.50 a gallon below gasoline.

So our expanded refinery, we are nicely surprised. Our delayed coker, the original design basis was approximately 21,000 to 21,500 barrels a day. On a screen day basis, we are running very close to 24,000 barrels a day.

That allows us to do one of the things we were buying is -- for the quarter we were buying vacuum tower bottoms, which helps fill out the coker directly. And for the quarter, we purchased that feedstock approximately $50 a barrel under WTI.

As we look forward, operationally, we think we are right in the zone. We believe that our units are operating fine. As always, you have blips and things that bring you down, sometimes out of our control. Third-party electric if there is lightning on the grid. But we are -- both plants are operating near capacity.

Just going to the expansion plan, the decision to produce more UAN from the increased ammonia, with ammonia prices over $1,000 in the cornbelt, I guess what is the trade-off?

Because I would imagine the margins are extremely good in ammonia even when considering where UAN prices are.

Right, if you were to take a look and say -- let's just use ammonia. If you have $1,000 ammonia, the amount of ammonia that would go into a ton of UAN is approximately $420. If you say that you are getting over $500, and if you believe Blue Johnson or others who forecast [over] prices and maybe that is $525, maybe that is $540, you are approaching $100 premium per ton even after the high ammonia price.

Got you.

That is why we are moving. The other thing is, you know, over the long haul, there may -- it is going to get more expensive to ship anhydrous ammonia by rail. It is just a gaseous product; it is liquefied, but it is a little more difficult to ship. It is going to get more expensive.

The ultimate application, it is easier to apply UAN than it is ammonia. And we don't expect -- we expect a shifting away from ammonia into products like UAN in the future.

An easy way to look at it -- and you're right, margins are not very good on ammonia. But the premium that we are getting on a nitrogen basis is probably anywhere from $0.14 to $0.18 a pound on nitrogen. So even though ammonia is good, UAN is that much better.

Got you. Then I guess on the forward order book for '09, I guess when you look at that order book, how firm is it? Are players able to back away from things?

When you say you have contracted and sold out for '08 and going into '09 are you -- I guess how firm are those orders, is my real question?

They are firm.

They are firm.

They are taking orders -- some of them are even prepay, where a portion of the price is paid to us up front.

Got it. Then I guess finally you guys have always talked about unlocking the value. Obviously I guess, the market seems to think that there potentially is an issue with the Company; I don't know. But I mean obviously you are not getting what you have felt full value for the fertilizer assets as well as the refining assets are, noting it is a challenged time in refining.

What kind of steps can you take to realize the value? Because obviously the LP route was undervaluing the asset. Here we are about 30% to 40% below those prices prior to the announcements. I am just wondering what kind of proactive steps you might be able to take.

I mean, we are looking at numerous public market alternatives. You know, there is nothing we won't look at.

Right now, what complicates everything in looking at just overall CVR Energy shareholders, is refining is under pressure. When that stabilizes and we take a look at where fertilizers are going, you could do the math. You could take our production, just take our second-quarter production and apply what we have given you for orders taken. If they hold, the fertilizer business is going to carry this Company more so than refining will carry this Company.

We just have to make sure as we move forward that we do the right thing so that we have adequate liquidity to be able to handle the capital needs of the refining Company as we go forward.

Again, we are looking at numerous alternatives. We are just -- it is one of the complicating factors actually is that the fertilizer market is moving so rapidly. We believe it has legs under it; we would like to see it stay there before we stick a pin in the paper and say this is where we want to move from and to.

Right, I mean just looking -- there was obviously a transaction, Yara bought an asset, Saskferco, for replacement value cost well above your implied market cap on a higher costed asset.

So I am just wondering, if I look at the way you are being valued, is that something that is comparable on a transaction basis? Even regardless of whether the market is evaluating it correctly or not.

Yes, no, we believe we are -- again, looking at then, I did not spend a lot of time, so I will caution everybody to -- you take my comments and the fact that I didn't spend a lot of time looking over our shoulder at some other transaction. Quite honestly, we believe we are better positioned than that facility was when it was sold.

Got you. Then the last question I have is, on the roadshow for the convert, is there any sort of firm timeline? I know that the financials, I guess, are stale now on the S-1, so you would have to refile those. I guess firming up a roadshow and timing for the convertible, which represents somewhat of an overhang on the stock right now.

Yes. We are hoping to get that done in September. If we can do it -- again, that is our current plan. We realize that there is not a lot of float in our stock.

The convertible, if you were to take a look at the reasoning behind doing the convertible, is we have a very favorable $800 million credit facility right now. We did not want to reopen that.

The fact that we can settle out this convertible with cash rather than stock, we believe it has minimal dilution -- even though the market seems to be factoring that in.

Right, so you view this as sort of a bridge debt, then?

It is the best option we have, rather than refinancing an $800 million term loan credit facility that we have, that is favorable.

Your expectation is that that excess stock will most likely never become stock?

Our view is that given the opportunity and the right conditions and the Company's strength we will pay that off in cash.

Got you. Well, I appreciate it, guys. Thanks so much.

Vijay Prasad with Lions Capital.

Actually you answered my question. But just one additional follow-up. The $75 million of cash that you mentioned, that is after the $52 million payment on the realized settlement on the swap?

Yes, again, that was our cash balance as of -- happened to be our cash balance as of the close of business yesterday. The $52 million was paid back first week of July, second (multiple speakers) July.

Got it, got it. Thank you.

I would like to turn the call back over to management for closing comments.

Latonya, thank you very much. And thank you, everyone, for your attention during this call. There was a lot of information. We will make ourselves available to have any follow-up questions answered over the next several days and move forward.

Jack, I don't have anything else to add. Is there anything you would like to add here at the very end?

No, I would just like to thank everyone for taking the time to listen. We have a rather unique story. We are trading like a refining company; but we are an emerging fertilizer company as well.

We have two sound businesses. We believe when our cash flow swap rolls off, and you see the size of the mark on that, we are well positioned. We have a really well-expanded refinery. Its complexity is significantly up from even where we expected it to be. Its capacity is up. The fertilizer plant has some wind in its sails, and we are looking forward to the next several months.

Okay, thank you very much, and thank you, everyone, for your attention today. With that, we will speak with you soon.

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