CVR Energy Inc (CVI) 2008 Q4 法說會逐字稿

Welcome to the CVR Energy year-end 2008 conference call. At this time all participants are in 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, Stirling Pack Vice President of Investor Relations for CVR Energy. Thank you, Mr. Pack you may begin.

Thank you Shea and good morning everyone. We appreciate very much your being on this conference call this morning to discuss our results. Prior to that discussion of our 2008 annual and fourth 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 belief and assumption 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 includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures required by regulation G can be located on our web site at www.CVR Energy. com or on our earnings release which we filed earlier this morning. First you will hear from Mr. Jack Lipinski our Chief Executive Officer, Jack.

Stirling thank you and thank you all for joining us this morning for our fourth quarter and year-end 2008 earnings conference call. I'll start by briefly giving my perspective on the current operating environments and our refining and nitrogen fertilizer businesses. Then I'll summarize some of our key strategies that we focus on to take advantage of the current market conditions. Following my remarks Tim Rens our CFO will review our financial results and provide additional context for today's earnings release.

Stan Riemann our Chief Operating Officer will then report on our operation. Let me begin with our petroleum businesses. Refining industry as a whole continues to experience price and margin volatility with regional economics varying widely. Our refining economics in January and February this quarter have benefited from relatively lower price WTI crude coupled with strong cash refining margins in our area. Our group three product basis differentials have been seasonally negative, but in aggregate the contango crude market has more than offset this condition.

We expect the contango market to adjust to more normal conditions over time. All of this said we benefited from these recent markets. As a reminder we lease 2.7 million barrels of crude storage in Cushing, Oklahoma. This represents approximately 6% of the total crude oil storage located there. Cushing is a major trading and pricing hub for WTI crude. As a result of our storage capability we have been able to take advantage of the market and lock in the differentials through derivatives.

2008 marked an important year for CVR in which several legacy issues are now seeing receiving in our rear view mirror. These include a long-term cash flow swap that was required under the lender agreement at the time of the initial acquisition. Significant capital expenditures that were needed to improve our original asset base and finally the 2007 flood event that required us to defer certain payments owed to under the cash flow swap. At the end of June, 2009, our cash flow swap ramps down from $6.2 million barrels a quarter to $1.5 million barrels a quarter or at that point about 15% of our production. One year later on June 30th, 2010, our swap obligations are fully satisfied.

As this swap rolls off the noise on our earnings statement realized and unrealized gains and losses will lessen and a clear picture of earnings will emerge. With respect to the 2007 flood, we incurred a significant liability related to the temporary shut down of our facilities. They agreed to defer certain payments owed them under the cash flow swap thus allowing us to use that cash to recover from the flood. One year ago this liability total $123.7 million. We have now completely paid off the deferral balance prior to its July, 2009 due date. We satisfied this deferral with a combination of cash flow from operations, insurance proceeds and add taxes returned to us under property tax settlement with local taxing authority. Also in December, 2008, the company amended its credit agreement to eliminate some of the potential issues of covenant compliance associated with the sharp drop in crude oil and product prices and the company's resulting FIFO loss. In December we also executed a new two year enter mediation agreement, crude enter mediation agreement with Vital that provides enhanced operating flexibility for purchasing and managing physical barrels of crude oil. This agreement provides for subsequent renewals with the consent of both parties. Gathered crude provides a base supply of feedstock for our refinery. Year over year we have grown our crude gathering business by 27% to yearly 26,000 barrels a day.

These base barrels serve as attractive alternative to other crudes we normally process. We look at every opportunity to improve our access to this favorable crude supply and to optimize our gathering operations. In today's operating environment our strategy centers on safely and efficiently operating our refinery, crude gathering and businesses. We will remain flexible in our approach to operating levels given market volatility. Let me now address fertilizers. Our nitrogen fertilizer business experienced unprecedented pricing cycle in 2008. Prices for mid-corn belt and southern plains nitrogen based fertilizers grew steadily during the year reaching a peak in late summer.

Before eventually declining sharply through the end of the year. Ammonia and uria nitrate solution or UAN prices have come off their December lows ahead of the spring season. Prices are down from the comparable period in 2008, but are in line with those of early 2007. Projections from the USDA are that corn acreage for the 2009, 2010 crop year will be approximately 86 million acres. Which is similar to the 2008, 2009 crop year. Despite the recession farmers will plant to satisfy demand for food and bio fuels.

With respect to our operating strategy we continue to focus on the same metrics as we do in refining, namely operating safely and efficiently. The benefiting from the very successful turn around last fall our maximum hydrogen output from complex has increased approximately 5% and we're pleased with our operating rate since the turn around. Now let me summarize my overview of CVR by stating that the last few years have presented us with many challenges in both our businesses. Decisions made, actions taken and plans for the future that we're executing have positioned us to operate profitably even in low margin environments. At present we have no cash drawn on our revolving credit facility, we have $30.2 million of cash on hand, and as a result of market contango we are carrying higher levels of crude inventory will eventually be monetized.

We do fully recognize the uncertainties of the commodity markets and the operating risk inherent in our businesses. Last November we embarked on a plan to strengthen balance sheet. We believe the capital expenditures made over the past few years now gives us the opportunity to be more selective with capital for the next few years. Consequently we have deferred the completion of UAN expansion project as well as other smaller discretionary projects. As a result of additional maintenance work performed during the 2007 flood recovery and subsequent maintenance outages we have now moved our 2010 refinery turn around into 2011. We are focused on minimizing our cost, aggressively managing our capital expenditures, override creed is to do it safely and environmentally responsible manner. Tim Rens will next report on our financial results, Tim if you will.

Thank you Jack. I'm going to recap our annual results, then discuss in more details fourth quarter financials and balance sheet. As stated in our press release re reported net consolidated net income of $163.9 million or $1.90 per fully diluted share for the full year 2008 versus a loss of $67.9 million or $0.78 per fully diluted share for the full year 2007. Net income adjusted for the unrealized impact of the cash flow swap share base compensation and a goodwill impairment charge for the full year 2008 was $21.6 million or $0.25 per adjusted fully diluted share compared to adjusted net income for the full year 2007 of $31.2 million or adjusted proforma income of $0.36 per fully diluted share. Our adjusted net income results for 2008 and the comparable period in 2007 were impacted by our inventory accounting method. For the year 2008 our FIFO loss was $02.5 million compared to a gain in 2007 of $69.9 million. We have also not adjusted net income for realized losses on the cash flow swap of $110.4 million and $157.2 million in 2008 and 2007 respectively. Our exposure to the swap drop significantly at the end of 2009 and fell away completely at the end of June 2009 and fell away completely at the end of June 2010. Our fourth quarter annual controlling segment results for 2008 were impacted by a $42.8 million goodwill impairment which has already been adjusted out in determination of adjusted net income. In addition we experienced $10 million in expense associated with amending our credit agreement.

For the quarter ended December 31st, 2008, we reported net income of $11.1 million or $0.13 per fully diluted share compared to net loss of $24.5 million or $0.28 cents per fully diluted share for the comparable period in 2007. Net income adjusted for the unrealized impact of the cash flow swap share base compensation and the goodwill impairment charge for the fourth quarter was an adjusted net loss o f$60.8 million which is not adjusted for the unfavorable FIFO impact of $117.1 million. The adjusted diluted loss per share was $0.70 before the FIFO adjustment. The fourth quarter 2007 adjusted income was $7.7 million for adjusted proforma income of $0.9 per fully diluted share excluding a favorable FIFO impact of $33.1 million. Realized losses on the cash flow swap which have not been adjusted for in adjusted net income were $2.6 million in the fourth quarter 2008 and $14.7 million for the comparable period in 2007.

Petroleum segment operating income for the fourth quarter of 2008 adjusted for the FIFO loss of $117.1 million and the goodwill impairment of $42.8 million was $6.1 million compared to operating loss of $10.5 million for the fourth quarter of 2007. We're finding margin before the FIFO impact for the fourth quarter of $62.5 million was $6.96 per barrel of crude oil compared to $84.8 million or $8.35 per barrel of crude oil through put for the fourth quarter of 2007. The variance to 2007 as result of combination of lower consumed crude prices differentials to WTI, lower spreads and lower through put volumes. Refining direct operating expenses exclusive of depreciation and amortization were $31.3 million fourth quarter 2008 compared to $38.8 million in 2007. A $9.95 million variance resulted in the settlement of the 2007, 2008 property tax and was also reversal of share base compensation of $3.9 million.

These benefits were somewhat offset by $4.2 million expense associated with unscheduled maintenance on the FCC unit and the crude unit. Operating income for the fertilizer segment was $21.2 million or 31% of net sales for the fourth quarter of 2008 compared to about $11.7 million or 23% of sales for the fourth quarter of 2007. For the entire year 2008 operating income was 44% of sales compared to 28% in 2007. Higher prices and lower SG&A accounted for substantially all of the increase versus 2007 somewhat offsetting the benefits were lower sales volumes and higher operating expense. Direct operating expenses were $26.7 million for the quarter compared to $18.5 million in 2007. With the increase primarily the result of property taxes and the 2008 schedule turn around.

Consolidated SG&A expense excluding depreciation and amortization and adjusted for the benefit from share base compensation was $20.3 million for the fourth quarter of 2008 compared to $22.7 million in the fourth quarter of 2007 as adjusted. The decrease was substantially the result of a $10.5 million decrease in management fees due to our IPO in the fourth quarter of 2007 offset by $2.9 million increase in consulting work associated with our SOX readiness effort legal expenses and our debt offering. And the $4.1 million loss in the retirement of assets. Currently we expect consolidated SG&A expense exclusive of depreciation and amortization and share base compensation to run approximately $15 million per quarter excluding any unique events. I will now turn to brief comments regarding cash flow and current liquidity.

As Jack mentioned operating performance coupled with strong refining margins the impact of shipping higher price fertilizer orders, the collection of insurance proceeds and the recovery from property tax and income tax returns have enabled us to pay off the while increasing unrestricted cash on hand. As of this morning we had $30.2 million of cash on hand despite higher than customary inventory volumes as a result of our decision to take advantage of the crude oil market. Outstanding term debt is $483.1 million and we do not have any funds drawn on our revolving credit facility resulting in availability of $116 million after recognition of $34 million of outstanding letters of credit. As a result of paying off the postponing the completion of the UAN project and delaying where possible capital expenditures we do not have any significant nonoperational cash obligations in the near term.

Income tax expense for the quarter ended December 31st, 2008 was $12.6 million. When taken in combination with the previous three quarters this yields an annual income tax expense of $63.9 million and an annual effective tax rate for 2008 at 28.05%. The company anticipates the annual effective tax rate for 2009 to be between 27% and 30% including the recognition of approximately $7.3 million in tax credits for additional diesel production and $4.5 million in Kansas credits. Stan Riemann our COO will next review fourth quarter operations.

Thank you Tim. In an effort to provide additional context for our reported financial results I would now like to review key operating metrics for the fertilizer business as well as petroleum business. In our fertilizer business it is important in understanding reported results and forecasting future expected earnings that we do sell forward our UAN solution or UAN production. This is reflected in our fertilizer order book. Realized prices in any given quarter reflect both stock prize and historical contracts.

For example, the first quarter of 2009 reflects the stronger prices experienced last year combined with current prices on orders. Our current order book for UAN is approximately 90,000 tons at average price of just over $380 per ton. Since year end Ammonia prices have rebonded off their lows but are still currently weighted to industrial as opposed to agricultural demand. We are however seeing an expected further price strengthening as agricultural applications begin. As you know agricultural ammonia commends a price premium over industrial Ammonia sales prices. We have completed a schedule turn around of fertilizer plant in October 2008 production is now in excess of 85 million standard cubic feet a day which is substantial improvement over pre turn around rates.

Times have also allowed us to increase production since the turn around and our key operating statistics fixed cost fertilizer operation. Recent months for the gas have been nearly 100%. Hydrogen from the gas fires in further process to form ammonia and later UAN. Again onstream factors for these units reflect primary measure of utilization in these operations. Reviewing these metrics for comparison purposes onstream factors adjusted for the turn around for the full year 2008 were gas 91.7%, ammonia 90.2% and UAN 87.4%. Comparable numbers for the 2007 period adjusted for flood where gas 94.6%, ammonia 92.4% and UAN 83.9%.

On screen factors adjusted for the turn around for the fourth quarter of 2008 were gas 93.8%, ammonia 92.1% and UAN 90.4%. Comparable numbers for 2007 period adjusted flood were gas 97.7%, ammonia 96.7% and UAN 79.4%. Nitrogen fertilizer production comparisons provide another metric for annualizing our operational effectiveness. Full the year 2008 gross ammonia production was 359, 100 tons. Net ammonia for sale was 112, 500 tons. UAN production was 599,200 tons.

For the 2007 full year ammonia production was 326, 700 tons with 91, 800 tons available for sale total UAN production was 576, 900 tons. Ammonia plant date realized product price for the full year 2008 was $557 a ton versus $376 a ton for 2007. UAN realized prices for 2008 were $303 a ton compared with $211 a ton in 2007. Ammonia plant realized prices foreign the fourth quarter 2008 were $536 a ton versus $408 a ton in 2007. Realized UAN prices for 2008 fourth quarter were $324 a ton versus $236 a ton in 2007.

At present we expect to see prices lower last year's historical highs but above long-term averages. On the refining side key operating statistics for refinery through put volumes and production. Full year 2008 crude oil through put volumes averaged 105, 800 barrels per day versus 76, 300 barrels a day in 2007. Total through put including feed and blend stocks average 117, 700 barrels a day in 2008 compared with 82, 100 barrels a day in 2007. Again, please recall that 2007 was impacted by turn around and a flood.

For the fourth quarter of 2008, crude through put averaged 97, 700 barrels a day versus 110, 300 barrels a day in 2007. Total through put including feed and blend stocks in the fourth quarter averaged 110, 700 barrels a day in 2008 versus 122,400 barrels a day in 2007. These lower through put numbers reflect downtime associated with maintenance in the fourth quarter on cracker and accrued unit. Refinery production primarily gasoline totaled 118, 500 barrels a day for the 2008 period versus 82, 400 barrels a day in 2007. The fourth quarter production for 2008 was 111, 200 barrels a day compared with 124, 500 barrels a day in 2007's fourth quarter. We expect first quarter 2009 refining crude through put to average approximately 103,000 barrels a day. Total through put including feed and blend stock should total approximately 117,000 barrels a day. I will now ask Jack for any concluding remarks.

Thank you both Stan and Tim. As a team we are focused on operational excellence. This goes not only to how we run our hardware, but how we buy and manage our crude and feedstocks. How we market our products and how we react to market opportunities. We are clearly a stronger company today than we have been in the past. We believe if we do our jobs better every day the results will show up on our bottom line. We thank you all for joining us today and I'll now turn the call back to Stirling who will start the Q&A.

Thank you very much gentlemen. We're prepared at this point to take questions, so we will turn it back over to you and take them as they come.

Thank you. We will now be conducting a question and answer session. (Operator Instructions) One moment please while we poll for questions. Our first question comes from Jeff Diddord from Simons and Company.

Good morning, Jeff Diddord Simons and Company.

Morning Jeff.

I was wondering if you could provide some information on the third quarter you had almost $340 million of swap payable on the balance sheet. Could you give us an update as to what that looks like at the end of the fourth quarter.

Tim, I'll let you.

Jeff, at the end of the quarter the mark is a liability of approximately $38 million and that includes approximately $2.6 million from the fourth quarter.

Okay. And so that liability has gone down substantially. And was that marked at 1231?

Yes.

Okay. And if you were to mark it today --

Well, obviously there's a lot of volatility. I did not mark this it this morning, but clearly it's improved from that particular mark.

Yes. So that liability is potentially gone to be an asset.

That's right. When you look at the days forward strip obviously again it moves every day and clearly there's been a lot of volatility in the market. But based on the forward strip today that's right it would be in the money.

And Jack, you've talked previously about having some flexibility on those swaps. What's your current view, do you plan to hold on to those cash flow swaps or would you consider monetizing were they to become an asset at some point.

Under our credit agreement we have certain limitations about how much of this we can take or not take just with our recent amendment. The volatility in the marketplace is I'm not sure I'm smarter than the market if I'm looking at a chart here we put together over the last four months as the back strip rolls off it has been in rising the front month. If you looked at January and February three months ago it was never at the levels that we actually experienced in January and February. For two reasons, one I'm not smart enough to know whether or not I should take it off, secondly credit agreement.

Jack is right. We cannot change the position under the terms of our credit agreement.

Okay. And question for Stan on the fertilizer book, could you talk about what prices you're seeing for UAN and what prices you're locking in and what periods you're locking them in for.

Well, at this time Jeff we're really not locking in any forward price. We're taking orders because we're getting into spring business. Most of the product is either being pulled that was previously contracted or going directly on the ground. But to answer your question on ammonia prices agricultural demand the last week has been going out in the $350 range, $350 a ton range and UAN is going out in $220 to $230 range, those numbers have been creeping up as we get closer to the spring season.

Very good, thanks for your comments guys.

Thank you. Our next question is coming from Vance Shaw from Credit Suisse, please pose your question.

Good morning, Credit Suisse on the buy side. Well, thanks for answering one question I see, the cash was so low because you guys have basically totally paid off the Jay Allen liability which is great.

Thank you. No, again our focus is balance sheet related. Anything we can do to clean up our balance sheet, strengthen it or, just even look forward to building a little cushion you never know where the market's going to go, we would rather be sitting on something than looking for something.

Sure. I think Tim might have given the number, but he sort of broke up a little bit. Can you tell us what the term loan balance was as of the end of December and also what the draw on the revolver was as of the end of December.

As of the end of December there was no net draw on the revolver.

Okay. But you saw LC against it probably roughly

About $34 million of LC left with about $116 million of total capacity. And our outstanding debt on the term loan at the end of the year was $483 million.

Okay, thanks. In terms of the swap, it looks like for Q4 I guess the 211 crack was 782 so you guys got paid in Q4 under the swap.

No, we didn't because it doesn't mark on the last day. It would be the average value that the 211 was over the entire fourth quarter. So we actually paid about $2.6 million

Oh, okay, I understand. I thought you had given the averages in the press release, I understand. Okay, thanks on that. I know you changed your EBITDA calculation to sort off knock out the FIFO effects, do you guys have a number for what you think EBITDA was under the new covenants for Q4 and also for the full year.

We actually do publish the credit agreement EBITDA for the full year under the new, I don't have that in front of me right now. I will get that for you and respond here in just a little bit. If we want to move on I'll come back to that question.

Okay, sure. Any capitalized interest in the quarter?

No, no material capitalized interest with the conclusion of all the large projects.

Okay. Cool. And I guess the final just couple questions, on the swap going forward there's no requirement in the credit agreement that you need to be a certain percentage hedged.

No, the agreement really comes from our, that we cannot amend material agreements and the swap is a material agreement. So right now the conclusion under the credit agreement given our current leverage ratio that we're not free to move substantially our hedge volume. We can respond to market conditions or plant related conditions such that if we felt like the production was going to be down for some reason we could make position to not have the swap on against position physical production. But we cannot just remove the swap right now as a market call.

No, I understand Tim. But when this rolls off middle of 2010 you guys don't have to have any hedges in place.

No, yes, absolutely no. Beyond the current amounts that are on our swap agreement there's no additional obligation.

Got you. Just another sort of an obvious question, but I guess Goldman and Kell so are looking to sell quite a bit of stock in CVR. There's no proceeds coming from.

I'm sorry, could you --

I missed that question.

I'm sorry, are there any proceeds coming to the company from the Kellso and Goldman sale, in other words is the company selling some equity as well or is it just Kellso and Goldman.

Right now I mean the shelf was basically filed. There are no immediate plans to sell any shares and the way the F 3 constructed it would give us the right to sell primary offering or raise debt or on the converse it would allow our shareholders to sell shares and those proceeds would not come into CVR Energy.

Okay. So it could go either way, but you seem to be saying there's nothing.

There's nothing immanent. The opportunity past the one year market which we could issue the shelf registration.

Okay.

It's a fairly broad document that gives a lot of different opportunity, but there's nothing imminent.

I understand, it's just a renewal then.

Yes

Thank you very much guys, I appreciate it.

Basically giving the company as much flexibility as it may need in the future.

Got you, thank you.

Thank you. Our next question is coming from Sella Ingalis from Simaford Management.

Good morning. It's actually [Paul Carpenter] asking the question. Just a couple questions if I could. Do you have a capital spending number in mind for 2009 and if you could, could you break it out as to how much might be expense and run through the income statement and how much would not be, would just be normal Cap Ex showing up on the cash flow statement.

The Cap Ex number we are managing to in 2009 is approximately $92 million.

And that's all going to hit the cash flow statement, that's not including what might be run through the income statement as maintenance.

Our maintenance is I mean we budget for maintenance, but there would be nothing extraordinary quarter to quarter in maintenance.

If you're trying to look at the way we disclose it, there's no turn around right now scheduled for 2009 which is kind of in some of our liquidity tables as capital and rolls through the income statement. There's no material turn around scheduled for 2009.

Okay. And to that end, would you mind giving a little more clarity in terms of hard numbers and what you might expect going forward on a quarterly basis for SG&A and refinery op ex and fertilizer op ex, because some of the numbers at least for the fourth quarter you have reversals of share comp, you have some of these tax issues which are somewhat want off in nature. Any more clarity that you could give for sort of normalized number for those three. I understand that the op ex will, there's some issues that are out of plan and control, but such a large number of unusual items in the more recent data let alone having to deal with the flood from 2007 that it's hard to get a consistent handle on what it might look like going forward.

Well Tim in his discussion our SG&A has a run rate of approximately $15 million a quarter. The refinery operating cost is normally about $4 a barrel. And the fertilizer operations including feedstock is somewhere in the range of approximately $85 million a year. If you want I mean that is the range. If you look at the refinery operating expense over time, you've seen that numbering up, but our refinery went from a low 90s, 90,000 barrel a day plant with a low ten complexity to 115,000 barrels a day with a 12.1 complexity. And when you actually do the calculation on dollars operating cost per complexity barrel even in an environment of rising cost we have held our cost constant or actually slightly dropped them. And the fertilizer operation is always within a few million dollars a year of that mid-80 million dollars a year. High 70s, low 80s. I hope that's helpful.

It does help. Maybe I didn't request the question in the best way possible. I understand on the feedstock side cost may vary and the refinery op ex you have to pay to run the plant and the price you might have to pay to run the plant could change based on the price of fuel. So I guess what I was looking for was a little more clarity just on what is labor, what is maintenance, what are the more solvable inputs knowing some of those inputs will fluctuate and beyond your control.

I would suggest sincerely don't have this just handy at our fingertips right now, but we do have that information. It probably be worthwhile to touch base with investor relations and talk that through or with Tim.

Okay, thank you.

I'm sorry, we weren't prepared for that detail right here.

Have your questions been answered?

Yes, thank you.

Thank you. (Operator Instructions) Our next question is coming from John Evans from Wells Capital Management.

Can you just talk a little bit about maybe your thought process on nitrogen and Ammonia. You sound like you're bull'ish for the spring season. Can you give us some insights maybe what you're seeing in the market places. Is the market tight and maybe a little bit from the standpoint of demand and how much you think you can be able to capitalize and produce.

Well, I'll start with demand. We think demand's going to be very good. We're looking at roughly 86 million acres of corn. Keep in mind we ship right to the heart of the corn belt. Where the corn acres go up or go down doesn't affect our market. Not that we're not affected by the variable acre, but the demand will be pretty consistent. We are bull'ish on the fertilizer prices I'd have to tell you. They're not going to be the historical blow out type numbers that we saw in the summer and fall of last year, but the numbers we're seeing are 07 and higher type numbers. And quite frankly in our area on nitrogen, on nitrogen we just have not seen producers cut back on the wheat or on the corn They seem to be going after it with as you would expect them to to get bushels off the acre. So yes you're reading this right, we're feeling good about business on the nitrogen side.

There's a couple analysts that believe there's not going to be enough nitrogen etc. And those products out there because imports aren't going to land here in time. I'm curious to get your thoughts, can you just give us any kind of sense of what kind of inventory you see at the distribution channel and do you think that is a probability.

I wouldn't say it's a probability, it's a possibility. I think inventories on liquid nitrogen are pretty much in place for the spring season and obviously they will have to be replenished, which will be the challenge. I think ammonia is pretty much in place, I think UREA may be somewhat lacking which is what you're picking up on imports. There could be very well be some logistical problem in getting product to the market. There's enough to get started, but 86 million acres of corn the last part of the planning season and fertilizer season could get interesting.

Okay. Then just a follow up, two more follow-ups to that. Since they skipped the fall application do they have to put down more than normal in the spring and then the other question relative to that is do you expect the fall application this year to be pretty robust since they skipped the fall in 2008.

Well, in some areas they did have a good fall application. We had a pretty good movement into the Illinois market. I think Nebraska, Iowa market application was down somewhat. In terms of application rate, no. The application rate for the spring would be the same as if they had put it down in the fall. So I don't look at the application rate changing fall versus spring. The without look for fall this year is really dependent on the weather. If the weather allows they will certainly do fall application where appropriate. But you're always limited by the timing of getting the harvest out and the reliability of weather to allow you to do so. So ask me that question next October and I'll try and be a little smarter but it is a little hard to predict it.

Okay and just the last question basically are you running full out right now?

We are and have been. Ever since the turn around we have had very good on screen.

When did the turn around end.

October.

Fantastic, thank you for your time.

Thank you.

Thank you. Our next question is coming from [Wayne Brown] who is a Private Investor.

Morning gentlemen.

Morning.

I wanted to find out from you now that you have a couple months of the first quarter already under your belt whether you can give some color as to the crack spreads that you have been enjoying as compared to possibly the fourth quarter as well as looking forward as far as percentages above normal that you have been carrying inventory now taking advantage of the contango situation.

Okay. Well, as far as crack January and February were reasonably exceptional and some of that was tied directly to what people term the super contango in the market. Probably go a little afield but it bears some explanation. WTI effectively became the lowest price crude on the planet to be crude as a marker. The rest of the worlds crude such as Gulf coast sweets and sours were trading significantly over WTI. What that meant is that crack spreads tended to follow the contango when the contango rose the crack spreads rose because if someone say was running Louisiana light sweet crude at $7 a barrel over WTI the crack had to expand literally to make it, reasonable to run. So what happened is in January and February the cracks very robust. We have seen a dramatic fall off don't want to use the word dramatic because historical perspective they're still good, but they have dropped back into the $7 range as contango has left the front to back this morning was about $1.25. We had seen numbers front to back, so four, five, six, seven dollars. Even at a $1.25 historically this is a pretty steep contango and it still pays us to carry some volume. Now the thing we measure on cracks and not a lot of our peers and not all analysts do is we look at cracks as a percentage of crude. We basically take nymex 211 and relate it to WTI. For decades annual average the crack spread would range somewhere between 17% and 20% of crude, 95% or 96% of the time. So if you were to say you had a $44 crude this morning you would say you should have about an $8 crack, a little over an $8 crack. However seasonally this is the off season, this isn't the high season. So if you look back these cracks that we're seeing today in historical perspective we would have been thrilled with. Now, we do see seasonal adjustments due to our location, the group tends to have lower relative prices to the NYMEX in the wintertime and higher during the summer on an annual average, that's a positive number both Gulf and east coast. But this time of year it's offset by that. To answer your question about contango, we do store and bring on our crude through our crude intermediation agreement. We also have crude in our gathering system and in refinery tank. Rough numbers we're carrying something immediately liquidable of about 4 to 500 thousand barrels of crude.

What is your capacity if you were to have a hundred percent storage.

We have approximately 3.6 million barrels total storage of crude. 2.7 million of that is in Cushing, Oklahoma, but we do use a portion of that not for storage, but for through put. We bring it all the various crudes we run including Canadian crude, Gulf coast sours, you name it we can take crude just about from anywhere in the world. So a portion of that is used for blending and through put.

And also so you have been taking advantage of the Cushing pricing primarily for light sweet then right.

That is correct. We have actually focused because of the contango spread and the ability to effectively lock it up in derivatives, if you were to look at the gravity and the sulfur of the crude slate we're running in the first quarter it is lighter and it is sweeter than we have run before.

I was curious as far as 2009 first quarter guidance you didn't have anything in writing in the press release.

We generally, we will give operating statistics, we generally don't give guidance on earnings per share.

Okay, I appreciate your help, thank you very much.

Thank you.

Thank you. At this time we have no further questions. I'd like to turn the call back over to Mr. Pack for any closing comments.

I would like to circle back to one question I left open. And our credit agreement EBITDA for the year was 281.1. That included the FIFO adjustment of 102.5. We do no longer calculate the credit EBITDA on a quarterly basis because of the mechanics of calculating the FIFO adjustment. We now only calculate it on an LTN basis. So LT ending December 31st or the annual 2008 number was 281.1 million.

Thank you very much Tim. Thank you everyone for being on this call. Jack anything you want to say or should we go ahead and close the call.

No, thank you all for joining us. Look forward to talking to you when we report our first quarter earnings.

Okay, thank you very much. Thank you Shea and we appreciate everyone being on the call, I'll speak with you soon.

Thank you. This does conclude today's teleconference. You may disconnect your lines, thank you for your participation.