CVR Energy Inc (CVI) 2010 Q1 法說會逐字稿

Greetings, and welcome to the CRV Energy First Quarter 2010 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-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, Melissa. Good morning, everyone. We very much appreciate you being here for our call this morning at the beginning a very busy earnings season. With me this morning is Jack Lipinski, our Chief Executive Officer, Ed Morgan, our Chief Financial Officer, and Stan Riemann, our Chief Operating Officer.

Prior to discussion of our 2010 first quarter results, are required to make the following Safe Harbor statement. In accordance with the 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 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 noted in our filings with the Securities and Exchange Commission.

This presentation includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliation, to the most directly comparable financial measures are included in our First Quarter 2010 Earnings Release, which we filed with the SEC yesterday after the close of the market.

With that -- the disclosure said, I'll quickly turn the call over to Jack Lipinski, our Chief Executive Officer. Jack?

Thank you, Stirling. Good morning, all. Thanks, for joining us. I won't spend a lot of time on our numbers. Ed will highlight them, and they are available to you from our news release issued last night. Instead, I want to put into context the environment in which we found ourselves during the first quarter.

Then, I'll talk then more positive -- then I'll talk about the more positive turn that we'd seen in our businesses since then. After my remarks, Ed Morgan will give you details about our financials, and Ed, Stan Riemann, our Chief Operating Officer, and I'll take your calls.

Last night after the market closed, we reported a first quarter loss of $12.4 million, or $0.14 per share. These results reflect the economic headwinds refiners faced during the quarter, and the fact that our Fertilizer business results are based on a forward book of orders that were taken last summer and fall when prices were lower.

Refining margins improved in the month of March and have continued to rise since then. Nitrogen fertilizer sales are strong, and higher prices have been realized on orders taken this year, which will show up on our book next quarter.

As you know, we have two diversified but complementary businesses, and I'll speak to each of them. To understand our first quarter Petroleum segment results, you have to look directly at refining margins. January and February were particularly difficult. In January and February this year, the NYMEX 211 crack spread averaged $7.54 a barrel, which compares to an average of $12.71 during the same period a year ago.

Meanwhile the Group 3 crack, and that's where we operate, was $11.87 per barrel in January and February a year ago, and it averaged just $5.55 a barrel during the same two-month period this year. That's a really significant change. Both the NYMEX and Group 3 crack spreads fell from the beginning of the quarter through February before beginning to improve.

In March, the average NYMEX crack improved to $10.03, and the Group 3 crack improved to $9.22. This improvement, however, could not offset the low margins realized in January and February. For the quarter, NYMEX and Group 3 cracks averaged $8.48 and $6.93 respectively.

Our refinery is a full coking, sour crude refinery, and we rely on sweet-sour and heavy light differentials for a portion of our economics. In the first quarter of this year, the sweet-sour spread, west Texas intermediate, west Texas sour, averaged $1.89 per barrel. The heavy -- the light/heavy spread, which we'd consider WTI and Western Canadian Select, averaged $10.47 a barrel.

In April, the sweet-sour spread increased marginally to $2.08, and the light heavy differential has been trading between $14 and $16 a barrel. The sweet-sour spread has not widened to match the increase in crude prices.

The contango structure in the crude oil markets during the first quarter was also much weaker than the first quarter in 2009. In the first quarter 2009, contango averaged $2.99 a barrel. The carry in December was $1.43 -- that's December of '09. In January, the carry was $0.43 and by March it averaged just $0.34. To the first quarter 2010, it averaged $0.38 a barrel.

Recently the contango has widened, and this morning it is in excess of $3 a barrel. As a result, we're once again using our storage capacity in Cushing and our proprietary storage to carry excess crude inventory.

Our refinery ran well in the fourth quarter, although we did reduce runs during low-margin periods, and during those times we performed opportunistic maintenance. For the first quarter, we averaged 105,140 barrels a day of crude oil processing, and the total throughput was 113,120 barrels a day.

Turning to more recent events, in April we had a refractory issue on our FCC, or fluid catalytic cracking unit. This outage lasted just under ten days. All issues have been corrected, and the cat is operating very well.

We also have our coker down for about six days as a result of the leak, which caused a minor fire; no one was injured, and equipment damage was very limited. We're choosing to do some additional maintenance work, and the restart is imminent. We're basically starting to button equipment up right now.

Despite these issues, we estimate crude runs for the second quarter will approximate 108,000 to 110,000 barrels per day. Again, we continue to optimize our refinery, not for maximum throughput but for maximum economic results.

Besides giving us flexibility, the plant expansion we've talked much about made us more efficient. For example, consumed fuel is a major refining expense. In 2009, we used approximately the same amount of fired fuel as we did in 2005. The difference is that in 2009 we processed 22% more crude and feedstocks. Energy efficiency is one of the reasons we've been able to maintain our low operating cost structure.

Another segment of our Petroleum business is crude gathering. During the first quarter, we gathered and transported to our refinery an average of 28,500 barrels a day. Just five years ago, those numbers were just 7,000 barrels a day. This month, gathering will increase to 31,000. As I said before, these fairly priced gathered barrels improved our refinery's gross margin and we'll continue to expand this business.

Let me move to nitrogen fertilizers, very simply, our plant ran well. We maintained a 96% on-stream time for our gasification units and 94.2% for our ammonia synthesis loop and 90.6% for UAN facility.

In the first quarter, we produced 105,100 tons of ammonia. Of that, 38,200 were available for sale, and the remainder was converted into 163,800 tons of higher-value UAN. Again, UAN is urea ammonium nitrate solution.

As you know, nitrogen fertilizer prices fell dramatically in the last half of 2008 and the first half of 2009, reaching lows in June of last year. Since we carry a fairly substantial book of torrid orders, changes in current prices take time to roll through our financials.

We book sales upon delivery, but the price is set at the time the order is taken, so our current numbers reflect lower-price orders taken last year and delivered in the first quarter. With the steady improvement in nitrogen fertilizer prices, we expect a corresponding, steady improvement in our fertilizer results as we go forward.

The outlook for 2010 corn plantings is estimated at 88.8 million acres, which is an increase of 3% over 2009. Corn prices remain strong at $3.59 a bushel for the first quarter of 2010, versus $3.74 a bushel for the first quarter of 2009.

Before I turn this over to Ed, I want to say how pleased we were with the response to our issuance of $500 million in senior secured bonds in April, which replaced the term loans, which originally financed our business. We're also pleased with the rating agency process and by the reception our story received on the road.

The significant modification to our capital structure provides additional stability and flexibility in running our business in almost any economic climate. We believe this is reflected in Moody's recent upgrade of our corporate credit rating coincident with the issue of the bonds.

Ed will speak more to this in a moment, but we're optimistic that the second quarter margins will continue to improve. We constantly adjust our operations to maximize profitability. In addition, we manage our operating expenses and capital in a conservative manner with a focus on safety, reliability and environmental compliance.

With that, I'll turn it over to Ed to discuss our financials. Ed?

Thanks, Jack. Let me add a financial perspective to the operations overview by discussing some recent developments at CVR since our last call. As Jack mentioned, the refining margins in the first quarter of 2010 were challenging and significantly lower than what we would have expected for this time period.

However, it was in this environment that we found opportunity to significantly enhance our capital structure and provide for financial flexibility going forward through the $500 million bond offering.

Our offering consisted of two secured debt tranches, both first and second-lien with an average interest cost -- initial interest cost of just under 10%. We're really pleased with the completion of this financing arrangement and look forward to sharing our future achievements with our new bondholders as well.

In addition, we maintained our existing $150 million revolving credit facility, which today has $119 million of availability and serves to provide us ample liquidity to manage our operations and capital needs.

With the market contango expansion that has occurred in the second quarter, we once again have both the crude oil storage capacity and financial liquidity to capitalize on the returns of this market opportunity for CVR. In addition to our financing successes in early April, Moody's did upgrade CVR's long-term corporate family rating to a B1 from a B2 with a stable rating outlook.

This does represent that second upgrade the company has received over the past 12 -- ten months with the other coming from Standard & Poor's last summer. We believe this recognition is both deserved and the direct result our efforts to add regular communications with the rating agencies and our debt holders, many of whom are on the call today.

As Jack and I stated on previous calls, we have completed significant capital projects in recent years to upgrade and modernize our petroleum and fertilizer operation since the original acquisition of our assets.

Consequently, our growth capital requirements are very modest over the next two years. This benefit is reflected in our first quarter of 2010 CapEx of $11.4 million total spend of which $9.1 million was for the Petroleum segment. We remain on target for total capital spends of $68.4 million for 2010, with just over $52 million of that slated for the Petroleum segment.

As we've indicated in earlier meetings, we believe a good proxy for annual maintenance capital spending is approximately 1% to 1.25% of the replacement costs of our refining assets. For 2010, we expect to spend approximately $27 million on maintenance capital, although we do recognize this expected spend does have the ability to shift between months.

In closing, we are currently in the process of bringing our new ultra-low sulfur gasoline unit online this quarter, well in advance of our year-end 2010 deadline. In this current operating environment, we will continue to be strategic with our capital dollars, only spending what maintenance capital is necessary to operate a safe and reliable facility.

With this, I'll turn the call back to Jack for his remaining thoughts.

Thank you, Ed. As we look forward, I want to reiterate that we are seeing improving margins. In addition, the crude contango has widened, and we plan to use available cash to carry higher levels of crude inventory and benefit from the carry.

Prices for ammonia and UAN improved substantially from the second half of 2009. Demand has been strong. Inventories are at seasonal lows, and our book of orders is slightly above historical levels.

Before we take questions, I want to acknowledge our management team and employees. We're proud of our facilities. We know it's the experience of our managers and employees that make the difference every day, and we applaud their efforts.

Now, I'll turn the call back to Stirling for questions. Stirling?

Thank you, Jack and Ed. Melissa, we are ready to take questions whenever you have people queued up, and we'll turn it back to you for that.

Thank you.

(Operator Instructions)

Our first question is from Arjun Murti with Goldman Sachs. Please, proceed with your question.

Thank you. Jack, I was wondering if you could provide any commentary or update on what you're seeing out there in terms of acquisition or M&A opportunities? There's been a number of smaller assets been traded, and is that the kind of thing you'd -- you all would still have an interest in? Maybe with some of the debt restructuring you've recently done, does that make it easier to consider these type of opportunities? Thank you.

Thank you, Arjun. As always, we keep our eyes open for whatever is in the market. Right now, there's not a lot that's really interesting that's not simply a cast-off from somebody else, if somebody couldn't run it and make money. We see some of those on the market.

While I like to think we're really good, I'm not sure we're that good that we could take something that somebody else couldn't make money and turn it into something. But, we are always looking. Our capital structure, obviously, puts us in a better place in that regard. We believe over time that other assets will come up that are simply not orphans.

Thank you. You also mentioned a margin environment that improve in here. Could you just comment at all on sort of the light heavy spread outlook specifically and maybe what you're seeing and what you kind of expect over the next several quarters?

Okay. Well, it's improved. During the winter, they were somewhat depressed because some of the Canadian lines were using heavy crudes per line filled, which put demand on it, which usually in December, January, February, you get really good depths -- they didn't show up. Once that was completed, we're now seeing WCS out about $16 below WTI -- fob Hardisty, so you have to still bring it home. That's an improvement, quite honestly.

The month after next I think we're scheduled to run something in the range of 25,000 barrels a day of heavy crude. We've been -- as the prices have spread it's become economic to run the heavy crude. Heavy crude is less expensive, but it also has a lower refining margin, so you have to balance the two. But, we're starting to see where it's more profitable to run the heavy barrel, and that's what we're planning on doing.

That's terrific. Thank you, very much.

Thank you. Our next question is from Paul Sankey with Deutsche Bank. Please, proceed with your question.

Hi, guys.

Hey, good morning.

Paul.

Just to follow up on that last statement you made, the -- is the lower margin related to OpEx on the heavy crude as much?

It's usually related to yield. Most people that will take this into a coking refinery, basically it's liquid volume yield. Every refinery -- or I'll make that generalization, has a volumetric law if you -- and the heavy crudes have more coker feed, and the more you coke the higher your volumetric law. You do get more value products out of the coker, but the coke actually will reduce your liquids for sale. So, the differential has to overcome not only perhaps some operating cost disadvantages but also the liquid yield disadvantage.

And I guess it's likely a couple of bucks to get it from Hardisty to you guys?

It's about $4.

How much does it cost to get stuff from Cushing?

I'm going to do this off the top of my head, $0.30 or $0.35.

Yes. Okay. If I could work backwards a bit, Jack, please, just the fertilizer aspect here, we've been hearing that the planting is well above normal. I just wondered what observations you've got. You also mentioned that you're somewhat locked in to lower prices.

Just talk a little bit more if you could. I think you partially addressed it, about the roll-through. Firstly, why are these guys ahead of schedule in what they're doing farming-wise? How sustainable is going to be into the second half? And thirdly, how much is that going to affect future pricing.

All right. I'll mention it briefly, and then I'll turn it over to Stan. We -- seasonally, fertilizer reaches its peak in season. This is in season when it's going down on the ground. We had a unique from last year where prices actually hit their low in June, and that was because of the prior year, back to 2008, where prices went up like most commodity prices did at very, very high levels.

Unfortunately, a lot of people did not sell out their inventory thinking that the prices would recover and the longer they held the material in inventory the lower the prices went. Finally, the dam broke last year and everything came back to more normalcy. We are seeing prices that are pretty much like 2007 level areas right now for both ammonia and UAN, and 2007 wasn't a particular bad year.

Stan, would you like to talk a little bit more of where we are in season and what you're seeing going forward?

Sure, absolutely. Paul, I would characterize the planting season as probably a little bit more closer to normal. They are a little bit ahead of schedule. But, they got a little bit of a late start but they caught up quick. The reason for that is just a good weather pattern across Nebraska and Illinois and Iowa that's allowed them to catch up on the planting.

Going forward -- the planting expectations that have been articulated recently are in the 87 million, 88 million acres of corn, and if that remains true I expect the fertilizer to finish well. We've got a good book of orders, and the prices are significantly above where third and fourth quarter, so we're feeling pretty good about the Fertilizer business and our expectations in the second and third quarter.

Okay, great. That's helpful. Thanks. Then if we look at your margins, you mentioned how much better Group 3 are doing right now. Could you just talk, Jack, a little bit about the drivers within the specific product groups?

Because my understanding is that for example distillate is still lagging, gasoline is probably better than we thought it ever would, but it's holding up well, distillate seems that train -- trains might be ahead and trucks behind. I don't know -- you tell me.

All right. Well right now in the group, talking to the group specifically, the Group 3 crack is roughly equal to the NYMEX crack today. The actual physical east-coast crack is not -- the Gulf Coast crack is not, and Chicago's roughly in the same area we are.

We are seeing a positive basis on distillate over in New York, and every area is seeing a negative basis on gasoline. So today, within $0.005 a gallon or so we're even to the NYMEX. If you look historically, this is the time of year where we're significantly above.

But, the Gulf and the east coast are significantly below, so I'm not sure if we're starting to see a little disconnect between the NYMEX, which is a traded barrel versus the physical markets. But again, we are -- we're -- we are basically the best group in pad one, two and three.

And the drivers of that demand, because it sounds like I've got it a bit upside down there and actually distillate's are doing a bit better and gasoline a bit worse than what we perceive in New York?

A lot of it has to do with just planting in our area, and we actually have seen increased railroad demand. For the first time in, I guess, almost two years, we've seen a couple of railroads come and put in additional orders for distillate, for diesel.

Okay. Thanks, very much. I'm going to leave it there and let someone else have a go. Thanks.

Thank you. Our next question is from Kathryn O'Connor with Deutsche Bank. Please, proceed with your question.

Hi, good morning.

Hi, Kathryn.

Good morning.

Can you give us a little bit of color about what's happening in the Gulf of Mexico and how its' affecting both of your businesses?

Right now, it is not. Again, we do not source very [global] do source crude out of the Gulf of Mexico. Given the current contango spread, we're -- there's a couple of things that go on in contango.

The contango is representing WTI as being an under-valued crude, and it's in Cushing where the rest of the crude in the world is priced probably closer to something like a Brent for example, LLS, Louisiana light sweet, which is a WTI look-alike, is trading $5 over WTI. Brent is trading over WTI. The Gulf Coast deepwater crudes are trading significantly over WTI.

So in today's environment, we're not even trying to buy them. We're focusing on Canadian's and domestic crudes. Foreign [ARB] is difficult in this kind of structure. We don't see widespread shutdowns of producing platforms. Because of the ARB in the market, we're -- we had recently bought and already delivered on one foreign cargo, but right now where prices are we're not looking at those.

So, we're basically mid-continent, Canadian gathering. But, we don't see a major impact unless this thing gets worse and worse and worse where shipping actually shuts down. But, none of the ships so far -- there's none of the platforms rather seem to have been shut down other than a couple of gas platforms. If fertilizer imports are held out because of the spill, it would certainly help us not hurt us.

And you think that improvement that you're going to see in the fertilizer business, if say the Mississippi sort of shuts down, would that -- do you think that that short term would be a benefit but longer term a negative? Or, do you think it would benefit you solidly for the next short to medium term?

I think if -- if obviously -- obviously if the Mississippi got shut down it would be a positive for us.

Okay.

Because that -- don't forget, we are an importing nation of fertilizer as well. Stan, would you like to --?

No, that's absolutely right. The Midwest is a heavy importer of urea and to some extent UAN and ammonia, and I don't know if it's going to happen. I think not. But, yes, it would be -- it would help us because obviously we're in place with our fertilizer products, and it would slow the imports coming up the river for the latter part of the fertilizer season and more predominantly for the fill season that takes place this summer. So that would -- it would strengthen the market, no question about it.

Yes. I guess that question was more directed towards if -- in the short term, I can that if we're net importing ammonia that we would need local producers like you guys. But I'm wondering, longer term, if you can't get the product out how do you view that?

Yes. The product going out, the first bottleneck would be the grain season in the fall. If it -- if the Mississippi is going to be shut until the fall, we've probably got more problems than just talking about the Mississippi. But the movement fertilizer, if it is -- to your question, if as an example it shut down for 30 to 60 days, they can catch up pretty quick.

I would just expect imports to pick up afterwards and catch up in the third and fourth quarter. So, I don't think it would be much long-term effect. They have the ability and the equipment to catch up pretty quick.

Okay, so a net positive across the board then?

I think so.

Okay.

Kathryn, the thing is is we're about to go into the fill season on fertilizer. For the next several months we will be shipping into third-party storage under contracts that we will -- under orders we will take. That inventory builds for 8 or 9 months before it gets applied, so there's a huge -- and it's getting empty right now because of the planting. So, there's a huge void to fill.

To Stan's point, we don't -- it doesn't get filled on any given day. It gets filled over a long period of time. But if the Mississippi shuts down, it's because of our location. Not that I'd like to see it happen, but it would be a net positive.

Right. So, it doesn't -- it's not a timing issue if you look at it. It's -- it doesn't -- it's regardless of timing. It will still just -- due to the other dynamics you were pointing to it would be still be a -- it would be hard to argue that it would be a negative.

That's correct.

Sure.

Okay. And then just back to some of the information you gave us about the malfunction, did you say that the coker was down for six days and the cracker ten days?

That's correct.

And you said that you expected throughput to be in this quarter -- in the second quarter, taking that into account 108,000 to 110,000 barrels a day?

That is our current -- that is our current estimate, right. And then we also had about $4 million or about $0.05 a share of additional cost that we're -- just for the maintenance.

Is that number then not contemplated in your previous turnaround expenses?

No. These -- this was a -- we had a refractory failure in our FCC. This was actually new refractory at our 2007 turnaround, and we were disappointed that something that should have lasted ten years came apart like that. And then the coker was simply a leak in an elbow. There are offsets as we go forward. Obviously, as we go in and shut these units down we're doing other things that have been limiting us.

We had planned, for example, effectively to have three days of coker outage in July to decoke our furnaces, but we did the decoke right now that obviates three days of outage later in July. But, that's outside this quarter. But, the actual incremental maintenance cost is somewhere in the range of $4 million.

Okay. So, you did what you could within the confines of that malfunction to do some maintenance? But, you're saying in addition to whatever regularly scheduled maintenance you've done and additional $4 million --?

That's correct. There's an absolute cost every time you have to mobilize to take major equipment up and down, just simply starting it up, shutting it down, cleaning it out, bringing contractors on, doing inspections and then doing whatever repair we needed.

Okay. Then just maybe to compare it to a similar situation you had maybe a year ago, I think in that situation you kind of -- you took down throughput to 101,000, 102,000 barrels per day on average. So, you're saying that if we looked at the -- a similar situation in the past that this should be a little bit better in terms of the net decline in throughput per day then say --?

That's correct. We did drop with the cat outage and we actually did take -- again, every time we have an opportunity, and I don't like to use the word opportunity, every time the situation presents itself where we could go in and do some other repair without hurting our overall crude throughput.

For example, even with the coker right now we're slightly above 100,000 barrels day. With the cat we were just slightly below 100,000 for the period. Then when we come back up, we have make-up capacity. We will balance feedstocks, blendstocks in our inventories. But, we can pretty easily run at 120,000.

Okay. Thank you. That helps.

Thank you. Our next question is from Jeff Dietert with Simmons and Company. Please, proceed with your question.

Good morning.

Good morning, Jeff.

Jeff.

Jack, the contango in the forward curve is a significant benefit for you going into the second quarter. Could you talk about the major factors driving that contango and how long you think it might stay wide?

Yes. There are actually a number of reasons. It kind of surprised us how rapidly it came upon us and how steep it is. But, one is a strong dollar, which tends to depress the lower crude price. Canadian production has come on strong after what was a very long, cold winter up there. Even Spearhead went on allocation. There was a lot of Canadian oil coming down. Keystone is going to start delivering.

Going forward into June, Keystone is going to start delivering into Wood River and Patoka, which is going to put more barrels into the Mid-Con. We're seeing Bakken and D-J Basin crudes coming into Cushing. Basically, there's a lot of crude moving to Cushing, and there's limited storage in Cushing. So, what's happening is in a way it's a cycle. People have to lower the price to be able to get into the storage, and the more that you store there the lower the price goes.

So -- and it takes about 30 days. Just so everybody understands, when contango hits it doesn't hit you on the day it shows up. It -- you get the benefit when you do your rolls. Basically, you're a long product so you should be -- you sell the paper against it. When you roll that paper is when you actually benefit from the contango.

So if it shows up at any point in a month, you may have already done some rolls prudently. You don't wait for 1 day. You're doing somewhat rateably. So as we roll this through 30 days from now, we're going to see marked improvements in our crude differentials as we land WTI at pretty attractive numbers.

And some of those activities are going to be ongoing. Bakken's going to continue to rise? Keystone deliveries are going to be an ongoing factor?

That's correct, and there was a period here not too long ago where the ARB opened up and, like I mentioned earlier, we brought a South American cargo up into Cushing. Well, we weren't the only one because when the ARB opened -- right now, the ARB's shut. Anything that's going to be a Brent-related or a waterborne-related barrel is expensive against WTI. WTI has become the cheapest crude in the world today.

Very good. I also wanted to ask, Stan, on pricing could you talk about your UAN and ammonia books, where you're expecting 2Q pricing to be, and kind of what current pricing is on volume that you're putting into your backlog?

Sure, Jeff. I'd be happy to. Our expectations I think, based on current order activity and our book, it would be north of $200 and maybe north of $210 for the second quarter, depending on how the quarter ends. So, we're expecting a good pricing scenario in the second quarter into the third quarter.

As far as the book is concerned, we have got just a little bit heavier book than we would historically have. I don't -- I personally don't read a lot into that because in a matter of ten or 15 days you can catch up on the shipping. But, our book now is a little bit over a month's production and normally it's under a month's production at this time.

But, again, we expect the price to be relatively strong through the second quarter and hopefully into the third quarter.

Just to kind of give you a relative -- our book back in last June and July was in the $130 range; today, it's over $200.

And where is current pricing?

We're taking orders north of $220 in the Nebraska/Iowa area and probably a little north of $230 in the Kansas/Oklahoma market.

And that's for prompt ship?

That's for prompt ship.

Okay.

For truckloads prompt ship or cars prompt ship.

Historically, Jeff, you will see a softening of that market coming into fill because people are paying up for prompt delivery.

Got you. Very good, thanks for your comments.

Thank you.

(Operator Instructions)

Our next question is from [Evan Vanderveer] with Aegis Financial. Please, proceed with your question.

Hi. This is actually David Shapiro. Good morning, gentlemen.

Good morning, David.

Hi. Just on the refining side of the business briefly, I know you touched on it earlier but for us lay people here, I see the gasoline basis has dropped off considerably in the first quarter and it's really been pretty solidly negative for most of the past year. I know you were mentioning something about going to parity here with the NYMEX. Are you talking about parity on that gasoline basis number that you disclosed?

No. Parity on the 211, I'm sorry if I wasn't clear. We do -- and we think in 211 gasoline is negative.

Okay.

It's negative in every area, including physical in New York. So, what's happened is the screen, just pretty much like crude is priced off of -- off of the NYMEX. It's not priced off of the fundamental. So, what we see is we see the screen -- well, we do everything off the screen. Everything is traded plus or minus the screen.

But, if you look across pads one, two, and three, gasoline is soundly negative. Chicago is a little bit less negative than we are, but they're less -- they're not as strong on distillate. So, what I'm saying is that we're probably negative -- round numbers, we tend to look at them. I'm going to do this from the top of my head, gasoline is $0.07 under the screen in the group and distillate is $0.07 over the screen in the group.

Okay. So if we're looking at the NYMEX 211 crack, it would be versus the pad 2 211 crack, is that --?

Pad 2, true, and don't forget we're the group and the pad is basically Chicago and the group.

Okay.

Yes. We trade differently, but that's a pretty close proxy. I would say that Chicago is probably -- and I'm going to do this again, forgive me if I'm wrong, $0.04 off on gasoline and $0.04 positive on distillate, or something close to that.

Okay. When's the last time you guys were sort of even? That looks like it's been --.

Just the last several weeks, the last few weeks we've been even. It's unusual. If you look at a long-term average, 10-year average, take out the high spots --.

Right.

By now we should be soundly positive, which tells me that when you look at the NYMEX as the basis, maybe there's something fundamentally different about the way products are trading on the NYMEX than they have in the past.

Okay. Thanks, for that clarification. And then on the fertilizer side, you also touched on this. What's basically -- what average discount sell out -- sell out to that index that you disclose? You disclosed, I guess, the mid corn belt. What's the average discount usually?

Yes. That numbers I was talking about were -- would be netbacks to the plant. When I said that the Nebraska/Iowa market was $220. That would be a netback realized number of the delivered price would be $275 to $290. But that -- the product -- the number I gave you is with the freight off of it.

It costs us roughly in round numbers, a truck -- if it's delivered in truck there's no discount because it's customer truck at our rack. If it's rail, our average rail cost I guess across all the barrels is somewhere around $30 a ton.

Yes, $30. I'd call it $35, but yes, you're in the zip code. So --.

Okay. And then the Midwest's cornbelt price, I guess, is a delivered price?

Yes. Well, delivered or terminal if you had terminals in the corn belt, but your terminal price across Nebraska and Iowa is probably in the $275 to $280 range, which would also obviously be the delivered price if you were shipping into that --.

Okay.

Into that geography.

Okay.

And again, when Stan's talking terminal prices, terminal operators also basically are -- extract the fee for the terminal and the storage and everything else, so as -- it depends -- it moves. It depends where you ship. Our biggest markets are in Nebraska, Kansas and northern Texas. But, we move material to 26 or 28 states, Canada and Mexico. So, the basis on which you look at it you have to understand that not all the product goes there.

Okay.

[It's up] quite a bit.

Then ammonia, where's the tracking right now no a realized basis?

Over $300.

Yes. Netbacks to the plant are in $300, north of that, a little over.

Okay. Then finally, what's your -- I mean the SG&A, of course, is awfully confusing. It has a lot of moving parts in it. Just on a cash basis, on a smoothed-out annualized basis, where do you think the cash SG&A is running at for the entire firm at this point?

Ed?

Sure, Jack. Just -- let me talk to the quarter first. It was $21.3 million. That did have, David, 7.3 million of deferred comp in it --.

Right.

And plus $1.1 million related to some financing costs that we expensed related to that fourth amendment that we did, which we allowed us to do the bond offering. So, if you -- you've got to -- you net those down, you're at approximately a run rate of $12 million to $13 million for the quarter. That's the cash.

And you feel that's a fair number to use going forward?

Yes.

Thanks, gentlemen.

Thank you.

Thank you. Mr. Pack, there are no further questions at this time. I'd like to turn the floor back over to you for closing comments.

Thank you, Melissa, and we really appreciate everyone being on this call this morning. It's been a good productive call with a lot of information exchanged, and we appreciate the call volume this morning, which was very high. We look forward to completing this quarter and visiting with you next time around, and certainly we're here and available for any additional comments -- or questions you may have for the next -- 'til the next call.

So, thank you again. Speak with soon. Bye-bye.

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