CVR Energy Inc (CVI) 2010 Q3 法說會逐字稿

Greetings and welcome to the CVR Energy Third Quarter 2010 Conference Call. At this time all participants are in a listen-only mode. A 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, Claudia. Good morning, everyone. We very much appreciate you being here for our call this morning. With me today as call participants are Jack Lipinski, our Chief Executive Officer, Ed Morgan, our Chief Financial Officer and Stan Riemann, our Chief Operating Officer.

Prior to the discussion of our 2010 third 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 noted in our filings with the Securities and Exchange Commission.

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

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

Thank you, Stirling, and good morning, all. Thanks for joining us. As you can see from the results we released, we had a very good third quarter, reflecting consistent, reliable operation of both our businesses.

We reported a net income of $23.2 million or $0.27 per for the third quarter on $1.31 billion of sales. Taking into account a handful of special items, our adjusted net earnings are $0.28 per share. The results and the details behind these numbers are available in the earnings release issued last night on PR Newswire and on our website at cvrenergy.com.

In my results today, I will add some context to the numbers and give you our view of what we see coming in the fourth quarter. Ed will then add more detail regarding our financials. After Ed has concluded, I will close with some additional remarks and Ed, Stan Riemann, our chief operating officer, and I will take questions.

As you know, we have two major businesses, Petroleum and Nitrogen Fertilizers. I'll start with the petroleum segment. Operations for the third quarter were excellent. We processed an average of 118,350 barrels a day of crude, which is a quarterly record for us. Total throughputs including crude and all other feedstocks and blendstocks averaged 128,789 barrels a day, also a quarterly record.

Operating costs decreased from $3.59 per barrel of product sold in Q3 2009 to $3.01 per barrel of product sold for the third quarter this year. Operating costs decreased partly due to higher throughputs, but more importantly, due to increased efficiencies and lower maintenance costs.

Refining margins improved from the first half of the year, average $9.84 per barrel. Not only did we see improvement in NYMEX 211, but we say geographical improvement PADD II Group 3 where we operate. That basis, which has been traditionally positive in our area, has been uncharacteristically low for the last three quarters, so we're glad to see that it's turned around.

We continue to see strong diesel demand in our area as a result of increased transportation uses as well as agricultural needs. Year-over-year, inventory levels and the pipeline systems that we serve have shown a reduction in total volume and in days of supply. Since we're seeing increased diesel demand, we increased our diesel production.

We also ran a record amount of heavy Canadian crude this quarter, as differentials for heavy crude widen. We processed 18,600 barrels a day this past quarter, as compared to 9,000 barrels a day a year ago. At the end of the second quarter, heavy Canadian was selling at a discount of about $14 below WTI.

By July, that discount improved to the $17 range. By the latter part of the quarter, with pipeline problems on Enbridge Line 6A and 6B, heavy Canadian became even more heavily discounted and reached levels approaching $30 a barrel below WTI. We were able to acquire some of these cheaper barrels, which will be processed in the fourth quarter.

Another important part of our Petroleum business is our Crude Gathering division. We continue at a record pace. We've gathered in excess for 31,500 barrels per day during the quarter. As I mentioned before, these fairly priced gathered barrels remain an important component in our refinery economics.

Now let me move over to fertilizers, where we had very good operations. Gasification was on-stream over 99% of the time, our ammonia synthesis loop, again, 99% on-stream time, and UAN was about 97% on-stream time. We produced 173,800 tons of UAN and 41,000 net tons of ammonia available for sale.

We've seen prices move dramatically. For the third quarter, UAN sold for $168 a ton, up from $133 a ton during the same quarter a year earlier. Ammonia improved as well, selling for $317 a ton compared to $247 per ton in the same period last year.

Recent reductions in world grain stocks, largely driven by lower production in Russia, have increased world grain prices. This in turn has a direct impact on fertilizer prices, this in turn, has a direct impact on fertilizer prices. The current market today is approximately $575 per ton for ammonia and $320 per ton for UAN.

On the last day of the quarter, September 30th, we had an incident at our UAN plant where a high-pressure vessel ruptured; no one was injured and damage was localized with no significant offside impacts. Fortunately, we were preparing for our biannual turnaround at the fertilizer plant, which thereby minimized downtime. Last week, we completed the turnaround as planned and resumed production with the exception of our UAN plant, which we will restart later this month.

Giving a little more clarity to the incident, we expect repairs to cost between $7 million and $10 million. We have insurance coverage for both property damage and business interruption, should we need it, that will limit the impact of this incident. For the next few weeks, we will be producing only ammonia and will honor all our contracts for UAN, so that means that some of the orders we've taken this year will roll into the first and second quarters of next year.

We generated significant free cash flow during the quarter. We closed the third quarter with $162.4 million in cash and cash equivalents, with an additional $15 million of our cash invested in the crude contango inventory. At the end of the second quarter, we had $63.3 million in cash and approximately $34 million invested in contango inventory.

In the fourth quarter, we do have obligations for taxes and have made a $24 million payment for interest on our bonds on October 1. Even after making this interest payment, we currently have a $152 million in cash, approximately $20 million of our cash dedicated to contango inventory.

Once again, WTI contango at Cushing was a roller coaster. The second quarter opened with a contango of $0.54 a barrel and ended at $0.98 per barrel in between, the high was $1.95 and the low was $0.28, for the quarter it averaged $0.78. As of yesterday, contango sit at $0.74.

When contango reached its low in July, we began to harvest cash and then as it increased once again we began reestablishing our contango position. Our capital program of the five years is clearly behind us, allowing us to use cash to improve our balance sheet.

At this point, let me turn the program over to Ed for more details about our financials. Ed?

Thank you, Jack, and let me take a moment to thank everyone for joining our call today. We do appreciate your support of CVR Energy. At CVR, we have operated very diligently through unprecedented market and industry challenges. From my perspective of 18 months with the Company, the third quarter of this year was really a transitional quarter for CVR whereby our prior efforts were rewarded with the strongest quarter and liquidity position ever achieved as a company.

As Jack mentioned, we did end the quarter with $162 million of cash versus $63 million at the start of the quarter, an increase of nearly $100 million. In addition to the strong cash flow from our quarterly earnings, the quarterly increase in cash was driven by the following improvements in our balance sheet.

First, our accounts receivable yielded just over $14 million quarter to quarter. Also, due to the -- market contango, our contango crude inventory was lower by $18 million. And the timing of our interest payments on our refinanced long-term debt added $12 million to our cash balance. Additionally, we have not been required to make any estimated federal income tax payments as of September 30th and are forecasting a minimal payment during the fourth quarter.

Our total debt at the end of the quarter was $506 million, leaving us with a net debt position of $343 million and a net debt to capital ratio of 29% versus 39% at the beginning of the year. This is an improvement of 10 percentage points. Maintaining ample liquidity while having access to significant excess cash flow will allow us to deleverage our company and will add flexibility to our long-term corporate strategies.

In regards to our improved liquidity, we were still long at the end of the quarter by $15.5 million of contango crude inventory or the equivalent of 213,000 barrels which represents a net reduction of $18 million since the beginning of the quarter.

We will continue to use our working capital on an as-needed basis to carry excess inventory and utilize our storage capacity when the market contango pays us to carry inventory. Our capital spending approximated $6.2 million in the third quarter and totals $23 million year-to-date.

During the last earnings call, we did reduce our year-to-date capital plan to $54 million. Given this point in the year, we are further reducing our cash basis 2010 capital spending to $44.3 million, and any other 2010 projects not finished by year-end will be carried into 2011. In 2011 our capital budget is expected to approximate $70 million, of which $53 million will be spent at the refinery on primarily sustaining maintenance projects.

Capital expense budgets are generally higher during turnaround years since we can do projects during turnaround that cannot be done while the equipment is running. Because it is our accounting policy to expense our turnarounds as they are incurred, we also have budgeted to spend $45 million of expense to the fourth quarter of 2011 to conduct the first phase of refinery turnarounds scheduled to begin in October of 2011.

Unlike what was done historically, our unit redundancy will allow us to break the turnaround into two phases. The second phase will occur in the first quarter of 2012 and is budgeted at approximately $15 million. We plan to provide more color around our approved 2011 capital spending plan during the year-end call.

We had a few adjustments that occurred in the third quarter which reconciled to our adjusted net income. First, a portion of our share-based compensation plan for management is in direct correlation to the movement in our share price. During the third quarter our share price increased 15%, resulting in additional stock-based compensation of $3.5 million after tax.

Secondarily, we do account for our inventory on a first-in, first-out or FIFO basis and the change in commodity prices and inventory volumes during the third quarter resulted in a favorable FIFO impact of $2.1 million after tax.

And finally the Company had a write-off of fertilizer equipment related to the incident occurring at the fertilizer plant on September 30, which totaled $200,000 after tax. Using our statutory tax rate, which is 39.7%, our adjusted net income reflective of these one-time costs is $24.6 million or $0.28 per diluted share.

In regards to our insurance coverage in its relation to the event at the fertilizer plant, we believe we are adequately insured with $1 billion of property damage coverage and a deductible of $2.5 million or $0.28 per diluted share.

Regards to our insurance coverage and its relation to the advent of the fertilizer plant, we believe we are adequately insured by $1 billion of property damage coverage and a deductible of $2.5 million. $400,000 of this deductible has been met in Q3 with the write-off of equipment related to the fertilizer plant incident.

We also carry business interruption coverage which has a 45-day waiting period. At this time, we are not certain what our eligible recoveries will be under this BI policy, but if they are material, we'll report this benefit to the market.

Now, in turning to our operating segments, in the Petroleum segment, our realized refining margin, excluding the impact of FIFO, was $9.52 per barrel, which was $2.70 better than the third quarter of 2009. The FIFO benefit in the current quarter was $3.5 million or the equivalent of $0.32 per barrel of crude throughput.

Our ability to realize an amount in excess of the NYMEX 211 for the third quarter was driven by an improving crude differential, which is $2.93 per barrel, and a positive location basis, which is $3.80 per barrel. This is the first quarter in 2010 where we realized a positive basis in both gasoline and distillates.

In the fertilizer segment, as Jack mentioned, our gasification utilization rates in the third quarter of 2010 were 100% had we not realized the fertilizer incident that occurred on September 30th. With our fertilizer turnaround starting on October 1st, you can expect that our gasification on-stream rates will be reduced by approximately 30% in the fourth quarter. In addition, our fertilizer segment realized an operating income of $10.6 million in the third quarter, which is an improvement of $14.5 million versus what we lost in the same quarter of the prior year.

Our realized sales prices on ammonia and UAN were $70 and $35 per ton higher than the prior year, but were $5 and $37 per ton lower than what we realized in the second quarter of this year.

The primary reason for this decrease in product pricing from the second to third quarters this year is the market transition from planning season to sales season. Historically speaking, we typically realize product pricing in the third and fourth quarters of the year at a discount to what is realized on product delivered in the first half of the year.

At this point I'll turn the call back to Jack, for any remaining comments.

Thank you, Ed. As we look to the fourth quarter, let me first talk about the Petroleum segment. Margins in October have remained reasonably favorable for this time of year, but we do see some seasonal weakening in margins which is pretty typical. What's different this year is that inventories in the group are lower than they were last year and our crude discounts for the fourth quarter will be positively affected by the heavy Canadian barrels we purchased during the Enbridge pipeline problems.

We estimate crude runs to the fourth quarter will average about 114,000 barrels a day. We are currently operating at 120,000 barrels a day and have done so for most of the month of October, but we normally do reduce runs as demand softens later in the year.

Let me talk a little bit about nitrogen fertilizers. As Ed noted, operating rates for the fourth quarter will be reduced because of the planned turnaround and the incident at the UAN plant, but as I mentioned earlier, pricing for ammonia is very strong at approximately $575 per ton and winter fill UAN prices were increasing to the $320 per ton level. Overall, we're better positioned going into the fourth quarter this year than last year.

One final point before we turn this call over for your questions, I want to draw your attention to a Form 8-K we filed this morning. The 8-K addresses some of our plants with respect to our Fertilizer business. In accordance with SEC rules, the Company cannot comment at this point on matters discussed in the 8-K, but we will do so when appropriate.

Again, we thank you for joining us today, and we're now ready for any questions. Stirling, over to you.

Thank you, Jack. Claudia, we're prepared now to take any questions that the participants might have.

Thank you.

(Operator Instructions)

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

Thanks, Jack. I'm probably a little afraid you may not be able to answer the questions based on your final comment there, but would it be your intention that CVR, the current company, will retain a stake in the MLP, and can you talk at all about timing, as well?

Arjun, I'd love to speak to it, but we're essentially in a quiet period right now on anything regarding the MLP.

Anything at all -- okay, no problem at all. So in terms of the Refining business, can you just talk about just how you're seeing the acquisition market and facilities out there? Anything of interest or is the focus really just on running Coffeyville right now?

Well, obviously, we always look. Up to now, we haven't seen any assets that were exceptional. Early in a downturn cycle people tend to get rid of the plants that just they don't want. We don't believe that we're that much smarter than they are and can take their unprofitable plant and make it profitable just by us buying it.

We would expect over time to see other facilities come up and if it's a good fit for Coffeyville we'll obviously look at it, but it has to -- anything we would do would obviously have to be accretive and good for our shareholders, but right now I don't know see anything on the market that's all that exciting.

That's great. And I think Ed mentioned you're going to give more meaningful update on 2011 CapEx on the next call. Any early thoughts, or you want to hold off till the next one?

I mean, we -- I'd rather hold off till the next one, but we -- Ed has kind of pretty much laid out to some degree what our turnaround costs to be and what we expect to spend on CapEx, but clearly our capital program is behind this. With the exception of capital intended to be spent during the turnaround, we're in a maintenance capital mode.

I mean, we've said it before, somewhere between $45 million and $50 million there's a normal run rate for sustaining capital for our facilities. And given the marketplace where we're located, we're pretty happy with the situation we'll find ourselves in generating free cash.

That's great. Thank you, very much.

Thank you.

Our next question is coming from the line of Jeff Dietert with Simmons & Company. Please, state your question.

Good morning.

Jeff.

Jack, could you give us an update on the ruptured vessel and your efforts to either repair or replace that vessel, and what the timing looks like for getting the UAN unit fully back up?

Okay, where we stand today is the replacement vessel is on its foundations. We don't have a final start date yet, but we would expect it to be certainly in the month of November, hopefully in mid-November if we could -- if we can actually get everything put together in time.

But frankly, we're up and running in making ammonia and we would expect that the cost of the repair to run somewhere between $7 million and $10 million. With an insurance deductible of $2.5 million that kind of tells you roughly what our out of pocket is going to be, $2.5 million.

And as far as run rate or potential losses as a result of this, it's an opportunity lost just on the premiums between UAN and ammonia, but between the fourth quarter and the first half of next year, we would expect that to be fairly minimal at somewhere between $3 million and $5 million, but that is based on current numbers, and an assumption that our UAN plant will be back up next month.

Good. And you mentioned in your opening remarks that you're going to keep your contracts whole. Is it possible that you'll be forced to buy UAN in the marketplace to fulfill contractual obligations, or do you have the flexibility to push those obligations out from 4Q into 1Q or whatever you might need to do?

We will not have to cover in the marketplace. We've already spoken to all our customers and we're positioned to -- honor all our contracts going into next year. Certainly, it's just a timing issue. Priced tons earlier were less, were cheaper than they are in the current marketplace, so nobody's really complaining.

Yes. And could you talk about what you're expecting on fertilizer -- on ammonia and UAN pricing for 4Q? It was my impression that a lot of the volumes were sold before the big price run up. Is that accurate and what can we expect in 4Q?

UAN was [pre-sold]. As a result of the UAN incident, we found ourselves with a fair bit of additional ammonia to sell which we are now achieving current or near current market, and current market is $575 a ton. So what the offset really is here is that we've given up some UAN premium, but are selling ammonia at fairly prompt numbers (inaudible). It's moved up to $575, but it's certainly been in the mid $500s for the last few weeks.

Good. On a different topic, you've been working on reducing property taxes and I believe there was a decision coming shortly. Could you remind me what the timing is on that?

Hang on one second. Okay, we will have the trial in the early part of the year in January, February, on first year. I wasn't sure on that. Wanted to make sure I had the right date, but that's coming up, and that's in the year 2008.

Okay, very good. Finally, could you comment on what the cash distributions to the general partner have been over the trailing 12-month period?

Zero.

Okay.

The general partner owned only IDRs.

Got you. Got you. Okay. All right, thank you for your comments.

Okay. Sorry for the hesitation, but because of the 8-K, I'm trying to be very careful not to overstep my bounds.

Certainly.

Our next question is coming from the line of Kathryn O'Connor with Deutsche Bank. Please state your question.

Hi, good morning.

Good morning, Kathryn.

I'm just wondering if you can help us frame out -- you have a lot of cash in balance sheet now, over $160 million, and I guess you're -- still in a pretty good cash position as we move through the quarter. So can you just talk about cash, and then your balance between deleveraging, which you still talked about on the call, but also acquisition?

Right now our focus is balance sheet. Okay? We have no planned acquisition at this moment. Certainly the cash allows us, gives us flexibility to look at acquisitions, but as Ed and I stated, we wanted to get our debt-to-cap ratio down below 30%. This is the first time we've got there and we're all sleeping at night, so right now, we have a lot on our plate. There are several things that are going on, as you can tell. Our focus is going to be to maintain and improve our cash position and then see what the market brings us.

Okay. And then just taking something that's just sort of out there in the bond indenture, if you were to succeed in doing what you're trying to do, you obviously would be -- you would have no choice but to delever through taking out some of the bonds. Is that right?

That's -- Kathryn, that's kind of close to the line on what I can say regarding our 8-K. Certainly, I would prefer to not answer that and simply refer to you to the documents are in place.

Okay, and then just one other thing. Where you are now in terms of thinking about an MLP, is it where you had been in the past? I mean, has any of your thought process changed? You tried to do this once before and looks like you're obviously trying to do it again, so have your thoughts around an MLP changed at all or is it just the opportunity? It's the right time in the market to look at it --?

Again, I cannot comment. Sorry.

Okay. And then maybe just -- maybe one operational question.

Sure.

When you think about Q3 moving into Q4, I know you said that margins were strong moving into October, but that there were some seasonal weakening. How should we take your comment that you were still able to buy some of that cheaper Canadian crude and it's going to run through in the fourth quarter? How should we think about that affecting your margins from Q3 to Q4? Directionally, will they be picking that into account, the crude that you were able to purchase? Will they be directionally better based on that?

It will be directionally better. Don't forget, we have a contract for 10,000 barrels a day of space on Spearhead. And we buy our heavy Canadian basically through Spearhead or in Cushing delivered through a third party.

There are several parcels, 60,000 barrel, actually, shipments that we purchased at pretty good discounts that we will be processing in the fourth quarter. So directionally year-over-year our crude discount is going to be improved as compared to last year. But again, remember that we run 15,000, 18,000, 20,000 barrels a day of heavy Canadian and a portion of that is the barrels we're talking about. It's not all of that. But directionally it's -- we're in a much better place this year than we were last year.

And what about sequentially?

Sorry.

Sequentially? I mean, you did a year-over-year comparison. If we're thinking about a sequential effect from -- because it didn't --

Oh. Yes, quarter-over-quarter, it'd be better.

Quarter-over-quarter would also be better. Because it didn't seem like you have that much of an effect from the Enbridge situation in this quarter, so --

No, no, that's because -- and just for everyone on the call, if you actually nominate -- and here we sit and it's November, we're actually nominating December injectors at this point. And then it has to inject and come down, which is 30 to 40 days to come down, so anytime you actually place an order, you're roughly 60 days or more before you actually physically have the crude.

So anything that was purchased two months before, and it depends on what time of the month, you're looking at least 60 days out. So some of the crude that we purchased is what we bought two and three months ago that's finally showing up.

All right. So despite seasonal factors, sequentially, directionally positive moving from Q3 to Q4?

That is correct.

Okay, great. Thank you.

(Operator Instructions)

Our next question is coming from Steven Carpell with Credit Suisse. Please state your question.

Good morning, gentlemen.

Hey, good morning.

Just to follow on Kathryn's question, just to make sure I followed that correctly, Q3 to Q4, if you just make sure you're framing that right, and you're saying the refining is better from Q3 to Q4, and that takes into account your comments about October, as well as I think there's some negative basis today? I just wanted to come and clarify that.

And then the second part to that is in terms of those what we'll call stranded barrels that came out of Canada, I think, correct if I'm wrong Jack, I think you have 12,000 a day on Spearhead. So -- I guess I'm trying to understand how many barrels you could have taken or can take in the quarter? And I think that was only for a few weeks where those huge differentials were in place.

Okay, let me break your first question down. Crude differentials are improved quarter-over-quarter and year-over-year as going into the fourth quarter. However, cracks are declining from the third quarter to the fourth quarter as seasonally happens every year. I mean, if you take a look today, the NYMEX 211 is in the $8.50, $8.60 range, and it was $10, $11 or higher in the same period last quarter.

You can see some of our averages where they fall out. So what I'm saying is that we see basis softening already. Basis was positive for the average for the month of October, but now it turns negative, as it seasonally does.

I like to joke that the low point of the group happens on February the 9th if that's a work day, so we'll see if it holds out this year as well as it did last year. But, we will see a seasonal decline across the whole sector. Doesn't matter whether it's the mid-continent or the East Coast or the Gulf Coast. Margins soften this time of year.

Winter comes. People don't drive. Farmers aren't into the field. Then spring comes and the sun will shine and then the product prices will go back up. So we're going into the seasonal low period, but even so, what I was saying is that our crude differential is improved quarter-over-quarter and year-over-year because of the Canadian problem.

You are right that we actually ship 12,000 on Spearhead. We have a contract for 10,000 barrels a day, but we -- because we have shipped more we have shippers' rights for a little bit over 12,000 a day. But not all 12,000 a day of that was committed to these distressed barrels. A fair portion was, but everybody went on allocation as well, because everybody was doing the same thing we were.

So, we are seeing an improvement and it's a marked improvement year-over-year, particularly going into this quarter. But be careful. Margins are softening, as they always have. Basis is not quite as bad as it was last year, because in the Magellan, where we have something on the order of 1.2 million to 1.3 million barrels -- fewer barrels of distillate and gasoline in our backyard than we did last year.

And I don't know if I missed any third part to that question.

Well, let me kind of follow up. One part of that is you talked about there was like a 60-day lag or something like that in terms of when you receive these barrels. Is it fair to say you could only buy two to three week's worth of what we'll call the ultra-distressed $30-plus levels, given that was the timeframe or can you in that two, three week period take 60, 75, 90 day deliveries so you can actually take more than two or three weeks worth?

Okay, don't forget it, it's a bid-asked situation.

Right.

The producers obviously wanted to sell as little as they could during that period, but had to keep moving their current production. And you've got to remember, too, that we were at about a $17 level in mid-July and as the pipeline problems continued, it didn't go from $17 to $30 overnight. It went from $17 to $18, $19, $20, $22, $25 and then your $30.

So we were buying in all the way in and as it started to decline, we continued to buy. So all I'm saying is that there are number of barrels and I actually don't have at my fingertips the total volume that we took significant -- sorry, but I probably should have anticipated the question.

But suffice it to say that it was significant, what we were able to buy. Some of it was allocated. The pipeline allocations limited how much we could actually bring home. Everybody was trying to do the same thing.

Of course. And I think in your opening comments you said Stan was around, so if not, or maybe I'll direct it to you, Jack, is given that the outage and the downtime, I guess, the turnaround or maintenance you were going to be doing on the Nitrogen business. What were inventories at kind of quarter end on UAN, to try to understand how much of this upside you were able to take advantage of on pricing just by selling back from inventory?

I'm still here, so I'll go ahead and take that question. Current inventories were basically on the floor, were by about 2,000 tons of ammonia and about 3,000 tons of UAN in the tanks, but we're currently, as Jack said, in production. We got product -- good product going into the ammonia tanks, which was the plan, to have the product -- have the plant up and running prior to the ammonia run which we had done.

But, we were on low inventories going into the turnaround. We had a little bit of excess ammonia which we wanted to sell, which we did at higher prices, which to some degree offsets the downtime of the UAN plant, but right now we're in a build and inventory mode and we'll be shipping aggressively through the winter.

So the short story is you're going to take advantage of a bit of -- at least a bit of the UAN?

Oh, absolutely. Absolutely. We still have more product to sell in the second quarter. We are not -- we are not sold out through spring season. So we still have -- once we get other run and start shipping we will be back into the market taking orders at the spring type numbers.

And one other operation question is, natural gas prices are currently low. Can you break out, and specifically probably on the refining side, Jack, the impact of some of the low gas prices have been? I know you don't use that much natural gas, but there's some. And then, Stan, I don't know how you would -- you even look at it, may not at all but --

Well, let me answer that. We, after our capital program and the way we configured the refinery, we used very little natural gas, very little. I mean typically we will average somewhere in the range of 5 million to 7 million cubic foot year around. A typical refinery of our size would use multiples of that, so if you do the math, a drop in natural gas price is not that significant in our overall operating cost. We just don't buy that much.

On the fertilizer side, you're right. We really don't -- well, we monitor it, but it's a not a factor because gas-fertilizer prices disconnected several years ago and have not reconnected. So the fertilizer prices is driven by the balances for grain, not for the price of natural gas. But having said that, I think you've heard us talk in the past that our breakeven to import in terms of trying to get into our market is in the low threes and that remains today to be true.

All right, and then just one final one. I know you don't want to say too much on the filing this morning, but just to clarify for the bond guys, would this qualify as a fertilizer business event?

Steve, I'd loved to answer your question but it deals with our 8-K this morning, so I really can't.

Thank you, guys.

Thanks very much.

We do have a follow-up question coming from the line of Kathryn O'Connor with Deutsche Bank.

Hi, just a question about the 8-K this morning. It says that you guys intend to file an S-1. Do you know when we can expect that?

Kathryn, I can't answer that question. You have to read the 8-K.

Okay. So, but, I mean it requires what, a Q filing -- likely. Right?

When the appropriate time is we will make necessarily -- necessary filings with the SEC and certainly you'll be the first to know.

Okay. Thanks.

Gentlemen, we have no further questions at this time. I'll turn the floor back over to management for closing comments.

Well, again, thank you all for joining us. I appreciate you being here. We have a lot of work going on at the Company. We're pretty satisfied with where this quarter has taken us and where the Company is going. So with that, again, thank you all for joining us. Stirling?

Thank you, Jack. And we'll be around, certainly during the course of the day to handle any follow-up questions from shareholders recognizing the necessary quiet period with respect to the 8K that Jack has spoken about. So again, thank you very much. We had excellent participation this morning, and we'll speak with you soon. Thank you.

Thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and we thank you for your participation