CVR Energy Inc (CVI) 2011 Q4 法說會逐字稿

Greetings, and welcome to the CVR Energy fourth quarter and year end 2011 conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ed Morgan, Executive Vice President, Investor Relations. Thank you, Mr. Morgan, you may begin.

Thank you, Latonya, and hello, everyone. We very much appreciate you joining us for our CVR Energy conference call today. With me today are Jack Lipinski, our Chief Executive Officer; Frank Pici, our Chief Financial Officer; and Stan Riemann, the Chief Operating Officer.

Although we will not reference slides during our call this afternoon, there are slides filed with the SEC this morning, which summarize our quarterly and year end results. These slides, along with other financial disclosure and other reconciliations for non-GAAP financial measures, should assist in analyzing our results, and can also be found on our website at CVREnergy.com under the Investor Relations tab. Prior to discussing our 2011 fourth quarter and year end 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 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 fourth quarter and year end earnings release that 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, Ed. Good afternoon, everyone. Before we start today, let me introduce Frank Pici, our Chief Financial Officer, who joined us just after the first of the year. Frank brings a wealth of experience to CVR Energy. He has 30 years of service in the Energy industry, and a deep understanding of master limited partnerships like CVR Partners.

Also, Ed Morgan has become Executive Vice President of Investor Relations, providing a greater focus on investor and shareholder matters. This afternoon, Frank and I will provide color around our quarterly and annual numbers. After Frank delivers his report, I'll update you on our progress of the Wynnewood acquisition and the partial turnaround just beginning at Coffeyville.

As you saw in our filings and news release, we had a good fourth quarter and a very good year, posting our best ever annual financial results. We reported a consolidated adjusted EBITDA of $692 million for the year, which is nearly what was paid for the entire Company back in 2005, and that was despite a 37-day turnaround in the fourth quarter.

Even with the turnaround, we had $80 million of consolidated adjusted EBITDA. Frank will walk you through the specifics of both, but I'd like to touch on a few of the many factors that led to these record results. Our location in the Mid-continent leaves us well-positioned to take advantage of the dramatically increasing production of onshore North American crude.

Our focus on growing our Crude Gathering and Storage Logistics business continues to provide us with crudes at discounted costs, and our intense focus on continual operational improvement and future growth lets us enhance our assets on a daily basis. One thing I want to address that affected some estimates of our Fourth Quarter performance were the declining crack spreads across the quarter.

During the quarter, Group III 2-1-1 cracks dropped from just over $34 a barrel in October to just over $14 in December. That means the period of highest margins occurred just as we were beginning the first phase of our turnaround at Coffeyville, which lasted 37 days. Given the duration and timing of the turnaround, this impacted our net margins.

As those of you who follow us closely know, we view the investments made during our turnaround as critical to capturing future growth. We processed 93,700 barrels a day in the fourth quarter, including volumes at Wynnewood for the last 16 days of the year. Total throughput, including all feed stocks for both facilities, was over 97,000 barrels a day.

You may recall, before we acquired Wynnewood, I said we would run in excess of 80,000 barrels a day at Coffeyville alone. Even with the extension of the turnaround, we were able to meet that expectation, and processed 81,000 barrels a day in the quarter.

In the fourth quarter we realized an average refining margin of $15.13 per throughput barrel before FIFO impacts, and that compares to a refining margin of $12.30 for the same period a year ago. The Magellan Pipeline system, which dominates our market area, operated at historically high inventories during the latter part of the year.

High margins within the group late in the third quarter and early fourth quarter resulted in historically high product shipments into the Magellan system, as the yard from the Gulf Coast was wide open. Magellan began limiting shipments into their system in late December, due to these very high inventory levels.

I'll mention CVR Partners briefly. CEO Byron Kelly talked with analysts just last week, so I'll only make a few brief remarks. We continue to see good opportunities in the ag market, despite prices being a bit lower than last year's record prices. Still, industry experts predict that 2012 will have the third best price deck in history for the nitrogen fertilizers. Byron issued guidance for the calendar year 2012 at between $1.50 and $1.75 per common unit. That includes the impact of a planned turnaround at the fertilizer facility in the upcoming fourth quarter.

Normalized, that guidance would be $1.75 to $2 per common unit. In the first nine months as a publicly traded Company, CVR Partners distributed a very healthy $1.57 per common unit. Now, let me turn the call over to Frank, and he will talk about the financials for both CVR Energy and our fertilizer business, which reported earnings last week. Frank?

Thanks, Jack. Good afternoon, everyone.

I'll try to walk you through a few of the specifics from the quarter. I think Jack mentioned a few minutes ago the improvements in EBITDA quarter-over-quarter and year-to-year. And when you look at the quarter EBITDA, adjusted EBITDA, really the driver for that was, although our petroleum segment was really rather flat, given that refining margins didn't really move much for us year-over-year. But the fertilizer segment did improve quite substantially quarter-to-quarter, and that was really because of a production mix more to UAN, and a great improvement in UAN prices year-over- year, where they almost doubled from the same quarter last year.

When you look at the full-year adjusted EBITDA, you really see the impact of the improved refining margins year-over-year. We report for this year about a little over $21 per barrel of crude oil throughput of margin, versus $8.07 the year before, so that's a 160%-plus improvement. And that's on fairly flat, in fact slightly down, crude oil throughput volumes, but the refining margins were up quite a bit.

So those were really the drivers year-over-year, quarter-over-quarter, for the adjusted EBITDA increase that you see, and Jack has mentioned. With respect to our earnings, you look at our earnings, we've got a bridge that we build to go from our net income to our adjusted earnings per share, and some of the things that we normalize to get to those numbers, we adjust out our FIFO impact which, was about $0.24 a share.

We take out our turnaround expenses, which were about $0.37 a share. We always back out our unrealized hedging gains, and that's $0.64 a share. In our Wynnewood acquisition, we had some acquisition related costs of about $0.06, and some share-based compensation charges we normalize out that are non-cash of about $0.03. So those adjustments are about $0.42, and that brings you to the adjusted earnings per share numbers that we've reported of about $0.34 for the quarter. So that kind of gives you a way to see how we get from one to the other.

One thing to mention about our acquisition is that, starting in the first quarter, as Jack mentioned, we closed the acquisition of Wynnewood late, very late in the fourth quarter. We only had about 16 days of actual results for that acquisition. Starting in the first quarter we will begin to report the Coffeyville and Wynnewood refining facilities separately, so you will see some more -- well we'll try to keep it very transparent to you, as far as how these facilities are performing.

One thing to mention on some sort of key performance indicators, to give you some color on operating expenses in the quarter, and maybe going forward. In the fourth quarter, our crude expenses per barrel of throughput, excluding the turnaround, were $5.74 a barrel, compared to $3.51 the prior year, and for the full year, that same measure was $4.79 for 2011, versus $3.67 in the prior year.

Both these variances, these increases, were driven by, really, reduced crude throughputs as a result of the turnaround activity in 2011. Looking ahead to 2012, you should forecast an operating expense per barrel of crude for Coffeyville of about $4.80. That's just the way we have it estimated, and that excludes our turnaround expenses. And at Wynnewood, the same measure for 2012, we've got about $4.70 a barrel, so both are sub $5.

One other thing I want to talk to you about, briefly, is our hedging program. As you probably saw on our income statement, we had a significant hedging gain show up on the P&L, $103 million. About $11 million of that was realized in the fourth quarter, and really, this is a program that we began during 2011, and you're just starting to see, now, the impact of those positions as they are settled.

When we look at the fourth quarter, like I said, that $11 million realized impact, which doesn't show up in our refining margin, that was a positive where we actually made a gain on those hedging realizations, equated to about $1.29 of refining margin that doesn't show up in our stated results. That compares to a number from the year before of about a $0.60 negative settlement, so it was improvement in the fourth quarter of '11.

With respect to our hedging practice in general, we do think it's prudent to continue to hedge in this environment. Since the end of the year, we've added about 6 million barrels of hedge product, covering both 2012 and '13, and we're currently hedged on, order of magnitude, 20% to 25% of our crude throughput for 2012.

Looking out for the rest of this year and into 2013, we're hedged at over $23.50 a barrel, so they're very healthy crack spreads that we've hedged at, and we think those are good downside protection for us, certainly good downside protection, and hopefully, the cash markets will do even better.

Switching briefly to CVR Partners, Jack covered most of that, and they are a majority owned sub of us, and continue to perform well. The adjusted EBITDA from that entity was over $48 million, versus about $7.5 million in the prior year's quarter, and that's really, like I said earlier, as a result of the increased pricing environment, for UAN in particular, and that's our product mix is shifting, and will continue to shift more towards UAN as we go through the future.

The distribution disclosure, we had a $0.588 distribution out of UAN that was paid on February 14. We've paid $1.57. UAN has paid $1.57 since going public, and they've indicated that, as Jack said, $1.50 to $1.75 for the first real calendar year of performance, and that's even considering the $0.25 impact, or roughly $0.25 impact from the planned turnaround at that facility. So as we see more, as that entity sees more clarity in its order book and other things, it will probably refine that guidance as it goes through the year.

A couple things to mention about capital spending. We have estimated our capital spending for this year in the refining space, our refining segment, of $150 million to $170 million. Of that number, about $70 million to $75 million is related to what we consider sustaining capital projects at Coffeyville. Another $60 million to $70 million at Wynnewood, as we continue to do things to increase their reliability, and for sustaining capital in that facility. And then $20 million to $25 million related to other petroleum products, such as our Cushing tank farm and our crude oil gathering business, so we'll look to expand that, as well, during the year, and we've got some capital set aside.

With respect to the Partnership, CVR Partners, we've got included in our numbers, since we consolidate with them, is about $110 million to $115 million of capital, and that relates primarily to their UAN expansion project, where they'll be significantly expanding their capability to convert to UAN product to sell. So that's the bulk of what they will be doing, as well. So the two combined will run in the $260 million to $280 million type range, but like I said, with respect to the refinery business, it's $150 million to $170 million. And we think those are all primarily sustaining maintenance items, and a little bit of expansion.

With respect to the turnaround that we've got planned for the two facilities, we did expense about $66 million in 2011 to complete the majority of the turnaround at Coffeyville. That will, of course, cause -- has caused and will cause fluctuations in working capital, as we build inventory during those time frames, and then of course liquidate it as we can. Due to our turnaround completed in October, we held about 1.1 million barrels of crude and intermediates over our normal operating levels, and about 665,000 barrels of finished product. Had we been operating at our target inventory levels, our cash balance at the end of the year would have been about $180 million higher, if we had been able to sell those products at that point, and we'll sell them in the future.

We were also long contango crude inventory at the end of 2010 in the amount equal to $110 million, so our year-end 2012 inventory represents another $70 million in cash use during the year. With respect to our second phase of that project in Coffeyville, what we expect to expense, order of magnitude $30 million to $32 million in the first quarter of 2012 for that.

Our other planned turnaround is associated with Wynnewood, which we would expect to perform in the fourth quarter this year, and the order of magnitude of that cost is going to be in the $80 million to $90 million range, most likely. We'll continue to update the market on the anticipated turnaround costs at Wynnewood as we finalize our project plan there.

Some other things on Wynnewood. We're continuing to complete our integration process. We've completed some milestones there, settling marking capital with Gary-Williams on that. We'll expect to receive some money back on that. We're transitioning our back office functions there in things like billing and tax reporting, and also our crude gathering and our reporting systems.

We would expect, at that point, to have some integration costs, probably in the order of $10 million to $15 million, most of that coming through the first quarter of 2012. We also have synergies that, I think when we made the acquisition, we announced that we would expect to gain synergies from the acquisition, primarily through increased crude throughput rates, some improvements in our crude differentials, and some savings in some back office and overhead functions, and we're starting to see the benefits of those come through this year.

So we still think we're on track to obtain those savings, and hopeful that there will be potential to increase those even further as we go through time. Just a little bit on the balance sheet. In debt matters, we've got a restricted payment basket that's approximately $300 million, so the planned dividend that Jack mentioned earlier, the regular dividend we'll be paying, plus anything that we might pay in a special dividend later, are both fully within the realm of the RP basket, restricted payment basket, we've got set up.

Our balance sheet, our debt-to-cap is conservative at this point. We've completed the high yield add-on when we did our Wynnewood deal last quarter, and hadn't had very good response there from our lender syndicate. From a long term perspective on debt, we would focus on keeping our leverage ratio under 2 times, and our debt-to-cap at around 30%. And that is roughly -- we're well under that leverage ratio now, at 1.2 times, and our debt-to-cap is right around the high 30%'s right now, so it's well within the realm of what we have targeted. And of course, the debt capital markets remain fully open to take advantage of any kind of opportunity we might want to do, to take advantage of.

With respect to capital deployment, as Jack mentioned, we do expect to pay a dividend, beginning after the first quarter is announced. And with the contemplated sale, or the anticipated sale on a portion of our CVR Partners interest, we would plan to make a special dividend payment there as well. So with that we'll provide more timing, as that becomes imminent, and let you know as it happens.

Jack, that's all I've got right now.

Okay. Thank you, Frank.

Before I move on to your questions, let me give you a bit of an update of what we're seeing in the first quarter so far. As I mentioned a little earlier, product inventories in the Magellan pipeline system are at very high levels, or at least began the year at very high levels. As a result, Coffeyville product shipments were restricted into that system, which resulted in reduced crude runs in January and February.

Product realizations, because of the high inventory overhang, were also impacted, and you see that in the Mid-continent cracks. For those of you who closely follow the Mid-con, this is not a once in a lifetime event. It actually occurs every two or three years. And as bad as we think it has been in the Group, the other part of PADD II, which is Chicago, actually seems to be suffering worse than we are.

As demand grows going into spring, inventory levels on the Magellan system will improve, as they always do. When spring comes, the farmers get out into the field, and the ag sector comes back to life, which tends to empty the Magellan system as we go forward.

Like most Mid-continent refiners, we continue to benefit from the disconnect between Brent and WTI crudes. That spread narrowed in the fourth quarter and early this year. The Brent-WTI spread has widened considerably, and today stands at over $15 a barrel. Additionally, we've seen crack spreads rebound to over $29 a barrel, from just over $18 a barrel early in January.

And as Frank mentioned, we are opportunistically picking off hedges as we see fit to put some back stop against our future earnings. During the fourth quarter, heavy crude differentials tightened. Those dips have widened very wide, and are now in the range of $28 to $30 a barrel, below WTI-FOB Hardesty. We've also seen a significant increase in the differentials associated with Bakken, Mid-continent sweets, and Canadian light sweets and light sours. We are seeing a disconnect in domestic sweet crudes.

Midland WTI today is selling at a discount of over $2 to Cushing WTI. Our Cushing tank farm is nearing completion. We'll begin infilling our first tanks some time in the next week or two, and expect the entire 1 million barrels of storage will be full by the end of April. We've already purchased heavily discounted Canadian crudes that are on their way to Cushing's as the initial tank fill.

Both Coffeyville and Wynnewood will capitalize on these inexpensively priced barrels. Don't forget, we have 35,000 barrels a day of committed Canadian pipeline space. We have 25,000 barrels a day of space on the Keystone line, which we use to bring down our heavy Canadian requirements for Coffeyville, and we have 10,000 barrels a day of space by contract on Spearhead, slightly higher based on shipper volumes, which allow us to bring down light Canadian sours, synthetics, Bakken, and other crudes. Wynnewood typically runs around 25% West Texas sour, and in 2011, the WTI WTS spread was just over $2 a barrel.

Today, the Midland WTI is wider than that against Cushing WTI, and so one of the things we've been doing, because of the pipeline space and the fact that the Wynnewood refinery did not have direct access to Canadian crudes, we're using a portion of our Spearhead space to bring down the WTS look-alike sour grades from Canada, such as LSB low sulfur blend, which currently delivers at a discount of almost $10 a barrel to WTI. We've also substituted a portion of some of our WTI and domestic sweets with alternate grades, such as Bakken and Canadian synthetic sweet, and those too, as I mentioned before, are at very wide levels.

We do want to mention our expanding gathering business. In the first quarter of 2012, we're on target to exceed 40,000 barrels a day of lease gathered crude. The fairly priced, locally gathered barrels are important to our refinery economics for both Wynnewood and Coffeyville, and we intend to move a gathering operation directly to Wynnewood to expand our reach into Southern Oklahoma. And just about the growth in our business, today we are not only gathering in our historic areas, but we're now gathering in the Mississippian, the Eagle Ford, the Barnett Shale, and the Granite Wash.

Let me also update you a little bit about the final phase of our turnaround at Coffeyville. We completed about two-thirds of the planned work in our first phase last October. In the second phase, we'll be performing maintenance on one crude vacuum unit, our coker, our hydro treater, and a bunch of associated equipment. We began mechanical work last week, which will last approximately 27 days. Including the impact of the turnaround at Coffeyville, we expect our total system crude rates to average between 140,000 and 150,000 barrels a day for the first quarter.

To break it down a little further, that's roughly 85,000 to 90,000 barrels a day at Coffeyville and 55,000 to 60,000 barrels a day at Wynnewood. We did take our cat cracker down at Wynnewood to do some opportunistic maintenance, and fix some issues associated with that unit. This morning, Wynnewood was running at near 70,000 barrels a day, which is its name plate capacity. Once the turnaround at Coffeyville is completed, and remember, we do a turnaround once every four years, we expect to operate that plant near its name plate capacity of 115,000 barrels a day.

Last, don't forget, we do expense our turnaround costs as they occur. So when you consider our first quarter results, not only will we be running fewer barrels, but we will have increased expenses at the Coffeyville refinery. You can see these are pretty busy days at CVR Energy. In recent weeks, we've made several announcements that demonstrate our continued commitment to delivering shareholder value.

First, after an extensive review of the Company's financial performance, the Board approved a regular quarterly cash dividend of $0.08 per common share, the first of which will be paid following the end of the first quarter. We will announce that date after the Board meets next month. We also announced our intention to sell a portion of our investment in CVR Partners. Proceeds from that sale will be used to pay for a special dividend to shareholders, and to strengthen our balance sheet.

The size, timing, and manner of the sale are currently under consideration, and we'll disclose those facts when the transaction is implemented. Finally, last week, entities affiliated with Carl Icahn have commenced a tender offer to acquire all the outstanding shares of CVR Energy. Mr. Icahn will also announce his intention to run a full slate of nine Director candidates at our next annual meeting.

Consistent with Federal Securities laws, the Company will formally respond to Mr. Icahn's tender offer through a 14 D-9 filing at the SEC within 10 business days. Until that document is filed, we're unable to comment on the tender offer and related matters. Therefore, we'll be unable to answer any questions on that topic during this call. In the meantime, we urge our shareholders to take no action until the Board has completed its review and made its recommendation.

We remain focused on executing our current plan to deliver value to shareholders. That strategy includes the continuing integration of the assets acquired from Gary-Williams Energy Corporation. We're excited about the opportunities. Every day, we see new opportunities at the Wynnewood refinery to improve our economics, and the synergies between both plants. We expect those synergies toss exceed $30 million in the first year, and grow significantly over time.

I would like to thank the employees, both those that have brought the Company to where it is here today, and the new employees from the former Gary-Williams operations for going the extra mile every day to build the future of our Company. With that, operator, we're ready to take questions.

Thank you. (Operator Instructions) Our first question comes from Jeff Dietert with Simons & Company. Please proceed with your question.

It's Jeff Dietert. Good afternoon.

Good afternoon, Jeff. How are you?

I'm well. I was hoping you could talk about Wynnewood operations a little bit. You've been operating the plant for a couple months, and what do you see as far as opportunities there, ability to improve feed stocks, yields, just the operations of the plant?

Well, one of the reasons we acquired the Wynnewood facility was its proximity to Coffeyville, but also, it was a way to parlay our logistics assets in Cushing to improve the operation, not only the operation, but the economics of Wynnewood. You know, refineries are just basically a mechanism to turn the lowest priced crude oil into finished product that you can sell. With our pipeline space coming down from Canada, the logistics assets, we have the gathering, and everything else, we're making serious inroads into the cost of delivered crude for Wynnewood. Historically, that plant delivered crude somewhere between $0.30 and $0.50 a barrel above WTI. They would buy WTI, they would buy some WTS, but after delivery cost, they would deliver in above that.

We are already below WTI on that, and expect to see significant improvements, particularly with our ability to access Midland WTI, Bakken, and just a list of other crudes, plus our own gathered crudes. Again, gathering in the area is going to be very, very significant. So the very first thing is we would expect, over time, a significant drop in the acquisition cost of crude, which dollar-for-dollar goes to our EBITDA. On the Operations side, the Gary-Williams Energy Company was not as technically focused a Company. It was a private Company, and not as technically focused as we are at CVR Energy. To date, we took a cat cracker down, we did some improvements, actually did a fair bit of work that would have otherwise been executed in the fall turnaround, and came back and just increased unit capacity by 3% or 4%, and increased liquid yield. By just adjusting the way we operate certain units, we significantly improved our jet fuel yield.

Basically, we're making about 1,000 barrels a day more jet fuel than the plant did before, and that's at the expense of gasoline, so you're taking one of our highest value products, making our highest value product from one of our lower value products, so we're pretty excited about what we see. Ultimately, the synergies at Coffeyville and Wynnewood will become apparent. There are cycles. Our coker is large enough at Coffeyville so that if the asphalt market were going to get really soft, we could take those barrels and coke them in Coffeyville. And you'll remember, we make somewhere like 8% or 9% asphalt at Wynnewood.

We've been able to increase crude rates. Again, I mentioned just before, we're running at 70,000 barrels a day. It's our goal to take the same team of technical people and operators and use the same work ethic, the same intelligence, the same engineering principles that we took at Coffeyville, which was actually a bankrupt company back in 2004, and turned it into one of the premier refineries in the Mid-continent. We're going to do the same thing with Wynnewood.

Second question on your gathering system, it looked like a step function improvement in the volume and the barrels that you're moving on the gathering system. It's consistent with what we're seeing across the onshore with unconventional development. What do you think the potential is for growing that gathering business?

Our goal is 20% a year, until we believe we reach something like 60,000 or 70,000 barrels a day. We are continuing to look at other logistics assets, being Cushing-centric. But the Mississippian is in our backyard. I mean it's a truck drive away. You start looking at the opportunities that we have, and it's a very low capital business. We do not have to apply very much capital to make this system work, so for us, we think, it's probably the first time we're going to talk about it, but on average, from the highest priced to the lowest priced crudes, we net back somewhere around $2 a barrel for every barrel we gather.

It's higher in certain parts, and lower in other parts, and it depends on quality, but we fund the entire gathering business from the basic P-plus discount that we buy the crude at. Typical discounts are somewhere $10 to $11, adjusted for quality, and out of that, we take all of our expenses, capital expenses, personnel expenses, operating expenses, and the difference shows up as crude discount at Coffeyville. And now Wynnewood.

Thanks for your comments, Jack.

Thank you, Jeff.

Our next question comes from Chi Chow with Macquarie Bank. Please proceed with your questions.

Great. Thank you. Frank, you mentioned on your comments that there was a $11 million realized gain in the fourth quarter. Where is that showing up? I think you mentioned that it wasn't showing up in your gross margins.

Yes, it's actually part of, on our income statement, it shows up in our hedging gains and losses line.

Oh, okay.

So it's part of that line, Chi.

Okay, so you aren't allocating that, and you won't going forward, I'm assuming?

No, I just wanted to give you some color on the impact of the hedging program.

Okay, great. And Jack, regarding your corporate structure, I know you showed a slide on this a few weeks back, but could you go over again the hurdles to any tax-free separation on your interest in UAN?

Well, again I will refer you to the document we publicly filed. But the tax rate, in order to spend our units, which sit inside an MLP, you would first have to put it into a C corp, get an IRS letter, and then spin it out to the shareholders. So you are effectively paying full tax either way. What our intent here, to start selling down some of our portion, gets to the same result without the brain damage of going through, and the risk, of trying to separate the Companies. There's no guarantee that it will work properly, and then if you do spin it into a company, what would that company trade at? It would be a one of a kind. There are C corps that hold MLPs that hold GPs that have IDRs. You will recall that our GP has no IDRs, so the risk is that you have an entity for which there are no comps, and you have no idea where it will trade.

Okay. Now that you've started, or announced that you intend to sell down your interest in UAN, is there a target level of ownership that you're comfortable with holding to gain the efficiencies on valuation?

You know, the Board hasn't addressed that. We're doing it step by step. We decided that this was the proper thing to do to allocate some of that capital back as a special dividend, a significant special dividend, and then we'll look at it over time, but again, there's a couple ways of looking at it. You know what the refining EBITDA is, and you know what the fertilizer EBITDA is, and then you look at the relative valuations and market caps of each company, and you would just simply say that the biggest contribution to our corporate earnings come from refining. And taking some of the UAN off the table is beneficial for everybody.

Okay, great. Thanks for your comments.

(Operator Instructions) Our next question comes from Ed Westlake with Credit Suisse. Please proceed with your question.

Good afternoon, everyone.

Hello, Ed.

Just a quick question on capital. Obviously this year is a big year for refining capital, partly turnarounds. Just off your slides, let's call it non-discretionary, we just look at that, goes from $18 million in 2010, to $50 million in 2011, to $140 million in 2012, and your total capital in 2012 is $166 million for the refining side. As you look beyond 2012, I mean, where do you think the run rate for refining capital should be?

The sustaining capital will probably run in the range of, pick a number, $40 million or so for Coffeyville, $40 million to $45 million, probably somewhere in the range of $25 million to $30 million, and that's just normal sustaining capital. Don't forget one of the big things we're doing this year is the UAN -- since everything is consolidated, the UAN expansion is in there as money we're spending this year.

So, as you think forward, maybe a second question around the logistics business. I mean once that gets going, I just did math in my head, if you do $2 on 70,000, maybe you're getting up to about $50 million. Is that the sort of level you need before you think about doing an MLP for the logistics business?

No, we have other opportunities, we own several hundred miles of our own pipelines. We have tanks. We have the Cushing tank farm. All of that can roll into an MLP.

And so potentially that could be done sooner rather than later?

Once we, and again, this is somewhat of our banker friends telling us that the proper level should be about $50 million of EBITDA to have a substantial MLP that could have drop-downs. Our Cushing tank farm, you could do the math, the lease rates on storage today are running in the mid to high $0.30 per barrel per month range. The Cushing tank farm alone would add about $4 million a year of revenue, that's per 1 million barrels. Our Cushing tank farm could sustain a tank, a size of up to 6 million barrels.

I'm not saying we're going to build that out, but certainly there is good economics in that, and we have, again, pipes and storage all through our existing system right now that many companies will drop into an MLP. And the valuable part of that is that the Company trades at a 4 to 5 multiple. If you have a logistics MLP based on a fee based business, that multiple is not 4 or 5. It's 14 to 16, and the value accretion from taking $50 million of EBITDA is several dollars a share.

And then I guess the other area is just, then, following on from your capital guidance, the free cash that you're going to be throwing off. So you receive a contribution from selling down some UAN that you give back to shareholders as a special, but you're also going to be paying -- well, increasing cash and reducing net debt over time from organic cash flow. So, can you just talk us through about what sort of level, perhaps, of net debt-to-cap, or some kind of metric you'd want to get to before you start increasing shareholder distributions for more cash flow?

Well they can go on concurrently. The Board has, by its actions, indicated that it intends to allocate capital in the form of dividends, either regular or special. We at the refining side of the business, round numbers have $675 million of debt. I'm not talking net debt. I'm just talking total debt. A somewhat bullet proof balance sheet for a refiner, even in a turn down situation for us, $400 million to $450 million of debt, and if we see the tailwinds that we see right now, between the sell down of some of the UAN and the increased cash flow, we think we can accomplish both concurrently.

Thanks very much.

Our next question comes from Sam Margolin with Global Hunter. Please proceed with your question.

Good afternoon. You mentioned about $180 million of cash locked up in inventories for the turnaround. Should we expect that to be released, essentially, immediately after Coffeyville is turned around at the end of March?

Yes, less the initial tank fill for Cushing.

Okay, and that's the other thing. Is there, it seems as though if you started purchasing these barrels for Cushing storage from northern Basins around a month ago, or in the early part of the year, they are going to come in at some pretty heavy discounts to the spot market. Is that mark-to-market in the second half of the year, or are you just going to run those barrels through operations, or is that something you could actually augment sort of income or cash flow with?

Well these will -- like we do with the other storage we lease in Cushing, it's simply a flow through. It's a wide spot in the line, so these barrels will eventually find the way into the refineries.

Okay.

So we will reap the benefit of those lower priced barrels as we run them through our system.

Okay, and my last question is more theoretical. You mentioned the $50 million threshold for an MLP subsidiary on the midstream side. Given the uniqueness of the UAN asset, is there any way, or do you think there's any appetite or any inkling in your own personal philosophy to maybe add some energy midstream assets into that structure, and make it a type of diversified MLP, without having to form another company, or is that going to be completely separate?

Well, actually I'm jumping over. I am the executive Chairman of CVR Partners, but I'm trying to stay on CVR Energy. The initial intent of the IPO was to form a predominantly fertilizer-centric MLP. You know, those who wanted to partake in the fertilizer space could do so, and yes, if we are absolute failures at building our gathering system, which I don't expect us to be -- and logistic systems by the way -- we could always drop down those assets a certain degree into he fertilizer MLP. You have to -- but the relative differences in trading values between a full commodity variable distribution MLP and a fixed fee pipeline logistics MLP are pretty wide, so the best value for us would be to put it into one of those fixed fee MLPs.

I see. Okay, the question was just related, it would just, I think, purely be a way to front run that $50 million threshold, in case the timing of it seemed too far out.

Yes, absolutely, but we are looking -- we see an awful lot of opportunity. It's not the easiest thing to just start a gathering business. There's a lot of back office. There's a lot of little bits and pieces you need to do, and if you remember, we started this business at 7,000 barrels a day back in 2005. Since then, it's been the focus of our growth, simply because it's a way -- at least initially, it was a way of getting WTI delivered to the refinery at a price lower than WTI.

Okay, great. Thanks. Actually, one more for Frank. With all of the one-time items in the quarter, do you have a cash tax number?

I don't have one off hand. I can get it for you. I'll get it for you after the call.

Okay. Thanks so much.

And by the way, for everybody on the call, you will notice this year, or at least for the fourth quarter, we did not separate out Wynnewood and Coffeyville to any large degree. That is not our plan going forward. It was just because we closed this transaction late in the year, and it wouldn't have been that significant for the fourth quarter. But going forward, we will separate out operations and metrics for both facilities.

Thank you. Ladies and Gentlemen, we have come to the end of the time allotted for our Q&A session today. I would like to turn the call back over to Management for closing comments.

Thanks, Latonya. I want to thank each of you for joining our call today, and we also look forward to soon sharing with you our first quarter results in the early half of May. Have a good afternoon.

Thank you, everyone.

You may disconnect your lines at this time, and thank you for your participation.