CVR Refining, LP has announced 2Q16 net income of US$78.1 million on net sales of US$1164.4 million, compared to net income of US$227.8 million on net sales of US$1547.5 million for the second quarter of 2015. Adjusted EBITDA, a non-GAAP financial measure, for 2Q16 was US$84.7 million compared to adjusted EBITDA of US$194.3 million for 2Q15.
For the first six months of 2016, net income was US$10.1 million on net sales of US$1998.4 million, compared to net income of US$274.5 million on net sales of US$2852.0 million for the comparable period a year earlier. Adjusted EBITDA for the first six months of 2016 was US$119.8 million, compared to adjusted EBITDA of US$356.0 million for the first six months of 2015.
"CVR Refining posted solid operational performance during the 2016 second quarter," said Jack Lipinski, CEO. "The Coffeyville and Wynnewood refineries posted a combined crude throughput of 202 536 bpd, which fell within the range of our outlook despite lower crude rates at the Coffeyville refinery due to restrictions on the Magellan pipeline system.
"While we saw an improvement in refining margins quarter over quarter, we were disappointed in product realisations due to a large overhang of product inventories in the US," Lipinski said. "In addition, the increasing cost of RINs significantly impacted our results. RINs, which we have to purchase to comply with the Renewable Fuel Standard (RFS), have become completely disconnected from the cost of blending and instead have become a source of windfall profits for blenders who the Environmental Protection Agency (EPA) chose to exempt from the programme. The RFS programme, as currently managed by the EPA, fails on many fronts. Not only are exempt blenders earning windfall profits from selling RINs to refiners who cannot blend, the RFS programme allows exempt blenders to retain the profits and not increase biofuel usage in the US.
"RINs have become a black pool allowing exempt parties, and even speculators, to drive prices to confiscatory levels. We believe the market may be cornered, the effect of which will be to bring small merchant refiners to the brink of bankruptcy while unjustly enriching speculators and exempt blenders," Lipinski continued. "RINs were intended to be a compliance tool for refiners, not a device to extract windfall profits from obligated parties. The EPA needs to open its eyes and recognise that it must change the point of obligation to close the loophole that allows these exempt blenders, who control the vast majority of biofuels blending, to retain the profits from selling RINs without investing in increasing biofuel use. The windfall serves no regulatory purpose, but creates a system of winners and losers within the fuels industry based on their ability to blend.
"Market experts like Goldman Sachs and Credit Suisse are advising investors to avoid companies with high RIN exposure and to buy shares in large retail and distribution chains, like Casey's General Stores, who are benefitting from this structural flaw in the EPA's rule," he said. "For example, Goldman Sachs predicts that Casey's will see a 1% increase in EBITDA for every 10 cent increase in the price of RINs. Adding to concerns about the RIN market is the ability of third parties to buy and sell RINs. At the point that Goldman Sachs is advising investors to buy shares based on their RIN exposure, it seems reasonable to ask the question of whether third party speculators are buying and selling RINs directly. There are a discrete number of obligated parties. It would be very easy for third parties to buy RINs and corner the market, driving up prices for obligated parties even higher. The EPA has so far refused to disclose the identity of the entities holding, buying and selling RINs, but this certainly should be investigated.
"There are pending lawsuits seeking to compel the EPA to fix the loophole and administrative requests for a rulemaking, both targeted at stopping the flow of profits to exempt parties at the expense of RIN-short refiners. We are hopeful that justice and reason will prevail and that RINs will once again become a compliance tool for refiners and not a windfall profit device for exempt parties," Lipinski concluded.
Adapted from press release by Rosalie Starling
Read the article online at: https://www.hydrocarbonengineering.com/refining/29072016/cvr-refining-2q16-results-3809/