This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk02: brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Richard Roberts, Senior Manager of Financial Planning and Analysis and Investor Relations. Thank you, sir. You may begin.
spk09: Thank you, Christine. Good morning, everyone. We appreciate your participation in today's call. With me today are Mark Pytosh, our Chief Executive Officer, Tracy Jackson, our Chief Financial Officer, and other members of management. Prior to discussing our 2020 full-year results, let me remind you that this conference call may contain forward-looking statements, as that term is defined under federal securities laws. For this purpose, any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements. You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise, except to the extent required by law. Let me also remind you that TVR Partners completed a one-for-ten reverse split of its common units on November 23, 2020. Any per-unit references made on this call are on a split-adjusted basis. This call also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliation to the most publicly, to the most directly comparable GAAP financial measures, are included in our 2020 four-year earnings release that we filed with the SEC yesterday after the close of the markets. Let me also remind you that we are a variable distribution MLP. We will review our previously established reserves, current cash usage, evaluate future anticipated cash needs, and may reserve amounts for other future cash needs as determined by our General Partners Board. As a result, our distributions, if any, will vary from quarter to quarter due to several factors, including but not limited to operating performance, fluctuations in the prices received for finished products, capital expenditures, and cash reserve deemed necessary or appropriate by the Board of Directors of our General Partners. With that said, I'll turn the call over to Mark Pytosh, our Chief Executive Officer. Mark.
spk12: Thank you, Richard, and good morning, everyone, and thank you for joining us for today's call. The summarized financial highlights for the full year of 2020 included net sales of $350 million, a net loss of $98 million, EBITDA of $41 million, which was reduced by a $41 million non-cash goodwill impairment, and we repurchased over 623,000 CVR Partners common units for $7 million. Looking more specifically at the 2024 quarter, we reported net sales of $90 million, a net loss of $17 million, and EBITDA of $18 million. We repurchased nearly 394,000 CVR Partners common units for $5 million, and there is no cash available for distribution this quarter. During the fourth quarter of 2020, we had strong utilization at both facilities. At Coffeyville, the ammonia plant operated at 99% utilization compared to the fourth quarter of 2019 at 90%. At East Dubuque, the ammonia plant operated at 103% utilization compared to 88% in the prior year period adjusted for last year's scheduled turnaround. Our combined operations produced approximately 220,000 gross tons of ammonia of which 75,000 net tons were available for sale for the fourth quarter of 2020. This compares to production of 180,000 gross tons of ammonia, of which 55,000 net tons were available for sale in the prior year period. We produced 335,000 tons of UAN in the fourth quarter of 2020, as compared to 286,000 tons in the prior year period, which was impacted by the planned turnaround at East Dubuque. During the fourth quarter of 2020, we sold approximately 325,000 tons of UAN, an average price of $139 a ton, and approximately 114,000 tons of ammonia, an average price of $267 per ton. Year-over-year pricing softened for UAN and ammonia, which were down 21% and 18% respectively. Although prices for nitrogen fertilizers were soft for most of the year, Prices began to increase in the fall as crop prices and farmer economics improved. The combination of improving farmer economics and favorable weather drove a strong fall ammonia application season, and that strength is carried over into spring demand as well. The outlook for spring plantings and demand for crop inputs remain strong, with the USDA estimating 92 million planted corn acres this year. This is translating into significantly higher prices for UAN and ammonia for the spring, which I will discuss further in my closing remarks. I will now turn the call over to Tracy to discuss our financial results.
spk03: Thank you, Mark. Turning to our results for the full year 2020, we reported net sales of $350 million and an operating loss of $35 million, compared to net sales of $404 million and operating income of $27 million for the full year 2019. Net losses for the full year 2020 were $98 million or $8.77 per common unit and EBITDA was $41 million. This compares to a net loss of $35 million or $3.09 per common unit and EBITDA of $107 million for the full year 2019. As a reminder, our full year 2020 results were reduced by a $41 million non-cash goodwill impairment related to the Coffeyville facility taken in the second quarter. The year-over-year decline in EBITDA was driven primarily by the Goodwill impairment and lower prices for UAN and ammonia. For the fourth quarter of 2020, we reported net sales of $90 million and an operating loss of $1 million, compared to net sales of $86 million and an operating loss of $9 million in the fourth quarter of 2019. Net losses for the fourth quarter of 2020 were $17 million, or $1.53 per common unit, and EBITDA was $18 million. This compares to a net loss of $25 million or $2.20 per common unit and EBITDA of $11 million for the fourth quarter of 2019. The increase in EBITDA was driven primarily by higher sales volumes offset somewhat by lower pricing for UAN and pneumonia. Direct operating expenses for the fourth quarter of 2020 decreased to $44 million from $46 million in the prior year periods. Excluding inventory impacts, direct operating expenses declined by approximately $4 million year over year, primarily related to turnaround and associated expenses incurred in the fourth quarter of 2019. For the full year 2020, we reduced operating expenses and SG&A costs by over $23 million compared to the full year 2019, a direct result of our cost savings initiatives. Turning to capital spending, during the fourth quarter of 2020, we spent $3 million primarily on maintenance capital. For the full year 2020, we spent approximately 16 million, of which 12 million was for maintenance capital. Total capital spending for the year came in below our expected range of 18 to 21 million as a result of shift in timing of certain capital projects into subsequent years. We currently estimate total capital spending for 2021 to be 23 to 26 million, of which 18 to 20 million is expected to be maintenance capital. This excludes turnaround spending, which we expect will be approximately 8 million. Looking at the balance sheet, as of December 31st, we had approximately $51 million of liquidity, which was comprised of $31 million in cash and availability under our ABL facility of $20 million. Within our cash balance of $31 million, we had approximately $8 million related to customer prepayments for the future delivery of product. Total debt on the balance sheet remains at $647 million, which is comprised of $645 million of senior notes due in 2023, and $2 million of senior notes due in April of 2021. As we have discussed in recent earnings calls, refinancing the 2023 notes remains one of our top priorities. Continued strength in the debt capital markets may provide an opportunity to pursue a refinancing at favorable rates in the next few months. We are currently considering options that would allow us to delever the partnership along with refinancing the existing notes. One scenario could be to refinance the majority of the 2023 notes, but leave a stub amount outstanding that we would be able to pay down over the next few years. We are currently in the process of evaluating structures that could allow us to generate and monetize 45Q tax credits from the CO2 we capture at the Coffeyville facility. We are still relatively early in the process, but we would expect to be able to get something done in 2021 that could provide additional cash to be used to reduce our total debt outstanding. In assessing our cash available for distribution, we generated EBITDA of 18 million for the quarter, had current cash needs of 15 million for debt service, and 2 million for environmental and maintenance capital expenditures. During the quarter, we repurchased nearly 394,000 common units for total cash consideration of 4.8 million. In addition, the board of directors of our general partner established reserves of 1.5 million for the planned turnaround at Coffeyville in 2021. As a result, there was no cash available for distribution. During the quarter, we regained compliance with the New York Stock Exchange continued listing standards through the completion of a 1 for 10 reverse split on November 23rd. Looking ahead to the first quarter of 2021, despite reducing operating rates at East Dubuque last week due to the extreme weather conditions, we estimate our ammonia utilization rate to be greater than 90% for the quarter. We expect direct operating expenses to be $35 to $40 million, excluding inventory impacts, and total capital spending to be between $4 and $7 million. With that, I will turn the call back over to Mark. Thanks, Tracy.
spk12: Since the last earnings call, there's been continued improvement in crop prices and farmer economics. For the 2020 planting season, the USDA estimates that planted corn acres were 90 million and yield per acre was 172. On the demand side, ethanol blending remains at lower levels than last year due to lower gasoline demand. Lower ethanol-related corn demand in the U.S. has been more than offset by Chinese and other demand for corn. The USDA is now estimating U.S. carryout inventories of 1.55 billion bushels or 11% of domestic production. That is down over 50% from the summer 2020 estimates. Crop forecasts for Argentina and Brazil are also lower than previous estimates, and soybean demand from China has been much greater than expected. This change in fundamentals led to a rally in grain prices, with corn recently trading at around $5.50 a bushel and soybeans at $14 a bushel. Stronger farmer economics led to a robust fall ammonia application and accelerating demand for all crop inputs for spring. Fall demand for ammonia was the best it has been in several years. We believe that industry-wide ammonia inventories were very low after the fall and prices have remained firm through the winter. We have also seen strong fall on demand for ammonia for spring application and have a good order book for the season. Since the beginning of 2021, urea prices have rallied significantly across the globe. Prices rose to a peak of $370 per ton in February with robust demand in advance of spring application. After a lower pricing in the second half of 2020, UAN prices have fallen urea and demand has been robust for spring application even at much higher prices. For producers, natural gas prices have risen approximately 50 cents per MMBTU, but international natural gas prices have doubled or tripled due to strong demand and limited increase in supply. The spread between domestic and international natural gas nearly reached parity in the summer of 2020, but is now over $5 per MMBTU higher on average in international markets compared to domestic pricing. Lower domestic natural gas prices give U.S. nitrogen fertilizer producers a cost advantage compared to international producers and reduces the incentive to run at high marginal operating rates of production. The recent severe weather across the Midwest caused many nitrogen fertilizer production facilities to be temporarily shut down due to limited natural gas availability and or extremely high regional natural gas prices. This loss of production should further tighten nitrogen fertilizer inventories in advance of spring. As Tracy mentioned, the recently issued 45Q tax credit regulations may provide an attractive opportunity for CVR partners. We currently sell a significant amount of the CO2 generated at Coffeyville to an independent oil company for sequestering through enhanced oil recovery. We also use a portion of the CO2 generated for the production of urea that is then further upgraded to UAN. Both of these processes should qualify for the generation of 45Q tax credits based on the final IRS regulations published in January. We're currently in the process of evaluating different structures that can allow us to maximize the value to the partnership from these tax credits. I look forward to providing additional information as we get further along in the process. This sequestering of CO2 of Coffeyville combined with the nitrous oxide abatement at both of our plants has reduced our carbon footprint by over a million metric tons per year. With these reductions, we could certify our ammonia production in Coffeyville as blue ammonia and position CBR as one of the lowest carbon footprint nitrogen fertilizer producers in the US. We're continuing to evaluate other methods of reducing our carbon footprint at both plants and will provide updates when we are prepared to implement changes. Any proceeds generated from 45Q tax credits would likely be directed towards reducing our total debt outstanding. We also anticipate a refinancing of our debt structure at lower rates. The combination of lowering our debt service costs and reducing outstanding debt would lower our annual cash burn rate for debt service and improve the partnership's ability to consistently generate free cash flow and continue to de-lever. We have patiently waited for the right opportunity and want to take advantage of the improving fertilizer market and attractive debt markets. As I mentioned earlier, we continue to repurchase our units during the fourth quarter of 2020. In total, we repurchased over 623,000 CBR Partners common units for $7 million during the year, leaving approximately $3 million available on the original authorization at year end. Despite the strong performance of the unit since November, we continue to feel they are significantly undervalued, and the Board of Directors has approved an additional $10 million unit repurchase authorization, which would enable the partnership to repurchase common units should it elect to do in its discretion. I want to reiterate that the partnership will continue to focus on maximizing free cash flow by safely operating our plants reliably and at high utilization rates, while focusing on the health and safety of our employees, contractors, and communities. We will continue to prudently manage our costs and be judicious with our capital, but selectively invest in reliability projects and incremental additions to production capacity, and we will maximize our marketing and logistics activities. In closing, I would like to thank our employees for their commitment to being healthy, safe, and flexible, and helping the company execute at a high level while managing the impact of COVID-19 and the extreme weather these past two weeks. With that operating, we will take questions.
spk02: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question comes from the line of Roger Spitz with Bank of America. Please proceed with your question.
spk04: Thank you and good morning. Good morning. Regarding the CO2 tax credits, perhaps you can tell how we should think about that. How much cash could you potentially generate? When would you receive it? it sounds like it's more of like an ongoing cash receipt as opposed to a one-time, but maybe you can just try to tell us how to think about that.
spk03: I'll take the first step at it. Mark can add to it. It is a tax credit program that will pay or reduce taxes potentially by whatever structure we end up going with over a 10-year period of time. And we have initial estimates, but they're very preliminary. We're not prepared to disclose those yet.
spk12: Yeah, I would just add that you know, we're still in early phases of, the regulations have just been final for a month. So we're still in a pretty early phase of exploring the structures and what the value potential. The theory is, in our case, we've been operating our facility for seven years. So we've already been sequestering CO2 for seven years. And so we're grandfathered under the regulations. The regulations also are there to incentivize future projects for sequestration, but we will be grandfathered in, but we have a long tail on the ability to claim those credits. And so we're looking at different avenues for how do we maximize the value.
spk04: But I mean, does the regulations allow you to look back and get, you know, crystallize some tax credits for the past seven years?
spk12: No, it doesn't really do that. The starting point of the regulation would be 2018 if you had a plan in service. So the start date would be 2018, and you have to reach a threshold for how much sequestering you do. So we couldn't go back further in time than that.
spk04: I mean, the reason I'm asking is you've suggested the way to address your nine and a quarters is perhaps... depending on the market situation, of course, you're refiling what you've said a majority of in the prepared remarks and then use the CO2 tax credits for the rest. I'm just trying to figure out within this year how big, how much cash you could get crystallized from that to address some minority part of that
spk03: Well, it is a possibility. It is one scenario that we would leave a stub portion out. But if we approach the market and we get an exceptional rate, we may opt to leave all of the outstanding debt on the balance sheet at that advantageous lower rate and not hold a stub out to pay down. So we're in the preliminary stages of evaluating whether we're going to do that or not. It's just one potential outcome. And as soon as we establish our structure around the 45Qs, we'll have a better idea of timing on which, if we chose to leave a stub out, we would start to pay that down. So I know that's a non-answer, but we're trying to give you as much information as we can very early in the process.
spk04: No, I appreciate that. One last thing separately. You said the cap tax for 2021 is, I think, $23 to $26 million. But that does not include an additional $8 million of turnaround topbacks. Did I hear that right? And what is your Coffeyville and East Dubuque turnaround schedule over 2021-2022?
spk12: So, first of all, the $8 million is turnaround expense, not capital. And so that runs through the P&L. Our schedule right now is we're targeting a fall 2021 turnaround schedule. for Coffeyville and Sembler probably, it's early, but fall 2022 turnaround at East Dubuque.
spk07: Thank you very much.
spk02: Our next question comes from the line of Richard Coos with Jefferies. Please proceed with your question.
spk05: Hey guys, thanks for taking my questions. So you mentioned it a little bit, East Dubuque down last week due to some of the weather situation. Was there any issue in Coffeyville? And then my follow up on East Dubuque would be, you know, was that operationally driven? Was it a function of natural gas pricing? And what have you guys or what are your expectations around the input for Q1 as a result of some of these issues?
spk12: Um, I'll start at Coffeyville cause that's pretty simple. Um, we didn't have any major disruptions at Coffeyville, uh, because the plant uses petroleum Coke as a feedstock, um, for making hydrogen. And so the plant operated during the week. We navigated around, uh, gas availability and electricity availability in Kansas. That was a factor for all the plants in Oklahoma and Kansas last week at East Dubuque. Um, That was more opportunistic. We had pre-purchased gas there at the plant and decided that it made more sense to take the plant down and sell the gas into the marketplace rather than operate. So that was more of an economic decision. It wasn't an operational decision at East Dubuque.
spk05: Gotcha. Interesting. And I guess, what is the potential EBITDA impact as a result of that? I mean, you obviously wouldn't have done that if it was going to be negative for you.
spk12: Yeah, we're not in a position to quantify that, but obviously we thought it was a better idea to take the plant down than it was to run with what the conditions were.
spk05: Gotcha. Yeah. And then lastly for me, obviously we've seen a pretty significant run-up in nitrogen fertilizer prices. You know, can you guys maybe give a sense of how much book you had sold forward at lower prices and how much you expect to be able to benefit over the next quarter or two from the higher pricing that we're seeing?
spk12: Sure. So we're always settling forward. So we If you look at our fourth quarter, that was sold forward during the, I'd say, the lower point in the marketplace. But in the first quarter, we were selling as we entered the year into the first quarter, and so prices were rising. And so we're kind of seeing a gentle rise in the first. The full effect of the rise in fertilizer pricing will be seen in the second quarter. where the prices from January 1 forward have risen quite a bit. But we'll see more of that rise in the second quarter. I think that probably the most interesting opportunity is the spring. We think the spring will be very good, depending on the weather, if the weather holds up and get a good application. But we think inventory levels have been as low as they've been in several years, a number of years, And that should carry through to the spring and into the summer, which would help the second half of the year, we believe, because inventory levels came into the year low. And with the production outage last week of virtually all the, you know, a lot of the nitrogen plants in the United States, that further tightens the inventory level. So we feel very good about the overall production. supply-demand balance, plus with farmer economic crop prices the way they are, we feel very good about the spring. But you'll see the full effect of the pricing impact in the second quarter this year.
spk01: Got it. All right. I really appreciate it. Good luck, guys.
spk02: Our next question comes from the line of Brian DeRubio with Robert W. Baird. Please proceed with your question.
spk06: Good morning. As we think about net leverage reduction, you know, what are you targeting as a sort of leverage going forward?
spk08: We don't really, we have not talked about it in terms of what we are targeting.
spk03: We just recognize that our debt burden or our service costs on a quarterly basis take a meaningful amount of available EBITDA off the table for us to have a recurring cash available for distribution number. And so In terms of reducing to a specific leverage ratio, that changes so much with EBITDA. It's really not a meaningful target. I think on a comparative basis with the peer group, you can see that we're substantially more levered than they are. So lower than it is now with a more sustainable debt service cost profile.
spk06: Okay. That's fair, given the volatility. Just in capital allocation priorities, I mean, you've been buying back some shares. You had the opportunity to buy back some debt at a discount a few months ago. Is it really now just focused on this refinance and then you're going to be spending more money towards shareholder returns?
spk12: I would just say that we want to get through the next step first and see. A lot of it's going to depend on the market. If prices are headed durably higher, then the board will have to reconsider all of that in sort of how they allocate capital. But the first step would be to deliver on our results this year and execute and get a refinancing done and then look at the cash flow profile and decide, the board will decide how to move forward from there. So I'd say it's too early to call what we will do very long into the future. We wanna see how the market's turning and then how the refinancing will go.
spk06: Okay, and then just on the refinancing, give me a sense of what the sense of urgency is with you and the board. Your bonds do step down to par in about four months. Is that something you're willing to wait on or is there a greater sense of urgency to get this refinancing done sooner than later?
spk03: Well, the rates certainly don't justify doing it just now. I mean, if there's something that happens where rates fall through the floor, then we may. But at this point, we are anticipating aligning with that fall to par.
spk06: That's fair. And then just finally, a nice little surprise was the drop in petco prices in the quarter, both sequentially year over year. Any dynamics that you can share with us on the reason for that decline? And I think you had your contract for Petco expire in December of last year. Any thoughts on sort of the new pricing dynamics that we should expect going forward?
spk12: Sure. So there's two different buckets of Petco with the refinery, the Coffeeville refinery, which is our sister company. We have a contractual formula there. that is tied to the price of UAM. And with UAM prices being low, the price of pet coke was low. And so that helped pull the average down for the year. I would say pet coke prices generally were, contractual prices were pretty steady. Spot pricing is really dependent on the time and sometimes that can get expensive. What we did this year compared to last year for 2021 was we actually have contracted with, I call it a family of refineries. So we're not really, we've spread around our sourcing further than we did in the past. We used to be two and then we kind of went to three. And so we're up to four now. And that gives us more flexibility if the crude slate changes, if the production levels down, if there's a turnaround. We're drawing from a portfolio. There's a group of refineries within striking distance of Coffeyville. And so we've broadened our portfolio to lessen the impact of any particular refinery in that mix.
spk06: Great. And I apologize. I do have one more. Are you seeing any shifts right now in trade flows? you know, with respect to UAN in particular. I know the EU tariffs sort of distorted historical trade flows and brought a lot of imported UAN into the U.S. Any comments or thoughts on current dynamics of what you're seeing in the market today?
spk12: So a couple things there. One, the low prices in the second half of 2020 discouraged, has discouraged in the first quarter of 2021 imports of UAN. So The numbers I saw here recently were that the forecast for the first quarter is that UAN imports will be down around 500,000 tons, which is a pretty meaningful amount. And so the low prices did the trick on the marketplace by reducing the incentive. And then prices were rising faster elsewhere. So that UAN found a home either in Latin America or in Europe So we've seen that kind of the trade flows adjust. The interesting thing about UAN this year will be, depending on what the availability of ammonia and the weather, there may be a push at the end of the season for top dress and side dress for UAN because we don't get enough ammonia on the ground in usually the April timeframe in the core of the Midwest. So there may be an additional draw on UAN this year just because of the physical ability to deliver ammonia, which usually ammonia and UAN go together. And urea is still priced at a premium, so it sort of favors UAN right now. But UAN is catching up. It's caught up hot in the marketplace. But the imports are well down from last year.
spk06: Great. Appreciate the call. Thank you so much.
spk02: Thank you. We have reached the end of the question and answer session. I would now like to turn the floor back over to management for closing comments.
spk12: Well, we appreciate everybody attending today, and we look forward to discussing our first quarter results here in a couple months. Thank you very much for your time.
spk02: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time.
spk08: Thank you for your participation, and have a wonderful day. Thank you. Bye. Thank you. Thank you.
spk02: Greetings, and welcome to the CBR Partners LP fourth quarter 2020 conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Richard Roberts. Senior Manager of Financial Planning and Analysis in Investor Relations. Thank you, sir. You may begin.
spk09: Thank you, Christine. Good morning, everyone. We appreciate your participation in today's call. With me today are Mark Pytosh, our Chief Executive Officer, Tracy Jackson, our Chief Financial Officer, and other members of management. Prior to discussing our 2020 full-year results, let me remind you that this conference call may contain forward-looking statements. as that term is defined under federal securities laws. For this purpose, any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements. You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements whether as a result of new information, future events, or otherwise, except to the extent required by law. Let me also remind you that TVR Partners completed a one-for-ten reverse split of its common units on November 23, 2020. Any per-unit references made on this call are on a split-adjusted basis. This call also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliation to the most publicly, to the most directly comparable GAAP financial measures, are included in our 2020 four-year earnings release that we filed with the SEC yesterday after the close of the market. Let me also remind you that we are a variable distribution MLP. We will review our previously established reserves, current cash usage, evaluate future anticipated cash needs, and may reserve amounts for other future cash needs as determined by our General Partners Board. As a result, our distributions, if any, will vary from quarter to quarter due to several factors, including but not limited to operating performance, fluctuations in the prices received for finished products, capital expenditures, and cash reserve deemed necessary or appropriate by the board of directors of our general partner. With that said, I'll turn the call over to Mark Pytosh, our chief executive officer. Mark.
spk12: Thank you, Richard, and good morning, everyone, and thank you for joining us for today's call. The summarized financial highlights for the full year of 2020 included net sales of $350 million, a net loss of $98 million, EBITDA of $41 million, which was reduced by a $41 million non-cash goodwill impairment, and we repurchased over 623,000 CBR Partners common units for $7 million. Looking more specifically at the 2020 fourth quarter, we reported net sales of 90 million, a net loss of 17 million, and EBITDA of 18 million. We repurchased nearly 394,000 CBR Partners common units for 5 million. and there is no cash available for distribution this quarter. During the fourth quarter of 2020, we had strong utilization at both facilities. At Coffeyville, the ammonia plant operated at 99% utilization compared to the fourth quarter of 2019 at 90%. At East Dubuque, the ammonia plant operated at 103% utilization compared to 88% in the prior year period adjusted for last year's scheduled turnaround. Our combined operations produced approximately 220,000 gross tons of ammonia, of which 75,000 net tons were available for sale for the fourth quarter of 2020. This compares to production of 180,000 gross tons of ammonia, of which 55,000 net tons were available for sale in the prior year period. We produced 335,000 tons of UAN in the fourth quarter of 2020, as compared to 286,000 tons in the prior year period which was impacted by the planned turnaround at East Dubuque. During the fourth quarter of 2020, we sold approximately 325,000 tons of UAN, an average price of $139 a ton, and approximately 114,000 tons of ammonia, an average price of $267 per ton. Year-over-year pricing softened for UAN and ammonia, which were down 21% and 18% respectively. Although prices for nitrogen fertilizers were soft for most of the year, Prices began to increase in the fall as crop prices and farmer economics improved. The combination of improving farmer economics and favorable weather drove a strong fall among the application season, and that strength is carried over into spring demand as well. The outlook for spring plantings and demand for crop inputs remain strong, with the USDA estimating 92 million planted corn acres this year. This is translating into significantly higher prices for UAN and ammonia for the spring, which I will discuss further in my closing remarks. I will now turn the call over to Tracy to discuss our financial results.
spk03: Thank you, Mark. Turning to our results for the full year 2020, we reported net sales of $350 million and an operating loss of $35 million, compared to net sales of $404 million and operating income of $27 million for the full year 2019. Net losses for the full year 2020 were $98 million or $8.77 per common unit and EBITDA was $41 million. This compares to a net loss of $35 million or $3.09 per common unit and EBITDA of $107 million for the full year 2019. As a reminder, our full year 2020 results were reduced by a $41 million non-cash goodwill impairment related to the Coffeyville facility taken in the second quarter. The year-over-year decline in EBITDA was driven primarily by the Goodwill impairment and lower prices for UAN and ammonia. For the fourth quarter of 2020, we reported net sales of $90 million and an operating loss of $1 million, compared to net sales of $86 million and an operating loss of $9 million in the fourth quarter of 2019. Net losses for the fourth quarter of 2020 were $17 million or $1.53 per common unit, and EBITDA was $18 million. This compares to a net loss of $25 million or $2.20 per common unit and EBITDA of $11 million for the fourth quarter of 2019. The increase in EBITDA was driven primarily by higher sales volumes offset somewhat by lower pricing for UAN and ammonia. Direct operating expenses for the fourth quarter of 2020 decreased to $44 million from $46 million in the prior year period. Excluding inventory impacts, direct operating expenses declined by approximately $4 million year over year, primarily related to turnaround and associated expenses incurred in the fourth quarter of 2019. For the full year 2020, we reduced operating expenses and SG&A costs by over $23 million compared to the full year 2019, a direct result of our cost savings initiatives. Turning to capital spending, during the fourth quarter of 2020, we spent $3 million primarily on maintenance capital. For the full year 2020, we spent approximately $16 million, of which $12 million was for maintenance capital. Total capital spending for the year came in below our expected range of $18 to $21 million as a result of shift in timing of certain capital projects into subsequent years. We currently estimate total capital spending for 2021 to be $23 to $26 million, of which $18 to $20 million is expected to be maintenance capital. This excludes turnaround spending, which we expect will be approximately $8 million. Looking at the balance sheet, as of December 31st, we had approximately $51 million of liquidity, which was comprised of $31 million in cash and availability under our ABL facility of $20 million. Within our cash balance of $31 million, we had approximately $8 million related to customer prepayments for the future delivery of product. Total debt on the balance sheet remains at $647 million, which is comprised of $645 million of senior notes due in 2023, and $2 million of senior notes due in April of 2021. As we have discussed in recent earnings calls, refinancing the 2023 notes remains one of our top priorities. Continued strength in the debt capital markets may provide an opportunity to pursue a refinancing at favorable rates in the next few months. We are currently considering options that would allow us to delever the partnership along with refinancing the existing notes. One scenario could be to refinance the majority of the 2023 notes, but leave a stub amount outstanding that we would be able to pay down over the next few years. We are currently in the process of evaluating structures that could allow us to generate and monetize 45Q tax credits from the CO2 we capture at the Coffeyville facility. We are still relatively early in the process, but we would expect to be able to get something done in 2021 that could provide additional cash to be used to reduce our total debt outstanding. In assessing our cash available for distribution, we generated EBITDA of 18 million for the quarter, had current cash needs of 15 million for debt service, and 2 million for environmental and maintenance capital expenditures. During the quarter, we repurchased nearly 394,000 common units for total cash consideration of 4.8 million. In addition, the board of directors of our general partner established reserves of 1.5 million for the planned turnaround at Coffeyville in 2021. As a result, there was no cash available for distribution. During the quarter, we regained compliance with the New York Stock Exchange continued listing standards through the completion of a 1 for 10 reverse split on November 23rd. Looking ahead to the first quarter of 2021, despite reducing operating rates at East Dubuque last week due to the extreme weather conditions, we estimate our ammonia utilization rate to be greater than 90% for the quarter. We expect direct operating expenses to be $35 to $40 million, excluding inventory impacts, and total capital spending to be between $4 and $7 million. With that, I will turn the call back over to Mark. Thanks, Tracy.
spk12: Since the last earnings call, there's been continued improvement in crop prices and farmer economics. For the 2020 planting season, the USDA estimates that planted corn acres were 90 million and yield per acre was 172. On the demand side, ethanol blending remains at lower levels than last year due to lower gasoline demand. Lower ethanol-related corn demand in the U.S. has been more than offset by Chinese and other demand for corn. The USDA is now estimating U.S. carryout inventories of 1.55 billion bushels or 11% of domestic production. That is down over 50% from the summer 2020 estimates. Crop forecasts for Argentina and Brazil are also lower than previous estimates, and soybean demand from China has been much greater than expected. This change in fundamentals led to a rally in grain prices, with corn recently trading at around $5.50 a bushel and soybeans at $14 a bushel. Stronger farmer economics led to a robust fall ammonia application and accelerating demand for all crop inputs for spring. Fall demand for ammonia was the best it has been in several years. We believe that industry-wide ammonia inventories were very low after the fall and prices have remained firm through the winter. We have also seen strong fall on demand for ammonia for spring application and have a good order book for the season. Since the beginning of 2021, urea prices have rallied significantly across the globe. Prices rose to a peak of $370 per ton in February with robust demand in advance of spring application. After a lower pricing in the second half of 2020, UAN prices have fallen urea and demand has been robust for spring application even at much higher prices. For producers, natural gas prices have risen approximately 50 cents per MMBTU, but international natural gas prices have doubled or tripled due to strong demand and limited increase in supply. The spread between domestic and international natural gas nearly reached parity in the summer of 2020, but is now over $5 per MMBTU higher on average in international markets compared to domestic pricing. Lower domestic natural gas prices give U.S. nitrogen fertilizer producers a cost advantage compared to international producers and reduces the incentive to run at high marginal operating rates of production. The recent severe weather across the Midwest caused many nitrogen fertilizer production facilities to be temporarily shut down due to limited natural gas availability and or extremely high regional natural gas prices. This loss of production should further tighten nitrogen fertilizer inventories in advance of spring. As Tracy mentioned, the recently issued 45Q tax credit regulations may provide an attractive opportunity for CVR partners. We currently sell a significant amount of the CO2 generated at Coffeyville to an independent oil company for sequestering through enhanced oil recovery. We also use a portion of the CO2 generated for the production of urea that is then further upgraded to UAN. Both of these processes should qualify for the generation of 45Q tax credits based on the final IRS regulations published in January. We're currently in the process of evaluating different structures that can allow us to maximize the value of the partnership from these tax credits. I look forward to providing additional information as we get further along in the process. This sequestering of CO2 of Coffeeville combined with the nitrous oxide abatement at both of our plants has reduced our carbon footprint by over a million metric tons per year. With these reductions, we could certify our ammonia production in Coffeeville as blue ammonia and position CBR as one of the lowest carbon footprint nitrogen fertilizer producers in the U.S. We're continuing to evaluate other methods of reducing our carbon footprint at both plants and will provide updates when we are prepared to implement changes. Any proceeds generated from 45Q tax credits would likely be directed towards reducing our total debt outstanding. We also anticipate a refinancing of our debt structure at lower rates. The combination of lowering our debt service costs and reducing outstanding debt would lower our annual cash burn rate for debt service and improve the partnership's ability to consistently generate free cash flow and continue to delever. We have patiently waited for the right opportunity and want to take advantage of the improving fertilizer market and attractive debt markets. As I mentioned earlier, we continue to repurchase our units during the fourth quarter of 2020. In total, we repurchased over 623,000 CBR Partners common units for $7 million during the year, leaving approximately $3 million available on the original authorization at year end. Despite the strong performance of the unit since November, We continue to feel they are significantly undervalued, and the Board of Directors has approved an additional $10 million unit repurchase authorization, which would enable the partnership to repurchase common units should it elect to do in its discretion. I want to reiterate that the partnership will continue to focus on maximizing free cash flow by safely operating our plants reliably and at high utilization rates. while focusing on the health and safety of our employees, contractors, and communities. We will continue to prudently manage our costs and be judicious with our capital, but selectively invest in reliability projects and incremental additions to production capacity, and we will maximize our marketing and logistics activities. In closing, I would like to thank our employees for their commitment to being healthy, safe, and flexible, and helping the company execute at a high level while managing the impact of COVID-19 and the extreme weather these past two weeks. With that operating, we will take questions.
spk02: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question comes from the line of Roger Spitz with Bank of America. Please proceed with your question.
spk04: Thank you and good morning. Good morning. Regarding the CO2 tax credits, perhaps you can tell how we should think about that. How much cash could you potentially generate? When would you receive it? It sounds like it's more of like an ongoing cash receipt as opposed to a one-time, but maybe you can just try to tell us how to think about that.
spk03: I'll take the first stab at it. Mark can add to it. It is a tax credit program that will pay or reduce taxes potentially by whatever structure we end up going with over a 10-year period of time. And we have initial estimates, but they're very preliminary. We're not prepared to disclose those yet.
spk12: Yeah, I would just add that you know, we're still in early phases of, the regulations have just been final for a month. So we're still in a pretty early phase of exploring the structures and what the value potential. The theory is, in our case, we've been operating our facility for seven years. So we've already been sequestering CO2 for seven years. And so we're grandfathered under the regulations. The regulations also are there to incentivize future projects for sequestration, but we will be grandfathered in, but we have a long tail on the ability to claim those credits. And so we're looking at different avenues for how do we maximize the value.
spk04: But I mean, does the regulations allow you to look back and get, you know, crystallize some tax credits for the past seven years?
spk12: No, it doesn't really do that. The starting point of the regulation would be 2018 if you had a plan in service. So the start date would be 2018, and you have to reach a threshold for how much sequestering you do. So we could go back further in time than that.
spk04: I mean, the reason I'm asking is you've suggested the way to address your nine and a quarters is perhaps – depending on the market situation, of course, you're refiling what you've said a majority of in the prepared remarks and then use the CO2 tax credits for the rest. I'm just trying to figure out within this year how much cash you could get crystallized from that to address some minority part of that
spk03: Well, it is a possibility. It is one scenario that we would leave a stub portion out. But if we approach the market and we get an exceptional rate, we may opt to leave all of the outstanding debt on the balance sheet at that advantageous lower rate and not hold a stub out to pay down. So we're in the preliminary stages of evaluating whether we're going to do that or not. It's just one potential outcome. And as soon as we establish our structure around the 45Qs, we'll have a better idea of timing on which, if we chose to leave a stub out, we would start to pay that down. So I know that's a non-answer, but we're trying to give you as much information as we can very early in the process.
spk04: No, I appreciate that. One last thing separately. You said the cap tax for 2021 is, I think, $23 to $26 million. But that does not include an additional $8 million of turnaround topbacks. Did I hear that right? And what is your Coffeyville and East Dubuque turnaround schedule over 2021-2022?
spk12: So, first of all, the $8 million is turnaround expense, not capital. And so that runs through the P&L. Our schedule right now is we're targeting a fall 2021 turnaround. for Coffeyville and Sibler probably, it's early, but fall 2022 turnaround at East Dubuque.
spk07: Thank you very much.
spk02: Our next question comes from the line of Richard Coos with Jefferies. Please proceed with your question.
spk05: Hey guys, thanks for taking my questions. So you mentioned it a little bit, East Dubuque down last week due to some of the weather situation. Was there any issue in Coffeyville? And then my follow-up on East Dubuque would be, you know, was that operationally driven? Was it a function of natural gas pricing? And what have you guys or what are your expectations around the input for Q1 as a result of some of these issues?
spk12: um, I'll start at Coffeyville cause that's pretty simple. Um, we didn't have any major disruptions at Coffeyville, uh, because the plant uses a petroleum Coke as a feedstock, um, for making hydrogen. And so the plant operated during the week. We navigated around, uh, gas availability and electricity availability in Kansas. That was a factor for all the plants in Oklahoma and Kansas last week at East Dubuque. Um, That was more opportunistic. We had pre-purchased gas there at the plant and decided that it made more sense to take the plant down and sell the gas into the marketplace rather than operate. So that was more of an economic decision. It wasn't an operational decision at East Dubuque.
spk05: Gotcha. Interesting. And I guess, what is the potential EBITDA impact as a result of that? I mean, you obviously wouldn't have done that if it was going to be negative for you.
spk12: Yeah, we're not in a position to quantify that, but obviously we thought it was a better idea to take the plant down than it was to run with what the conditions were.
spk05: Gotcha. Yeah. And then lastly for me, obviously we've seen a pretty significant run-up in nitrogen fertilizer prices. Can you guys maybe give a sense of how much book you had sold forward at lower prices and how much you expect to be able to benefit over the next quarter or two from the higher pricing that we're seeing?
spk12: Sure. So we're always selling forward. So we If you look at our fourth quarter, that was sold forward during the, you know, I'd say the lower point in the marketplace. But in the first quarter, we were selling as we entered the year into the first quarter and some prices were rising. And so, you know, we're kind of seeing a gentle rise in the first. The full effect of the rise in fertilizer pricing will be seen in the second quarter. where the prices from January 1 forward have risen quite a bit. But we'll see more of that rise in the second quarter. I think that probably the most interesting opportunity is the spring. We think the spring will be very good, depending on the weather, if the weather holds up and get a good application. But we think inventory levels have been as low as they've been in several years, a number of years, And that should carry through to the spring and into the summer, which would help the second half of the year, we believe, because inventory levels came into the year low. And with the production outage last week of virtually all the – you know, a lot of the nitrogen plants in the United States, that further tightens the inventory level. So we feel very good about the overall – supply-demand balance, plus with farmer economic crop prices the way they are, we feel very good about the spring. But you'll see the full effect of the pricing impact in the second quarter this year.
spk01: Got it. All right. I really appreciate it. Good luck, guys.
spk02: Our next question comes from the line of Brian DeRubio with Robert W. Baird. Please proceed with your question.
spk06: Good morning. As we think about net leverage reduction, what are you targeting as leverage going forward?
spk08: We have not talked about it in terms of what we are targeting.
spk03: We just recognize that our debt burden or our service costs on a quarterly basis take a meaningful amount of available EBITDA off the table for us to have a recurring cash available for distribution number. In terms of reducing to a specific leverage ratio, that changes so much with EBITDA. It's really not a meaningful target. I think on a comparative basis with the peer group, you can see that we're substantially more levered than they are. So lower than it is now with a more sustainable debt service cost profile.
spk06: Okay. That's fair, given the volatility. Just in capital allocation priorities, I mean, you've been buying back some shares. You had the opportunity to buy back some debt at a discount a few months ago. Is it really now just focused on this refinance and then you're going to be spending more money towards shareholder returns?
spk12: I would just say that we want to get through the next step first and see. A lot of it's going to depend on the market. If prices are headed durably higher, then the board will have to reconsider all of that in sort of how they allocate capital. But the first step would be to deliver on our results this year and execute and get a refinancing done and then look at the cash flow profile and decide, the board will decide how to move forward from there. So I'd say it's too early to call what we will do very long into the future. We wanna see how the market's turning and then how the refinancing will go.
spk06: Okay, and then just on the refinancing, give me a sense of what the sense of urgency is with you and the board. Your bonds do step down to par in about four months. Is that something you're willing to wait on or is there a greater sense of urgency to get this refinancing done sooner than later?
spk03: Well, the rates certainly don't justify doing it just now. I mean, if there's something that happens where rates fall through the floor, then we may. But at this point, we are anticipating aligning with that fall to par.
spk06: That's fair. And then just finally, a nice little surprise was the drop in petco prices in the quarter, both sequentially year over year. Any dynamics that you can share with us on the reason for that decline? And I think you had your contract for Petco expire in December of last year. Any thoughts on sort of the new pricing dynamics that we should expect going forward?
spk12: Sure. So there's two different buckets of Petco with the refinery, the Coffeeville refinery, which is our sister company. We have a contractual formula there. that is tied to the price of UAM. And with UAM prices being low, the price of pet coke was low. And so that helped pull the average down for the year. I would say pet coke prices generally were, contractual prices were pretty steady. Spot pricing is really dependent on the time and sometimes that can get expensive. What we did this year compared to last year for 2021 was we actually have contracted with, I call it a family of refineries. So we're not really, we've spread around our sourcing further than we did in the past. We used to be two and then we kind of went to three. And so we're up to four now. And that gives us more flexibility if the crude slate changes, if the production levels down, if there's a turnaround. We're drawing from a portfolio. There's a group of refineries within striking distance of Coffeyville. And so we've broadened our portfolio to lessen the impact of any particular refinery in that mix.
spk06: Great. And I apologize. I do have one more. Are you seeing any shifts right now in trade flows you know, with respect to UAN in particular. I know the EU tariffs sort of distorted historical trade flows and brought a lot of imported UAN into the U.S. Any comments or thoughts on current dynamics of what you're seeing in the market today?
spk12: So a couple things there. One, the low prices in the second half of 2020 discouraged, has discouraged in the first quarter of 2021 imports of UAN. So The numbers I saw here recently were that the forecast for the first quarter is that UAN imports will be down around 500,000 tons, which is a pretty meaningful amount. And so the low prices did the trick on the marketplace by reducing the incentive. And then prices were rising faster elsewhere. So that UAN found a home either in Latin America or in Europe So we've seen that kind of trade flows adjust. The interesting thing about UAN this year will be depending on what the availability of ammonia and the weather, there may be a push at the end of the season for top dress and side dress for UAN because we don't get enough ammonia on the ground in usually the April timeframe in the core of the Midwest. So there may be an additional draw on UAN this year just because of the physical ability to deliver ammonia, which usually ammonia and UAN go together. And urea is still priced at a premium, so it sort of favors UAN right now. But UAN is catching up. It's caught up hot in the marketplace. But the imports are well down from last year.
spk06: Great. Appreciate the call. Thank you so much.
spk02: Thank you. We have reached the end of the question and answer session. I would now like to turn the floor back over to management for closing comments.
spk12: Well, we appreciate everybody attending today, and we look forward to discussing our first quarter results here in a couple months. Thank you very much for your time.
spk02: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Disclaimer