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CVR Energy off the block, considering acquisitions for diversification

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Six trends shaping the industries and sectors we cover in 2021

Six trends shaping the industries and sectors we cover in 2021

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Essential Energy Insights - January 2021


CVR Energy off the block, considering acquisitions for diversification

CVR Energy Inc. CEO David Lamp said Oct. 23 that the company terminated the formal process to explore the sale of the refining and fertilizing company that had kicked off in May, and instead, CVR pivoted to looking for ways to diversify its earnings stream through acquisitions.

In April, Lamp had pitched the company as an "excellent fix" for Permian oil producers trying to manage their oil price risk. Since then, pipelines have come online to relieve some of the pressure holding the region's oil prices down. During an Oct. 24 third-quarter earnings call, Lamp lamented how the market is valuing refiners.

"We believe that the market still does not fully understand or appreciate the potential impacts of IMO 2020, Tier 3 gasoline, and the continued growth in domestic shale crude oil production," Lamp said. "We are well positioned in regard to all these market forces and most of the capital projects we are developing will further increase our ability to make premium gasoline, increase our liquids yield, and expand our feedstock optionality."

Lamp said earnings diversification options include retail — to mitigate exposure to the biofuel blending credit, or RIN, market — and refining. "We are still the poster child for high RIN prices, and we recognize it," Lamp said. "But we still have to either get into the wholesale side of the business or retail to really make a dent into that whole process."

"PADD 4 would be of interest to us … just because we look for those niche-type opportunities," Lamp said. "We're an inland refiner, and we like that dislocation from the main liquidity points and think that's a value-added stream for us that we would like to continue that kind of differentiation."

PADD 4 is the region comprising the western mountain states of Colorado, Idaho, Montana, Utah and Wyoming. Rumors emerged Oct. 22 that Marathon Petroleum Corp. was evaluating the sale of its 58,500-barrel-per-day Salt Lake City refinery as that company's CEO battles investor scrutiny.

To fund an acquisition, Lamp noted that CVR's "balance sheet is very strong on cash." The company announced Oct. 23 that its board authorized a four-year, $300 million stock repurchase program, which the company would use "opportunistically … as one potential way to return excess cash to shareholders."