CVR Energy, Inc. (CVI) Q2 2019 Earnings Report, Transcript and Summary

Greetings and welcome to CVR Energy Second Quarter 2019 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jay Finks, Vice President of Finance and Treasurer.

Thank you, Dana. Good afternoon, everyone. We very much appreciate you joining us this afternoon for our CVR Energy's second quarter 2019 earnings call. With me today are Dave Lamp, our Chief Executive Officer; Tracy Jackson, our Chief Financial Officer and other members of management. Prior to discussing our 2019 second quarter 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. Without limiting the foregoing, the words outlook, believes, anticipates, plans, expects and similar expressions are intended to identify 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 obligations 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. This call also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliations to the most directly comparable GAAP financial measures are included in our 2019 second quarter earnings release that we filed with the SEC. With that said, I'll turn the call over to Dave.

Thank you, Jay. Good afternoon, everyone and thank you for joining our earnings call. Hopefully, you had an opportunity to listen to the CVR Partners earnings call earlier today. Yesterday, we reported second quarter consolidated net income of $128 million, as compared to $68 million in the second of 2018. EBITDA for the second of '19 was $273 million, compared to $180 million for the previous year. The year-over-year EBITDA improvement was driven by safe reliable operations, low RIN prices, wide Brent TI differentials, higher crack spreads, increased fertilizer sales and sales volumes and price and a gain on our Cushing tank farm sale. We also announced a second quarter dividend a $0.75 per share, which will be paid on August 12 to stockholders of record on the close of the market on August 5. On an annualized basis, our current dividend of $3 per share represents an industry-leading dividend yield of approximately 5.5% based on yesterday's closed price. For our Petroleum segment, both plants ran well operationally, despite record levels of rainfall and flooding conditions that persisted through the quarter. The combined total throughput for the second quarter of ‘19 was approximately 216,000 barrels per day, compared to 218,000 barrels per day in the second quarter of ’18. The Group 3 2-1-1 crack spread averaged $20.67 per barrel in the second quarter of ‘19 as compared to $19.18 per barrel for the second quarter of ‘18. Crude differentials remained favorable during the quarter with the average differential between Brent and TI remaining over $8.50 per barrel or approximately $1.50 per barrel wider than the second quarter of ’18. The WCS differential tightened relative to the second quarter of ‘18 to $12.63 per barrel, largely as a result of the continued production curtailment imposed by the Alberta government. The Midland differential to Cushing also narrowed to $2.27 per barrel in the quarter. Light product yield for the quarter was 98% on crude processed, our distillate yield as a percentage of total crude oil throughput was 44% in the second quarter of 2019, slightly below prior year period mainly due to the runoff of naphtha built during the Wynnewood turnaround late in the first quarter, early second quarter. Our distillate yield consistently ranks in the top quartile among US independent refiners. In total, we gathered approximately 120,000 barrels a day of crude oil during the second quarter of 2019 as compared to 111,000 barrels for the same period last year. As we continue to ship our slate to crude oils gathered in our own backyard, we have increased SCOOP gathering and runs by over 25% relative to the second quarter of ’18. As we increased our crude oil gathering in the SCOOP, we have reduced gathering activities in other non-strategic areas as well as our purchases of Cushing common crude. During the second quarter, the fertilizer segment had a strong reliable operations at both facilities. Coffeyville’s ammonia unit operated at 97% utilization in the quarter, well above the utilization in the second quarter of ‘18, which is impacted by both planned and unplanned downtime. At East Dubuque, the ammonia plant operated at 98% utilization, which was also higher than the prior year period. Low natural gas prices combined with strong demand and constrained river movements resulted in fertilizer’s solid contribution to CVR Energy’s consolidated results. Board of Directors for the CVR Partners general partner declared a second quarter 2019 distribution of $0.14 per common unit, which will be paid on August 12 to unit holders of record at the close of the market on August 5. As CVR Energy owns approximately 34% of the common units of CVR Partners, we will receive proportionate cash distribution of approximately $5 million. Now, let me turn the call over to Tracy to discuss our financial highlights.

Thank you, Dave and good afternoon, everyone. We reported consolidated net income of $128 million in the second quarter of 2019, as compared to $68 million in the prior year period. Diluted earnings per share was $1.16 for the second quarter of 2019 compared to $0.50 for the prior year period. The effective tax rate for the second quarter of 2019 was 24% compared to 18% for the prior year period. The increase in income tax rate was due primarily to the decrease in non-controlling interest as a result of the first quarter equity transaction. We continue to expect that our full-year 2019 effective tax rate will be between 20% and 25%. The Petroleum segment's EBITDA for the second quarter of 2019 was $216 million compared to $164 million in the same period in 2018. The increase in EBITDA year-over-year was driven by low RINs prices, higher crack spreads and the gain on the Cushing tank farm sale. In the second quarter of 2019, our Petroleum segment's refining margin, excluding inventory valuation impacts, was $15.68 per total throughput barrel compared to $13.03 in the same quarter of 2018. The slight decline in crude oil flat price through the quarter generated a negative inventory valuation impact of $0.02 per barrel during the second quarter of 2019. This compares to $1.10 per barrel positive impact during the same period last year. The capture rate, excluding the inventory evaluation impacts, was 76% in the second quarter of 2019 as compared to 68% in the second quarter of 2018. The total derivative gains for the second quarter of 2019 totaled $4 million, which includes unrealized gains of $2 million associated with open purchases of Canadian crude oil that are scheduled for future delivery. In the second quarter of 2018, we had a total derivative gain of $10 million, which included $7 million of unrealized losses at the end of the quarter. RINs expense in the second quarter of 2019 was $21 million or $1.05 per barrel of total throughput compared to $50 million or $2.51 per barrel of total throughput in the same period last year. Based upon recent market prices of RINs and current production plans, we estimate that our RINs expense will be approximately $70 million to $80 million in 2019, excluding any potential reductions in renewable volume obligation. In addition, we expect every $0.05 move in the price of RINs to result in a $10 million to $15 million impact to our annual RINs expense. The Petroleum segment’s direct operating expenses were $4.40 per barrel of total throughput in the second quarter of 2019 as compared to $4.68 per barrel in the prior year period. The decrease was primarily associated with lower environmental accrual. For the second quarter of 2019, the fertilizer segment reported operating income of $35 million and net income of $19 million or $0.17 per common unit. This is compared to second quarter of 2018 operating losses of less than $1 million, and a net loss of $16 million or $0.15 per common unit. Adjusted EBITDA was $60 million in the second quarter of 2019, compared to $26 million for the prior year period. This year-over-year increase in adjusted EBITDA was primarily due to a 28% increase in total sales volume and improved pricing of 31% and 14% for ammonia and UAN and respectively. Total consolidated capital spending for the second quarter of 2019 was $22 million, which included $17 million from the Petroleum segment and $2 million from the fertilizer segment. Of this total, environmental and maintenance capital spending comprised $20 million, including $15 million in the Petroleum segment and $2 million in the fertilizer segment. We now estimate the total consolidated capital spending for 2019 to be approximately $160 million to $180 million, of which approximately $140 million to $150 million is environmental and maintenance capital. This includes -- excludes planned turnaround spending, which we estimate will be approximately $50 million to $55 million for the year. Our cash position remains strong as we ended the quarter with cash of approximately $540 million on a consolidated basis, which includes $69 million in the fertilizer segment. We continue to feel confident in our strong balance sheet and liquidity position. Looking ahead, we estimate our total throughput for the third quarter of 2019 to be approximately 215,000 to 225,000 barrels per day. We expect total direct operating expenses for the third quarter to be approximately $90 million to $100 million and total capital spending to range between $40 million and $60 million. With that Dave, I'll turn the call back to you.

Thank you, Tracy. In summary, we are proud of our strong results for the second quarter of 2019. Our mission continues to be a top tier North American petroleum refining and fertilizer company as measured by safe reliable operations, superior financial performance and profitable growth. Looking at the second half of 2019 and beyond, we currently see a host of market themes that drive our outlook. One, domestic crude oil and specifically light crude oil production continues to increase. Recent data from EIA shows year-over-year crude oil production growth from the major shale oil basins of over 1.2 million barrels per day. Two, the Brent TI spread remains healthy, although the Midland and Cushing differential has compressed with line filled on new pipelines. Three, gasoline demand remained strong with the latest data showing vehicle miles travelled in the US up by 1% -- over 1% year-over-year. Four, product exports have been steady. Five, rent prices have increased recently, but are still fairly low. Six, IMO 2020 is less than six months away and we continue to believe these new standards will represent a tailwind for the refinery industry in general. Seven, tier 3 gasoline specification changes will also be fully implemented by January 1, 2020, which likely represents another tailwind for the refining industry, especially for those refiners that are prepared. Eight, continued low natural gas prices benefit both our refining and fertilizer business and number nine, due to the wet weather and flooding in the spring, we should see lower than expected planted corn acres and yield resulting in decreased corn inventories. This has driven an increase in corn prices and bodes well for the future fertilizer demand, as future corn acres planted should increase and farmers should seek to maximize yields. We believe CVR Energy is well positioned for the balance of 2019 and beyond, and we continue to make progress on our strategic objectives. In support of these objectives, we have a number of initiatives that we are progressing as previously discussed in our first quarter earnings call, I’d like to provide some updates on those initiatives today. First, the Board has approved Schedule A engineering design work for the Coffeyville crude optionality project. This project would increase the capacity of processing natural gasoline to 10,000 barrels per day. Natural gasoline spreads to regular sub grade are in the $0.70 range today, and are expected to widen further with implementation of tier 3 gasoline specs. Second, we completed our sale of the underutilized Cushing tank farm assets as planned for a consideration of $44 million, including inventory. Third, we increased our ability to produce premium gasoline at Wynnewood as a result of the BenFree repositioning project and the installation of a new generation of catalyst. We have also changed the reformer catalyst at Coffeyville, which also should increase our premium production there. Premium spreads in the group have averaged $0.26 in the second quarter 2019 and have averaged $0.40 quarter to date. The prompt prices are more like $0.55. Fourth, Schedule A engineering design work is progressing on the new C5, C6 isom at Wynnewood which should also improve capture rate via more premium production and improved liquid volume yield. Fifth, Schedule A at process engineering work is also underway to replace the hydrochloric acid catalyst in the Wynnewood appellation unit with a solid catalyst. This project is also expected to increase premium production at Wynnewood. And finally, we initiated the bank process to evaluate potential strategic alternatives for the company. As we have further defined our capital project plans, we have reduced our capital spending plan for 2019 by approximately $50 million to $60 million to reflect the timing of certain projects that have shifted into later years. Looking at the third quarter of 2019, the second quarter to-date, Group 3 cracks 2-1-1 have averaged $19.35 per barrel, with the Brent TI spread at $6.57 per barrel, and the Midland Cushing differential at $0.75 per barrel. Ethanol RINs are $0.22 quarter to date, compared to $0.17 in the second quarter, and biodiesel RINs are at $0.41 compared to $0.38 in the last quarter. With that operator, we're ready for questions.

[Operator Instructions] Our first question comes from the line of Prashant Rao with Citigroup. Please proceed with your question.

Good afternoon. Thanks for taking the question. I wanted to -- I have a couple of questions on operations in the quarter, but sort of wanted to address something else first, which is the exploratory process for strategic alternatives for the company and so to just get an update on where we stand on it, there's two sort of things I wanted to address in that, I guess to take on. One is, there's been speculation in the market or looking at where you traded versus peers that it might be attractive for CVI potentially to be a consolidator in the market. I wanted to sort of get your thoughts around that, [indiscernible] is staying wide here. The second is that given that the share -- where the share price is and that’s supported by your strong dividend yield, we are sort of at a share price where I think previously indicated we would have been minimally acceptable, almost minimally acceptable for a sale of the company. So I wonder if that -- how that plays or how that shades the thought of selling the company, given that you have strong cash flows, you have a good dividend yield, there is a growing concern the company is robust. So just wanted to get updated thoughts around both of those factors and overall on the process?

Well, the most I can probably say on that subject is really that we just started this bank process and we're just into it now and it's really premature to make any conclusions from it at this point. I think as I've said before is the timing of the offering is based on really the tailwinds of the industry and what we see coming forward, and I believe that it's a reasonable time to make this offering. I can’t explain exactly why the stock has done what the stock has done, but I'm glad for it and we look forward to exploring all the options available to us in the future and that's what we'll do to be at this bank process.

Operationally, I may be turning to first, Petroleum and then to the Fert segment. On the Petroleum segment, I wanted to get a sense of how much the narrowing in WCS spreads are with a headwind and then, as I look ahead, are we expecting WCS to widen out as rail movements start going, seems like that’s more probable increasingly every day as we look at all the factors in the news that the government is doing up there. How much did that help in 3Q and in the back half and is that something that you are also expecting in kind of the list of factors that keep you positive and constructive as, how should we be thinking about that cadence there from where you sit?

Well ultimately, I think the WCS has to price or the Canadian crudes have to price their rail alternatives. Today, it’s barely covering that, it’s covering that at all. I think it's more driven right now by the constraints the government has on production. At some point, I got to think they'll let that go. But then rail will take over and I think what you're seeing in the future is it’s trying to price that the rail alternative in the $20 range. So that's kind of our view going forward, is just as we would say of the Brent TI, ultimately it trades it to transportation alternative.

Would you be taking advantage of hedging or derivative strategies on that forward discounting, is that something we should be thinking about in terms of your earnings going ahead or are we, I know, your policy has been a little bit more light on the hedging and derivatives activity than from previous years, so just wanted to get a sense that if the opportunity there, would you be tactical?

My philosophy on hedging is, hedge when it adds value. And that's a pretty tough standard to live to. That's why you've seen us reduce our activity in that area. On the other hand, we do see some positive ARBs of just thinking about the government's influence on WCS. Most likely, they'll get it wrong and you’ve seen that so far just because the futures have been trading out in the $20, $22 range and every month that rolls over, it just rolls over to a higher price and we are looking at taking advantage of some of those kinds of opportunities, but that would be about it.

Okay. And last question on the Fert segment, the great performance this quarter, I think you're geographically got to help positioning-wise, I think the view, just wanted to get a sense thinking ahead, we think that this sort of stands in contrast to the macro news we've been hearing with -- affecting the energy industry from ag, all the flooding in Midwest affecting planting in the season and a lot of farmers taking insurance payments and sort of calling it a year. I wanted to get a sense of what this mean if there's anything to think about the back half in terms of the demand for Fertilizer segment? And then as we roll forward to 2020, is there a reversal or we get a tailwind here as farmers come back to market and hopefully without any outsized weather event, [indiscernible] just wanted to get a sense around your planning around that over the next couple of quarters and then as we look out to the next year?

I think our view of that is that, you just look at the corn price that’s gone up almost a buck and that really is reflecting that there's, as I said in my opening remarks, is the yield should be fairly poor. I mean, the government is even projecting a 166 on yield per bushel per acre. That's down from 176. But we really think they're overstating even the 166 and they're certainly overstating the number of acres that actually got in, just we can just tell that by our own demand. But the second quarter was very good to us, because as we’ve -- the river constraint really added value to what and we were able to sell pretty high rates both ammonia and UAN, and keep our inventories under control. So I think we're well positioned for what should be a very good planning season next year, assuming the weather cooperates, which is hard to predict.

Is there any effect to think about on the back half of this year from versus usual demand? Are you – and you’ve said you’re pretty relatively insulated in 2Q versus the rest of the market as a lot of that the ag and market? Now, can we continue to sort of expect that or is there whether this treated them a little bit out of conservatism should we think that some of that demand fall off creeps in a little bit in the back half of this year before things get paid in 2020?

Yeah, it's always hard to say but, I think just the fact that, when the price goes up like this, the farmers tend to plant more corn. And that so this is a historic, I mean, it's probably a five-year peak corn prices. So I really think they're going to plant a lot of corn versus beans and that bodes well for our business particularly in the region we’re in.

Our next question comes from the line of Neil Mehta with Goldman Sachs. Please proceed with your question.

Hey, thanks. Thanks very much and congrats on the great share price performance this year. I guess a couple of follow-up questions. First on the comments that you made around Brent WTI and ultimately, Dave, you think it trades towards transportation economics? Can you just talk about how you think the Brent WTI spread will evolve over time? And how do you think about what normal is? What are the legs that ultimately define Brent TI once all these Permian pipes come online?

Okay, Neil while that my view of Brent TI is really driven by shallow production. And as long as we have a 1 million, 1.5 million barrels coming on a year, and even with the pipes that are about to be on the ground and operating, I just can't find a way that barrel to clear those barrels isn’t going to mean a discount between Brent and WTI. And I particularly would say that's even more true for TL – WTL and the new WTC that's about to come out. That's going to make a big difference and also and what - we're going to have to talk about three grades rather than one and the length of each one of those, and not each of those belt bode well, no matter what the Brent TI does for us, because we're processors of the lighter type barrel.

And what do you think West Texas light will trade at relative to let's say, a neat Midland barrel over time given the quality differential?

Well, I think my answer to that would be, look at the production forecast of the 44 to 50 gravity type material coming out of the Permian Basin number one, but also out the at our Oracle Basin. And I think you'll find that there's 1 million, 2 million barrels a day coming and finding a home for that is not going to be easy in the Gulf Coast. And I think a lot of that will have to go offshore and that plays right into the Brent TI spread ultimately – ultimate the realized Brent TI spread for us.

So I mean the forward curve looks something like $5 to $6 a barrel for Brent WTI, is that kind of how you guys think about what normalized transportation, economic –

Well I think the normalized transportation is probably more than a 350 range. But I think to clear the barrel that’s why I said, Neil, there's so much of it coming. Assuming, there's not - it's not a $30 WTI price which I don't think the world can sustain the kind of growth in oil production to meet demand at a $30 price. So it won't stay there long if it does get there and even in the $55 range, a lot of these players are very profitable so.

Okay. All right, well that's helpful. And then the follow-up is just around the dividend and capital returns to shareholders. So, you've been - you've stepped the dividend back up to the $3 share level, how do you think about the dividend per share growth from here, especially given share price appreciation recognizing it’s a Board decision, but should we view the dividend as a growing level over time or do you see it kind of flat-lining for here and hope the stock kind of grows into the dividends?

I think we'll continue to evaluate that, we’re currently with the $0.75 per share quarterly dividend and $3 a year have an industry-leading dividend yield and so we are evaluating that along with the number of high return capital projects that Dave outlined on the call, and so we’ll continue to discuss that with the Board and make sure that we put the cash to meaningful use going forward.

And the last one for me, is there as part of the strategic review, obviously, the sales of the company and potential acquisitions of other entities is clearly part of it, is selling non-core assets part of the discussion as well?

Well, it would be part of the discussion, but I don't know that we have any that we haven't dealt with maybe one left to go, but with a Cushing asset that the Cushing tank farm was mainly a Contango play and, it's just sat there basically my opinion. So, I think we've dealt with a lot of that already, Neil. I think there are some questions around of what we will do with UAN, the fertilizer business versus refining. And that'll just play out as it does, depending on what we do on the bank process.

Our next question comes from the line of Paul Chang with Scotia Howard Weil. Please proceed with your question.

Quick question, on the third quarter guidance for the OpEx, $90 million to $100 million. That seems high comparing to what you've been able to do. Is there any particular reason why that it will be higher than let’s say for the last several quarters?

I don't have any specifics as to outline on that. Tracy?

Predominantly maintenance projects that will be completed, maintenance and repair projects that will be just from a timing perspective are hitting in the third quarter.

Tracy, those are not being capitalized?

Not maintenance and repair, no.

Okay, which facilities that those are hitting?

Well, we have maintenance and repair projects that run across portfolio on a continuous basis. So it's both.

Okay. All right, that's fine. Then maybe that Dave that you can remind me, the crude optionality project, what's the total CapEx and timing as far as the yield?

Total capital is around $200 million and the timing is the end of ‘22.

Is it going to be two phases or that you're going to do all at once.

Well, this is really just phase one, if I remember or talked about in the past was, there's a phase two that involves a gasoil higher trader which is really a play around of increasing our ability to process WCS to 40,000 barrels a day. We don't see the need to do that right away until we really get definition on the future of a sulfur credits and other factors we’re around tier-three gasoline so.

Okay, so this is still talking about previously you referred to just the phase one, not the entire projects.

Yeah, really phase one is really just doing the Schedule A engineering there will require further approvals by the Board. But the projects really pretty strong 30 plus percent return and it’s strategic in nature because of just as I mentioned, tier-three gasoline specs. We believe natural gasoline is going to get very cheap, even cheaper than it is today. Just because it's relatively high sulfur can't be blended without being treated.

And given that is actually going to increase your gasoline right, if I recall correctly. And in the market that seems to be a concern, gasoline is going to be an excessive pie? Are you concerned that that may actually hammer on the local market profitability?

Well, all of those barrels are getting in there today, Paul so I don't view it as a big increase, although I do share your concern. And but remember, for the most part, the mid corn is an important market for with the Explorer pipeline. Maybe not in the winter, but it certainly is in the summer.

Yeah but that…

No, I don’t think…

But that’s been my concern that during the winter, since in the last couple of years and actually last four or five years, the market has become very choppy, Q&A show that with all the bottleneck and everything going on during the winter time, this is no longer important market.

Yeah, that's correct. It's an export market. But remember, the utilization that remains high in the Mid-Con, and it will and that manifest itself on a wide Brent TI’s breadth. But, I still say, I will still tell you that a lot of these barrels are already being placed into the market today, they just won't fit in the future with tier-three gas – specs.

And how much is the – can you just remind me, how much is the increase in the gasoline supply? And is it going to have any dismiss upon the increase?

Well again, our ability to process 10,000 barrels of natural gas is basically you treated and hydro treated in isom and then you put it right to gasoline. So it's a barrel to barrel.

So you would basically increase that by 10,000 barrel per day of gasoline.

No, because we run some today, we run about 3,000 barrels a day.

Okay, so of those 7,000 then you have no impact on the jack and the diesel?

That's correct.

Our next question comes from the line of Matthew Blair with Tudor Pickering Holt. Please proceed with your question.

Hey, good morning, everyone. Dave, you mentioned tier-three is a potential tailwind. Could you talk about where you currently stand on tier-three compliance? And, perhaps share any specifics around your outlook for octane premiums in 2020? Do you expect it to get back up to what we saw in 2015?

Sure. Well let's talk about for – take the first part is, where's the industry at? I think a lot, I think you and I mentioned in my opening remarks that for those refiners that are prepared for this, it's going to be very, very lucrative, I think and for those that aren’t, it's going to be very expensive. So that is a question of who's ready and who isn't. In our case, we already make 10 PPM at the Wynnewood refinery? And we still using credits at the Coffeyville refinery to blend down, but it doesn't take a whole lot for us to get there where we are today, we're probably running in the 18 to 20 and 25 range on so, it's not a big move for us. And that also with what we've done on the benzene repositioning and these new technology catalysts, the new generation catalysts we put in our reformers, we have ability to make a lot of octane that historically we haven't made. So I think we're really well positioned for it. And as I mentioned in my remarks also, we have our premium spreads to sub grade right now of $0.55 in our markets. And I just kind of - and I don't know if that's an anomaly as I mentioned, quarter to-date it’s more like $0.41. But it's marching up and I think it's just gets worse as people run out of credits. And certainly by January 1 of 2020, there isn't going to be the option or the credits are going to be very expensive to buy. And that's just going to take away octane from the pool.

Right, right. Okay, sounds good. Your Midland barrels at Coffeyville were much lower than previous quarters. I was wondering if this might be a case, like what you're doing with WCS, where you still pipe the same amount of barrels, but then you resell it at Cushing. Is that the case or did you actually reduced your pipes volumes of Midland in the quarter?

Well remember we had a turnaround at Wynnewood which why we were down at Wynnewood or cut back at Wynnewood I should say, we worked down all the way, but we were shipping those barrels towards Coffeeville. And then as we came out of turnaround, as I mentioned we had high naphtha inventory because we have the reformer down and it took us about a couple of months to run that off. So we were cut back and not – that's part of it. Then the other part is just the sheer increase we've seen in production out of the scoop is the rest of the barrels. So we actually ended up selling Midland and running this as the best alternative for us and that's why you saw the big increase in Coffeeville. Our plan long-term is to get as much as possible up the Red River Line, fill the Red River Line up and need more capacity to until we come back out all the Cushing common we’ve been buying to our own blending and the assets for Coffeeville.

Okay, so I guess just to clarify, you're saying that you're still economically exposed to I think it's like around like usually like 35 or 40 a day of Midland, even though the refineries only ran I believe about 14 a day in the quarter?

Yeah, we were – we have historical line space of about 30 and we get prorated a little bit because basins is full. So I think the actual number is around 28, 27. And then we ran some of it and sold the rest with a better alternative with the stack compensates and lights.

Got it. Okay and then last question, I think probably for Tracy, the depreciation has moved up quite a bit over the past couple of quarters. Is this due to the new accounting policy of capitalizing turnarounds and is that $76 million, is that a good number to use going forward?

Yes, it is. It is. At the beginning of the year we began capitalizing our turnaround expense and then we filed a Recast 10-K for reference purposes. And so that'll look like our more normal run rate going forward.

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back to management for closing remarks.

Again, I'd like to thank all of you for your interest in CVR Energy. Additionally, I'd like to thank our employees for their hard work and commitment towards safe, reliable and response – environmentally responsible operations. We look forward to reviewing our third quarter results during our next earnings call. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.