CVR ENERGY INC

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 21, 2024 (the “2023 Form 10-K”), and the unaudited condensed consolidated financial statements and related notes and with the statistical information and financial data appearing in this Report. Results of operations for the three and six months ended June 30, 2024 and cash flows for the six months ended June 30, 2024 are not necessarily indicative of results to be attained for any other period. See “Important Information Regarding Forward-Looking Statements.” References to “CVR Energy”, the “Company”, “we”, “us”, and “our”, may refer to consolidated subsidiaries of CVR Energy, including CVR Refining, LP or CVR Partners, LP, as the context may require.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 21, 2024 (the “2023 Form 10-K”), and the unaudited condensed consolidated financial statements and related notes and with the statistical information and financial data appearing in this Report. Results of operations for the three and nine months ended September 30, 2024 and cash flows for the nine months ended September 30, 2024 are not necessarily indicative of results to be attained for any other period. See “Important Information Regarding Forward-Looking Statements.” References to “CVR Energy”, the “Company”, “we”, “us”, and “our”, may refer to consolidated subsidiaries of CVR Energy, including CVR Refining, LP or CVR Partners, LP, as the context may require.

Previous wording

Since 2022, we have focused significant efforts on decarbonization initiatives including but not limited to the completion of the renewable diesel unit project at the Wynnewood Refinery, the creation of an Environmental, Social and Governance (“ESG”) committee and the publication of multiple ESG reports. In February 2023, we completed the transfer of various assets to one or more new entities primarily formed in 2022 to, among other purposes, better align our organizational structure with management and financial reporting. We also achieved mechanical completion of the renewable feedstock pretreater project at the Wynnewood Refinery in the fourth quarter of 2023 with the unit becoming operational during the first quarter of 2024. We currently expect to continue to explore options to decarbonize our business in areas with attractive economics, without sole reliance on government subsidies, and in ways intended to support our Mission and Values.

Current wording

In recent years, we have focused on several decarbonization initiatives, including completion of construction of the renewable diesel and renewable feedstock pre-treatment units at the Wynnewood Refinery, creation of our Environmental, Social and Governance (“ESG”) committee and the publication of ESG reports, and the restructuring of our organization to better align with management and financial reporting. We currently expect to continue to explore options to decarbonize our business in areas with attractive economics, without sole reliance on government subsidies, and in ways intended to support our Mission and Values.

Previous wording

Geopolitical Matters - The conflict in the Middle East, which began in October 2023 and may continue to escalate, and the ongoing Russia-Ukraine war can significantly impact global oil, fertilizer, and agriculture markets. These conflicts pose significant geopolitical risks to global markets, raise concerns of major implications, such as the enforcement of sanctions, could contribute to further oil inventory tightening and price volatility, and disrupt the production and trade of fertilizer, grains, and feedstock through several means, such as trade restrictions. The ultimate outcome of these conflicts, or further escalation or expansion thereof, and any associated market disruptions are difficult to predict and may affect our business, operations, and cash flows in unforeseen ways.

Current wording

Geopolitical Matters - The conflict in the Middle East, which began in October 2023 and has continued to escalate, and the ongoing Russia-Ukraine war can significantly impact global oil, fertilizer, and agriculture markets. These conflicts pose significant geopolitical risks to global markets, raise concerns of major implications, such as the enforcement of sanctions, could contribute to further oil price volatility, and disrupt the production and trade of fertilizer, grains, and feedstock through several means, such as trade restrictions. The ultimate outcome of these conflicts, or further escalation or expansion thereof, and any associated market disruptions are difficult to predict and may affect our business, operations, and cash flows in unforeseen ways.

Previous wording

Regulatory Environment - There have been several proposed and enacted climate-related rules, in various stages of approval, that, if finalized, would demand considerable efforts to comply with new compliance requirements and could impact our disclosure controls and procedures as well as require additional disclosures in our regulatory filings. In addition, the current political environment provides uncertainty regarding existing and future laws, regulations, policies, or rulings, including the reinterpretation or amplification thereof by regulators, which may impact our business, operations, compliance costs, and market stability.

Current wording

Regulatory Environment - In addition to existing regulations like the Renewable Fuel Standard (“RFS”) of the Clean Air Act, which significantly impacts our business, there have been several proposed and enacted climate-related rules and compliance requirements, in various stages of approval, that, if finalized, could demand considerable compliance efforts and could impact our disclosure controls and procedures as well as require additional disclosures in our regulatory filings. In addition, the current political environment and the yet-unknown results of the upcoming presidential election in the United States create uncertainty regarding existing and future laws, regulations, policies, or rulings, including the reinterpretation or amplification thereof by regulators or others, which may materially impact our business, operations, compliance costs, results and market stability.

Previous wording

The earnings and cash flows of the Petroleum Segment are primarily affected by the relationship between refined product prices and the prices for crude oil and other feedstocks that are processed and blended into refined products together with the cost of refinery compliance, including the cost of compliance with Renewable Fuel Standard (“RFS”) regulations. The cost to acquire crude oil and other feedstocks and the price for which refined products are ultimately sold depends on factors beyond the Petroleum Segment’s control, including the supply of and demand for crude oil, as well as gasoline, distillate, and other refined products which, in turn, depend on, among other factors, changes in domestic and foreign economies, driving habits, weather conditions, domestic and foreign political affairs, production levels, the availability or permissibly of imports and exports, the marketing of competitive fuels, and the extent of government regulations. Because the Petroleum Segment applies first-in, first-out (“FIFO”) accounting to value its inventory, crude oil price movements may impact net income as a result of changes in the value of its unhedged inventory. The effect of changes in crude oil prices on the Petroleum Segment’s results of operations is partially influenced by the rate at which the processing of refined products adjusts to reflect these changes.

Current wording

The earnings and cash flows of the Petroleum Segment are primarily affected by the relationship between refined product prices and the prices for crude oil and other feedstocks that are processed and blended into refined products together with the cost of refinery compliance, including the cost of compliance with RFS regulations. The cost to acquire crude oil and other feedstocks and the price for which refined products are ultimately sold depends on factors beyond the Petroleum Segment’s control, including the supply of and demand for crude oil, as well as gasoline, distillate, and other refined products which, in turn, depend on, among other factors, changes in domestic and foreign economies, driving habits, weather conditions, domestic and foreign political affairs, production levels, the availability or permissibly of imports and exports, the marketing of competitive fuels, and the extent of government regulations. Because the Petroleum Segment applies first-in, first-out (“FIFO”) accounting to value its inventory, crude oil price movements may impact net income as a result of changes in the value of its unhedged inventory. The effect of changes in crude oil prices on the Petroleum Segment’s results of operations is partially influenced by the rate at which the processing of refined products adjusts to reflect these changes.

Previous wording

•While the refining market has largely recovered since the pandemic, refined product demand declined 1% nationwide in the second quarter of 2024 from the pre-pandemic second quarter of 2019. Group 3 demand has been relatively consistent compared to other parts of the country following the pandemic. We characterize current crack spreads just below mid-cycle levels.

Current wording

•Refined product demand declined 4% nationwide in the third quarter of 2024 from the pre-pandemic third quarter of 2019. Group 3 demand has been relatively consistent compared to other parts of the country following the pandemic. We characterize current crack spreads just below mid-cycle levels.

Previous wording

•Winter 2023/2024 weather was warmer than average in North America and Europe and, when combined with natural gas conservation measures, has caused demand and prices for natural gas to fall significantly, which contributed to the flattening of the global cost curve and has reduced the U.S. refiners’ advantage compared to refiners in Europe.

Current wording

•Winter 2023/2024 weather was warmer than average in North America and Europe and, when combined with natural gas conservation measures, has caused demand and prices for natural gas to fall significantly, which contributed to the flattening of the global cost curve and has reduced the U.S. refiners’ advantage compared to refiners in Europe. If similar conditions are experienced during the 2024/2025 winter, these impacts could persist into 2025.

Previous wording

•Industrial production has slowed since the second half of 2023, and truck, rail, and ship tonnage and freight volumes were reduced, which reduced distillate pricing in the fourth quarter of 2023 and continued into 2024. In addition, distillate crack spreads continue to be pressured by the low price levels of natural gas causing a lack of distillate demand to generate electricity around the world. Moreover, new LNG projects coming online and expansion of export capacity in the U.S. has contributed to the increase of global supply of natural gas and thus downward pressure on prices, and may also support fleet shifting from diesel to LNG. Gasoline and distillate pricing declined significantly through the end of the second quarter.

Current wording

•Industrial production has slowed since the second half of 2023, and truck, rail, and ship tonnage and freight volumes were reduced, which reduced distillate pricing in the fourth quarter of 2023 and continued into 2024. In addition, distillate crack spreads continue to be pressured by the low price levels of natural gas causing a lack of distillate demand to generate electricity around the world. Moreover, new LNG projects coming online and expansion of export capacity in the United States has contributed to the increase of global supply of natural gas and thus downward pressure on prices, and may also support fleet shifting from diesel to LNG. Gasoline and distillate pricing declined significantly through the end of the third quarter of 2024.

Previous wording

•Shale oil production continues to increase in the shale oil basins, albeit at a slower pace than in prior years, including in the Anadarko Basin. Crude oil exports have continued above a 4 million bpd rate, and we believe the Petroleum Segment benefits from these exports through the Brent crude differential to WTI, as do all refineries in PADD II.

Current wording

•Shale oil production continues to increase in the shale oil basins, albeit at a slower pace than in prior years, including in the Anadarko Basin. Crude oil exports have sustained a 4 million bpd rate, and we believe the Petroleum Segment benefits from these exports through the Brent crude differential to WTI, as do all refineries in PADD II.

Previous wording

•Refining capacity is increasing significantly around the world. Major projects have started up in the Middle East and Asia and others are in progress, specifically in Mexico and Africa. Refining capacity in the U.S. has also increased approximately 500,000 bpd from pandemic levels mainly due to expansion projects. While these ongoing projects may encounter various challenges and come to market slower than anticipated, they should eventually impact global oil and refined product flows. At the same time, these capacity expansions could be offset by additional renewable diesel conversions and further refinery fleet rationalization through planned shutdowns or currently unplanned shutdowns due to future economic constraints given refined product consumption is slowing in the United States and remains weak in Europe.

Current wording

•Refining capacity is increasing significantly around the world. Major projects have started up in the Middle East and Asia and others are in progress, specifically in Mexico and Africa. Refining capacity in the United States has also increased approximately 500,000 bpd from pandemic levels mainly due to expansion projects. While these ongoing projects may encounter various challenges and come to market slower than anticipated, they have begun to and should have a growing impact global oil and refined product flows. At the same time, these capacity expansions could be offset by additional renewable diesel conversions and further refinery fleet rationalization through planned shutdowns or currently unplanned shutdowns due to future economic constraints given refined product consumption is slowing in the United States and remains weak in Europe.

Previous wording

•While renewable identification number (“RIN”) prices increased slightly at the end of the second quarter of 2024, they are still lower than the second quarter of 2023. Production of renewable fuels continues to increase as new plants start up, which we expect to continue through 2025. We also expect biomass-based diesel RIN (“D4”) production to exceed the renewable volume obligation (“RVO”) significantly going forward, creating a RIN surplus. In June 2023, the Environmental Protection Agency (“EPA”) set the D4 RVO for 2023, 2024, and 2025 at 2.82, 3.04, and 3.35 billion, respectively.

Current wording

•While renewable identification number (“RIN”) prices increased slightly at the end of the third quarter of 2024, they are still lower than the third quarter of 2023. Production of renewable fuels in the United States continues to increase as new plants start up, which we expect to continue through 2025. We also expect biomass-based diesel RIN (“D4”) production to exceed the renewable volume obligation (“RVO”) significantly going forward, creating a RIN surplus. In June 2023, the Environmental Protection Agency (“EPA”) set the D4 RVO for 2023, 2024, and 2025 at 2.82, 3.04, and 3.35 billion, respectively.

Previous wording

•In the second quarter of 2024, new electric vehicle sales in the U.S. increased approximately 11% from the second quarter of 2023. In 2022, miles per gallon of the new auto fleet continued to increase, averaging 26 miles per gallon (“MPG”). The EPA expects the new fleet average to have increased in 2023 by approximately 1 MPG. Vehicle miles traveled continues to increase but the effect of electric vehicle penetration in the fleet is clear and present. We expect this trend to continue.

Current wording

•In the third quarter of 2024, new electric vehicle sales in the United States increased approximately 11% from the third quarter of 2023. In 2022, miles per gallon of the new auto fleet continued to increase, averaging 26 miles per gallon (“MPG”). The EPA expects the new fleet average to have increased in 2023 by approximately 1 MPG. Vehicle miles traveled continues to increase but the effect of electric vehicle penetration in the fleet is clear and present. We expect this trend to continue.

Previous wording

•Certain of the Petroleum Segment’s subsidiaries are subject to the RFS (collectively, the “obligated-party subsidiaries”), which, each year, absent exemptions or waivers, requires such obligated-party subsidiaries to blend renewable fuels with transportation fuels, purchase RINs in lieu of blending, or otherwise face liability. Our cost to comply with the RFS is dependent upon a variety of factors, which include but are not limited to the availability of ethanol and biodiesel for blending at our refineries and downstream terminals or RINs for purchase, the actions of RIN market participants including non-obligated parties, the price at which RINs can be purchased, transportation fuel and renewable diesel production levels and pricing including potential discounts thereto related to the RFS, the mix of our products, our refining margins and other factors, all of which can vary significantly from period to period, as well as certain waivers or exemptions to which we may be entitled. Our costs to comply with the RFS further depend on the consistent, timely, and legal administration of the RFS program by the EPA, including the EPA’s unlawful failure to establish the RVOs by their statutory deadlines, its subsequent promulgation of RVOs exceeding the blendwall, its delay in issuing decisions on pending small refinery exemption (“SRE”) petitions, its subsequent denial of those SRE petitions and its failure to designate blenders as obligated parties under the RFS. Our costs to comply with the RFS are also impacted by, and dependent upon the outcome of, the numerous lawsuits filed by multiple refiners including our obligated-party subsidiaries, biofuels groups and others. Refer to Part I, Item 1, Note 13 (“Commitments and Contingencies”) in this Report. Wynnewood Refining Company, LLC filed its SRE petition for 2023, which has not yet been ruled on by the EPA despite the 90-day deadline for the EPA to rule on SRE petitions applicable under the law. As a result, our costs to comply with RFS (excluding the impacts of any exemptions or waivers to which the Petroleum Segment’s obligated-party subsidiaries may be entitled) increased significantly throughout 2022, remained significant in 2023 and is expected to remain significant through 2024 and beyond.

Current wording

•Certain of the Petroleum Segment’s subsidiaries are subject to the RFS (collectively, the “obligated-party subsidiaries”), which, each year, absent exemptions or waivers, requires such obligated-party subsidiaries to blend renewable fuels with transportation fuels, purchase RINs in lieu of blending, or otherwise face liability. Our cost to comply with the RFS is dependent upon a variety of factors, which include but are not limited to the availability of ethanol and biodiesel for blending at our refineries and downstream terminals or RINs for purchase, the actions of RIN market participants including non-obligated parties, the price at which RINs can be purchased, transportation fuel and renewable diesel production levels and pricing including potential discounts thereto related to the RFS, the mix of our products, our refining margins and other factors, all of which can vary significantly from period to period, as well as certain waivers or exemptions to which we may be entitled. Our costs to comply with the RFS further depend on the consistent, timely, and legal administration of the RFS program by the EPA, including the EPA’s unlawful failure to establish the RVOs by their statutory deadlines, its subsequent promulgation of RVOs exceeding the blendwall, its delay in issuing and refusal to issue decisions on pending small refinery exemption (“SRE”) petitions, its subsequent denial of those SRE petitions, most of which have been overturned by courts, and its enabling non-obligated parties to generate, hoard and sell RINs. Our costs to comply with the RFS are also impacted by, and dependent upon the outcome of, the numerous lawsuits filed by multiple refiners including our obligated-party subsidiaries, biofuels groups and others. Refer to Part I, Item 1, Note 13 (“Commitments and Contingencies”) in this Report. As a result, our costs to comply with RFS (excluding the impacts of any exemptions or waivers to which the Petroleum Segment’s obligated-party subsidiaries may be entitled) increased significantly throughout 2022, remained significant in 2023 and is expected to remain significant through 2024 and beyond.

Previous wording

•In March 2024, the EPA finalized new motor vehicle emissions standards for light-, medium-, and heavy-duty vehicles for model year 2027 and beyond. New heavy-truck requirements are also being proposed. As a result of these new standards, the EPA expects EVs will account for 68% of new light-duty vehicles by model year 2032. In the United States in the second quarter of 2024, approximately 8% of new-vehicle sales were EVs.

Current wording

•In March 2024, the EPA finalized new motor vehicle emissions standards for light-, medium-, and heavy-duty vehicles for model year 2027 and beyond. New heavy-truck requirements are also being proposed. As a result of these new standards, the EPA is expected to propose new automobile limits requiring at least 54% of new vehicles sold to be electric by 2030. In the United States in the third quarter of 2024, approximately 9% of new-vehicle sales were EVs.

Previous wording

•We currently expect that the $1-per-gallon Blenders Tax Credit (“BTC”) tax incentive for renewable diesel and biodiesel will not be extended past its expiration date of December 31, 2024. While extensions of this tax incentive have been granted close to, and even after, expiration dates in the past, we believe provisions of the Inflation Reduction Act that create the Production Tax Credit incentive may signal the end of the BTC. In any case, the credits will be significantly reduced if the BTC is not renewed.

Current wording

•Congress has several potential bills pending that would extend the Blenders Tax Credit (“BTC”) with other tax extenders, but their future is unknown at this point. While extensions of this tax incentive have been granted close to, and even after, expiration dates in the past, we believe provisions of the Inflation Reduction Act that create the Production Tax Credit incentive may signal the end of the BTC. In any case, the credits will be significantly reduced if the BTC is not renewed, which is likely to affect RIN prices.

Previous wording

•Our Wynnewood Refinery has a renewable diesel unit and a pretreatment unit. The renewable diesel unit at the Wynnewood Refinery has the flexibility to be returned to hydrocarbon processing service primarily through a catalyst change depending on market conditions including but not limited to renewable diesel margins, contractual obligations and other factors. The pretreatment unit is designed to lower our feedstock costs and enable us to process a wider variety of renewable diesel feedstocks at the Wynnewood Refinery, most of which have a lower carbon intensity than soybean oil and generate additional Low Carbon Fuel Standard credits. With our existing renewable diesel production, this could mitigate the majority, if not all, of our future RFS exposure for our Coffeyville Refinery as long as the unit is kept in renewable fuel service and operating at capacity. We continue to seek, and pursue in court, SREs for our Wynnewood Refinery, and have also been assessing a project to produce sustainable aviation fuels at this plant assuming we can find a third-party for a guaranteed off take at a formula price.

Current wording

•Our Wynnewood Refinery has a renewable diesel unit and a pretreatment unit. The renewable diesel unit at the Wynnewood Refinery has the flexibility to be returned to hydrocarbon processing service primarily through a catalyst change depending on market conditions including but not limited to renewable diesel margins, contractual obligations and other factors. The pretreatment unit is designed to lower our feedstock costs and enable us to process a wider variety of renewable diesel feedstocks at the Wynnewood Refinery, most of which have a lower carbon intensity than soybean oil and generate additional Low Carbon Fuel Standard credits. Wynnewood Refining Company, LLC (“WRC”) continues to seek, and pursue in court, SREs. The Wynnewood Refinery has also been assessing a project to produce sustainable aviation fuels at this plant assuming we can find a third-party for a guaranteed off take at a formula price.

Previous wording

•As part of an agreement the Company entered into with an unaffiliated party, a fuel-by-rail facility was built during the first quarter of 2024 at a property adjacent to the Coffeyville Refinery intended to allow the Company to sell product to customers that ship refined products to higher priced markets primarily in PADD IV and V. This unaffiliated party has operated the facility under a take-or-pay agreement for an initial term of two years.

Current wording

•As part of an agreement the Company entered into with an unaffiliated party, a fuel-by-rail facility was built during the first quarter of 2024, which is now in operation, at a property adjacent to the Coffeyville Refinery intended to allow the Company to sell product to customers that ship refined products to higher priced markets primarily in PADD IV and V. This unaffiliated party has agreed to operate the facility under a take-or-pay agreement for an initial term of two years.

Previous wording

•In April 2024, the Board approved the Distillate Yield Improvement Project at the Wynnewood Refinery to modify one of the vacuum towers, which may increase distillate production at Wynnewood by up to approximately 4,000 bpd. Final completion is currently expected in 2026 at a capital cost of less than $15 million. The Company is also studying a similar project at Coffeyville which, if approved by the Board and successfully implemented, the first phase could be completed in 2025/2026.

Current wording

•In April 2024, the Board approved a distillate yield improvement project at the Wynnewood Refinery to modify one of the vacuum towers, which may increase distillate production at Wynnewood by up to approximately 4,000 bpd. Final completion is currently expected in 2026 at a capital cost of less than $15 million. The Company is also studying a similar project at Coffeyville. In connection with our settlement with the EPA on certain environmental issues at the Coffeyville Refinery, the Company plans to install a flare gas recovery system at a cost of approximately $50 million, which is expected to be operational in late 2026.

Previous wording

As of June 30, 2024, we have an estimated liability of $312 million for the Petroleum Segment’s obligated-party subsidiaries compliance with the RFS for 2020 through 2024, which consists of approximately 471 million RINs, excluding open, fixed-price commitments to purchase a net 12 million RINs. The Company’s open RFS position, which does not consider open commitments expected to settle in future periods or the impact of any waivers or exemptions, is marked-to-market each period at spot price and thus significant market volatility, as experienced in late 2022, 2023, and 2024 to date, could impact our RFS expense from period to period.

Current wording

As of September 30, 2024, we have an estimated liability of $374 million for the Petroleum Segment’s obligated-party subsidiaries compliance with the RFS for 2020 through 2024, which consists of approximately 467 million RINs, excluding open, fixed-price commitments to purchase a net 27 million RINs. The Company’s open RFS position, which does not consider open commitments expected to settle in future periods or the impact of any waivers or exemptions, is marked-to-market each period at spot price and thus significant market volatility, as experienced in late 2022, 2023, and 2024 to date, could impact our RFS expense from period to period.

Previous wording

Both NYMEX 2-1-1 and Group 3 2-1-1 crack spreads decreased during the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The NYMEX 2-1-1 crack spread averaged $27.85 per barrel during the six months ended June 30, 2024 compared to $35.32 per barrel in the six months ended June 30, 2023. The Group 3 2-1-1 crack spread averaged $19.17 per barrel during the six months ended June 30, 2024 compared to $33.10 per barrel during the six months ended June 30, 2023.

Current wording

Both NYMEX 2-1-1 and Group 3 2-1-1 crack spreads decreased during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The NYMEX 2-1-1 crack spread averaged $25.54 per barrel during the nine months ended September 30, 2024 compared to $36.48 per barrel in the nine months ended September 30, 2023. The Group 3 2-1-1 crack spread averaged $19.25 per barrel during the nine months ended September 30, 2024 compared to $35.10 per barrel during the nine months ended September 30, 2023.

Previous wording

Average monthly prices for RINs decreased 55.7% during the second quarter of 2024 compared to the same period of 2023. On a blended barrel basis (calculated using applicable RVO percentages), RINs approximated $3.39 per barrel during the second quarter of 2024 compared to $7.64 per barrel during the second quarter of 2023.

Current wording

Average monthly prices for RINs decreased 47.5% during the third quarter of 2024 compared to the same period of 2023. On a blended barrel basis (calculated using applicable RVO percentages), RINs approximated $3.89 per barrel during the third quarter of 2024 compared to $7.42 per barrel during the third quarter of 2023.

Previous wording

Certain governmental regulations and incentives associated with the automobile transportation and agricultural industries, including the ones related to corn-based ethanol and sustainable aviation fuel production or consumption, can, and have, directly impact our business. In June 2023, the EPA announced the renewable volume obligations for 2023, 2024, and 2025 which maintained the conventional biofuel blending level at 15 billion gallons. These actions lead us to believe that the demand on food, in particular corn, for fuel will remain strong for the foreseeable future and support farmer economics that incentivize the use of nitrogen-based fertilizers.

Current wording

Certain governmental regulations and incentives associated with the automobile transportation and agricultural industries, including the ones related to corn-based ethanol and sustainable aviation fuel production or consumption, can impact, and have directly impacted, our business. In June 2023, the EPA announced the renewable volume obligations for 2023, 2024, and 2025 which maintained the conventional biofuel blending level at 15 billion gallons. These actions lead us to believe that the demand on food, in particular corn, for fuel will remain strong for the foreseeable future and support farmer economics that incentivize the use of nitrogen-based fertilizers.

Previous wording

Corn and soybeans are two major crops planted by farmers in North America. Corn crops result in the depletion of the amount of nitrogen within the soil in which it is grown, which in turn, results in the need for this nutrient to be replenished after each growing cycle. Unlike corn, soybeans are able to obtain most of their own nitrogen through a process known as “N fixation”. As such, upon harvesting of soybeans, the soil retains a certain amount of nitrogen which results in lower demand for nitrogen fertilizer for the following corn planting cycle. Due to these factors, nitrogen fertilizer consumers generally operate a balanced corn-soybean rotational planting cycle as shown by the chart presented below as of June 30, 2024.

Current wording

Corn and soybeans are two major crops planted by farmers in North America. Corn crops result in the depletion of the amount of nitrogen within the soil in which it is grown, which in turn, results in the need for this nutrient to be replenished after each growing cycle. Unlike corn, soybeans are able to obtain most of their own nitrogen through a process known as “N fixation”. As such, upon harvesting of soybeans, the soil retains a certain amount of nitrogen which results in lower demand for nitrogen fertilizer for the following corn planting cycle. Due to these factors, nitrogen fertilizer consumers generally operate a balanced corn-soybean rotational planting cycle as shown by the chart presented below.

Previous wording

The United States Department of Agriculture (“USDA”) estimates that in spring 2024 farmers planted 91 million corn acres, representing a decrease of 3% compared to 95 million corn acres in 2023. Planted soybean acres are estimated to be 86 million, representing an increase of 3% compared to 84 million soybean acres in 2023. The combined estimated corn and soybean planted acres of 178 million represents a nominal decrease compared to the acreage planted in 2023. Due to lower input costs in 2024 for corn planting and the relative grain prices of corn versus soybeans, economics have favored planting corn compared to soybeans in 2024. Inventory levels of corn and soybeans are expected to be supportive of grain prices for the remainder of 2024.

Current wording

The United States Department of Agriculture (“USDA”) estimates that in spring 2024 farmers planted 91 million corn acres, representing a decrease of 4% compared to 95 million corn acres in 2023. Planted soybean acres are estimated to be 87 million, representing an increase of 4% compared to 84 million soybean acres in 2023. The combined estimated corn and soybean planted acres of 178 million represents a nominal decrease compared to the acreage planted in 2023. Due to lower input costs in 2024 for corn planting and the relative grain prices of corn versus soybeans, economics have favored planting corn compared to soybeans in 2024. Inventory levels of corn and soybeans are expected to be supportive of grain prices for the remainder of 2024.

Previous wording

Ethanol is blended with gasoline to meet RFS requirements and for its octane value. Since 2010, ethanol production has historically consumed 38% of the U.S. corn crop used by the market, so demand for corn generally rises and falls with ethanol demand, as shown by the charts below, through June 30, 2024.

Current wording

Ethanol is blended with gasoline to meet RFS requirements and for its octane value. Since 2010, ethanol production has historically consumed 38% of the U.S. corn crop used by the market, so demand for corn generally rises and falls with ethanol demand, as shown by the chart below.

Previous wording

Weather continues to be a critical variable for crop production. Even with high planted acres and trendline yields per acre in the U.S., global inventory levels for corn and soybeans remain at or below historical levels and prices have remained elevated. Demand for nitrogen fertilizer, as well as other crop inputs, is expected to be strong for the spring 2024 planting season, primarily due to elevated grain prices and favorable weather conditions for planting.

Current wording

Weather continues to be a critical variable for crop production. Even with high planted acres and above trendline yields per acre for corn in the United States, global inventory levels for corn and soybeans remain near historical 10-year averages and prices have remained elevated. Demand for nitrogen fertilizer, as well as other crop inputs, was strong for the spring 2024 planting season, primarily due to elevated grain prices and favorable weather conditions for planting.

Previous wording

Fertilizer input costs have been volatile since the fall of 2021. Natural gas prices were elevated in the fall of 2022 due to shortages in Europe and demand being driven by building natural gas storage for winter. Winter 2022/2023 weather was warmer than average in Europe and, when combined with natural gas conservation measures, caused demand and prices for natural gas in Europe to fall significantly in the first quarter of 2023 and remain below the 2021/2022 price levels. The decline in natural gas prices, and the resulting capacity curtailments, among other factors, has led to a significant reduction in the price for nitrogen fertilizer from peak prices. While we expect that natural gas prices might remain below the elevated levels experienced in 2022 in the near term, we believe that the structural shortage of natural gas in Europe will continue to be a source of volatility for the rest of 2024 through 2026. Although pet coke prices have been elevated since 2021 due to higher natural gas prices compared to historical levels, as natural gas prices fell in 2023, third-party pet coke prices have declined into 2024.

Current wording

Fertilizer input costs have been volatile since the fall of 2021. Natural gas prices were elevated in the fall of 2022 due to shortages in Europe and demand being driven by building natural gas storage for winter. Winter 2022/2023 weather was warmer than average in Europe and, when combined with natural gas conservation measures, caused demand and prices for natural gas in Europe to fall significantly in the first quarter of 2023 and remain below the 2021/2022 price levels. The decline in natural gas prices, and the resulting capacity curtailments, among other factors, has led to a significant reduction in the price for nitrogen fertilizer from peak prices. While we expect that natural gas prices might remain below the elevated levels experienced in 2022 in the near term, we believe that the structural shortage of natural gas in Europe will continue to be a source of volatility for the rest of 2024 through 2026. Although pet coke prices had been elevated since 2021 due to higher natural gas prices compared to historical levels, as natural gas prices fell in 2023, third-party pet coke prices have declined into 2024 and are expected to decline further in 2025.

Previous wording

CVR Partners has been conducting engineering studies on the potential to utilize natural gas as an optional feedstock to pet coke at its facility in Coffeyville, Kansas (the “Coffeyville Fertilizer Facility”). Based on these studies, the Coffeyville Fertilizer Facility could utilize either natural gas or pet coke to produce nitrogen fertilizer by making certain modifications to the plant. If this project is approved by the board of directors of CVR Partners’ general partner (the “UAN GP Board”) and successfully implemented, it could allow CVR Partners to choose the optimal feedstock mix for production and would make the Coffeyville Fertilizer Facility the only nitrogen fertilizer plant in the U.S. with that feedstock flexibility.

Current wording

CVR Partners has been conducting engineering studies on the potential to utilize natural gas as an optional feedstock to pet coke at its facility in Coffeyville, Kansas (the “Coffeyville Fertilizer Facility”). Based on these studies, CVR Partners believes the Coffeyville Fertilizer Facility could utilize either natural gas or pet coke to produce nitrogen fertilizer by making certain modifications to the plant. If this project is approved by the board of directors of CVR Partners’ general partner (the “UAN GP Board”) and successfully implemented, it could allow CVR Partners to choose the optimal feedstock mix for production and would make the Coffeyville Fertilizer Facility the only nitrogen fertilizer plant in the United States with that feedstock flexibility.

Previous wording

Overview -For the three months ended June 30, 2024, the Company’s operating income and net income were $27 million and $38 million, respectively, compared to operating income and net income of $224 million and $168 million, respectively, for the three months ended June 30, 2023. For the six months ended June 30, 2024, the Company’s operating income and net income were $149 million and $128 million, respectively, compared to operating income and net income of $554 million and $427 million, respectively, for the six months ended June 30, 2023. Refer to our discussion of each segment’s results of operations below for further information.

Current wording

Overview -For the three months ended September 30, 2024, the Company’s operating loss and net loss were $113 million and $122 million, respectively, compared to operating income and net income of $445 million and $354 million, respectively, for the three months ended September 30, 2023. For the nine months ended September 30, 2024, the Company’s operating income and net income were $37 million and $5 million, respectively, compared to operating income and net income of $1.0 billion and $781 million, respectively, for the nine months ended September 30, 2023. Refer to our discussion of each segment’s results of operations below for further information.

Previous wording

Income Tax (Benefit) Expense - Income tax benefit for the three and six months ended June 30, 2024 was $26 million and $10 million, or (219.7)% and (7.2)% of income before income tax, respectively, compared to income tax expense for the three and six months ended June 30, 2023 of $44 million and $101 million, or 20.9% and 19.1% of income before income tax, respectively. The decrease in income tax expense was primarily due to a decrease in overall pretax earnings from the three and six months ended June 30, 2023 to the three and six months ended June 30, 2024. In addition, the change in the effective tax rate was primarily due to changes in pretax earnings attributable to noncontrolling interest and the impact of federal and state tax credits and incentives in relation to overall pretax earnings from the three and six months ended June 30, 2023 to the three and six months ended June 30, 2024.

Current wording

Income Tax (Benefit) Expense - Income tax benefit for the three and nine months ended September 30, 2024 was $6 million and $14 million, or 4.6% and 155.0% of loss before income tax, respectively, compared to income tax expense for the three and nine months ended September 30, 2023 of $84 million and $185 million, or 19.3% and 19.2% of income before income tax, respectively. The decrease in income tax expense was primarily due to a decrease in overall pretax earnings from the three and nine months ended September 30, 2023 to the three and nine months ended September 30, 2024. In addition, the change in the effective tax rate was primarily due to changes in pretax earnings attributable to noncontrolling interest and the impact of federal and state tax credits and incentives in relation to overall pretax earnings from the three and nine months ended September 30, 2023 to the three and nine months ended September 30, 2024.

Previous wording

Petroleum Segment Financial Highlights (Three and Six Months Ended June 30, 2024 versus June 30, 2023)

Current wording

Petroleum Segment Financial Highlights (Three and Nine Months Ended September 30, 2024 versus September 30, 2023)

Previous wording

Overview - For the three months ended June 30, 2024, the Petroleum Segment’s operating income and net income were $10 million and $18 million, respectively, compared to operating income and net income of $171 million and $194 million, respectively, for the three months ended June 30, 2023. These declines were primarily due to decreases in gasoline and distillate crack spreads, along with decreased production and increased maintenance resulting from a fire at the Wynnewood Refinery in April 2024 (the “Wynnewood Fire”). These variances were partially offset by lower RFS related expenses and a favorable derivatives impact in the current period. For the six months ended June 30, 2024, the Petroleum Segment’s operating income and net income were $128 million and $145 million, respectively, compared to operating income and net income of

Current wording

Overview - For the three months ended September 30, 2024, the Petroleum Segment’s operating loss and net loss were $119 million and $110 million, respectively, compared to operating income and net income of $431 million and $460 million, respectively, for the three months ended September 30, 2023. These declines were primarily due to decreases in gasoline and distillate crack spreads, coupled with unfavorable impacts from unplanned outages at both refineries and increased RFS related expenses. The unplanned outages during the 2024 period were partially related to external power supply interruptions, which resulted in estimated lost profit opportunities of approximately $13 million. These variances were partially offset by a favorable derivatives impact in the current period. For the nine months ended September 30, 2024, the Petroleum Segment’s operating income and net income were $9 million and $35 million, respectively, compared to operating income and net income of $838 million and $913 million, respectively, for the nine months ended September 30, 2023. Similarly, these declines were primarily due to decreases in gasoline and distillate crack spreads, decreased production and increased maintenance costs resulting from the fire at the Wynnewood Refinery during severe weather (the “Wynnewood Fire”) and the unplanned outages at both refineries, coupled with increased RFS related expenses, partially offset by a favorable derivatives impact in the current period.

Previous wording

Net Sales - For the three and six months ended June 30, 2024, net sales for the Petroleum Segment was $1.8 billion and $3.5 billion, respectively, compared to $2.0 billion and $4.0 billion for the three and six months ended June 30, 2023, respectively. The decrease in net sales for both periods was driven by lower refined product prices resulting from elevated inventory levels and reduced demand, along with fewer sales as a result of the Wynnewood Fire.

Current wording

Net Sales - For the three and nine months ended September 30, 2024, net sales for the Petroleum Segment was $1.6 billion and $5.2 billion, respectively, compared to $2.3 billion and $6.3 billion for the three and nine months ended September 30, 2023, respectively. The decrease in net sales for both periods was driven by lower refined product prices resulting from elevated inventory levels and reduced demand, along with a decline in sales volumes as a result of the Wynnewood Fire and an unplanned outage at the Coffeyville Refinery.

Previous wording

Refining Margin -For the three months ended June 30, 2024, refining margin was $185 million, or $10.94 per throughput barrel, compared to $333 million, or $18.21 per throughput barrel, for the three months ended June 30, 2023. The primary factors contributing to the $148 million decrease in refining margin were:

Current wording

Refining Margin -For the three months ended September 30, 2024, refining margin was $44 million, or $2.53 per throughput barrel, compared to $607 million, or $31.05 per throughput barrel, for the three months ended September 30, 2023. The primary factors contributing to the $563 million decrease in refining margin were:

Previous wording

•A decrease in the Group 3 2-1-1 crack spread of $13.20 per barrel, driven by a tightening of gasoline and distillate crack spreads primarily due to increased inventory levels and lower demand in the current year; and

Current wording

•A decrease in the Group 3 2-1-1 crack spread of $19.70 per barrel, driven by a tightening of gasoline and distillate crack spreads primarily due to increased inventory levels and lower demand in the current year;

Previous wording

•A decline in RFS related expense of $51 million, which includes favorable RINs revaluation adjustments of $2 million; and

Current wording

•An increase in RFS related expense of $187 million, which includes unfavorable RINs revaluation adjustments of $232 million;

Previous wording

•Favorable inventory valuation impacts of $2 million for the three months ended June 30, 2024 compared to unfavorable inventory valuation impacts of $21 million for the three months ended June 30, 2023, primarily due to rising crude oil prices in the current period compared to falling crude oil prices in the second quarter of 2023.

Current wording

•Unfavorable inventory valuation impacts of $31 million for the three months ended September 30, 2024 compared to favorable inventory valuation impacts of $82 million for the three months ended September 30, 2023, primarily due to falling crude oil and refined product prices in the current period compared to rising crude oil prices in the third quarter of 2023.

Previous wording

For the six months ended June 30, 2024, refining margin was $476 million, or $13.68 per throughput barrel, compared to $744 million, or $20.68 per throughput barrel, for the six months ended June 30, 2023. The primary factors contributing to the $268 million decrease in refining margin were:

Current wording

For the nine months ended September 30, 2024, refining margin was $520 million, or $9.96 per throughput barrel, compared to $1.4 billion, or $24.33 per throughput barrel, for the nine months ended September 30, 2023. The primary factors contributing to the $831 million decrease in refining margin were:

Previous wording

•A decrease in the Group 3 2-1-1 crack spread of $13.93 per barrel, driven by a tightening of gasoline and distillate crack spreads primarily due to increased inventory levels and lower demand in the current year; and

Current wording

•A decrease in the Group 3 2-1-1 crack spread of $15.85 per barrel, driven by a tightening of gasoline and distillate crack spreads primarily due to increased inventory levels and lower demand in the current year;

Previous wording

•A decline in RFS related expense of $136 million, which includes favorable RINs revaluation adjustments of $37 million; and

Current wording

•An increase in RFS related expense of $52 million, which includes unfavorable RINs revaluation adjustments of $196 million;