Being close to shale fields energizes refiner
REFINING is a business of exploiting razorthin margins, buying your oil cheap and then selling fuel for as much as you can get. And in 2017, CVR Refining, and its parent company, CVR Energy, did that well enough to rise to the number 2 and 3 spots, respectively, on the Chronicle 100.
“It’s the spread that matters,” CEO Dave Lamp said, referring to the difference between the cost of oil and the price of gasoline. “We were able to convert in a reasonably good market.”
And their investors were the beneficiaries, with a 71 percent return on investment at CVR Refining, the fourth-highest tally of any company featured in the ranking.
The secret to CVR’s success, Lamp said, is the proximity of its two refineries in Oklahoma and Kansas to shale fields where hydraulic fracturing and horizontal drilling technologies are upending global oil markets. The oil from West Texas and other plays runs at a discount to oil from outside the United States.
“Plus, if you're sitting on top of or close to shale oil formations,” Lamp said, “you're getting a discount on transportation.”
Revenue at CVR Energy reached $6 billion last year, up 25 percent from 2016. Its earnings per share ratio increased by more than 800 percent, the fifth-highest ranking in this category of the Chronicle 100.
Refineries have benefited of late from waivers issued by the Environmental Protection Agency that exempt many of them from ethanol blending requirements, easing the costs of the federal mandate. Lamp said those exemptions already are bringing down the prices of the credits that refineries buy in lieu of blending ethanol.
The cost of the credits “didn't play into 2017,” he said. “It’s playing into 2018 quite a bit.”
CVR’s refinery in Wynnewood, Okla., has received a waiver from the EPA, according to a lawsuit by the Renewable Fuels Association, a trade group representing ethanol producers.