CVR Refining appears poised to ride the shale boom


The financial media that was hyping fear as the “Fiscal Cliff” approached at year end 2012 seems to have turned 180 degrees and is now emphasizing “five year highs” and “rotation from bonds into equities.” The media’s job is of course to get ratings, and our job as investors is probably to ignore the hype as much as possible.

The New Year is out of the blocks and off to a strong start for the Master Limited Partnership (MLP) space with fourth quarter distribution announcements coming in slightly ahead of my expectations and with three MLP IPOs being completed in January: USA Compression Partners, L.P. (USAC), CVR Refining, L.P. (CVRR) and SunCoke Energy Partners, L.P. (SXCP).

USAC is a gathering and processing MLP focused in the contract compression space. CVRR is a downstream and marketing and variable rate MLP with two refineries and related logistics assets strategically located in Oklahoma and Kansas.

And SXCP is another new asset class MLP that holds 65% ownership in two coke making facilities with long-term take-or-pay contracts (viewed as part of the coal MLP segment since it is part of that value chain).

I believe the favorable U.S. crude oil production growth trend from the Bakken Shale in North Dakota down to the Eagle Ford Shale in South Texas should continue to directly benefit refineries physically located in the middle of the country. I believe CVRR in particular is well positioned to benefit from this trend.

Pro forma for its IPO proceeds, CVRR has very low net debt to EBITDA of approximately 0.2x, which I believe makes it well capitalized to weather the notoriously volatile crack spread. Additionally, Carl Icahn’s investment vehicle Icahn Enterprises, L.P. purchased four million common units in the IPO. In May of 2012, Icahn Enterprises took control of parent company CVR Energy, Inc. (CVI).

Icahn Enterprise’s purchase of CVRR units at the IPO price appears to indicate that they see additional upside in the newly formed MLP as opposed to viewing the IPO as a way to exit some of the exposure to the assets.

And the sprint continues…

The investments discussed are held in client accounts as of February 1. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.

Author profile

Philip Trinder
Philip Trinder
I am an individual investor with over 15 years of corporate finance and structuring experience.

As a senior energy industry investment banker at First Union / Wachovia from 1995 to 2008, I covered a broad spectrum of products including direct equity investments, initial public offerings (IPOs), equity-linked securities, private equity, public bonds, and loan syndications.

During my investment banking career, I experienced the growth of master limited partnerships (MLPs) first hand and worked on hundreds of corporate finance transactions. I founded MLP Protocol in 2008 to focus on MLP investments.