This Monday CITGO Corporation published the performance results of 2021’s the 3rd quarter, marking it the second consecutive quarter registering a positive EBITDA, and demonstrating our commitment to transparency and accountability towards Venezuelans.
The company reiterated its commitment to work hard to address the operational challenges that arise and thus benefit from improvements in the business environment, take full advantage of available profit margins and end the year 2021 in a strong position.
“Strong gasoline and distillate margins, supported by continued recovery in demand and low inventory levels, were a positive development in the third quarter despite the challenge posed by rising crude and natural gas prices.” said CITGO Executive President Carlos Jordá.
The overall refining industry context improved from quarter to quarter, resulting in an estimated total refining EBITDA of $ 198 million, compared to $ 143 million with the second quarter of 2021. However, unplanned outages at the Corpus Christi and Lake Charles refineries, and planned restructuring work at Lake Charles and Lemont refineries led to a reduced combined rate of return of 85% for the third quarter, compared to 87% in the prior quarter.
“While our results were affected, despite improvements in the business environment, we are working to address operational issues as we move into the fourth quarter. Increased mobility is creating greater demand for our products, and we will continue to work hard to improve our operations so that we are well positioned to take full advantage of available margins,” continued Mr. Jordá, “I am sure that we are taking the necessary measures to end 2021 strong.”
Third Quarter Highlights:
At a strategic and operational level
Exports: Exports of refined products during the third quarter averaged 136,000 barrels per day (bpd), slightly higher than that reported in the second quarter of 2021. Export sales are expected to continue strengthening towards the end of the year as Latin America continues to reopen its economy. Export barrels from the US Gulf Coast are also expected to be more competitive in the fourth quarter.
Refinery Yield: Total refinery yield in the third quarter was 698,000 bpd, including 44,000 bpd of intermediate raw materials, which represents a reduction compared to the previous quarter. As a result, the overall utilization of crude distillation capacity was 85%, slightly lower than the utilization rate of 87%, corresponding to the second quarter of 2021.
Operational Excellence – Through September, the company exceeded its safety and environmental performance targets, and was recently recognized by the International Liquid Terminals Association (ILTA) for its outstanding performance in occupational safety in 2020. Additionally, the Lake Charles and Lemont refineries set fuel production records during the third quarter while successfully managing scheduled maintenance shutdown activities.
On a financial level
Capital Expenditure: After deferring – to the first quarter of 2022 – the Corpus Christi scheduled maintenance shutdown, CITGO projects a total of $ 425 million in capital expenditures, scheduled maintenance shutdowns and catalysts. September capex, scheduled shutdowns and catalysts to date is approximately $ 222 million.
Tax Refund: CITGO received approximately $ 556 million, including interest, from the U.S. Internal Revenue Service (IRS) during this quarter, corresponding to tax refund payments under the U.S. Tax Act. Coronavirus Aid, Relief and Economic Security (CARES).
Accounts Receivable Service: On September 30th, CITGO modified its accounts receivable credit agreement to increase availability from $ 250 million to $ 500 million, under its current two-year accounts receivable securitization service.
Notable personnel changes:
Luis Giusti was elected Chairman of the Board of Directors of CITGO Petroleum Corporation.
Carlos Jordá was appointed to the Board of Directors of both CITGO Holding, Inc. and CITGO Petroleum Corporation, while continuing to serve as CITGO Petroleum Corporation President and CEO.
Jack Lynch was appointed a Senior Member of the Board of Directors of CITGO Petroleum Corporation, and also Secretary to the Board of Directors of CITGO Petroleum Corporation and its parent companies PDV Holding, Inc. and CITGO Holding, Inc., while continuing to serve as Vice President of Legal and Governmental Affairs of CITGO Petroleum Corporation.
Sam Wilhelm, President of PDV Holding, Inc., was appointed a Senior Member of the Board of Directors of CITGO Petroleum Corporation.
Shane Moser was appointed Vice President of Health, Safety and Environment (HSE) for CITGO Petroleum Corporation, reporting directly to Chief Operating Officer Edgar Rincón.
Gina Coon, Corporate Treasurer of CITGO Petroleum Corporation, will retire at the end of November 2021. A formal search for her successor is underway.
With the decrease in restrictions related to COVID-19 during the third quarter, there was an increase in mobility, which resulted in better demand for gasoline, distillates and jet fuel compared to what was registered in early 2021. For all three products combined, demand in the US remained 2.4% lower compared to the third quarter of 2019.
Changes in key drivers during the quarter include the following:
Oil demand in the US increased to 20.15 million barrels per day (MMBPD) in the third quarter of 2021, compared to 18.4 MMBPD in the first quarter of 2021, with notable increases in mobility and economic activity. Oil demand is expected to exceed 2019 levels in the second half of 2022.
Gasoline demand in the US continued to improve, averaging in the Q3 2021 just 1.7% below Q3 2019 demand and exceeding expectations. While demand has remained strong in the fourth quarter, the winter months carry risks of a resurgence of COVID outbreaks and consequently for consumer mobility.
Demand for distillates in the US exceeded 2019 levels for the past six months, with demand during the third quarter of 2021 approximately 3% higher than in the third quarter of 2019. Diesel and jet fuel exports continue behind 2019 levels.
The demand for aviation fuel in the US continues to improve relative to the previous quarter in a slow and steady trajectory, registering during the third quarter of 2021 approximately 18% below that registered during the third quarter of 2019.
The U.S. refinery utilization rate averaged 90% for the third quarter of 2021, roughly 3.5% below 2019 and at the bottom of the five-year range.
Headquartered in Houston, Texas, CITGO Petroleum Corporation is a recognized leader in the refining industry operating under the renowned CITGO brand. CITGO operates three refineries located in: Lake Charles, Louisiana; Lemont, Illinois; and Corpus Christi, Texas. It has total ownership or ownership interest in 38 active terminals, six multi-pipelines and three lubricant mixing and packaging plants. With approximately 3,300 employees and a combined crude processing capacity of approximately 769,000 barrels per day (bpd), CITGO is the fifth-largest refining company and one of the most complex independent large-scale and deep-conversion refiners in the United States. CITGO transports and markets transportation fuels, lubricants, petrochemicals and other industrial products, and supplies products to a network of approximately 4,400 branded and locally operated retail outlets, all located east of the Rocky Mountains. CITGO Petroleum Corporation is owned by CITGO Holding, Inc.
We publish financial and other information on our website, including reports on our quarterly and annual financial and operating results. While our historical financial information is presented in accordance with US Generally Accepted Accounting Principles (GAAP), except for certain non-GAAP financial measures (see below), we are not a company subject to filing with the U.S. Securities and Exchange Commission (SEC) and we do not report all information required by the SEC to reporting companies.
This press release contains ‘forward-looking statements’ about financial and operational elements related to CITGO’s business. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results, developments and business decisions to differ materially from those contemplated in these forward-looking statements. This press release may also contain estimates and projections regarding market and industry data that were obtained from internal company estimates, as well as third party sources believed to be generally reliable. However, market data is subject to change and cannot always be verified with complete certainty due to the limits of availability and reliability of raw data and other limitations and uncertainties inherent in any statistical study, interpretation or presentation of market data and management estimates and projections. The forward-looking statements contained in this press release are valid only as of the date of this press release. We disclaim any obligation to update any forward-looking statements.
Non-GAAP financial measures:
This press release also contains operating metrics and non-GAAP information, including EBITDA and Adjusted EBITDA, which have not been audited and are based on management estimates that may be difficult to verify. These non-GAAP financial measures are in addition to, and not a substitute for or superior to, financial performance measures prepared in accordance with U.S. GAAP and may differ from non-GAAP measures used by other companies in our industry. We believe that these non-GAAP financial measures are important because they provide useful measures of the company’s operating performance, excluding unusual events, as well as factors that do not directly affect what we consider to be our core operating performance. These non-GAAP financial measures should not be considered a substitute for financial information presented in accordance with GAAP. See the reconciliation of EBITDA and Adjusted EBITDA to the most directly comparable GAAP measure set forth on page 6 of this press release.
Refinery EBITDA estimates:
The refinery EBITDA estimates presented in this press release are calculated as gross refinery hydrocarbon margin minus refinery operating expenses and non-operating items and income/ (expenditures), plus depreciation and amortization. Our refinery EBITDA estimates are intended as estimates of our refineries’ earnings before taxes and interest and depreciation and amortization. The table on page 7 of this press release shows a reconciliation of our refinery EBITDA estimates (on an individual and total refinery basis) with the EBITDA of our consolidated operations for the respective periods presented there. In addition, we summarize below the methodologies and assumptions that we use in relation to our estimates of the various components of refinery EBITDA.
With respect to these components of Refinery EBITDA, we define the Refinery Hydrocarbon Gross Margin as the estimated value of a refinery’s production less the cost of the hydrocarbons and intermediate raw materials used by that refinery. Estimated production values are not calculated in the same way as revenue for US GAAP purposes, and these values would not be eligible for revenue recognition under US GAAP. In the US, we recognize revenue at the time products are sold, while estimated values are based on production dates, which may not match market values at the time of sale. Additionally, our US GAAP income is based on actual product sales prices, while estimated values are based on selected market indices. As a result, the actual income earned from the sale of products may vary depending on the timing, location, or actual sale price made. The cost of hydrocarbons and intermediate raw materials that are used to calculate the gross margin of hydrocarbons of the refinery are the acquisition costs of these inputs used by a refinery. The costs related to these items are included as part of cost of sales and operating expenses in our consolidated statements of income and comprehensive income under US GAAP. However, for the purposes of calculating the refinery’s gross hydrocarbon margin, these costs are not calculated in the same way that we calculate the amounts included in cost of sales under U.S. GAAP, and the amounts reflected in the refinery’s gross margin on hydrocarbons may materially underestimate or overstate the corresponding amounts under US GAAP.
In addition, refineries operating expenses reflect estimates of direct costs and expenses associated with operating refineries, such as labor and related charges, energy, maintenance and materials, and depreciation and amortization. The costs and expenses related to these items are included as part of other expenses or costs of sales and operating expenses in our consolidated statements of income and comprehensive income under US GAAP, along with other expenses. The amounts allocated to our refineries for some of these costs and expenses for the purposes of our refinery EBITDA estimates do not necessarily reflect the total amounts of such costs, or they may materially exaggerate or underestimate such costs.
In addition, other miscellaneous costs and indirect expenses associated with the operation of the refineries include certain general expenses of supplying and marketing crude, industrial and petrochemical products, as well as certain capital related to the refineries in the investments of the affiliates and the income of the affiliates. insurance. These items reflect the amounts included as part of cost of sales and operating expenses and other income, other expenses, insurance recoveries and profit sharing of affiliates in our consolidated statements of income and comprehensive income, along with other expenses. The amounts allocated to our refineries for some of these costs and expenses for the purposes of our refinery EBITDA estimates do not necessarily reflect the total amounts of such costs, or they may materially exaggerate or underestimate such costs.
The main elements that affected the adjusted EBITDA during the periods shown above were:
Hurricane Laura Expenses: We incurred approximately $ 87 million in repair costs, of which approximately $ 46 million were recovered through insurance. We expect to incur additional costs, net of any insurance recovery.
Winter Storm Uri Expenses (3Q 2021 and 2Q 2021): We incurred approximately $ 24 million in repair costs, of which approximately $ 14 million were recovered through insurance.