CITGO Reports Third Quarter 2020 Results
HOUSTON, Nov. 13, 2020 /PRNewswire/ -- The Company's third quarter results were driven by the economic effects of the COVID-19 pandemic, which affected the refining industry as a whole, and were further affected by an eight-week shutdown at the Lake Charles, La. refinery due to Hurricanes Laura and Delta. As a result of these factors, CITGO Petroleum Corporation ("CITGO") reported a net loss of $248 million for the third quarter of 2020 along with EBITDA(1) of $(212) million and adjusted EBITDA of $(183) million.
Operations at the Lake Charles refinery were safely shutdown in advance of Hurricane Laura, and the refinery experienced no safety issues or hydrocarbon releases arising from the direct impact of the storm. When Hurricane Delta struck six weeks later, shortly after the repaired refinery had restarted, the facility was secured, shutdown and again experienced no safety or hydrocarbon releases. Post-Hurricane Delta start-up was successfully completed in late October.
"The ongoing impact of COVID-19 and a category four hurricane made the third quarter particularly difficult," said President and CEO Carlos Jordá. "We were able to quickly adjust our operations throughout our system while Lake Charles was offline, and at the same time continued to adjust cash spending and aggressively manage expenses to cope with the negative conditions affecting the U.S. refining sector. We are very thankful our Lake Charles employees made it through the hurricanes safely, and thanks to their hard work the refinery is now back up and running."
In this extremely challenging margin environment, the Company remains focused on optimizing operations to improve gross margin, reducing costs where possible and deferring discretionary capital to manage liquidity.
Third quarter operational and performance highlights:
-- Disciplined Cost Management
-- CITGO continues to take aggressive steps to manage costs in order to
navigate the challenging environment, including temporarily
suspending employer contributions to the company's 401(k) retirement
plan and a 10% reduction in salaries(2). These compensation and
benefit cuts will be reviewed as improving industry conditions
warrant. In addition, in September 2020, CITGO modified the salaried
employees defined benefit plan. This resulted in approximately $150
million reduction in future benefit obligations as of the quarter
end.
-- The Company is targeting an approximately 15% reduction in 2020
planned annual operating expenses.
-- CITGO remains on target for a 20% - 25% reduction in 2020 capital
expenditures versus the original budget of $262MM.
-- Refinery throughput - Total refinery throughput in the third quarter was
544,000 bpd, including 83,000 bpd of intermediate feedstocks, compared
with 825,000 bpd processed during the same quarter of 2019. One of the
primary contributors to the 34% reduction in overall utilization was the
Lake Charles refinery being offline more than 1/3 of the quarter due to
Hurricane Laura; however, after adjusting operations in September, the
utilizations at the Lemont and Corpus Christi refineries were higher,
averaging 86% and 97% respectively. Another factor contributing to the
lower overall utilization was the continued low-demand environment,
which was an opportune time to complete planned turnaround activities.
-- Continued turnarounds - CITGO completed planned turnarounds at the
Lemont and Lake Charles refineries after developing and implementing
strict COVID-19 safety protocols, which allowed the company to take
advantage of the low demand environment.
-- Exports - Exports in the third quarter averaged 114,000 bpd, an increase
of 33% relative to the second quarter, as Latin-American demand has
started to recover from the decline experienced during the second
quarter.
-- Operational excellence - Aside from the effects of the hurricanes, the
CITGO refineries operated reliably during the quarter and continue to
exceed safety and environmental performance targets. Additionally, the
company was recognized by the American Petroleum Institute (API) with
its 2019 Distinguished Pipeline Safety Award, the recipient of which is
chosen by its peers for demonstrated excellence in safety practice,
ideas, and policy.
-- Special items - Costs associated with the effect of Hurricane Laura to
the Lake Charles refinery were substantially mitigated by insurance
recoveries, but resulted in approximately $20 million of net impact in
the third quarter, with more additional costs expected be incurred
throughout the remainder of 2020 and into 2021.
CITGO announced several notable personnel changes:
-- The Board of Directors appointed John Zuklic as CFO and Vice President
Finance, effective November 4, after a thorough search process. Mr.
Zuklic joins CITGO with extensive financial and operational experience
in the refining industry, having held a number of executive level
positions with Phillips 66 including Vice President and Treasurer.
-- Bob Shoemaker, who joined the company in 1999 and has held a number of
financial management positions at CITGO, was named Controller effective
September 30. Mr. Shoemaker replaces Mr. Barry Treas, who retired after
a 40-year career with the company.
Industry Overview:
While the announcement in early November of a promising COVID-19 vaccine - and subsequent strong rallies in both the oil and equities markets - provide concrete reasons for optimism, significant near-term challenges remain for the refining industry. Here are the main developments during the third quarter:
-- Oil prices were relatively stable during the third quarter after
experiencing extreme price volatility during the first half of the year.
-- Gasoline demand growth has eased after an initial sharp demand rebound
through mid-July. As of mid-October 2020, it remains 9% below 2019 for
the same time period.
-- Distillate demand, which was the least impacted by the pandemic,
continued to improve in the third quarter and beyond. For the month of
October, it was in the five year range and approximately 7% below the
October 2019 level.
-- Jet fuel demand recovery has continued to lag and after some improvement
at the end of July, has stagnated with the resurgence of infections. For
the month of October, jet fuel demand was 45% below the October 2019
level.
-- Low margin environment remains, despite the improvements to date in
demand and reduced inventories, further indicating that the refining
system is still long supply and additional rationalization is necessary.
-- Refinery utilization trended higher through late August, reaching a peak
of 82% before falling sharply due to temporary shutdowns related to
Hurricane Laura and Hurricane Delta. Overall refinery utilization
recovered to 77% by the end of the quarter.
While the effects of the COVID-19 pandemic remain the largest risk to energy demand, the refining industry continues to adapt by making significant cost reductions. At the same time, the U.S. economy staged an uneven recovery from the severe recession earlier this year. After falling at an annualized rate of more than 31% in the second quarter, the largest decline ever, U.S. GDP rose by a record 33% in the third quarter. The combination of massive fiscal stimulus provided by Congressional passage of the CARES Act, plus aggressive actions by the Federal Reserve including adoption of near-zero interest rates, has provided a record level of support to counter the economic downturn. Against this backdrop, and given the multiple measures CITGO has taken to exercise cost discipline and complete refinery turnarounds, the company believes it is well-positioned to benefit when refining industry market conditions improve.
About CITGO
Headquartered in Houston, Texas, CITGO Petroleum Corporation is a recognized leader in the refining industry with a well-known brand. CITGO operates three refineries located in Corpus Christi, Texas; Lake Charles, La.; and Lemont, Ill., and wholly and/or jointly owns 42 terminals, six pipelines and three lubricants blending and packaging plants. With approximately 3,300 employees and a combined crude capacity of approximately 769,000 barrels-per-day (bpd), CITGO is ranked as the sixth-largest, and one of the most complex independent refiners in the United States. CITGO transports and markets transportation fuels, lubricants, petrochemicals and other industrial products and supplies a network of more than 4,500 locally owned and operated branded retail outlets, all located east of the Rocky Mountains. CITGO Petroleum Corporation is owned by CITGO Holding, Inc.
Forward-Looking Statements
Certain information included in this release may be deemed to be "forward-looking statements" under applicable securities and other laws that involve risks and uncertainties. These statements relate to, among other things, expectations regarding our industry, business strategy, goals and expectations concerning our market position and future operations or performance. We have used the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will," "would" and similar terms and phrases to identify forward-looking statements, which speak only as of the date of this release.
Any forward-looking statements are not guarantees of future events and are subject to risks and uncertainties that could cause actual events, developments and business decisions to differ materially from those contemplated by these forward-looking statements. These statements are based on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions (including current market conditions), expected future developments and other factors they believe to be appropriate. Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate, and the forward-looking statements based on these assumptions could be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or could otherwise materially affect our financial condition, results of operations and cash flows. We caution readers that these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from the results that are projected, expressed or implied. These risks and uncertainties include, among others, risks related to the effects of the ongoing COVID-19 pandemic, general economic activity, developments in international and domestic petroleum markets, and refinery turnarounds and operations. Readers are cautioned not to place undue reliance on these forward-looking statements.
The forward-looking statements contained in this release are made only as of the date of this release. We disclaim any duty to update any forward-looking statements.
(1) EBITDA and Adjusted EBITDA are non-GAAP financial measures. Please see the reconciliation at the end of this press release for more information.
(2) Lower earners are exempt.
CITGO PETROLEUM CORPORATION
RECONCILIATION OF NET LOSS TO EBITDA AND ADJUSTED EBITDA
(in millions of U.S. dollars)
(unaudited)
Three Months Ended
September 30,
2020
Net Loss (248)
Plus (Less)
Interest expense, including
finance lease 55
Income taxes (174)
Depreciation and amortization 158
Amortization of loan origination
fees in interest expense (3)
EBITDA (212)
Plus (Less)
Hurricane Laura costs, net of
insurance recoveries 20
LIFO inventory permanent dip
impact 8
Charitable contributions (a) 1
Adjusted EBITDA (183)
(a) Donations to
charitable
organizations.
We adjust
for this
item in
calculating
Adjusted
EBITDA
because we
believe
excluding
this item
will enable
investors
and analysts
to compare
our
performance
to our
competitors
in a more
consistent
manner.
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SOURCE CITGO Corporation
