This Friday CITGO Petroleum Corporation (CITGO) published the results of its performance during the first quarter of the year 2021, this includes a net loss of 180 million dollars, a loss – before interest, taxes, depreciation and amortization (EBITDA) – of $ 21 million, and adjusted EBITDA of $ 10 million. The quarter marked the first positive quarterly adjusted EBITDA result for CITGO since the COVID-19 pandemic broke out.
The company’s overall quarterly performance was primarily affected by its February results, which were negatively impacted by the effects of winter storm Uri and which accounted for approximately two-thirds of the total net loss recorded during this quarter. The storm disrupted production of approximately six million barrels of the industry’s refining capacity, which included the full and forced closure of the Corpus Christi refinery for approximately three weeks. As a result, CITGO incurred in repair expenses of approximately $ 21 million during the quarter. We estimate our excess energy and other utility costs at approximately $ 60 million as a result of the storm.
“We carefully managed our expenses and liquidity to meet the unique challenges of 2020 but Uri brought a new set of operational challenges that hit our people and our refineries hard,” said CITGO Executive President Carlos Jordá. “Our response to the unprecedented cold spell in February once again demonstrated our resilience as a company, and the most recent disruption caused by the outage of the Colonial Pipeline has provided another example of how CITGO overcomes difficulties as a team.”
Overall performance improvements recorded during the quarter were driven by higher profit margins and a higher refinery utilization rate, which increased to 83% in the first quarter compared to 75% in the fourth quarter of the prior year. Thanks to the reversal of the negative effects caused by the winter storm, CITGO saw significant improvements in the refinery utilization rate and profit margins in March.
“Now that the impact of the winter storm is behind us, we are encouraged by the stronger demand, improved profit margins, and higher refinery utilization rates expected beyond the first quarter.” said Jordá.
First quarter highlights:
Strategic and Operational Performance
Refinery Yield: Total refinery yield in the first quarter was 693,000 barrels per day (bpd), including 54,000 bpd of intermediate feedstock, resulting in an overall crude utilization of 83%.
Exports: Refined product exports in the first quarter averaged 99,000 bpd and were mainly affected by refinery disruptions caused by the February winter storm, and by the continuing effects of COVID-19 on demand from other countries.
Operational Excellence – Corpus Christi CITGO Refinery earned 2020 ENERGY STAR® designation from the U.S. Environmental Protection Agency (EPA) for the second year in a row. Successively receiving this certification demonstrates the CITGO Corpus Christi refinery’s leadership in energy and environmental management within the oil industry, and reflects the company’s determination to reduce air emissions, increase efficiency, and achieve outstanding environmental performance.
Notable Personnel Changes: On February 12th, 2021, José Ramón Pocaterra was elected Chairman of the Board of Directors of CITGO Petroleum Corporation. Luisa Palacios resigned from the CITGO Petroleum Corporation Board of Directors, effective March 31th, 2021, to assume a full-time position in an academic institution. Steven Scarpino joined CITGO on April 22nd, 2021 as the first full-time Director of Ethics and Compliance in CITGO’s history, reporting directly to the company’s CEO, Carlos Jordá, and with direct access to the Audit Committee of the Board of Directors.
Disciplined cost management: effective January 1st, 2021, the company implemented a 10% reduction in employee salaries – excluding lower-earners. This cut was in addition to the temporary suspension of employer contributions to the 401 (k) retirement plan, this will be revised in 2021 as industry conditions improve. The previously announced modifications to the pension plan defined benefits for salaried employees are expected to result in an estimated reduction of approximately $ 40 million in annual spending. In addition, it is planned the use 70% of capital expenses, scheduled shutdowns and catalysts in the second half of 2021 to preserve liquidity at the beginning of the year.
Refinancing: On February 11th, 2021, CITGO successfully completed a private offer for $ 650 million of the total principal amount of the 6.375% Senior Secured Notes due in 2026, a transaction that had a significant underwriting and featured the participation of a broad and diverse group of investors. Net proceeds from the offering, along with available cash, were used to redeem the company’s $ 650 million of the company’s existing 6.25% senior secured notes due in 2022, and to pay fees and expenses related to the offer.
Changes in key aspects during the year include:
Oil Demand: US oil demand in the first quarter was 18.5 million barrels per day (MMBPD), slightly lower than in the fourth quarter of 2020. Similarly, global oil demand remained unchanged at 95.3 MMBPD from Q4 2020 to Q1 2021 due to ongoing COVID-19 containment challenges in other parts of the world. Demand for oil is expected to increase in 2021.
Gasoline Demand: US gasoline demand in the first quarter was approximately 535 thousand barrels per day (MBPD) below the 2019 level at the end of April (aprox. 6% less). With the increase in the vaccination rate of the population that translates into greater mobility, the demand for gasoline is expected to reach between 2 and 3% over the levels reached at the end of the year in 2019.
Distillate Demand: US diesel demand in Q1 was approximately 4% below Q1 2019 demand, but improved by 2% from Q1 2020. During April 2021, diesel demand was 2% higher than in 2019.
Aviation Fuel Demand: – U.S. Q1 aviation fuel demand growth continued slowly and steadily, reaching 35% above Q1 2019, compared to 38% recorded in the fourth quarter of 2020. With the increase in the vaccination rate, consumer confidence in domestic travel is increasing; however, the existence and emergence of new international contagion centers is expected to result in a choppy recovery overall. Global aviation fuel demand is currently anticipated to be 20-30% below 2019 levels throughout 2021.
Refinery utilization: The US refinery utilization rate averaged just 78% in the first quarter, in part due to approximately 6 MMBPD of refining capacity lost to winter storm Uri. April was the month with the highest utilization rate since the pandemic began, reaching 85%. With better product demand, the utilization rate for the remainder of the year is expected to be roughly 5% below the historical seasonal range of 85-95%.