CVR Refining to Enter Retail

Strategy would 'help mitigate ... high RIN costs'

SUGAR LAND, Texas -- CVR Refining, which has been at the forefront of a battle to repeal or change the Renewable Fuel Standard, plans to get into the fuel wholesale and retail business to cushion itself from compliance costs.

CVR Refining LP, Sugar Land, Texas, is an independent refiner whose majority owner is billionaire investor Carl Icahn, a former special regulatory adviser to President Trump. Icahn has been a frequent critic of the Renewable Fuels Standard (RFS), arguing that it unfairly burdens refiners such as CVR that are obligated parties, required to meet ethanol-blending quotas each year or buy Renewable Identification Numbers (RINs) to make up the difference.

In one of its more recent efforts at tackling the RFS, CVR and others petitioned the U.S. Environmental Protection Agency (EPA) to shift the point of obligation downstream, including to gasoline retailers. In November 2017, the EPA denied the petitions.

The lack of progress on a regulatory fix now has CVR looking downstream to help alleviate some of its compliance burden. In his concluding remarks during CVR Refining’s recent fourth-quarter 2017 earnings call, CEO Dave Lamp said the refiner plans “to build a wholesale and retail business to reduce our RIN exposure.”

“What with the RFS regulation as it is, it’s forcing us to go into a business that we historically have not been in just to mitigate the effects of this high RIN cost,” said Lamp. “So in essence we’re looking at expanding our value chain to go all the way to the retail station, buy trucks or reduce contract trucks, to haul our product from racks to the retailer. And then on top of that, we’re looking at buying some retail to help mitigate the same high RIN costs.”

Lamp would not specify how many retail sites this might include, or how much CVR plans to spend on acquiring stores.

“It takes a lot of retail stations to really impact the RIN exposure,” said Lamp. “That’s one we’re going to look at very carefully. ... But there are deals out there in our markets that could possibly make sense to us. So we’re going to evaluate those.”

The remarks came just before a meeting this week at the White House to revisit a possible compromise between refiners and the ethanol industry on tweaking the RFS. President Trump met with EPA Administrator Scott Pruitt and Sonny Perdue, agriculture secretary, who were pitching a plan that would cap RIN prices; provide a year-round waiver for selling E15, the 15% ethanol blend; creating credits for exporting ethanol; and developing transparency measures to prevent investors from speculating on RINs, according to Politico. To move quickly, the changes would be implemented by executive order rather than through legislative action.

In February, Pruitt told Fox News that he believed the RFS needed to be changed to address rising RIN costs, including setting more conservative blending quotas for refiners. In February, refiner Philadelphia Energy Solutions (PES) filed for bankruptcy, partly blaming the high cost of RINs for the move.

Lamp referred to PES’ bankruptcy as a sign the RIN system needs reforming, and said he was confident that there would be action on the RFS.

“I believe the right centers are now engaged to repeal or significantly reform the regulation to prevent additional independent merchant refiners who are experiencing the same thing,” said Lamp.

However, the meeting this week between Trump, the agency executives and corn-belt and oil-refining state legislators failed to reach an agreement, Reuters reported.

This is not the first time CVR has weighed jumping into retail. In 2016, the refiner showed interest in buying Delek U.S. Holdings.

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