HOUSTON, June 12, 2020 /PRNewswire/ -- CITGO Petroleum Corporation ("CITGO") today reported its first quarter 2020 performance results, including a net loss of $159 million and an adjusted EBITDA1 of $38 million excluding the effect of special items.
The onset of the COVID-19 pandemic combined with crude oil demand destruction were drivers behind the Company's first quarter results and impacted the industry as a whole. The first quarter net loss was particularly affected by the lower of cost or market ("LCM") inventory valuation adjustment, a result of rapidly falling crude oil prices affecting refiners across the industry.
"The LCM adjustment resulted in a non-cash loss that had no impact on CITGO's overall liquidity," said CITGO President and CEO Carlos Jordá. "Our management team will continue monitoring the economic environment closely, using the flexibility of our refineries and the diversification of the markets where we operate to adjust our product slate and refinery runs while continuing to evaluate additional cost reductions."
First quarter operational and performance highlights:
Second Quarter Strategic Update:
CITGO is actively responding to the extremely challenging economic conditions with the following strategic initiatives:
In a May meeting with the CITGO entities' ultimate shareholder, the PDVSA adhoc board, CITGO Board Chairwoman Luisa Palacios detailed the broader economic and market forces driving the first quarter environment. COVID-19 and its development into a pandemic in March 2020 resulted in significant economic disruption, as the U.S. economy contracted nearly 5%, U.S. equity markets fell sharply, crude oil prices fell by 65% from the middle of March to end of May, and significant restrictions on travel and work severely impacted demand for gasoline, diesel and jet fuel. April marked the month with the largest refined products demand destruction of 38.5% in comparison to the same month in the previous year.
The economic disruption led to a collapse of margins for petroleum products with the gasoline crack turning negative, a development not seen since the 2008 credit crisis.
This led to a significant cut in refining capacity utilization globally and in the United States since March. U.S. refinery utilization fell to a low of 68% and since has recovered to 72%. With demand disappearing, inventories for refined products and crude have risen dramatically, and while the industry has avoided reaching tank tops, inventories are now at historically high levels and will need to work themselves through in order for a healthy margin environment to return.
Analysts expect the refining sector will see the worst of the crisis in the second quarter of 2020. However, as all states have recently lifted stay-at-home orders, analysts expect a gradual recovery in demand in the second half of 2020. In such an environment, gasoline demand is expected to lead the recovery, while the health of distillate demand will be connected to the recovery of GDP growth, and jet demand is expected to lag.
Current positive expectations about the second half of 2020 rest on assumptions that a demand recovery will lift refinery runs and refinery margins. However, these expectations depend on continued avoidance of a significant resurgence of COVID-19 as social distancing requirements ease.
Palacios pointed to the concrete, proactive steps taken by CITGO to ensure the company is well-positioned to weather current economic conditions and seize the initiative when markets improve. "We believe CITGO has proactively prepared itself for a stress scenario by reducing operating and capital costs, tapping the markets to obtain additional liquidity, and proceeding with planned maintenance activities in the second quarter while the opportunity cost and demand levels are low," said Palacios.
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 48 terminals, ten pipelines and three lubricants blending and packaging plants. With approximately 3,400 employees and a combined crude capacity of approximately 769,000 barrels-per-day (bpd), CITGO is ranked as the fifth-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 approximately 4,700 locally owned and operated branded retail outlets in 30 states and the District of Columbia. CITGO Petroleum Corporation is owned by CITGO Holding, Inc. For more information, visit www.CITGO.com.
Certain information included in this release may be deemed to be "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, expectations regarding the proposed notes offering and the use of proceeds therefrom. These statements also relate to our industry, business strategy, goals and expectations concerning our market position and future operations. 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 Adjusted EBITDA is a Non-GAAP financial measure. Please see the reconciliation table below.
CITGO PETROLEUM CORPORATION
RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA
(in millions of U.S. dollars)
Three Months Ended
Interest expense, including finance lease
Income tax benefit
Depreciation and amortization
Amortization of loan origination fees in interest expense
Lower of cost or market inventory adjustment
Insurance recovery (a)
Tax benefit - CARES Act (b)
Litigation recovery (c)
Recovery from reinsurer for previously incurred costs related to the Athos matter.
Income tax benefits associated with the Coronavirus Aid, Relief, and Economic Security ("CARES") Act.
Proceeds received from legal settlements.
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SOURCE CITGO Corporation