Carl Icahn's Refinery Investment Has Rebounded by $1.4 Billion, Boosted by Trump Energy Policy

by Tom DiChristopher (CNBC) -Shares of CVR Energy have more than doubled since August, resulting in a $1.4 billion paper gain for Carl Icahn, who holds an 82-percent stake in the company.
-CVR Energy's stock price slumped through much of last year as it became clear EPA would not adopt a policy proposal put forward by Icahn that would benefit the the company.
-However, CVR Energy and its peers in the refining sector have since benefited from EPA's willingness to grant financial hardship waivers to small refineries

But when it became clear that the EPA would reject Icahn's proposal and other changes to the program, RINs prices surged throughout much of last summer. As CVR's RINs liability ballooned to more than $200 million, analysts warned that the refiner might have to buy RINs at sky high prices to cover its obligations.

But the RINs market has now reversed course, with prices for ethanol credits dropping from nearly $1 in November to about 30 cents this week. Energy analysts say the catalyst for the reversal is clear.

The rebound

To be sure, falling RINs costs are by no means the only reason CVR Energy and CVR Refining have rallied.

The biggest driver has been the widening of so-called crack spreads, the industry's term for the difference between the cost of crude oil that goes into refineries and the selling price of fuels that come out of them.

CVR Refining is among the refiners with access to crude from the Permian Basin, the epicenter of the U.S. shale oil boom. The price of oil extracted from there has been heavily discounted lately.

CVR Refining posted nearly $147 million in profit in the first quarter, more than double its income from a year ago and its best quarterly earnings in nearly three years. Its full-year profit for 2017 grew nearly six-fold to about $89 million, though it remains well below the nearly $600 million CVR Refining earned in 2012 and 2013. READ MORE

Compliance costs falling: PBF (Argus Media)

An Urban's Rural View -- Whatever Icahn Wants, Continued (DTN The Progressive Farmer)

Ethanol Blog: Is Budget Report Language Cause of RFS Waivers? (DTN The Progressive Farmer)

Journal Times editorial: Hardship waiver for a multibillionaire (Journal Times)

ETHANOL MANDATE UPDATE: Oil Barons Are Making Billions And Blue Collar Workers Are Hurting (The Daily Caller)

Excerpt from DTN The Progressive Farmer: Let's start with the court case that the small refiners cite in their defense of the EPA's exemptions, Sinclair v. EPA (https://cases.justia.com/…). In it, the U.S. Court of Appeals for the Tenth Circuit said the EPA had misinterpreted the law in denying exemptions to the Renewable Fuels Standard to two small refineries in Wyoming. The court overturned the denials and instructed the EPA to reconsider Sinclair's petition using the court's interpretation of the law.

Ethanol interests say the EPA has been granting exemptions at double the pace of previous years (https://www.dtnpf.com/…). Is the agency doing this relying on the Tenth Circuit ruling in the Sinclair case? If so, there are several things about that case that need saying.

First, two other U.S. Appeals Courts -- the Eighth Circuit and the D.C. Circuit -- have reached a different conclusion about the validity of the EPA's statutory interpretation. The Tenth Circuit ruling attempts to distinguish those cases as different from Sinclair, but its attempts aren't terribly convincing. The public doesn't know where all the newly exempted refineries are located, but for any not in states under the Tenth Circuit's sway, the ruling wouldn't bind the EPA.

Even in considering petitions from Tenth Circuit refineries, the EPA would not be required by the Sinclair case to grant every petition. The statute requires a showing of "disproportionate economic hardship." The court said the EPA had read this to mean the refinery must demonstrate "an existential threat" --compliance costs at a level threatening its long-term viability. The EPA denied doing that, and the dissenting Tenth Circuit judge agreed, saying the agency uses "a more nuanced analysis," as required by the statute. If that's really the case, the EPA could deny similar petitions explaining more clearly the nuanced way it reached its conclusions.

Congress, it should be noted, didn't define "disproportionate economic impact." The Tenth Circuit interpreted those words to mean, "The EPA must compare the effect of the RFS Program compliance costs on a given refinery with the economic state of other small refineries."

Why other small refineries? Why not all refineries or all companies burdened with regulations, or some other disproportion? The court didn't explain its choice, but farmers might take some comfort from it, for it seems to suggest that the EPA could not grant exemptions to all 54 small refineries ....

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Another is the EPA's exemption for small refineries owned by a big company -- Andeavor -- making a billion and a half dollars in profits (https://www.reuters.com/…). This may comply with the letter of the law, which focuses on individual refineries and not companies, but it seems abusively far removed from the law's spirit.

Most troubling is the exemption granted a refinery owned by Carl Icahn's CVR Energy (https://www.reuters.com/…). Before naming Scott Pruitt to head the EPA, then President-elect Donald Trump sent him to see Carl Icahn. In effect, then, Icahn helped Pruitt get his job, and now Pruitt's EPA is rewarding Icahn with regulatory relief to the tune of tens of millions of dollars. READ MORE