8-K: Vertex Energy Provides Operational Update for Fourth Quarter 2023, Announces Earnings Call Date

Vertex Energy reported slightly lower than expected conventional and renewable throughput volumes for Q4 2023, while also noting improved operating expenses and a significant decrease in capital expenditures.

Summary

• Vertex Energy provided an operational update for the fourth quarter of 2023, noting that conventional throughput volumes are expected to be approximately 67,000 barrels per day, slightly below the previously forecasted range of 68,000 to 71,000 barrels per day.
• The company's finished product yield for conventional fuels is expected to be between 65% and 67%, which is within the previously forecasted range of 64% to 68%.
• Renewable diesel throughput volumes are anticipated to be around 3,900 barrels per day, at the low end of the previously forecasted range of 4,000 to 6,000 barrels per day.
• The average crack spreads on finished refined products declined by 40% compared to the third quarter of 2023.
• Operating expenses per barrel are expected to be between $3.75 and $3.95, a 5.5% improvement compared to prior expectations at the mid-point.
• Capital expenditures are expected to be $8 to $10 million, which is 48.6% below expectations at the midpoint.
• The company received $9.5 million in LCFS credits for renewable diesel production, with expectations for a material improvement in per-barrel credits upon receiving a provisional CI score in the first or second quarter of 2024.
• Vertex secured approximately $80 million in liquidity as of December 31, 2023, by leveraging cash invested in the Renewable Diesel project.

Sentiment

Score: 5

Explanation: The document presents a mixed picture with some positive developments like improved operating expenses and reduced capital expenditures, but also negative aspects such as lower than expected throughput volumes and a significant decline in crack spreads. The overall sentiment is neutral to slightly negative.

Positives

• Operating expenses per barrel are expected to be between $3.75 and $3.95, a 5.5% improvement compared to prior expectations at the mid-point.
• Capital expenditures are expected to be $8 to $10 million, which is 48.6% below expectations at the midpoint.
• The company received $9.5 million in LCFS credits for renewable diesel production.
• Vertex secured approximately $80 million in liquidity as of December 31, 2023, by leveraging cash invested in the Renewable Diesel project.
• The company is observing an improvement in crack spreads and increased margin efficiency as they enter the first quarter of 2024.

Negatives

• Conventional throughput volumes are expected to be approximately 67,000 barrels per day, slightly below the previously forecasted range of 68,000 to 71,000 barrels per day.
• Renewable diesel throughput volumes are anticipated to be around 3,900 barrels per day, at the low end of the previously forecasted range of 4,000 to 6,000 barrels per day.
• The average crack spreads on finished refined products declined by 40% compared to the third quarter of 2023.

Risks

• The company's actual financial and operational results for the three months ended December 31, 2023, could be different from the preliminary data provided, and any differences could be material.
• The company is subject to risks related to commodity price volatility, particularly in the price of oil and gas.
• The company faces risks related to the timing and outcome of the evaluation of its feedstock blends by officials in the state of California.
• The company may need additional capital in the future to complete capital projects and satisfy liabilities.
• The company is subject to risks related to changes in environmental and other laws and regulations.

Future Outlook

The company anticipates an improvement in crack spreads and increased margin efficiency in the first quarter of 2024, leading to increased production rates for both conventional fuels and renewable diesel.

Management Comments

• Benjamin P. Cowart, President and CEO of Vertex, stated that the fourth quarter of 2023 presented deteriorating crack spreads, leading to adjustments in throughput rates.
• Mr. Cowart also mentioned that the company improved its liquidity position by leveraging cash invested in the Renewable Diesel project, achieving approximately $80 million in liquidity as of December 31st, 2023.
• Management noted that they are observing an improvement in crack spreads and increased margin efficiency as they enter the first quarter of 2024.

Industry Context

The announcement reflects the challenges faced by refiners due to fluctuating market conditions, particularly the decline in crack spreads. The company's focus on renewable diesel production aligns with the broader industry trend towards sustainable energy solutions.

Comparison to Industry Standards

• The reported conventional throughput of 67,000 bpd is below the initial guidance of 68,000-71,000 bpd, which may be seen as a negative compared to peers who met or exceeded their targets.
• The renewable diesel throughput of 3,900 bpd is at the low end of the 4,000-6,000 bpd range, indicating a potential underperformance in this segment compared to companies with higher renewable fuel production.
• The 40% decline in crack spreads is a significant headwind, and the company's ability to navigate this will be compared to how other refiners managed similar market conditions.
• The 5.5% improvement in operating expenses per barrel and the 48.6% reduction in capital expenditures are positive indicators, suggesting better cost management than some competitors may have achieved.
• Companies like Valero and Marathon Petroleum, which also have significant refining operations, would be benchmarks for comparison in terms of throughput, yield, and cost management.

Stakeholder Impact

• Shareholders may be concerned about the lower than expected throughput volumes and the decline in crack spreads.
• Employees may be affected by changes in production rates and operational strategies.
• Customers may be impacted by changes in product availability and pricing.
• Suppliers may be affected by changes in feedstock requirements.
• Creditors may be interested in the company's liquidity position and ability to meet its obligations.

Next Steps

• The company will release its Fourth Quarter and Full-Year 2023 Earnings and hold a conference call.
• The company expects to receive its provisional CI score for renewable diesel production in the first or second quarter of 2024.
• The company plans to opportunistically ramp up production rates for conventional fuels and renewable diesel in response to improving market conditions.

Key Dates

Keywords

Vertex Energy, Refining, Renewable Diesel, Throughput, Crack Spreads, Operating Expenses, Capital Expenditures, LCFS Credits, Liquidity, Financial Results