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An In-Depth Look at Icahn Enterprises' Segments and Strategies

PART:
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Part 8
An In-Depth Look at Icahn Enterprises' Segments and Strategies PART 8 OF 15

Where Does Icahn Enterprises’ Energy Segment Fit In?

About Icahn’s energy segment

Icahn Enterprises (IEP) has 99% limited partnership interest in Icahn Enterprises Holdings (IEH). IEH holds an 82% stake in CVR Energy (CVI).

CVR Energy is a diversified holdings company that owns a majority interest in two separate operating subsidiaries. These subsidiaries are CVR Refining (CVRR), in which CVI holds a 66% stake, and CVR Partners (UAN), in which CVI holds a 53% stake.

Where Does Icahn Enterprises&#8217; Energy Segment Fit In?

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What does Icahn’s energy segment do?

Through CVRR and UAN, Icahn’s energy segment is engaged in the petroleum refining and fertilizer businesses. These businesses contributed 95% and 5%, respectively, to the segment in 2015.

CVRR is an independent petroleum refiner partnership formed by CVR Energy. It owns and operates refining and related logistics businesses. Its petroleum business includes a complex full coking, medium-sour crude oil refinery. It has a rated capacity of 115,000 barrels per day. Its complex crude oil refinery has a rated capacity of 70,000 barrels per day.

UAN is a leading nitrogen fertilizer producer. It is located in the Corn Belt in Texas. Its nitrogen fertilizer manufacturing facilities primarily produce ammonia and urea ammonium nitrate fertilizers.

How are Icahn’s energy segment and crude prices linked?

Negating foreign exchange and stock adjustments, crude oil’s weakening price has impacted refining margins as well as gross margins across the industry. Since June 2014, average crude oil prices have fallen from $112 per barrel to $42 per barrel in March 2015. This has resulted in a fall in the price of petroleum products. Icahn’s energy segment has been impacted because it does crude refining.

Lower crude prices generally result in the compression of refining margins and the narrowing of spreads. The refining industry has already witnessed a fall in the overall refining margin per barrel. Lower crude prices also impact premium refining margins in European and Asian markets.

Where Does Icahn Enterprises&#8217; Energy Segment Fit In?

Why are energy stock returns low?

Returns on most energy stocks have tumbled since June 2014, when crude prices started to fall. WTI (West Texas Intermediate), the benchmark in the United States, has tanked nearly 50% since then.

The crude price fall has negatively affected the revenues and margins of oil producers. In response, some upstream oil companies have gradually started to mark down their investments, which has hurt oil equipment and service producers.

In 2015, weak crude oil prices affected the net profits of major global refining players. BP’s (BP), Chevron’s (CVX), and ExxonMobil’s (XOM) net profits fell by 46%, 68%, and 49%, respectively, compared to 2014. The Energy Select Sector SPDR ETF (XLE) has fallen ~23% YoY (year-over-year), and the broad market SPDR S&P 500 ETF (SPY) has fallen ~1% YoY.

Continue to the next part to understand the factors behinds Icahn’s energy revenue and profit falls.

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