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Tuesday, September 26, 2006

CVR Energy Inc Files for IPO

CVR Energy Inc. has filed to come public via an IPO and plans to raise up to $300 million. No underwriters are listed in the initial prospectus, but it is tied to several public companies and was formed as part of affiliated financial transactions with subsidiaries of Goldman Sachs. CVR is an independent refiner and marketer of high value transportation fuels and a premier producer of ammonia and urea ammonia nitrate fertilizers. It is one of seven petroleum refiners and marketers in the "Coffeyville supply area" (Kansas, Oklahoma, Missouri, Nebraska and Iowa) and claims to be the lowest cost producer and marketer of ammonia and urea amonia nitrate in North America at current resource prices.

Its petroleum business includes a 108,000 barrel per day complex full coking sour crude refinery in Coffeyville, Kansas. it has 3 more supporting operations: 1) a crude oil gathering system serving central Kansas and northern Oklahoma; 2) storage and terminal facilities for asphalt and refined fuels in Phillipsburg, Kansas; and 3) a rack marketing division supplying product directly to customers located close to Coffeyville and Phillipsburg and at throughput terminals on Magellan Midstream Partners L.P.’s refined products distribution systems. CVR makes bulk sales into the mid-continent markets via Magellan and into Colorado and other destinations utilizing the product pipeline networks owned by Magellan, Enterprise Products Partners LP and Valero LP. Its nitrogen fertilizer business is supposedly the only operation in North America that utilizes a coke gasification process to produce ammonia.

The company was formed via acquisitions tied to affiliates Goldman Sachs and affiliaters of Kelso & Company.

FINANCIAL PERFORMANCE:

CVR posted combined net sales of $1.7 billion, $2.4 billion and $3.0 billion and combined Adjusted EBITDA of $119.6 million, $252.1 million and $357.4 million for the Fiscal years ended December 31, 2004 and 2005, and the trailing twelve months ended June 30, 2006, respectively. For the fiscal years ended December 31, 2004 and 2005 and the twelve months ended June 30, 2006, its petroleum business contributed 76%, 74% and 81%, respectively, of combined operating income, with substantially all of the remainder contributed by its nitrogen fertilizer business.

DESCRIPTION OF THE COMPANY OUT OF THE FILING:

Our refinery is one of only seven refineries located in the Coffeyville supply area within the mid-continent, a region where demand for refined products exceeded refining production by approximately 24% in 2005.

Since June 2005 we have significantly expanded the variety of crude grades processed in any given month and have reduced our acquisition cost of crude relative to WTI by approximately $2.00 per barrel in the first half of 2006 compared to the first half of 2005.

We operate a complex full coking sour crude refinery. Our complexity allows us to optimize the yields of higher value transportation fuels, which currently account for over 95% of our liquid production output. From 1995 through the first half of 2006, we have invested approximately $300 million to modernize our oil refinery and to meet more stringent U.S. environmental, health and safety requirements.

We have identified and developed several significant capital projects with an estimated total cost of approximately $400 million primarily aimed at (1) expanding refinery capacity, (2) enhancing operating reliability and flexibility, (3) complying with more stringent environmental, health and safety standards and (4) improving our ability to process heavy sour crude feedstock varieties.

Our nitrogen fertilizer plant is the only one of its kind in North America utilizing a coke gasification process to produce ammonia, and has significantly lower feedstock costs than all other predominantly natural gas-based fertilizer plants. We estimate that we would continue to have a production cost advantage in comparison to U.S. Gulf Coast ammonia producers at natural gas prices as low as $2.50 per million Btu. This cost advantage has been more pronounced in today’s natural gas price environment, as the reported Henry Hub natural gas price has fluctuated between $4.50 to $15.00 per million Btu since the end of 2003. The sustaining capital requirements for this business are low compared to its earnings and are expected to be in the range of $3 million to $5 million per year compared to operating income of our nitrogen fertilizer segment of $71.0 million for the combined twelve months ended December 31, 2005.

Our senior management team averages over 28 years of refining and fertilizer industry experience. Mr. John J. (Jack) Lipinski, CEO, has over 34 years experience in the refining and chemicals industries, and prior to joining us in connection with the acquisition of Coffeyville Resources in June 2005, was in charge of a 550,000 bpd refining system and a multi-plant fertilizer system. Mr. Stanley A. Riemann, COO, has over 32 years of experience, and prior to joining us in March 2004, was in charge of one of the largest fertilizer manufacturing systems in the United States. Mr. James T. Rens, CFO, has over 15 years experience in the energy and fertilizer industries, and prior to joining us in March 2004, was the chief financial officer of two fertilizer manufacturing companies. Our management team has made significant and rapid improvements on many fronts since the acquisition of Coffeyville Resources and has succeeded in increasing operating income and shareholder value.

Our objective is to continue to increase economic throughput for our operating facilities, control manufacturing expenses and take advantage of market opportunities as they arise.

In conjunction with the acquisition of our business by Coffeyville Acquisition LLC, on June 16, 2005, Coffeyville Acquisition LLC entered into a series of commodity derivative arrangements, or the Cash Flow Swap, with J. Aron & Company, or J. Aron, a subsidiary of The Goldman Sachs Group, Inc., and a related party of ours. Pursuant to the Cash Flow Swap, sales representing approximately 70% and 17% of then forecasted refinery output for the periods from July 2005 through June 2009, and July 2009 through June 2010, respectively, have been economically hedged. The derivative took the form of three New York Mercantile Exchange, or NYMEX, swap agreements whereby if crack spreads fall below the fixed level, J. Aron agreed to pay the difference to us, and if crack spreads rise above the fixed level, we agreed to pay the difference to J. Aron. The Cash Flow Swap was assigned from Coffeyville Acquisition LLC to Coffeyville Resources, LLC on June 24, 2005.

OWNERS:

After the offering Affiliates of Goldman Sachs and Kelso & Co. will own interests in the company.
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