Q3 2021 CVR Partners LP Earnings Call

November 2, 2021

Greetings and welcome to the CVR partners L. P third quarter 2021 conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

Anyways you require operator assistance during the conference. Please press Star zero on your telephone keypad. Please Doe. This conference is being recorded I will now turn the conference over to Richard Roberts Director of F. P. J and I are thank you you may begin.

Thank you Sherry good morning, everyone. We appreciate your participation in today's call with me today are Mark <unk>, Our Chief Executive Officer, Dan Newman, Our Chief Financial Officer, and other members of management.

I have to discussing our 2021 third quarter results. Let me remind you that this conference call may contain forward looking statements as that term is defined under federal securities laws for this purpose any statements made during this call that are not statements of historical fact may be deemed to be forward looking statements.

You are cautioned that these statements maybe affected by important factors set forth in our filings with Securities and Exchange Commission and in our latest earnings release.

As a result actual operations or results may differ materially from the results discussed in the forward looking statements.

Take no obligation to publicly update any forward looking statements, whether as a result of new information future events or otherwise except to the extent required by law.

Let me remind you that CVR partners completed a one for 10 reverse split of its common units on November 23, 2020 any per unit references made on this call are on a split adjusted basis.

This call also includes various non-GAAP financial measures the disclosures related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures are included in our 2021 third quarter earnings release that we filed with the SEC yesterday after the close of the market.

Let me also remind you that we are a variable distribution MLP.

We view our previously established reserves current cash usage evaluate future anticipated cash needs and May reserve amounts for other future cash needs as determined by our general Partners' Board.

As a result, our distributions if any will vary from quarter to quarter due to several factors, including but not limited to operating performance fluctuations in the prices received for finished products capital expenditures and cash reserves deemed necessary or appropriate by the board of directors of our general partner with that said I'll turn the call over to Mark <unk>, Our Chief Executive Officer.

You Richard and good morning, everyone and thank you for joining us for today's call.

Summarized financial highlights for the third quarter of 2021 include net sales of $145 million net income of 35 million EBITDA of $64 million and the board of directors declared a third quarter distribution of $2 93 per common unit, which will be paid on November 22000.

'twenty one to unitholders of record at the close of the market on November 12 2021.

During the third quarter of.

2021, we operated the plant safely and reliably with consolidated ammonia plant utilization of 94% we experienced approximately five days of downtime at the Coffeyville facility due to an outage at a third party air separation facility and approximately two days of downtime at both facilities due to externally driven.

Power outages.

During the handful of unplanned outages at Coffeyville. This year, we use the downtime to.

Complete enough maintenance work that we were able to safely defer the planned turnaround, allowing us to take advantage of the current strong market conditions are.

Our combined operations produced approximately 205000 gross tons of ammonia of which 65000 net tons were available for sale for the third quarter of 2021. This.

This compares to production of 215000 gross tons of ammonia of which 71000 net tons were available for sale in the prior year period.

We produced 314000 tons of UA in.

In the third quarter of 2021 as compared to 330000 tons in the prior year period.

During the third quarter of 2021, we sold approximately 322000 tons of UN at an average price of $305 per ton and approximately 52000 tons of ammonia at an average price of $507 per ton.

Relative to the third quarter of 2020, you an ammonia sales volumes were down slightly driven by a decline in production volumes due in part to the previously mentioned outages during the quarter year over year pricing was 118% higher for UAS.

And our hunger and 10% higher for ammonia.

The rally in nitrogen fertilizer prices that began earlier this year extended through the summer and prices have continued to move higher in the fall fertilizer inventory levels remain tight across the U S. As heightened turnaround activity over the summer and multiple plant shutdowns following hurricane Ida further reduced available supply in the market.

With the energy Crunch in Europe, and Asia, causing a number of fertilizer plant shutdowns and reducing supply even further the primary concern in the market is availability of fertilizers and that is fueling the persistent move higher and prices, which I will discuss further in my closing remarks.

I will now turn the call over to Dave to discuss our financial results.

Thank you Mark.

For the third quarter of 2021, we reported net sales of 145 million and operating income of $46 million compared to net sales of $79 million and an operating loss of $3 million in the third quarter of 2020.

Net income for the third quarter of 2021 was $35 million or $3 28 per common unit and EBITDA was $64 million.

This compares to a net loss of $19 million or $1 70 per common unit and EBITDA of $50 million for the prior year period.

There were no adjustments to EBITDA either period.

The year over year increase in EBITDA was driven by higher <unk> and ammonia sales prices are so low.

Offset slightly by higher feedstock costs and operating expenses.

Direct operating expenses for the third quarter of 2021 were $48 million compared to $39 million in the prior year period.

Third quarter direct operating expenses included an additional $1 million charge for electricity expenses allocated to us by the city of Coffeyville related to winter storm here.

Excluding this charge as well as inventory and turnaround impacts direct operating expenses increased by approximately $11 million, primarily related to higher electricity and natural gas costs and higher stock based compensation as a result of the increased unit price.

Turning to capital spending during the third quarter of 2021, we spent $7 million on capital projects, which was primarily growth capital related to the urea capacity upgrade at Coffeyville.

We estimate total capital spending for 2021 to be approximately 20% to 23 million of which $14 million to $15 million is expected to be maintenance capital. This excludes turnaround spending, which we expect will be approximately $2 million to $3 million of expense.

Looking at the balance sheet as of September 30, we had approximately $136 million of liquidity, which was comprised of approximately $101 million in cash and availability under the ABL facility of approximately $35 million.

Within our cash balance of 101 million, we had approximately $30 million related to customer prepayments for the future delivery of product.

During the quarter, we redeemed $15 million of the remaining $2023 nine and a quarter notes outstanding.

As we have discussed previously we currently intend to take advantage of any improvements in the nitrogen fertilizer market and potential 45, Q tax credit income with an intention to repay the remaining 2023 senior notes outstanding over the next two years.

In assessing our cash available for distribution, we generated EBITDA of $64 million had current cash needs of $11 million for interest $1 million for financing fees and $2 million for maintenance capital expenditures.

We added back a net 500000 noncash electricity charged from the city of Coffeyville, while the actual cost may be paid over the next 10 years.

In addition, the board of directors of our general partner established reserves of $15 million to repay a portion of the remaining 2023 senior notes and $3 million for the planned turnaround at Coffeyville and east Dubuque in the third quarter of 2022.

As a result, there was $31 million of cash available for distribution and the board of directors of our general partner declared a distribution of $2 93 per common unit.

Looking ahead to the fourth quarter of 2021, we estimate our ammonia utilization rate to be between 90% and 95%.

We expect direct operating expenses to range between $45 and $50 million, excluding inventory and turnaround impacts and total capital spending to be between 9% and $12 million.

With that I'll turn the call back over to Mark.

Crop conditions were stable throughout the summer and the harvest is nearly complete the USDA currently estimate planted corn acres were $93 million with expected yields of 176 bushels per acre and soybean acres were 88 million withheld to 51 bushels per acre the.

We expect that 2021 inventory carry out of eight 3% for corn and five 7% for soybeans continues to be at the lower end of the 10 year range.

For the 2021 2022 crop year, the USDA estimates the stocks to use ratio to rise to 10, 1% for corn and seven 3% for soybeans.

Crop prices have been a little higher over the past months with December corn at $5 70, and soybeans at $12 50, a bushel and we still expect to see good prices for farmers next year.

The Big story for nitrogen fertilizers has been on the supply side of the market as we discussed on our last earnings call. Many north American nitrogen fertilizer producers delayed major plant turnarounds scheduled for 2020 into 2021. Many of these turnaround starting in the third quarter and some resulted in longer out.

Just unexpected additionally, several other plants and unplanned outages in hurricane either caused multiple plants to be down for a few weeks in September.

The result of all this downtime was U S nitrogen fertilizer production being much lower in the third quarter of 2021 compared to 2020.

In the international markets and energy shortage developed in September in both Europe, and China that cost natural gas and coal prices. Despite forcing these regions to curtail a rash and energy usage for certain industrial sectors to preserve energy for power generation in Europe natural gas prices have spiked to around $30 and <unk>.

To you, making fertilizer production on economic and forcing a significant amount of nitrogen fertilizer production to be shut in thereby leading to certain producers and customers scrambling to find available nitrogen supply.

And China escalating coal prices are putting pressure on the government to allocate available supply to power generation as a result, China is dramatically reduced urea exports and is expected to continue to restrict exports through the winter.

All of these supply challenges caused global nitrogen prices to escalate dramatically entering the fourth quarter.

Prices are much higher in the third quarter versus the second quarter and they are currently expected to continue to rise in the fourth quarter and carry into the first half of 2022.

Forward ammonia prices are currently over $1000 per ton and UA and prices are over $500 per ton.

We don't think that the supply shortfall will be fully addressed until next summer as energy available challenges are expected to continue to be continued through the winter, particularly in Europe and China.

Fall ammonia application is underway and if the weather holds we expect a large fall application season, while prices for ammonia are much higher this fall compared to the fall of 2020 in the spring of 2021 ammonia remains the cheapest form of nitrogen and customers are eager to apply ammonia this year.

At our Coffeyville facility, we postponed our turnaround scheduled for October of this year to July of 2022.

We did take a short outage last week at Coffeyville to complete the installation of the Sidoti compressor at ammonia pump that was planned from the turnaround.

These new units are expected to increase production capacity by an additional 100 tons per day of UA in going forward.

We made progress on the creation of a structure that will allow us to claim and monetize 45 tax credits for the carbon capture and sequestration through enhanced oil recovery activities that are ongoing at the Coffeyville plant.

Since our last call. We have started discussions with tax equity investors and we would expect reaching an agreement with a tax equity investor by the first quarter we.

We continue to monitor the legislation moving through Congress that could provide higher 45 acute credit values than the existing rules, we believe that higher 45% to credit values for carbon capture and sequestration could also accelerate the development of one or more proposed third party sequestration projects in Iowa, and Illinois that.

Could be an opportunity for our east Dubuque facility.

As Dan mentioned, we reduced our debt outstanding by $15 million in the third quarter.

As we've stated on previous calls we intend to reduce overall debt by an additional $80 million by June of 2023 through a combination of cash flow from operations and proceeds from any monetization of $45 <unk> tax credits with.

With these two sources of cash we currently believe we can both pay down debt and make distributions to our unit holders.

We are pleased to be paying a distribution this quarter a $2 93 per unit, while also strengthening the balance sheet with a $15 million debt reduction.

Fertilizer market conditions are strong we are maintaining our focus on maximizing cash flow generation by safely and reliably operating our plants with a keen focus on the health and safety of our employees contractors and communities prudently managing cost.

Being judicious with capital, but targeting select investments in reliability projects and incremental additions to production capacity.

Maximizing our marketing and logistics capabilities and targeting opportunities to reduce our carbon footprint.

In closing I would like to thank our employees for their excellent execution during the third quarter and their continued commitment to being healthy and safe in everything we do.

With that we're ready to take any questions Cherie.

Thank you Andy we'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

You May press star two if he would like to remove the question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

Our first question is from Brian.

Roberto with Baird. Please proceed.

Good morning.

First question Mark how much of Q2 results.

How much of your production in Q4 do you think will be forward sold.

I'm not really sure I understand the context of that question.

We let me try to explain we sold.

We sold the third quarter, mostly in July and August.

And that that would be typical for seasonal and for the ammonia portion of the ammonia that we sold that was done in August September.

And so it will in the fourth quarter will pick up some escalation.

From the.

But rising market, but we will feel more of that in the first quarter.

From where because it didn't really start escalating till the end of September and into October. So we really at that point it sold a good chunk in the fourth quarter.

Okay. So when we entered this year first quarter results were a bit disappointing because you have forward sold a lot of your.

The volume at lower prices, how should we think about that dynamic going into 2022.

This year typically we would have sold a lot more the second half in July and August we did not do that this year, we sold more.

For the third quarter and then the market was escalating into the floor. So we were sort of capturing that escalation and then at what I would call vertical in October.

But we'll only capture part of that in the fourth quarter.

Okay.

And then switching gears.

Earlier this year, you were contemplating possibly converting coffeyville from pet Coke feedstock.

Natural gas potentially does that thought process change given the current environment for natural gas.

Yes, obviously, the economics of slipped there and.

And pet Coke is now more attractive than natural gas and so we expect that to continue we always really have that I'd call. It option available to us, it's not really that difficult to switch ultimately to natural gas if we choose but.

Last year, we were looking at $2 natural gas now we're looking at $5 50 natural gas. So it's not really that attractive to move over so pet Coke is.

It's going to be a very competitive feedstock going forward. So it gives us good diversity in our portfolio.

And we're going to stay the course on pet Coke.

Because I thought it would have been a mistake to switch over to natural gas personally, but what do I know I'm only an analyst.

In terms of debt reduction did I hear you right that you have.

We serve $15 million for another.

Pay down to the 23 notes for next year.

So the reserve and the distribution this quarter was for another paydown of the $50 million correct.

Perfect.

Thank you so much I appreciate the time.

Thanks, Brian.

Our next question is from William Stein Private Investor. Please proceed.

Hey, Mark Thanks, so much for taking my question.

It's about pricing, but it sounds like you've already noted that prices are rising so.

It shouldn't be a surprise as we move forward.

If there is an aspect of your reporting, but I just want to better understand.

In the press releases.

This section in the first two key market indicators I think there are a lot of investors would view that as current spot prices, but I suspect.

This relates more to retail pricing can you give us maybe just.

Just walk through an example as to how your.

Prices realized gains in a given quarter related to those key market indicators are those at all forward looking or is that just more informative about the quarter that is already closed and should not be relied upon for sort of forecasting.

Well the prices that are in there are I would call. It current spot price and so to the extent that we would sell spot loads today from either of the two facilities.

That would be representative.

Green markets as a retail price. So you have to take away the mark up there from a retail perspective, but if we were if we sell spot loads today or this week or next week, that's kind of representative of the current pricing generally we would have sold a good portion of a quarter in advance of that.

Coming into the quarter, we don't we don't generally sell everything spot, but as an example, we're going through the ammonia run at East Dubuque.

This week in next few weeks.

And there will be we think incremental demand and the demand will be at spot.

Got loads and those will be at spot prices now we had sold previously.

Part of our ammonia.

Back in August.

August September timeframe, and obviously prices have escalated quite a bit so the spot price will be much higher than the contracted price but.

<unk> been in a rising pricing environment really since the spring and we've been capturing it as we go but again as I had mentioned in the previous answer as we get into the first quarter, we're going to see the kind of the full brunt of that.

The vertical pricing that's occurred it appear in the fourth quarter.

Thanks, Mark and one follow up if I can I think many investors noted with great interest and excitement that you bought shares on the open market during the quarter.

Im guessing that that might relate to your view as to the longevity of the current cycle.

Certainly the better trajectory that we're in now than we've been in the last few years can you talk about the longevity of.

This cycle as you see it thank you.

I think the key the longevity of any cycle is.

Is the underlying customer economics, and so crop pricing is really critical for length.

And I feel really good about 2022.

Cause I you look out.

As demand for grains, and actually the kind of the sleeping sleeper out there as wheat leaps emerged here in the last couple of months at the prior 10 year high prices.

<unk> is a good crop for us around the Coffeyville facility in Kansas, Kansas Wheat country.

And so grain prices are key the longevity of farmer economics stay high like they are now I think we can have an extended cycle.

And.

To me I feel very good about just generally the demand over 'twenty, two and even starting to thinking about 'twenty three because of the farmer economics, and obviously, we have a lot of major global energy issues to deal with which is creating even more pressure.

On the production.

For fertilizer and I don't really see an easy answer to fixing the global energy shortage.

And here in the next quarter or two so I feel really good about where we're headed and.

But we're not going to lose any focus we're going to do what we do well, which is run our plants well and.

And market our product well.

Great. Thanks for taking my questions.

As a reminder, it is star one on your telephone keypad. If you would like to ask a question. We will just pause for a brief moment to poll for questions.

Okay.

Our next question is from Rob Maguire with granite research. Please proceed.

Good morning, Mark Dane and Richard.

Can you just talk a little bit about the antidumping and countervailing duty investigations and do you have a view as to what this impact pricing a favorable ruling result in higher prices or is this more of a removal of a threat of a negative.

Negative.

Imports are negatively impacting pricing.

Rob This is mark.

I think that.

What I would see there is.

If it is a favorable ruling there.

That.

It probably just extends the <unk>.

Supply issues, we have in the United States, because if that if we did.

Reduce or eliminate the Russian and Trinidadian.

And I think that that would create additional supply issues in the U S over time, but the market. The market globally is trying to adjust to this and so it's kind of hard to do.

It's kind of hard to say that.

With that factor alone really changed the pricing environment compared to the energy issues that we see globally.

Yeah.

It would be a factor, but it would be one of several factors there but I.

From my perspective.

Typically in these cases I think if they decided to go forward with a day in May.

Many times they do.

Imposing some sort of duty here and I think it's very clear that that product is.

Subsidize from a natural gas perspective, and you can see that globally kind of where prices are in the markets, where they are producing versus like European gas pricing. So.

I think it would just it would probably just extend out the supply issues that we have in the U S.

The current market.

So could extend it could extend out this <unk>.

Supply.

<unk> issue.

Thank you I have no further questions.

Thanks, Rob.

We have reached the end of our question and answer session I would like to turn the conference back over to management for closing comments.

Well, thanks, everybody for being on the call today, and we look forward to sharing with you our fourth quarter results in February. Thank you very much.

Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

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Greetings and welcome to the CVR Partners L. P third quarter 2021 conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Please note. This conference is being recorded I will now turn the conference over to Richard Roberts Director of F. P. J and I are thank you you may begin.

Prior to discussing our 2021 third quarter results. Let me remind you that this conference call may contain forward looking statements as that term is defined under federal securities laws.

For this purpose any statements made during this call that are not statements of historical fact may be deemed to be forward looking statements.

You are cautioned that these statements may be affected by important factors set forth in our filings with Securities and Exchange Commission and in our latest earnings release.

As a result actual operations or results may differ materially from the results discussed in the forward looking statements. We undertake no obligation to publicly update any forward looking statements, whether as a result of new information future events or otherwise except to the extent required by law.

Let me remind you that CVR partners completed a one for 10 reverse split of its common units on November 23, 2020 any per unit references made on this call are on a split adjusted basis.

Let me also remind you that we are a variable distribution MLP.

<unk>, our previously established reserves current cash usage evaluate future anticipated cash needs and May reserve amounts for other future cash needs as determined by our general partner on board.

You Richard and good morning, everyone and thank you for joining us for today's call.

The summarized financial highlights for the third quarter of 2021 included net sales of $145 million net income of 35 million EBITDA of $64 million and the board of directors declared a third quarter distribution of $2 93 per common unit, which will be paid on November 20.

In 2021 to unit holders of record at the close of the market on November 12 2021.

During the third quarter of.

2021, we operated the plant safely and reliably with consolidated ammonia plant utilization of 94% we experienced approximately five days of downtime at the Coffeyville facility due to an outage of a third party air separation facility and approximately two days of downtime at both facilities due to externally driven.

Power outages during.

During the handful of unplanned outages at Coffeyville. This year, we use the downtime to complete another maintenance work that we were able to safely defer the planned turnaround, allowing us to take advantage of the current strong market conditions.

Our combined operations produced approximately 205000 gross tons of ammonia of.

Of which 65000 net tons were available for sale for the third quarter of 2021.

This compares to production of 215000 gross tons of ammonia of which 71000 net tons were available for sale in the prior year period.

We produced 314000 tons of UA.

Third quarter of 2021 as compared to 330000 tons in the prior year period.

During the third quarter of 2021, we sold approximately 322000 tons of UA in at an average price of $305 per ton and approximately 52000 tons of ammonia at an average price of $507 per ton.

Relative to the third quarter of 2020, you an ammonia sales volumes were down slightly driven by a decline in production volumes due in part to the previously mentioned outages during the quarter.

Year over year pricing was 118% higher for UAS, and our hunger and 10% higher for ammonia.

The rally in nitrogen fertilizer prices that began earlier this year extended through the summer and prices have continued to move higher in the fall.

Fertilizer inventory levels remain tight across the U S as high turnaround activity over the summer and multiple plant shutdowns following hurricane Ida further reduced available supply in the market with the energy Crunch in Europe, and Asia, causing a number of fertilizer plant shutdowns and reducing supplies even further the primary cause.

<unk> in the market is availability of fertilizers and that is fueling the persistent move higher and prices, which will I will discuss further in my closing remarks.

I will now turn the call over to Dave to discuss our financial results.

Thank you Mark.

For the third quarter of 2021, we've reported net sales of 145 million and operating income of $46 million compared to net sales of $79 million and an operating loss of $3 million in the third quarter of 2020.

Net income for the third quarter of 2021 was $35 million or $3 28 per common unit and EBITDA was $64 million.

This compares to a net loss of $19 million or $1 70 per common unit and EBITDA of $50 million for the prior year period.

There were no adjustments to EBITDA either period.

The year over year increase in EBITDA was driven by higher UAS and ammonia sales prices are.

Offset slightly by higher feedstock costs and operating expenses.

Operating expenses for the third quarter of 2021 were $48 million compared to $39 million in the prior year period.

Third quarter direct operating expenses included an additional $1 million charge for electricity expenses allocated to us by the city of Coffeyville related to winter storm here.

Turning to capital spending during the third quarter of 2021, we spent $7 million on capital projects, which was primarily growth capital related to the urea capacity upgrade at Coffeyville, We estimate total capital spending for 2021 to be approximately 20% to 23 million of which $14 million to $15 million is expected to be maintenance capital. This excludes turnaround.

Spending, which we expect will be approximately $2 million to $3 million of expense.

Looking at the balance sheet as of September 30, we had approximately $136 million of liquidity, which is comprised of approximately $101 million in cash and availability under the ABL facility of approximately $35 million.

Within our cash balance of 101 million, we had approximately $30 million related to customer prepayments for the future delivery of product.

During the quarter, we redeemed $15 million of the remaining 2023, nine and a quarter notes outstanding as.

As we have discussed previously we currently intend to take advantage of any improvements in the nitrogen fertilizer market and potential 40, <unk> tax credit income with an intention to repay the remaining 2023 senior notes outstanding over the next two years.

In assessing our cash available for distribution, we generated EBITDA of 64 million had current cash needs of $11 million for interest 1 million for financing fees and $2 million for maintenance capital expenditures.

We added back in that 500000 noncash electricity charged from the city of Coffeyville, while the actual costs may be paid over the next 10 years.

As a result, there was $31 million of cash available for distribution and the board of directors of our general partner declared a distribution of $2 93 per common unit.

Looking ahead to the fourth quarter of 2021, we estimate our ammonia utilization rate to be between 90% to 95% we.

We expect direct operating expenses to range between 45, and $50 million, excluding inventory and turnaround impacts and total capital spending to be between 9% and $12 million.

With that I'll turn the call back over to Mark.

We expect that 2021 inventory carry out of eight 3% for corn and five 7% for soybeans continues to be at the lower end of the 10 year range.

For the 2021 2022 crop year, the USDA estimates the stocks to use ratio to rise to 10, 1% for corn and seven 3% for soybeans.

Crop prices have been a little higher over the past months with December corn at $5 70, and soybeans at $12 50, a bushel and we still expect to see good prices for farmers next year.

The big story for <unk>.

Acreages fertilizers has been on the supply side of the market as we discussed on our last earnings call. Many north American nitrogen fertilizer producers delayed major plant turnarounds scheduled for 2020 into 2021. Many of these turnaround starting in the third quarter and some resulted in longer outages than expected.

Several other plants had unplanned outages in hurricane iron it caused multiple plants to be down for a few weeks in September the.

The result of all of this downtime was U S nitrogen fertilizer production being much lower in the third quarter of 2021 compared to 2020.

To you, making fertilizer production uneconomic and sourcing a significant amount of nitrogen fertilizer production to be shut in thereby leading to certain producers and customers scrambling to find available nitrogen supply.

All of these supply challenges caused global nitrogen prices to escalate dramatically entering the fourth quarter.

Prices are much higher in the third quarter versus the second quarter and they are currently expected to continue to rise in the fourth quarter and carry into the first half of 2022.

Forward ammonia prices are currently over $1000 per ton and UAS prices are over $500 per ton.

Fall ammonia application is underway and if the weather holds we expect a large fall application season, while prices for ammonia are much higher this fall compared to the fall 2020 in the spring of 2021 ammonia remains the cheapest form of nitrogen and customers are eager to apply ammonia this year.

At our Coffeyville facility, we postponed our turnaround scheduled for October of this year to July of 2022.

We did take a short outage last week at Coffeyville to complete the installation of the Sidoti compressor and ammonia pump that was planned from the turnaround of these new units are expected to increase production capacity by an additional 100 tons per day of UAE and going forward.

We made progress on the creation of a structure that would allow us to claim and monetize 45 tax credits for the carbon capture and sequestration through enhanced oil recovery activities that are ongoing at the Coffeyville plant.

Since our last call. We have started discussions with tax equity investors and we would expect reaching an agreement with a tax equity investor by the first quarter.

We continue to monitor the legislation moving through Congress that could provide higher 45 credit values than the existing rules, we believe that higher 45% to credit values for carbon capture and sequestration could also accelerate the development of one or more proposed third party sequestration projects in Iowa and Illinois.

It could be an opportunity for our east Dubuque facility.

As Dan mentioned, we reduced our debt outstanding by $15 million in the third quarter. As we've stated on previous calls we intend to reduce overall debt by an additional $80 million by June of 2023 through a combination of cash flow from operations and proceeds from any monetization of 45 tax credits with these.

Two sources of cash we currently believe we can both pay down debt and make distributions to our unit holders were.

We are pleased to be paying a distribution this quarter a $2 93 per unit, while also strengthening the balance sheet with a $15 million debt reduction.

Reliability projects and incremental additions to production capacity and maximizing our marketing and logistics capabilities and targeting opportunities to reduce our carbon footprint.

In closing I would like to thank our employees for their excellent execution during the third quarter and their continued commitment to being healthy and safe in everything we do.

With that we're ready to take any questions Cherie.

Thank you Andy we'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove the question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the.

Sorry, he is.

Our first question is from Brian <unk>.

Rubino with Baird. Please proceed.

Good morning.

First question Mark how much of Q2 results.

How much of your production in Q4 do you think will be forward sold.

I'm not really sure I understand the context of that question.

We let me try to explain we sold.

We sold the third quarter, mostly in July and August.

And that that would be typical for seasonal and for the ammonia portion of the ammonia that we sold that was done in August September.

And so it will in the fourth quarter, we will pick up some escalation.

From the.

The rising market, but we will feel more of that in the first quarter.

From where because it didn't really start escalating till the end of September and into October. So we really at that point it sold a good chunk in the fourth quarter.

Okay. So when we entered this year first quarter results were a bit disappointing because we have forward sold a lot of your.

Your volume at lower prices, how should we think about that dynamic going into 2022.

This year typically we would have sold a lot more the second half in July and August we did not do that this year, we sold more.

For the third quarter and then the market was escalating into the floor. So we were sort of capturing that escalation and then it went I would call vertical in October.

But we'll.

We'll only capture part of that in the fourth quarter.

Okay.

And then switching gears.

Earlier this year, you were contemplating possibly converting coffeyville from Tesco feedstock.

Natural gas potentially does that thought process change given the current environment for natural gas.

Yes, obviously, the economics of flipped there.

And pet Coke is now more attractive than natural gas and so we expect that to continue we always really have that I would call an option available to us, it's not really that difficult to switch ultimately to natural gas if we choose but.

Last year, we were looking at $2 natural gas now we're looking at $5 50 natural gas. So it's not really that attractive to move over so pet Coke is.

It's going to be a very competitive feedstock going forward. So it gives us good diversity in our portfolio.

And we're going to stay the course on pet Coke.

Because I thought it would have been a mistake to switch over to natural gas personally, but what do I know I'm only an analyst.

In terms of debt reduction did I hear you right that you use.

Reserve $15 million for another PE.

Pay down of the 23 notes for next year.

So the reserve and the distribution this quarter was for another paydown of the $50 million correct.

Perfect.

Thank you so much I appreciate the time.

Thanks, Brian.

Our next question is from William Stein Private Investor. Please proceed.

Hey, Mark Thanks, so much for taking my question.

It's about pricing, but it sounds like you've already noted prices are rising so.

It shouldn't be a surprise as we move forward.

There is an aspect of your reporting, but I just want to better understand.

In the press releases.

This section in the first two key market indicators I think there are a lot of investors would view that as current spot prices, but I suspect.

As relates more to retail pricing can you give us maybe.

Just walk through an example as to how your.

<unk> prices realized gains in a given quarter related to those key market indicators are those at all forward looking or is that just more informative about the quarter that is already closed and should not be relied upon for sort of forecasting.

Well the prices that are in there are I would call. It current spot price and so to the extent that we would sell spot loads today from either of the two facilities.

That would be representative.

Coming into the quarter, we know we don't generally sell everything spot, but as an example, we're going through the ammonia run at East Dubuque.

This week in next few weeks and there will be we think incremental demand and the demand will be at spot will be spot loads and those will be at spot prices now we had sold previously.

Part of our ammonia.

Back in kind of the August September timeframe, and obviously prices have escalated quite a bit so the spot price will be much higher than the contracted price but.

We've been in a rising pricing environment really since the spring.

And we've been capturing that as we go but the.

Again as I mentioned in the previous answer as we get into the first quarter, we're going to see the kind of the full brunt of that.

The vertical pricing thats occurred and appear in the fourth quarter.

Thanks, Mark and one follow up if I can I think many investors noted with great interest and excitement that you bought shares on the open market during the quarter.

Im guessing that that might relate to your view as to the longevity of the current cycle.

And certainly the better trajectory that we're in now that we've been in the last few years can you talk about the longevity of.

This cycle as you see it thank you.

I think the key the longevity of any cycle is.

Is the underlying customer economics, and so crop pricing is really critical for length.

And I feel really good about 2022, because you look out at.

Demand for grains, and actually the kind of the sleeping sleeper out there as wheat leaves emerged here in the last couple of months.

At the prior 10 year high prices.

Is a good crop for us around the Coffeyville facility in Kansas, Kansas Wheat country.

And so grain prices are keto longevity of farmer economics stay high like they are now I think we can have an extended cycle.

And.

To me and I feel very good about just generally the demand over 'twenty, two and even starting to thinking about 'twenty three because of the farmer economics.

Obviously, we have a lot major global energy issues to deal with which is creating even more pressure.

On the production.

For fertilizer and I don't really see an easy answer to fixing the global energy shortage.

And here in the next quarter or two so.

I feel really good about where we're headed and but we're not going to lose any focus we're going to do what we do well, which is run our plants well and.

And market our product well.

Great. Thanks for taking my questions.

As a reminder, it is star one on your telephone keypad. If you would like to ask a question. We will just pause for a brief moment to poll for questions.

Our next question is from Rob Maguire with granite research. Please proceed.

Good morning, Mark Dean and Richard.

Can you just talk a little bit about the antidumping and countervailing duty investigations and do you have a view as to what this impact pricing would a favorable ruling result in higher prices or is this more of a removal of a threat of a negative.

Negative.

Imports negatively impacting pricing.

Rob This is mark.

I think that.

But I would see there is.

And if it is a favorable ruling there.

That.

It probably just extends the.

Supply issues, we have in the United States, because if that if we did.

Reduce or eliminate the Russian and Trinidadian UAE and I think that that would create additional supply issues in the U S over time, but the market. The market globally is trying to adjust to this and so it's kind of hard to it's kind of hard to say that.

With that factor alone really changed the pricing environment compared to the energy issues that we see globally.

It would be a factor, but it would be one of several factors there but.

From my perspective.

Typically in these cases I think if they decided to go forward with a day and many times they do.

Imposing some sort of duty here and I think it's very clear that that product is.

Subsidize from a natural gas perspective, and you can see that globally kind of where prices are in the markets, where they are producing versus like European gas pricing. So.

I think it would just it would probably just extend out the supply issues that we have in the U S compared to current market.

So could extend it could extend out this.

Supply.

Supply issue.

Thank you I have no further questions.

Thanks, Rob.

We have reached the end of our question and answer session I would like to turn the conference back over to management for closing comments.

Well, thanks, everybody for being on the call today, and we look forward to sharing with you our fourth quarter results in February. Thank you very much.

Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

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