Q3 2021 Intrepid Potash Inc Earnings Call
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Thank you for standing by this is the conference operator, welcome to the Intrepid Potash, Inc. Third quarter 2021 results Conference call. As a reminder, all participants are in listen only mode and the conference is being recorded after the presentation there'll be an opportunity to ask questions to join the question queue.
You May press Star then one on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing star Zero I would now like to turn the conference over to Matt Preston Vice President of Finance. Please go ahead.
Thanks, Darryl and good morning, everyone. Thanks for joining us to discuss Intrepid <unk> third quarter 2021 results.
With me on the call today is <unk> co founder executive Chairman and CEO, Bob Youre novice also available to answer questions. During the Q&A session. Following our prepared remarks will be our president, Brian Stone and our vice president of sales and marketing Zachary Adams.
Please be advised that our remarks today, including answers to your questions include forward looking statements as defined by U S Securities laws.
These forward looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently anticipated.
These statements are based on the information available to us today, and we assume no obligation to update them.
These risks and uncertainties are described in our periodic reports filed with the Securities and Exchange Commission, which are incorporated by reference.
During today's call, we refer to certain non-GAAP financial and operational measures reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in yesterday's press release, our SEC filings and press releases are available on our website at Intrepid potash Dot Com I will now turn the call over to Bob. Thank you, Matt and good morning to everyone.
We recorded third quarter net income of $4 million and adjusted EBITDA of $13 $1 million with results benefiting from another strong performance in the sales through our fertilizer segment is increasing prices continue to drive improved bottom line results compared to the prior year.
The third quarter is normally our lowest cash flow quarter of the year and this year was no exception with $8 million in cash from operations, increasing our year to date total to nearly $60 million through the first nine months of 2021.
Our balance sheet remains in great shape to allow us to execute on the significant opportunities ahead of us.
And there's strong commodity environment, we ended the quarter with 26 million in cash on hand, and no debt outstanding on our revolving credit facility.
Earnings for our nutrient segments continued to improve over the prior year as price levels increase for both potash and trio we.
We announced an $80 per ton potash price increase in August.
Continued to move our posted pricing up to match rising spot prices during the past few months.
Unfortunately, the Carlsbad, New Mexico region received more than double the amount of average rainfall during the latter half of the evaporation season.
Not only added fresh water to our ponds that.
That in turn dissolved harvestable potash back to our brine.
That we need to evaporate before producing potash, but also led to reduced overall of operation rates.
As a result, our HB facility will produce under a shortened initial harvest season, this fall and winter likely likely ending production in mid January.
To offset the delayed production, we plan to restart our HB production in March and run for a few months during the spring to increase.
The potash production during the spring season, and capture what is likely to be continued strong pricing in the first half of 2020.
Our trio segment continues to generate sequential quarter improvements in gross margin due to rising prices and steady demand.
We announced a $50 per ton increase to our trio products in August and similar to our potash segment, we continued to move spot pricing higher to match rising potash prices across the country. During the last few months.
We continue to see strong demand and have responded by adding an extra shift at our east plant using overtime labor.
With low inventories of key products and the potential for strong demand in the spring season, we expect the Brent contract labor on at our East mine to continue our extra production shift through the spring season and to better supply. Our customers. This added shift is expected to increase production by 50000 tons over the next 12 months and we are.
The potential to add an additional 50000 tonnes, depending upon continuing market conditions are.
Our oilfield solutions revenue increased in the third quarter as the oilfield activity in Frac volumes increase in step with oil price.
The source water refresh rates increase we are bringing in an increasing amount of third party water to supplement our J EMEA water, which has compressed margin percentages in the segment.
Our south water rights remain fully committed for the year or beginning to bid for jobs for the first half as operators look to secure reliable supply of high.
High refresh rates and Frac rates are becoming the standard and we are beginning to see operators increasingly value reliability from their water providers, which we believe puts us in great position, given our history and capabilities in the Delaware Basin.
Before wrapping up my comments I want to recognize our east mine one more time for being the winner of the National Mining Association's 2020, Sentinels of Safety Award and the large underground Nonmetal category. This is a testament to the safety culture and the leadership at our New Mexico operations, and we are getting congratulated.
Every member of our East mine on such a prestigious award.
And now I'll turn the call over to Matt to review of our financial results and the outlook.
Thanks, Bob as Bob noted earlier, rising fertilizer prices and improving oilfield revenues continue to drive positive momentum across our business segments. During the third quarter. Despite the above average rainfall at our HB mine. The potash segment generated $4 5 million of gross margin in the third quarter as higher net realized sales prices drove improvements in.
Our bottom line as Bob noted exceptionally high rainfall more than double our average rates in the Carlsbad region has reduced our production outlook for the current harvest and we recorded a $3 $6 million adjustment in the third quarter related to abnormal production costs. The reduced production at HB led to higher cost of goods sold in the quarter compared to prior peer.
<unk> and May lead to increased Cogs for the next few quarters with potash price continuing to trend higher over the past few months, we expect fourth quarter pricing will improve over the third quarter and estimate an average net realized sales price of approximately $495 per ton.
Third quarter potash production trailed the prior year, primarily due to a later start up at our Wendover facility and lower ore grade at our HB facility.
Our trio segment saw great results with third quarter margin of $6 $8 million compared to the prior year as higher average net realized pricing and consistent cost of goods sold drove the improved profitability similar to our potash segment recent price increases should continue to increase our realized pricing into the fourth quarter and we expect our average.
Net realized sales price per ton to improve to approximately $370 per ton in Q4.
Third quarter oilfield solutions revenue increased to $6 $7 million as oilfield in Frac activity continues to improve alongside commodity pricing a portion of our revenue increase was due to additional third party water purchases to meet the refresh rates of operators in the area, which contributed to our increased cost of goods sold as a percentage of revenue.
Other revenue sources improved compared to both the prior year in the second quarter of 2021 as produced water disposal rates increase along with the oilfield activity in the Delaware Basin.
We remain in a solid liquidity position and expect cash flow from operations will increase in the coming quarters as higher price fertilizer sales take effect and as we head towards what has the potential to be a great spring fertilizer season.
We spent $12 4 million on capital invest investments through the first nine months of 2021, and now estimate full year capital investment of between 18% and $23 million.
That concludes our prepared remarks for today, operator, we are ready to take questions.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any teeth to withdraw your question. Please press Star then two we will pause for a moment.
Please join the queue.
Our first question comes from Joel Jackson of BMO capital markets. Please go ahead.
Good morning, Bob and team how are you all.
Yeah.
Good job how are you doing.
Thanks, I'm going to ask a few questions one by one.
Just understanding some of the commentary around potash production in HB, So HB I guess capacity of 175.
In times talking about producing decreased 70, Mlps about 70 can you give us an idea what is it pushing what should 2022 production.
Well actually the amount of volume available in 2020 to be versus you gotta be able in 2020 one how much of the impact that we see in Q4 Q1 and Q2 as best you can give us a bit of intelligence on that.
It's a great question.
The averages if you will don't change, but when you get a late season rain I think this is the second really big late season rain, where we've had more than doubled the rain at the very end of the season potash that's been precipitated out into the pond and was ready to harvest got resolved so the.
Potash is still in the pond.
We just need evaporation, which occur at a slower rate, obviously through the winter and going into the spring. So that's why we will do what's called a double harvest. So that will go in and capture that potash they've got redesign back into a Brian form.
We'll now precipitate either through cold weather through a co crack or will dissolve out through normal evaporation.
In the second quarter.
So if that answers your question, but I think so yes I will.
Reverting to the mean.
<unk>.
We always should revert to the mean average it's just when you get that potash out when you have a significant rain event. It causes a delay in when you actually get it.
So you're going to be one of them.
Go ahead Jim.
Going to be light some tons here for Q4 and Q1, when you think you'll be able to make it up and have a lot to sell in the last three quarters of next year does that makes sense.
That's clearly the goal and Thats clearly the goal because the potash in the ponds.
Yes.
Okay.
Okay. That's helpful.
And we noticed that the potash price performing that you're guiding to the fourth quarter relatively looks a lot stronger than performance.
Excuse me for trio in Q4 is that just is that just an order book.
Western Art can you talk about that a bit.
Not sure I understand the question you meet you mean trio didn't go up percentage wise like potash quarterly the quarterly increase youre guiding to in potash in the fourth quarter for price it looks a lot higher in a quarterly increase youre guiding to for trio in the fourth quarter.
I think if you look at the K value that's in the.
And the trio and the magnesium and sulfur.
You know, there's always a percentage increase.
So the market continues to be strong and we just continue to work that market up as we see increasing demand.
So we feel very well.
Let's give it all perspective, I mean, where we work two years ago versus where we are a year ago versus where we are today.
We're just going to continue to.
To build out that market appropriately.
We know that have an easier time Mike.
Yes, Joel Hey, this is Matt I'll just jump in there.
Fill program potash was obviously very early this year, we just didn't we didn't commit our Q3 tons on trio nearly as early and so we caught a lot of that that increased pricing in Q3 much more than we did in our potash tonnes. So thats why youre not seeing as big of a bump from Q3 to Q4, we already captured a lot of that in Q3 as Bob mentioned when you look at the <unk>.
<unk> value.
It all kind of equals out there.
We did a great job of managing our trio and capturing that ahead of our potash tons.
That's helpful and on the MG value, we've seen obviously magnesium practices beyond fire.
In recent months and do you capture any of that increased value magnesium or is it just trio is a bit different beast.
I think we do we've got a chart that we used to put in our IR deck that showed how.
Trio captured all the components and so we're clearly at a pricing scenario, where we are clearly capturing the proportionate pace of the K.
The Mag and I would say some of the sulfur so.
That's chart, we used to publish on a regular basis, and it's probably one which put back on our website.
One more question for me.
Can you share in the third quarter, what percentage of your oil field excuse me oilfield solution sale.
Came from.
Rail service third party product and then maybe what that looks like in the fourth quarter as well.
Yes, the one thing I would suggest on third quarter.
On third party water is we have very little margin on that water.
So I wouldn't be looking for it.
We make a nice margin on it but theres not a significant margin on that third party water. So I don't know if im answering your question obviously your Cogs go up but you'll recover when you sell that water. It enables you to take on some of the bigger fracs and provide reliability I mean, if we look at the refresh rates.
The frac rates.
Four years ago, those were $25 to 50000 barrels a day and now they are in excess of 250 to 350000 barrels a day, so you've got to be able to amalgamate.
Significant pieces of source water through our infrastructure at South and then service those fracs.
I guess I'm, just trying to figure out into 2022.
Im trying to model the business.
What percent of the sales you think it would be third party at lower margin. What you think would be normal sales of higher margin.
Okay.
Well 2021, we're going to be sold out of our Jeremy Waterbuck and 2022 is looking.
Given oil pricing like it is going to have.
Similar structure.
We're negotiating with numerous operators.
I don't see a situation, where the 2022 waterbuck doesn't get sold out.
Thank you very much.
Okay.
Our next question comes from Vincent Andrews of Morgan Stanley. Please go ahead.
Hi, guys. This is will hang on for Vincent Thanks for taking my question.
I was wondering if you could clarify your comment on the 50000 tons of incremental production from the additional shift at the East mine does that mean your east mine is now running at annual production capacity of 150000 tonne.
And then at what rate can we expect that additional production.
Begin flowing through your sales volume.
Well, we started adding almost 1000 tonnes a week.
Les said back in September and so that 50000 tons.
Should easily flow through in the next 12 months, it's really a function we've started trying to hire another crew.
So.
In terms of overall operational capacity that mine design capacity is about 450000 tonnes. So if we add right now I want to say, we're producing between 200 250000 et cetera, and so an additional 50 takes you up to 350 above that takes you up to 350 so it.
I'd say right now Youre constraint is the labor market in Carlsbad, given the oilfield activity is pretty darn tight.
So.
We are using a combination of overtime and contract workers to achieve that.
Don't know if that answers your question or not.
Yes.
Helpful. And then you also noted that you had the optionality to add another could be.
As well <unk>.
Like continuing market improvement I mean, how much does the market have been harder for you guys.
Act on adding that additional.
Guessing it's another shift there.
Well, it's really twofold, so as long as the market stays strong and you generate a good solid positive margin, which we're doing today.
Youre willing to add additional staff at unfortunately, a higher cost. So we're all feeling the effects of labor inflation. So as long as that that margin stays strong youre willing to add those those labors on to produce those tonnes. So you've got a you've got to pay attention to your margin.
Ability so that you don't overstaff or do it at the wrong time I hope that answers your question.
Yes.
Thank you.
Okay.
So I want to make it clear that the orders there the mining equipments there the processing capacities there.
Is there we just have to bring on staff.
Okay.
Thank you.
Once again, if you have a question. Please press Star then one.
Our next question comes from John Roberts of UBS. Please go ahead.
Thank you.
Does the rain impact the HB byproduct water availability for the oilfield sales.
No not in the list.
Okay, and then what's your outlook.
Okay.
Okay.
What's the outlook for new water leasing activity.
Hum.
Well, we recently.
Gained preliminary authorization of a significant water well, we drilled down at our Intrepid South ranch that proved up.
To say it was 1900 acre feet. So we're going through the final.
Approval process. There we won the administrative hearing against the protesters we continue to drill wells up in our cap Rockwell field.
To supplement our existing water rights.
<unk>.
We're very fortunate in that the judge Waxler.
Was overturned in the appellate court on a certain ruling NHS.
He's asked intrepid in the protest and to go back and re brand.
Okay. So that's a bit of good news.
As it relates to the Pecos water cases that the judge is revisiting his ruling in light of.
An appellate decision by judge Bustamante called the great cash, it's pretty rare that you see a judge go back out and before he issues an order.
Requests at all of the parties re brief the issue. So we're looking forward to the potential for a reversal there before we have to cut the appeals process.
But I think we've got plenty of water and as we bring on recycling.
So it's just a lot more there to add that's very environmentally friendly.
And then are you experiencing any logistic issues.
Oilfield side.
Nothing major attack truck markets are certainly not not as impacted Zach.
<unk> are we seeing any rail issues other than higher rates.
I think I think rail movements been good so far so no issues. There there is a truck availability during the fall season is always limited just due to harvest and stuff.
But nothing major on our side at this point that's our biggest issue is we've had the opportunity to sell some trio internationally, but international freight rates have gotten so high that it doesn't make those sales.
Realistic, but the market's out there and they're paying us on a weekly basis.
Yeah.
Thank you.
This concludes the question and answer session I would like to turn the conference back over to Bob <unk> for any closing remarks.
Just want to thank everyone for their interest in Intrepid and we really appreciate your time. This morning, everybody have a great day. Thank you.
Okay.
This concludes today's conference call you may disconnect your lines.
For participating and have a pleasant day.
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Thank you for standing by this is the conference operator, welcome to the Intrepid Potash, Inc. Third quarter 2021 results Conference call. As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing star Zero I would now like to turn the conference over to Matt Preston Vice President of Finance. Please go ahead.
Thanks, Ariel and good morning, everyone.
Thanks for joining us to discuss <unk> third quarter 2021 results with me on the call today is <unk> co founder executive Chairman and CEO, Bob here novice also available to answer questions. During the Q&A session. Following our prepared remarks will be our president, Brian Stone and our vice president of sales and marketing Zachary Adams.
Please be advised that our remarks today, including answers to your questions include forward looking statements as defined by U S. Securities laws. These forward looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently anticipated. These.
These statements are based on the information available to us today, and we assume no obligation to update them.
These risks and uncertainties are described in our periodic reports filed with the Securities and Exchange Commission, which are incorporated here by reference.
During today's call, we refer to certain non-GAAP financial and operational measures reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in yesterday's press release, our SEC filings and press releases are available on our website at Intrepid potash Dot Com I will now turn the call over to Bob. Thank you, Matt and good morning to everyone.
We recorded third quarter net income of $4 million and adjusted EBITDA of $13 $1 million with results benefiting from another strong performance in the sales through our fertilizer segments is increasing prices continued to drive improved bottom line results compared to the prior year.
The third quarter is normally our lowest cash flow quarter of the year and this year was no exception with $8 million in cash from operations, increasing our year to date totaled nearly $60 million through the first nine months of 2021.
Our balance sheet remains in great shape and allow us to execute on the significant opportunities ahead of us.
And the strong commodity environment, we ended the quarter with $26 million of cash on hand, and no debt outstanding on our revolving credit facility.
Earnings for our nutrient segments continued to improve over the prior year as price levels increase for both potash and trio we.
We announced an $80 per ton potash price increase in August and have continued to move our posted pricing up to match rising spot prices during the past few months on.
Unfortunately, the Carlsbad, New Mexico region received more than double the amount of average rainfall during the latter half of the evaporation season, which not only added fresh water to our ponds that.
And that in turn dissolved harvestable potash back to our brine.
That we need to evaporate before producing potash, but also led to reduced overall evaporation rates.
As a result, our HB facility will produce under a shortened initial harvest season, this fall and winter likely likely ending production in mid January.
To offset the delayed production, we plan to restart our HB production in March and run for a few months during the spring to increase.
The potash production during the spring season, and capture what is likely to be continued strong pricing in the first half of 2020.
Our trio segment continues to generate sequential quarter improvements in gross margin due to rising prices and steady demand.
We announced a $50 per ton increase to our trio products in August and similar to our potash segment, we continued to move spot pricing higher to match rising potash prices across the country. During the last few months.
We continue to see strong demand and have responded by adding an extra shift at our east plant using overtime labor.
With low inventories of key products and the potential for strong demand in the spring season, we expect to Brent contract labor on at our East mine to continue our extra production shift through the spring season and to better supply our customers.
<unk> added shift is expected to increase production by 50000 tons over the next 12 months and we have the potential to add an additional 50000 tonnes, depending upon continuing market conditions are.
Field solutions revenue increased in the third quarter as the oilfield activity in Frac volumes increase <unk>.
With oil price.
Source water refresh rates increase we are bringing in an increasing amount of third party water to supplement our GMA water, which has compressed margin percentages in the segment are soft water rights remain fully committed for the year. We are beginning to bid for jobs for the first half as operators look to secure rely.
We'll supply.
High refresh rates and Frac rates are becoming the standard and we are beginning to see operators increasingly value reliability from their water providers, which we believe puts us in great position, given our history and capabilities in the Delaware Basin.
Before wrapping up my comments I want to recognize our east mine one more time for being the winner of the National Mining Association 2020, Sentinels of Safety Award and the large underground Nonmetal category. This is a testament to the safety culture and the leadership at our New Mexico operations, and we are getting congratulated.
Every member of our East mine on such a prestigious award.
And now I'll turn the call over to Matt to review of our financial results and the outlook.
Thanks, Bob as Bob noted earlier, rising fertilizer prices and improving oilfield revenues continue to drive positive momentum across our business segments. During the third quarter. Despite the above average rainfall at our HB mine. The potash segment generated $4 5 million of gross margin in the third quarter as higher net realized sales prices drove improvements in.
Our bottom line as Bob noted exceptionally high rainfall more than double our average rates in the Carlsbad region has reduced our production outlook for the current harvest and we recorded $3 $6 million adjustment in the third quarter related to abnormal production costs. The reduced production at HB led to higher cost of goods sold in the quarter compared to prior peer.
<unk> and May lead to increased Cogs for the next few quarters with potash price continuing to trend higher over the past few months, we expect fourth quarter pricing will improve over the third quarter and estimate an average net realized sales price of approximately $495 per ton.
Third quarter potash production trailed the prior year, primarily due to a later start up at our Wendover facility and lower ore grade at our HB facility.
Our trio segment saw great results with third quarter margin of $6 8 million compared to the prior year as higher average net realized pricing and consistent cost of goods sold drove the improved profitability similar to our potash segment recent price increases should continue to increase our realized pricing into the fourth quarter and we expect our average.
Net realized sales price per ton to improve to approximately $370 per ton in Q4.
Third quarter oilfield solutions revenue increased to $6 $7 million as oilfield in Frac activity continues to improve alongside commodity pricing a portion of our revenue increase was due to additional third party water purchases to meet the refresh rates of operators in the area, which contributed to our increased cost of goods sold as a percentage of revenue.
Other revenue sources improved compared to both the prior year in the second quarter of 2021 as produced water disposal rates increase along with the oilfield activity in the Delaware Basin.
We remain in a solid liquidity position and expect cash flow from operations will increase in the coming quarters as higher price fertilizer sales take effect and as we head towards what has the potential to be a great spring fertilizer season.
We spent $12 4 million on capital invest investments through the first nine months of 2021, and now estimate full year capital investment of between 18% and $23 million.
That concludes our prepared remarks for today, operator, we are ready to take questions.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then two we will pause for a moment.
Please join the queue.
Our first question comes from Joel Jackson of BMO capital markets. Please go ahead.
Hi, Good morning, Bob and team how are you all.
Yeah.
Good job how are you doing.
Thanks, I'm going to ask a few questions one by one.
Just understanding some of the commentary around potash production in HB. So HB I guess capacity of 175000 tons talking about producing decreased 70 Mlps about 70 can you give us an idea what does it push on par with what should 2020 production.
Well actually the amount of volume you have available in 2020 to be versus you got to be able in 2021, how much of the impact that we see in Q4 Q1 and Q2 as best you can give us a bit of intelligence on that.
It's a great question.
The averages if you will don't change, but when you get a late season rain I think this is the second really big late season rain, where we've had more than doubled the rain at the very end of the season.
Potash, that's been precipitated out into the pond and was ready to harvest got resolved. So the potash is still in the pond.
We just need evaporation, which occur at a slower rate, obviously through the winter and going into the spring. So thats why we will do what's called a double harvest. So that will go in and capture that potash they've got redesign back.
Back into a Brian form.
We'll now precipitate either through cold weather through a co crack oral dissolve out through normal evaporation.
In the second quarter I don't know if that answers your question, but I think so yes.
Revert to the mean.
<unk>.
We always should revert to the mean average it's just when you get that potash out and when you have a significant rain event. It causes a delay in when you actually get.
So you are going to be light and that's one of the.
Go ahead.
You are going to be light some tons here for Q4 and Q1.
Think you'll be able to make it up and have a lot to sell in the last three quarters of next year does that makes sense.
That's clearly the goal and Thats clearly the goal because the potash assets in the ponds.
Yes.
Okay.
Okay. That's helpful.
And we noticed that the potash price performing that you're guiding to the fourth quarter relatively looks a lot stronger than performance excuse.
Excuse me for trio in Q4 is that just is that just an order book.
Western Art can you talk about that a bit.
Not sure I understand the question you mean trio didn't go up percentage wise like potash quarterly the quarterly increase youre guiding to in potash in the fourth quarter for price it looks a lot higher in a quarterly increase youre guiding to for trio in the fourth quarter.
I think if you look at the K value.
And the trio.
Magnesium and sulfur.
There's always a percentage increase.
So the market continues to be strong and we just continue to work that market up as we see increasing demand.
So we feel very.
Let's give it all perspective, I mean, where we work two years ago versus where we are a year ago versus where we are today.
We're just going to continue to build out that market appropriately.
We know that have an easier time.
Yes, Joel Hey, this is Matt I'll just jump in there to.
Fill program potash was obviously very early this year, we just didn't we didn't commit our Q3 tons on trio nearly as early and so.
A lot of that that increased pricing in Q3, much more than we did in our potash tonnes. So thats why youre not seeing as big of a bump from Q3 to Q4, we already captured a lot of that in Q3 as Bob mentioned when you look at the K value.
It all kind of equals out there.
We did a great job of managing our trio and capturing that ahead of our potash tons.
That's helpful and on the MG value, we've seen obviously magnesium practices beyond fire.
In recent months and do you capture any of that increased value in magnesium or is it just triage with a different beast.
I think we do we've got a chart that we used to put in our IR deck that showed how.
Trio captured all the components and so we're clearly at a pricing scenario, where we are clearly capturing the proportionate pace of the K.
The Mag and I would say some of the sulfur so.
That's chart, we used to publish on a regular basis, and it's probably one which put back on our website.
One more question for me.
Can you share in the third.
Third quarter, what percentage of your oil field excuse me also a solution sale.
He came from sales service third party product and then maybe what that looks like in the fourth quarter as well.
Yes, the one thing I would suggest on third quarter.
Third party water is we have very little margin on that water.
So I wouldn't be looking for it.
We make a nice margin on them, but theres not a significant margin on that third party water.
I don't know if im answering your question, obviously your Cogs go up but you'll recover when you sell that water. It enables you to take on some of the bigger fracs and provide reliability I mean, if we look at the refresh rates in the <unk>.
Rack rates.
Four years ago, those were $25 to 50000 barrels a day and now they are in excess of 250 to 350000 barrels a day, so you've got to be able to.
Amalgamate significant pieces of source water through our infrastructure at South to then service those fracs.
I guess im just trying to figure out into 2022.
I'm trying to model the business segment.
What percent of the sales you think it would be third party at lower margin. What you think will be normal sales at the higher margin.
Okay.
Well 2021, we're going to be sold out of our Jama Waterbuck and 2022 is looking.
Given oil pricing like it is going to have.
Similar structure I mean.
We're negotiating with numerous operators.
I don't see a situation, where the 2022 clutterbuck doesn't get sold out.
Thank you very much.
Okay.
Our next question comes from Vincent Andrews of Morgan Stanley. Please go ahead.
Hey, guys well hang on for Vincent Thanks for taking my question I was wondering if you could clarify your comment on the 50000 tons of incremental production from the additional shift at the East mine does that mean your east mine is now running at annual production capacity of 150000 tons.
And then at what rate can we expect that additional production.
Begin flowing through your sales volume.
Okay.
Well, we started adding almost 1000 tonnes a week.
Les said back in September.
At 50000 tons should.
Should easily flow through in the next 12 months, it's really a function we've started trying to hire another crew.
So in.
In terms of overall operational capacity that mine design capacity is about 450000 tonnes. So if we add right now I want to say, we're producing between 200 250000 et cetera, and so an additional 50 takes you up to 350 above that takes you up to 350 so it.
I'd say right now Youre constraint is the labor market in Carlsbad, given the oilfield activity is pretty darn tight.
So.
We're using a combination of overtime and contract workers to achieve that.
Don't know if that answers your question or not.
Yes.
Helpful. And then you also noted that you had the optionality to add another could be.
As well <unk>.
Like continuing market improvement I mean, how much does the market have been.
I Wonder if you guys.
Act on adding that additional.
It's another shift back.
Well, it's really twofold, so as long as the market stays strong and you generate a good solid positive margin, which we're doing today.
Youre willing to add additional staff at unfortunately, a higher cost. So we're all feeling the effects of labor inflation. So as long as that margin stays strong youre willing to add those those labors on to produce those tonnes. So you've got a you've got to pay attention to your margin.
Ability so that you don't overstaff or do it at the wrong time hope that answers your question.
Yes.
Thanks, Mike.
Okay.
So I want to make it clear that the orders there the mining equipments there the processing capacities there.
Is there we just have to bring on staff.
Thank you.
Once again, if you have a question. Please press Star then one.
Our next question comes from John Roberts of UBS. Please go ahead.
Thank you.
Does the rain impact the HB byproduct water availability for the oilfield sales.
No not released.
Okay and then.
It looks like.
Okay.
What's the outlook for new water leasing activity.
Well, we recently.
Gained preliminary authorization of a significant water well, we drilled down at our Intrepid South ranch that proved up I want to say it was 1900 acre feet. So we're going through the final.
Approval process. There we won the administrative hearing against the protesters we continue to drill wells up in our cap Rockwell field to supplement.
And then our existing water rights.
<unk>.
We're very fortunate in that judge Waxler.
Was overturned in the appellate court on a certain ruling any SaaS.
He's asked intrepid in the protest since to go back and re brand.
Okay. So that's a bit of good news.
As it relates to the Pecos water cases that the judge is revisiting his ruling in light of.
An appellate decision by judge Bustamante called the great cash, it's pretty rare that you see a judge go back out and before he issues an order.
Requests at all of the parties re brief the issue so.
We're looking forward to the potential for a reversal there before we have to cut the appeals process.
But I think we've got plenty of water and as we bring on recycling.
So it's just a lot more there to add that's very environmentally friendly.
And then are you experiencing any logistic issues.
Our oilfield side.
Nothing major truck markets are certainly not not as impacted Zach.
<unk> are we seeing any rail issues other than higher rates.
I think I think rail movement has been good so far so no issues. There there is a truck availability during the fall season is always limited just due to harvest and stuff.
But nothing major on our side at this point that's our biggest issue is we've had the opportunity to sell some trio internationally, but international freight rates have gotten so high that it doesn't make those sales.
Realistic, but the market's out there and they're paying us on a weekly basis.
Yeah.
Thank you.
This concludes the question and answer session I would like to turn the conference back over to Bob Q&A. This for any closing remarks.
Just want to thank everyone for their interest in Intrepid and we really appreciate your time. This morning, everybody have a great day. Thank you.
Okay.
This concludes today's conference call you may disconnect your lines.
For participating and have a pleasant day.