Q4 2022 CF Industries Holdings Inc Earnings Call
Good day, ladies and gentlemen.
Welcome to C. S industries, 2022, full year and fourth quarter financial results.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
We will facilitate a question and answer session towards the end of the presentation.
To pose a question at any time. Please press Star then one on your Touchtone phone.
I would now like to turn the presentation over to the host for today, Mr. Martin <unk>.
With C F Investor Relations Sir Please proceed.
Good morning, and thanks for joining the CF Industries earnings Conference call with me today are Tony will CEO , Chris Bohn, CFO , and Bert Frost Senior Vice President of sales market development and supply chain.
So you have industries reported its results for the fourth quarter and full year of 2022 yesterday afternoon. On this call. We'll review the results discuss our outlook and then host a question and answer session.
Statements made on this call and in the presentation on our website that are not historical facts are forward looking statements. These statements are not guarantees of future performance and involve risks uncertainties and assumptions that are difficult to predict therefore actual outcomes and results may differ materially from what is expressed or implied in any statements.
More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available on our website.
Also you will find reconciliations between GAAP and non-GAAP measures in the press release and presentation posted on our website.
Introduce Tony will our president and CEO .
Martin and good morning, everyone yesterday afternoon, we posted results for the fourth quarter and full year of 2022 that reflected a phenomenal year at CF industries highlighted by outstanding execution from our team.
Our plants ran extremely well producing nearly 10 million tons of ammonia and most importantly, we continued to operate safely at.
At the end of the year, our 12 month recordable incident rate was 0.33 incidents per 200000 labor hours well below industry averages.
Against the backdrop of a persistently tight global nitrogen supply demand balance these achievements led to extraordinary results.
We produced record full year earnings record fourth quarter, and full year, adjusted EBITDA and record full year free cash flow. We also.
Made significant progress Decarbonize our network.
Furthered our leadership position in low carbon ammonia production.
Over the last 12 months, we signed an Mou with Mitsui for the development of a new blue ammonia production facility, our bluepoint complex in Louisiana.
We signed a <unk> transportation and sequestration agreement with Exxonmobil we.
Signed an Mou with Jarrod for the supply of low carbon ammonia and we recently signed an agreement with BP to purchase certified low methane emissions natural gas.
All of which put CF industries at the forefront of de carbonization and sustainability within the nitrogen industry.
Turning to the market. The last 18 months have been particularly volatile period for our industry.
High energy prices geopolitical events, and economic weakness, leading to reduced industrial demand affected both nitrogen production rates in nitrogen prices.
In the near term, we expect continued volatility in the global nitrogen market.
As we look at the first half of 2023, we believe typical spring demand in the northern hemisphere is going to be weighted to the second quarter as buyers who have taken a wait and see approach to their nitrogen procurement.
So you have the industry's network with our combination of in market production extensive storage and logistics capabilities and export Optionality is well suited to navigate this type of environment.
Longer term, we continue to see a positive operating environment for the country.
Industry fundamentals remained strong.
Resilient demand driven by the need to replenish global grain stocks significant energy spreads between North America, compared to Europe , and Asia and.
And the emergence of demand for low carbon ammonia as a clean energy source are all very favorable for our cost advantage do network.
As a result, we continue to generate we expect to continue to generate substantial free cash flow in the years ahead.
This will enable us to both invest in growth and return capital to shareholders.
We are enthusiastic about the growth opportunity that low carbon blue and Green ammonia provides for our company and believe our Mou with Jarrod demonstrates tangible emerging demand for low carbon ammonia as a clean energy source.
We will continue to focus on disciplined investments to Decarbonize, our network and accelerate our ability to produce low carbon blue and green ammonia to help meet this developing new demand.
Alongside these growth investments, we expect to continue returning substantial capital to shareholders in.
In 2022, we returned nearly 60% of our free cash flow $165 billion to shareholders through share repurchases and dividends.
And then the last two years, we've reduced our outstanding share count by 11%.
We expect to further leverage the $3 billion share repurchase program recently authorized by the board to continue building on this track record and providing our long term shareholders with ever increasing participation in our business.
With that let me turn the call over to Bert who will discuss the global nitrogen market conditions in more detail.
Thanks, Tony.
The global nitrogen market was pushed two extremes in 2022, they need to replenish global grain stocks drove prices for feed grains to the highest levels in a decade.
This supported resilient demand for nitrogen and major agricultural production regions, like North America, Brazil and India.
At the same time, we believe historically high nitrogen prices led to lower demand in smaller subsistence focus agriculture areas in Asia and Latin America.
Industrial demand in Europe , and Asia was also softer than expected due to higher prices and recession fears.
Additionally, we very high natural gas prices in Europe , and Asia significantly curtailed production in those regions.
This along with government actions restraining nitrogen trade reduced product availability further supporting high global nitrogen prices.
Dynamics were exacerbated by Russia's invasion of Ukraine, which triggered disruptions and a large realignment of trade flows the.
The combination of these events push global nitrogen prices to all time highs in the spring of 2022.
Through the second half of last year. The shock of these factors moderated as global trade flows of natural gas in nitrogen adjusted and the world absorbed previously delayed urea capacity additions.
In addition, a mild winter in the northern Hemisphere resulted in a higher natural gas stocks lower natural gas prices and therefore, lower our global nitrogen prices.
Global nitrogen prices were also pushed lower as many agricultural buyers took a risk off just in time approach to purchasing.
This is not unusual nitrogen prices are historically high and demand for the spring application season seems distant.
This buyer behavior has persisted longer than normal as declining global prices reinforced the wait and see approach.
Over the last two weeks, we have seen retailers and wholesalers begin to step back into the market at attractive price levels.
The decrease in global nitrogen pricing has improved farmer economics dramatically and should spur demand globally that was discouraged at higher prices.
We expect significant demand to emerge in North America in the coming weeks as the value chain moves that the catch up mode that will likely last into and through the second quarter.
We believe inventories are lower at the farm and retail level, given the extent of the Q4 Q1 purchasing slowdown.
Additionally, nitrogen imports into the U S. Since July are lower year over year, while nitrogen exports were significantly higher.
As a result, we believe there is a good amount of product movement, yet to occur and purchases required to meet spring needs.
From a longer term perspective, we believe that industry fundamentals continue to point to a tight global nitrogen supply and demand balance.
As you can see on slide nine global grain stocks did not improve from last year's growing season for weather conditions in many key growing areas along with lower production in Ukraine due to the war limited global yields.
As a result global coarse grain stocks to use ratios remain low supporting high global grain prices for longer. This has been farming highly profitable low cost exporting regions of the world such as the U S, Canada and Brazil.
We expect this will support resilient demand for nitrogen as the agricultural sector focuses on maximizing food production and farm incomes.
We project that 92 to 93 million acres of corn will be planted in the United States in 2023, along with strong wheat, cotton and canola plantings across North America.
We believe it will take at least two more growing seasons at trend yields to fully replenish global stocks.
And our view Europe remains the marginal nitrogen producer in the industry. While forward energy curves have moderated the current current decline in global nitrogen values suggests that producer profitability in the region will continue to be challenged.
We believe this is reflected in the estimated 20% to 30% of European ammonia capacity that is currently curtailed.
With European production supplying the marginal product ton and the industry the marginal opportunity for CF industries remains substantial as you can see on slide 10.
With that let me turn the call over to Chris.
Thanks, Bert for the fourth quarter of 2022, the company reported net earnings attributable to common stockholders of $860 million or $4 35 per diluted share EBITDA was one point to $5 billion and adjusted EBITDA was $1 $3 billion for the full year the company in <unk>.
Ported net earnings attributable to common stockholders of 335 billion or $16.38 per diluted share EBITDA was $5 $5 billion and adjusted EBITDA was $5 $9 billion.
Full year net cash from operations was approximately $3 $9 billion and free cash flow was $2 $8 billion, both CF industries records for a calendar year.
We generated this free cash flow, even after making $491 million and onetime tax and interest payments in the fourth third and fourth quarters related to our U S. Canada tax matter dating back to the early two thousands.
Excluding these payments free cash flow was $3 $3 billion, representing a free cash flow to adjusted EBITDA conversion rate of 56% and our free cash flow yield of almost 20%.
Looking ahead to 2023, we expect ammonia production will be approximately $9 5 million tonnes capital expenditures are projected to be in the range of $500 million to $550 million in 2023.
These amounts reflect a normal turnaround schedule. They also include expenditures related to our low carbon ammonia projects.
We expect our green ammonia project out Donaldson Bill to be finished around year end fabrication of the Electrolyze. It is complete and site work is ongoing for its installation and integration later this year.
Blue ammonia project at Donaldson Bill remains on track for startup in early 2025 engineering activities of procurement of major equipment for the Seo to dehydration and compression facilities are in progress.
Longer term, we remain focused on increasing our free cash flow generation capacity and growing shareholder participation in our free cash flow.
We do this in four ways disciplined growth initiatives and clean energy investing.
Investing in high return projects within our current network pursuing inorganic growth opportunities that offer returns well above our cost of capital and returning capital to shareholders. In line with this approach we have a number of high quality clean energy investments and Moshe with some of the world's best companies because you can see on <unk>.
Slide 15, we also expect to return substantial capital to shareholders with that Tony will provide some closing remarks before we open the call to Q&A.
Thanks, Chris before we move on to your questions I want to thank everyone at CF industries for their outstanding work in 2022 there.
Their expertise and unwavering commitment to safety is the foundation of everything we do.
I, particularly want to recognize the more than 400, CF industries' employees, who contributed to the successful upgrade of our enterprise resource planning system, which we have had operated since the beginning of the year.
This was our largest business technology implementation ever and it was completed on time and on budget an outcome that is extremely rare for these types of projects and while the work may not generate headlines it is fundamental for our future growth.
We are proud of the outstanding 2022 that we had a CF industries, but we're even more excited about the opportunities ahead.
Given our operational focus disciplined capital stewardship positive market outlook and strong return profile from our clean energy initiatives, we expect to continue to generate superior free cash flows.
As a result, we believe we are well positioned to build on our proven track record and continue to create substantial shareholder value.
With that operator, we will now open the call to your questions.
Yeah.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If your question has been answered then you would like to withdraw press Star then two.
Our first question comes from Stephen Byrne from Bank of America Securities. Steven. Please go ahead.
Thank you.
I'm very curious to hear your view on.
What has driven NOLA urea from $700 a $300 in five months.
Is this just deferred demand.
At the retail level that is driving that or are there some other things like.
The U S is willing to take Russian cargoes a lot of countries are is there.
Some Saudi based cargoes that are coming in and getting it manipulated on price is there something else going on here I don't get it you've got the marginal producer even with lower gas its still there they're marginal costs are still $500 a ton.
What has led to this and where do you think it goes from here.
Good morning, Steve This is Bert and your short answer is yes, yes, and yes.
So yes, the pricing has fallen down from I would say $600 in September to $300 today short tonne Fob NOLA and there are some factors.
Factors as I mentioned in my prepared we're prepared remarks of there is the theory that higher prices cure high prices and some of that is reflected in demand. When you look across the world globally to whether its a tier one tier two or tier three consuming country a lot of the tier two and tier three countries.
<unk> did cutback, especially on subsistence farming or where you're importing of dollars, but trading in a local currency, which makes it economically difficult for that kind of transaction. So when you look at South America.
In Asia, and let's just say countries like Peru, or Central America or Thailand.
That combination between those two regions is probably two and a half million tons of lower demand coupled with then the next step of that equation as additional supply that came on further throughout 2022 from India, Iran, Nigeria, Russia, Brunei is probably 5 million tonnes.
So it doesn't take a lot to tip that over.
And then you know where.
We're starting in a we are at least that talked about recession, and then we did see that in our EU operations with a high energy prices and therefore, the lower consumption of industrial products in Europe now there was to add and do an added on that equation. There was the European shutdowns it took.
A significant amount of tonnage off the market and pulled in imports from various exporting regions. So those combinations along with in the tier one countries of demand deferral or a slowdown or a purchasing holiday we like to say.
Has pushed prices lower and then you're right. The cargoes from various countries that sell on index have overwhelmed NOLA, all that being equal, though we still see a positive market going into Q2, and a significant amount of demand to be satisfied and we're right in position with $2.
50, syngas in Oklahoma, and our freight differential thats positive to us.
And so we're eager we've got a good order book on and waiting for Q2 to arrive.
And maybe just one more for you Burton you just said you have a good order book on would you say that you've you sold more into the second quarter than normal or maybe less than normal if youre expecting a recovery in pricing.
Well, we're pleased with our order book and always look to manage those expectations and internal requirements and you.
You know, where we are market sensitive we're wide open for Q2, yes, Steve I think it's fair to say.
Sort of manage this does really well.
Where we're comfortable in terms of the orders that we have to get us to the place where we're expecting demand to start emerging in a very significant way in the quarter, but we're keeping our powder dry with respect to being able to participate in that high demand portion of the first half year.
Understood. Thank you.
Our next question comes from P. J <unk> from Citigroup P. J. Please go ahead.
Yes, good morning.
Question on your Jitter agreement, what are you supplying half a million tons of clean pneumonia.
Where does all this ammonia come from from which projects that you have going on where would it come from or do you need to build more.
And and it would get I'll I'll take that in Louisiana and they can.
Take it from there and how do you how do you.
<unk>.
Price.
How do your contract pricing is it a long term market price or what are your initial thoughts on this yes. Good morning P. J. So you know the first sizable quantity of low carbon ammonia is going to be available at Donaldson Bill as a result of the Cotwo dehydration compression.
But Chris talked about earlier and the agreement with Exxonmobil for transportation and permanent sequestration of Cotwo.
So we're going to be able to sequester about 2 million metric tons of Cotwo year, beginning in 2025, which is about the time frame that jarrod is going to begin taking some of these volumes and so it syncs up very well with our ability.
To producer with when demand is beginning to emerge.
We have a frame.
Framework.
And the Mou around the agreement some of the specifics of whether there is an equity investment in the project from from Jarrod, whether or not.
It is strictly an off take agreement all of those things you know are currently being discussed and were.
We've got a very good relationship.
Good dialog going but more details to come as we kind of further firm things up but suffice it to say with the.
The availability of the 45 Q tax credit.
And the recognition globally of the value and relative scarcity of low carbon pneumonia.
We're really excited about this development of real tangible demand showing up in the interest on the part of consumers of this product to be involved in the <unk>.
You know the equity side of the production of it as well so to us that's very different than.
People building spec plants, it's you've got kind of the base of consumers that really want to vertically integrate into the production side and that's an exciting development.
Yeah My follow up is for Barak.
You know, but how about your urea does U S need to import between now and <unk>.
Good thing season, and how much of that is already contracted that there's lower prices Amazon water to get here can you just give us an update on sort of what happens between now and planting season.
On average on a historical review of previous experiences. It's let's just say, it's 5 million tons a million and a half has come in probably have $3 5 million tons to bring in February .
February and March were tracking the cargos are probably between 700 million tons for each month.
And then it gets a little dicey for the importer, because if you're putting a vessel on the water in April getting here in late April early may and has to move from a coastal import port into the interior, it's not that easy so I.
I think more to come on that issue.
The other issue is demand when you look at what the additional corn acres, we've targeted in our remarks of $92 93, and the additional wheat acres, probably 5 million acres, you've got I'd say $3 to 400000 tons of additional demand on top of.
The pasture acres that will be fertilized so good demand profile going forward.
The imports generally tend to be balanced and we're well positioned with our three urea plants on the coast and then the interior to serve that need.
Great. Thank you.
We have a question now from Christopher Parkinson from Mizuho Christopher Please go ahead.
Great. Thank you so much your.
Your cash flow your free cash flow conversion was pretty good you know adjusting for the the.
The tax payment I'm, just curious Ted yeah, inquire on when I look at the free cash flow in the outer years, whether it's 'twenty three 'twenty four 'twenty five Tony and Chris has your IDE idea in terms of the distribution between share buybacks and some of the blue and green projects and obviously the support for the Japanese decarbonization initiatives.
L J.
In the context of the iras that distribution of that free cash flow.
Has your thought process around that changed versus buybacks just given the opportunities that are continuously emerge and then obviously you have been already participating in just curious to hear your updated thoughts. Thank you Chris good morning.
I would say the good news here is that there should be plenty for all of the above.
The investments that we're making on the de carbonization and in particular, the dehydration compression are relatively modest compared to the.
The amount of free cash flow that we're generating and so our expectation is that we can continue to do all of the above now.
Would say given the return profile.
Some of those projects, particularly in light of the 45 Q.
Tax credit.
Our our first call on capital is going to be investing in these kind of projects that have returns way above the cost of capital that's.
That's good for all seasons, but I don't think this is a choice that we have to make as an either or yeah. I think Chris Ultra just how we're looking at those projects in the clean energy segment.
Is it.
As always very disciplined, but also where we don't have the technology or the the infrastructure looking to partner and that really goes to the modest capital side that Tony mentioned there.
As you look at those projects as you mentioned theres not huge calls on capital at this particular time, so that leaves a lot of excess free cash flow for us to distribute to shareholders. I think the one thing we will look at it differently this year and sort of that ratable versus opportunistic method in which we went about share.
Purchases last year and I can just point to Q4, where.
With no change in the long term fundamentals of our of our industry or CF in general if anything getting better we saw our share price, where we repurchase at $100 during that timeframe that today, we're trading in the mid Eighty's. So the way we're looking at it maybe is if the market is going to offer that large of a.
Disc out we may do some altering to that ratable versus opportunistic type of share repurchase and as Tony mentioned in his remarks, I think we have a history of returning cash to shareholders with the 60% of free cash flow, we returned last year.
Also I think and then I just want to highlight one of the things Chris side is while we're looking at a host of different.
Clean energy initiatives in low carbon ammonia opportunity is we are partnering with people to to bring those things to reality and so.
The example, being if we if we built a new.
Ammonia facility, our bluepoint and complex in Louisiana.
We're doing that.
With Mitsui, who is in for almost 50 cents on the dollar. So it really does and as you think about cap cash going out the door that spread over four maybe four and a half years. It really is relatively modest in the Grand scheme of things and that's why we feel we can do all of the above here.
Sure.
Just as a quick follow up you know just given the fact that European production still is favoring important ammonia and you've also seen Curt you know less production out of Trinidad and you've even seen some facilities in Europe be reluctant to restart.
Holistically, just because of the current pricing environment, which I thought it was a bit odd, but just are you at all surprised and I apologize for the short term question are you surprised that the market on the downstream side. It hasnt ultimately been a little bit tighter even if it's still relatively earlier in the year. If you could just say Additionally that framework it would be very helpful. Thank you.
So I would say by historical standards, we're very happy with where the ammonia pricing goes.
Arguably it's a it's a good value out there in the market today.
I would say.
Some of this goes back to the point that Bert met.
Mentioned earlier, which is with a little bit of reduction of economic activity.
We've also seen a reduced to.
Demand on an ammonia going into industrial applications. So that certainly had somewhat of an impact on it but you know look by any standard other than a period of time last year. The ammonia market that we're looking at right now is absolutely phenomenal and I would say the same for the upgraded products the market.
Mato historical standard is tight and some of the dynamics that we talked about earlier with these purchasing delays.
Has pushed product in the open market with <unk> in India.
Tender delay as well so.
All of this incentivize as just as higher prices were probably limiting some demand. These these attractive prices are going to incentivize demand incentivize seed populations as well as applications in application rates.
Not only in the United States, but in other countries as well so.
I'd say, we're fairly prosaic about the market today in the market going forward.
Thank you so much.
Yes.
We now have a question from Joel Jackson from BMO capital markets. Joe. Please go ahead.
Hi, Good morning, maybe following risks here.
It seems like ammonia has been trading with the marginal cost curve marginal cost for months and months and urea is non factors negative margins right to upgrades in pneumonia.
Can you talk about that and is that really sustainable and Bert Tony have you seen this before because I don't think I've seen this before in a long time. It's lasted for this many months.
I think with.
Where the market is today on ammonia because ammonia is utilized in.
The initial production of some of these products and some of the plants that have been down like ours and billingham the U K.
Can import ammonia and run the upgraded products.
Operator differentially.
And where we are in urea for example, you do have additional urea that has come on stream.
And you've got some delays as the purchaser of the Egyptians the Algerian the Nigerians have been moving product into Europe at just under that marginal cost of production.
However for ammonia wives trading a little bit differently.
All of that ammonia and you need the production to make the <unk> to make the products that require C O two in Europe . So.
It's a little bit of two different.
Process I mean, I think I think the ammonia is sandy is tighter than the urea one for the points that purchased mentioned one is the additional urea plants upgrade plants that have come on this past year and then additionally, just sort of the reluctance right now.
What you're seeing prior to the application season, but I think the expectation as you start to see that tighten up as well.
Okay I have a question a little bit different around the deal.
Announcing you made last week or this week on the BP gas range and there's a little bit out of my comfort area, but I'm going to try can you would that arrangement with BP. So are you. It's a two part question are you paying a premium for this gas and then how exactly is <unk> going to supply 90% lower.
<unk> intensity got is BP investing in financial offsets, that's netting against the actual carbon intensity of the physical gas supply no doubt going on yes, So Chris I'm happy to give you a little bit of background on this and then.
By others to jump in here as we go but but basically.
Or Joel yes, sorry.
Basically there are.
Typically involved when you're doing E&P, some fugitive methane emissions that you get slipped in terms of both around the wellhead as well as in the <unk>.
Transportation pipeline system and.
BP has developed and is implemented and invested in some technologies and approaches to dramatically reduce the amount of methane.
Emissions slip at those at those sources and methane as you know is a very potent greenhouse gas and so.
Bye bye them investing to reduce the amount of fugitive emissions that has a pretty dramatic impact on our scope three emissions.
Because they are investing in reducing their emissions profile there is a.
A premium on the gas, but it is.
It's de Minimis and so this is a way that we can go after another piece of our emissions profile do it in a very cost effective way and do it in a way that's good for the environment.
And so we're excited about this partnership and continuing to move forward with it yeah and I think the only thing I would add in this particular case. These are verified credits as well and it's something that is a legitimate and reducing our scope three.
Okay, we're going to continue with a question from Adam Samuelson from Goldman Sachs.
Please go ahead.
Yes, Thank you and good morning, everyone.
Good morning.
So maybe.
Another question on some of the clean energy type investments that <unk> been pursuing.
To date I mean.
These are largely confined to the U S Gulf the Donaldson plant and kind of the.
Potential new plant with.
With Mitsui.
Can you talk about maybe things you're evaluating your considering at the rest of your North American plant network.
Related to carbon capture.
<unk> 45, kilo advert Aggress, our port Neal.
It become become viable.
Medicine hat, obviously is in Canada, but different kind of opportunities that might be available north of the border.
How those would fit into the portfolio of.
Clean energy and ammonia hydrogen kind of opportunities you bet Adam so.
One of the places that we have a significant amount of.
<unk>, that's currently being vented, partly because what we're primarily producing there is.
Ammonium nitrate as our Yazoo city facility. So there's a lot of cotwo in the venting and we are in active discussions about finding solutions from transportation in and sequestration.
Options there.
It was one of the two initial ones that we highlighted when we announced kind of our movement into clean energy and decarbonization.
And as you as you pointed out in medicine hat.
City of Medicine has been granted.
Right to the poor space.
And in that area and so we're in active discussions with them about developing.
Sequestration option and that's it's a different kind of benefit for us. Unlike the 45 Q here in the U S. The cost of carbon as I'm sure. You are aware in Canada is already high and it's.
It's going to get a lot higher going forward. So there is really good economics around.
Our potential investment there where we can also.
<unk> dramatically reduce our aggregate emissions profile and.
We are continuing to evaluate in other areas as well the one challenge at a place like.
Port Neal because the amount of urea in UAE on the we're producing we're using most of the processes that we produce and so it's fairly low the amount that ultimately gets vintage there and so the prospect of doing Ccs project is.
Small verdict on the other hand does have some some reasonable amount of cotwo and we are looking at it.
Across the network for other opportunities, including going after some of our <unk> emissions from our nitric acid plants being two O side.
As you know.
Also really.
Carbon intensive from a cotr equivalency.
Standpoint.
And then just to build on what Tony said those are the more defined projects that are out there that really.
The hydrogen production.
Production tax credit and the enhancement of the $45. Two so those are already in motion, but there is others that are related to.
Everything from the hydrogen hubs carbon transport incentives that are part of the IRA as well and those are continuing to evolve and what the scope is and everything like that but we remain very active in evaluating those as well, but again as we talked about earlier a lot of this is really playing to where our strengths are partnering where we.
We don't habit and participating where we have the highest return on those value chains.
Okay. That's helpful and I guess, that's a separate follow up on the Billingham plant in the U K I think the guidance for the full year was $9 5 million tons of.
Gross ammonia production does that assume you actually are able to restart ammonia production in the U K and.
If not kind of how long would you be comfortable not running ammonia there before that starts creating issues with the plant yes, Adam I'll start with first is we as we've said in the past the amount of gross margin really associated with the UK business is pretty small on an overall CF basis.
Our intention is that when gas prices get into a range, where it's more profitable to produce ammonia there and upgraded then two important we'll do that but right now it's just a margin play so I guess from from a standpoint of.
How we're looking at this we're going to be very nimble and flexible and we will.
Turning to plant back on when we see the margin advantage is better to do that right now importing from Donaldson Bill is providing an uplift to that price at the Donaldson Bill ammonia could get versus just selling it as merchant ammonia out in the market. So we will continue to evaluate that but it always be March.
Independent rather than production volume.
Okay. That's all helpful. I'll pass it on thank you.
We will now take a question from Edlin Rodriguez from credit Suisse.
Please go ahead.
Good morning, guys.
Just a quick one on buyer psychology like why do you think buyers are still in a wait and see buying pattern. When they can clearly hear you, saying that they should expect prices to be going up soon like shouldnt there be rushing to buy ahead of those higher prices.
Well good morning, this is Bert and yes.
It's an interesting dynamic.
But it's been global and so far successful. So we have to recognize that we've had many conversations with our global customers as well as our domestic customers. The team was in Brazil for the conference down there in late January and we just returned from the <unk> yesterday.
We're going to have various customer interactions there is a spread between what was purchased before and so on the retail level several have inventory priced much higher and they need to dollar cost average and the feedback we get is they are waiting for the floor or feedback as you might want to review what you think the floor is because.
I think we are there and so global.
Dynamics will drive this going forward and again, we just look at those dynamics higher priced.
Natural gas in Europe , we will keep a portion of that production offline and keeps our keep I think supply tighter that is recognized and the dynamics that we have in place in North America, and Europe with adequate soil moisture good temperatures.
We had a drought last year, we're not going to have that this year right now.
And probably lower inventory levels, pointing to a very healthy spring. So we'll see what happens.
<unk>.
Okay. Thank you.
We will take a question from Jeff Zekauskas from Jpmorgan, Jeff. Please go ahead.
Thanks very much.
Your tax Bill.
Canada is about $500 million.
How much do you expect to get back roughly from the U S government and win and two.
The same tax problems continue into 2021 and 22 taxes.
Jeff This is Chris Thanks for the question. This is we've talked about earlier this relates back to the early 2000 and its really a tax dispute between Canada and U S where CF.
CF is a transfer pricing tax issue and we made our payments what I would say is given that it's taken this many years to get to where we are now it will likely take some time before this is fully resolved this.
This whole matter fully result, however, in saying that we have filed amended returns for the payments that we made related to 2006 through 2011 seeking refunds from the U S. Those should come sooner than the full resolution of everything so there is going to be some frictional.
Costs that will come out of this what that number is we just don't know at this particular time because theres. Some interest difference between what Canada charges in the U S. Much.
Much of which we are contesting but we really don't know at this particular time, but we should begin to see initial payments probably in the 12 to 18 months with I would say full resolution of this anywhere from 36 to 48 months depending on when the.
Both jurisdictions get to this item.
The other thing is we did go ahead and make estimated payments for a period of.
2012 through.
2021 in order to stop the interest checking as Chris said the candidate charges a much higher interest rates in the U S and so that's where some of the frictional cost comes from.
But our expectation is that we'll get.
Much of the money back.
And again.
Six through 11 money faster the rest of it is going to likely have to go back through another round of arbitration when youre talking about <unk> through 'twenty one.
But.
We're we're obviously going to put all efforts forward to recover as much of this is possible. Yes, one other point Jeff to answer the second part of your question is just continuing to build as we go forward as you recall. This went to this goes back to really 2012, when we started to initiate on it even though.
Early 2000, and so some of that profit distribution was changed during that timeframe. So there's really nothing that's continuing to build on a go forward basis, it's more or less through this 2021 timeframe for the most part.
Great Okay and.
In the Donaldson complex.
You want to.
Transport and store 2 million tons of processes too.
How much C O two does that Donaldson complex throw off or maybe put another way.
How many how much C O two was thrown off per ton of them.
So in terms of.
Total <unk> generation per per ton of ammonia in our plants, it's about 1.8.
Tons of Cotwo now of that about a third of it is flu gas.
And.
And the rest of it is.
Maybe it's more like 40% or 50% as flue gas the rest of it is processed.
So the process portion of the Cotwo is.
Right now we have an access of about.
4 million.
Tons in aggregate so were taken about half of the.
Access process.
And.
Signing up with Exxon has signed up to sequester that amount.
We're going to continue to evaluate and ideally, we'll do a second project and sequester more of it the challenge a little bit is the margin opportunity on.
On urea and UAE.
Tends to be higher than just for ammonia at least the way.
Current product pricing as that May change in a clean energy ammonia world, but.
On a current basis, that's the case so what we want to do is to ensure when we do have a trip of one of our ammonia plants, we're able to continue to operate the urea upgrade units at full capacity. So we don't.
We are unlikely on a fixed basis too.
Allocate 100% of the access to for sequestration, because we wanted to make sure that we can keep our upgrades running even if you've got a turnaround on an ammonia plant or an upgrade but.
But one option that we haven't spent a lot of time talking about up to now that we are.
Anticipate at some point being able to avail ourselves of it.
Flue gas capture in recovery and then sequestering cotwo. So as we and we are involved in the evaluation of flue gas recovery right now so.
As that starts looking like a more promising and realistic technology to be able to cost effectively implement.
That gives us a lot of flexibility in terms of being able to sign up another such sequestration deal on the CRT side.
That's a pretty good answer.
Alright much.
We have a question from Vincent Andrews from Morgan Stanley Vincent. Please go ahead.
Hi, guys. This is will hang on for Ken Ken I am.
I'm wondering if you could.
Give some additional color on I guess, what's happening with respect to Chinese urea exports and why youre expecting them to be flat to down on a year over year basis in 2023, and then as a follow up to that do you guys gain.
John .
Okay.
What they would be on a loser export restriction level of three to 5 million tons per year.
Which is a little bit lower than what David exporting between 2019, and 2021 of around 5 million tonnes. So I'm wondering if you could kind of bridge. The difference there is that just higher demand from the region or are there other.
That's influencing.
That estimate.
I would say the biggest reason then I'll turn it over to Bert for some more specifics here, but I'd say the biggest thing that affects it is really one of a shift of policy around.
Trying to reduce environmental pollution.
In the country.
Recently here since Covid, there's also been a strong desire in order to help curb inflation around availability and affordability of nitrogen fertilizers and so some pretty significant restrictions on exports but.
In terms of in a looser export restriction environment. The thing that gives us a lot of comfort around them not.
Going back to sort of the old days as the real push around.
Environmental.
Clean up in just.
The environmental quality.
Urea is a huge particular matter.
Or a big consumer of freshwater theres not that many.
Employment jobs that go along with it and Youre effectively exporting energy in the form of urea. When you are turning around and importing natural gas.
It's just not a good trade from a policy perspective from the central government.
So I think you covered it well.
The key thing for me was a very good governmental action to protect this is reflective on 2022.
The export controls.
And inflation control mechanism in our cost control mechanism.
For the Chinese farmers to have available nutrients and it worked and they did and so when the price of the global market at $800. The price in China was $400 and so I think that was a successful program and we see Chinese exports moderating youre right last year, they're just below.
3 million tonnes, and we probably expect that same level to up to maybe 5 million tonnes.
But today, the Chinese prices higher than the global market. So there is not an incentive to export those tons.
And they're going into their spring season, just like we are in the northern hemisphere, and I expect demand to be robust China has been a very active purchaser supporting the global agricultural structure of corn and soybeans and refined products for the last for a while now decades, and we expect that to continue as they rebuild their <unk>.
Docks as well as their protein stocks as well as their feed grain stocks. So we don't see a big change coming out of China on the export front for urea in 2023.
Got it thank you.
We have a question from Andrea Wong from RBC capital markets. Andrew. Please go ahead.
Hi, Thanks for taking my question so picking.
Taking a little bit longer term here on the market, we haven't seen a lot of announcements for kind of a traditional gray ammonia builds are.
Are you in or anything like that like why do you think that is.
Some of these new low carbon projects that have been coming up.
Most of us just ammonia.
Do you see some of this ammonia entering the traditional market and competing with great tons or do you think theyre going to be mostly reserve for clean ammonia users.
I mean, I think thats one of those.
Situations, where you never fully 100% and balanced where demand develops at exactly the same rate as as new production does I think.
What what we'll probably see is demand develops if theres not enough production initial implementation using conventional or gray ammonia with a desire to shift towards blue as it becomes available.
And as you know you have a project or two like us that comes up.
If for a while you get a little bit of excess.
Availability of that product.
Chemically identical so it can certainly go into any.
Any of the uses my sense is on the margin.
There will be a desire.
On a broader industrial application basis too.
Start making use of low carbon ammonia as it becomes available.
And.
Again, I think the thing that's very different about some of the announcements going on today as compared to what happened in 2012 was there was a lot of spec plants.
That were being announced by people that were not industry participants at the time, just because they thought hey. This is a great thing that we wanted to do most of the announcements that you are seeing today are from people that are.
Well capitalized already in the business understand it.
And you also see a number of <unk>.
People that.
Are ultimately going to be end users of the product or other participants in the channel that want to be involved as well and so it's got a very different feel to it.
As we look forward the Jarrah Mou is.
Is really just the first piece of tangible demand that is emerging and we expect a lot more to come so.
Our sense is that for ammonia really to take off as a clean energy source were going to need the production capability that are represented in some of these announcements.
And.
The number that are announced versus the number that get built as ultimately a.
Less than one for one.
So we will we will see how all of that develops but we're we're very pleased with kind of where we sit in terms of the leadership not only on global ammonia production, but also the actions. The early actions, we've taken to Decarbonize, our network and produce low carbon ammonia.
That's helpful.
Like on the traditional great great ammonia plants, just in general we haven't seen a lot of announcements like why do you think that is an impact.
Essentially continue as there may be some sort of hesitancy to invest in carbon generating businesses or maybe is there something else I think I think a lot of the announcements Jeff that you are hearing are actually blue ammonia projects, which are effectively gray ammonia production.
<unk> areas around it so I think thats why youre seeing the activity in the Gulf coast with the ability to sequester it so.
Obviously, the transition to a blue ammonia given the incentive structures that have been put out there allow you to make that incremental capital. So that's why I think youre seeing it.
Because blue ammonia projects with the enhanced 45, Q become very close to what our conventional production would be and actually probably with better economics of conventional production.
Okay.
Our next question comes from Josh Spector from UBC.
Alright, UBS Josh. Please go ahead.
Yes, hi, Thank you just on the natural gas quickly and I know you guys normally don't do much hedging further out, but given where prices are I mean can you take a different view over the next six to 12 months, it's hard to see that youll be very wrong on the low end of that so just curious on your thoughts.
This is Bert when Youre looking at natural gas you are correct.
We don't hedge that far we do hedge in the winter months as you saw in our Q4.
<unk>.
And that's just for as a reflection of some of the things we've seen with freeze offs and risk.
But when you look at the forward were $2 50 from now through.
The summer months, and then $3 until you hit winter again, and then in the low threes there.
So that's something to look at something to talk about we do have a gas committee that Chris and I and <unk> and a few of the others teams sit on and ruminate over these things and.
We will have to take a look at that.
Okay. Thanks, and just a quick on Capex I mean, this year makes sense I guess I mean, assuming you guys go forward with E on the facility.
And then your share of that roughly $1 billion.
Over four years, I mean should we be thinking about if that plays out your capex is in the range of 700 $800 million. The next four years barring you don't do any additional further projects, yes, Josh its not really ratable that way, even though we can talk about allocating it that way typically there's a little.
Bit of money spent upfront for the engineering work and also for the initial down payments on procurement of long lead time vessels.
And other equipment.
<unk>.
The vast vast majority of the expenditures happened in the last two years for the last 18 months, which is when youre doing all of the major construction activity. So it's really back end loaded.
Okay. Thank you.
Okay.
Our next question comes from Richard Chin Lorena. Please Richard go ahead.
Great. Thanks for fitting me in.
Just one high level question.
A lot of announcements on the clean energy initiatives in the past year.
And considering you have strong free cash flow doesn't seem like that's a constraint. When do you think your plant will be full in terms of how many projects do you think you could have going on at the same time.
Between now and 2027, or so where you feel comfortable you can manage that and then I guess just also in terms of what.
Your priorities would be in terms of managing managing those thanks.
Yes.
I think a lot of it has to do with the capacity of the <unk>.
Engineering execution within the existing facilities.
The bluepoint complex in Louisiana is a bit of a different one because that obviously is a greenfield project.
We are staffing up that organization.
Or assumed.
Go forward, but the decision about go forward has not been made yet given that we don't have the cost estimate on what that would be.
So I feel like we can execute a lot of these things simultaneously, we've got a lot of capacity around the network and the projects that we're talking about other than the blueprint complex are not so large and so involved that it would.
<unk> engineering resources, and a lot of the stuff would get phased in so on the Ccs stuff.
We're making good progress in a number of the facilities concurrently I do think as we talk about into our abatement <unk> flue gas recovery that would be phased in over a little bit longer time horizon than and making sure that we don't kind of overwhelmed resources, but we also align those initial.
<unk> with.
Turnaround planned turnaround activities and so forth so.
We would also get phased in.
The thing I would add is the projects that we're doing really play into the core competencies and that's why this strategy makes so much sense for our organization. It's not as if we have to go out and build a whole bunch of new infrastructure a lot of that exists and we're making add ons to that so I think that also <unk>.
Neither of these projects and then additionally, partnering in areas that we don't have those core competencies allow us to maybe take on a few more projects than we would if we were doing them all by herself.
Great. Thank you.
Ladies and gentlemen, this is all the time, we have for questions for today I would like to turn the call back to Martin <unk> for closing remarks. Thanks.
Thanks, everyone for joining us and we look forward to seeing you at conferences over the next month.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.