Q2 2023 CF Industries Holdings Inc Earnings Call
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I'd now like to turn the present presentation over to the host for today, Mr. Martin <unk> with CF 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 Executive Vice President of sales market development and supply chain.
CF industries reported its results for the first half and second quarter of 2023 yesterday afternoon. On this call. We'll review the results discuss our outlook and then host a question and answer session Steve.
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.
So you'll find the reconciliations between GAAP and non-GAAP measures in the press release and presentation posted on our website now let me introduce Tony will our president and CEO .
Thanks, Martin and good morning, everyone yesterday afternoon, we posted results for the first half of 2023 in which we generated adjusted EBITDA of over $1 7 billion.
Our trailing 12 month net cash from operations was $3 2 billion and.
And free cash flow was $2 1 billion.
These results reflect outstanding execution by the CF industries' team against the backdrop of robust demand.
Our plants ran extremely well and we leveraged our unique system flexibility to maximize results given the high volume of just in time purchasing that took place.
We sold more product than we produced.
And ended the first half with low inventories.
As you will hear from Burton a moment, we believe we're really well positioned for the remainder of 2023 and then into 2024.
While our safety performance remained good by most measures and comparisons it is not where we expect it to be.
Our 12 month Rolling recordable injury rate is at the end of June was <unk> 54 incidents per 200000 labor hours.
<unk> and his team are focused on this not to manage the number but to ensure that all of our people go home in the same condition as when they came to work every day.
Looking forward changes in the energy market to steepen, the global nitrogen cost curve and extended the margin advantage available to our North American manufacturing network.
As you can see on slide seven we enjoy a 300 to $400 per ton margin advantage versus European and high cost Asian production.
Given the structural advantage as well as our industry best operating rates and unique network flexibility, we expect to drive strong cash generation in the years add.
This will enable us to make disciplined investments in growth opportunities, while also returning substantial capital to shareholders.
In that vein, we remained focused on our clean energy growth platform, which has been well served by the collaborations and partnerships. We have developed we expect to make a final investment decision on a newbuild clean ammonia plant later this year in conjunction with our partners in that project. This approach significantly reduces risk to CF and ensures that.
The new production volume is consumed in new sources of emerging demand rather than creating an overhang in the market.
We also continued to return significant capital to shareholders over the last 12 months, we returned $1 3 billion to shareholders through dividends and share repurchases, which was more than 60% of our free cash flow.
Looking ahead as we continue to execute on our current $3 billion share repurchase authorization. We are committed to taking advantage of dips in our share price opportunistically amplifying the rewards to our long term shareholders.
With that let me turn it over to Bert who will discuss global nitrogen market conditions in more detail.
Right.
Thanks, Tony Cf's.
CF industries experienced a very positive spring application season that we believe points to a strong global demand dynamic in the second half of the year our.
Our challenge in the spring was managing through peak application season with customers deferring purchases until the last possible moment <unk>.
Despite delayed purchases demand in North America during the spring was substantial with <unk>.
Vantiv corn and wheat acres up significantly compared to 2022.
Even with this high demand net imports were lower than the prior year.
As a result, we believe that inventory in the North American supply chain is extremely low compared to historical norms, and we will need to be replenished.
At the same time, India, and Brazil will need to compete for urea tons in the coming months as they prepare for their upcoming planting season.
As you can see on slide six we project that Brazil still needs to secure five to 6 million more tons of urea.
In India, another four to 5 million tons of area by the end of the year.
Farm economics continue to be robust and supportive of strong demand.
Census, estimates project that global grain stocks will improve slightly in 2023, the drought in the United States and ongoing impacts from the war on Ukraine are keeping grain prices attractive for farmers.
The global nitrogen market is responding to these dynamics with rapidly rising urea spot prices through July with other products following.
We saw strong demand for urea and in July we built an order book of domestic and export sales that takes us into the fourth quarter.
We also quickly achieved our goals for our initial UAS Phil offer in North America, and had been able to raise prices for subsequent layers.
Against this backdrop of strong demand the global supply response is somewhat muted.
We do expect China to participate in the upcoming India urea tenders, but strong prices for nitrogen in China indicate that domestic demand is competing for the volume available for shipment.
Russian tons continue to reach the global market, but willing buyers are limited to a few areas of the world such as Brazil, and the United States.
Additionally, European ammonia production volumes remain well below normal due to natural gas prices that make the region uncompetitive globally.
As we look at our own operations. Our network continues to benefit from low cost natural gas forward curve suggests natural gas values in North America will be two to $4 per <unk> lower than last year in the second half.
Keeping our production costs firmly in the first quartile globally.
That let me turn the call over to Chris. Thanks, Bert for the first half of 2023. The company reported net earnings attributable to common stockholders of approximately $1 1 billion or.
Or $5 55 per diluted share.
EBITDA was $1 8 billion and adjusted EBITDA was over $1 7 billion.
At the end of June cash on the balance sheet was $3 2 billion.
Since that time, we've paid CHS semi annual distribution of $204 million from our CF nitrogen partnership. Additionally, 125 billion of cash is earmarked for our acquisition of the <unk> ammonia facility for which the regulatory process continues.
And we expect to close the transaction before year end.
As a result, our pro forma available cash at the end of June was approximately $1 75 billion.
Looking ahead, we expect the rest of 2023 and into 2024 to be favorable based on the global nitrogen industry dynamics that purchase described.
The second half typically starts with lower production due to maintenance activity.
As well as seasonally low prices that should rise as we move towards spring.
We expect companywide gross ammonia production to be between 9% and $90 5 million tons. As you know we recently proposed to permanently close the ammonia plant at our Billingham complex in the UK due primarily to the structural disadvantage that European ammonia production phases from high energy and carbon costs.
We have been importing ammonia since the fall of 2022 to produce and fertilizer and nitric acid at the site, which we expect to continue to have a positive impact on gross margin compared to producing ammonia at billingham.
Our capital expenditure requirements for the remainder of the year remain modest with capital expenditures expected to be in the range of $500 million to $550 million.
This includes our blue and green projects at the Donaldson Bill complex, which continue to progress.
We continue to advance the front end engineering design study for the proposed joint venture low carbon ammonia facility with Mitsui, we expect to make a final investment decision later this year.
Alongside our clean energy initiatives, we remain committed to returning excess capital to shareholders, given our free cash flow generation outlook.
In the second quarter, we repurchased 2 million shares at an average price of approximately $64 per share compared to an average share price in the quarter of almost $70 and to a share price that has recently been trading above $80 per share.
We expect to continue favor opportunity.
We expect to continue to favor opportunistic purchases layered in at attractive levels 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 all that they did during the first half of 2023, our teamwork continues to deliver outstanding results.
We remain very excited about the future for CF industries, we have a large structural cost advantage that provides substantial margin opportunities coupled with industry, leading operating expertise and unmatched network flexibility. This.
This should continue to drive significant free cash flow.
We will deploy that cash to both grow our business and return capital to shareholders.
We have significant de carbonization projects in flight with industry leaders such as Exxonmobil.
The wagon ammonia complex will fit seamlessly into our network and enhance our ability to serve customers and we are positioned at the forefront of low carbon ammonia into new clean energy applications supported by collaborations with global leaders, such as Jarrod Mitsui and low tech.
As a result, we believe CF industries is well positioned to create substantial value for our long term shareholders.
With that operator, we will now open the call to your questions.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
You are using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
The first question comes from Christopher Parkinson with Mizuho. Please go ahead.
Good morning, Thanks for taking my question. So I think when most people step back it's Tony I think normalized EBITDA. We can have a debate on this all day, but it could be low mid two somewhere in there in terms of billions of EBIT, but you do have I would say at least three perhaps four and moving variables, which are pertinent for the next two to three years in terms of.
Looking to add to that I'd say wagman, plus obviously carbon optionality you have the additional 45 cues for various projects Youre working on.
Then on top of that you have a nice energy transition theme, which perhaps is a little bit later outside that timeframe, but it does seem like those are the three buckets, which could materially add to the perception of normalized EBITDA and I was hoping perhaps if you could add color on those three buckets and perhaps add anything else. You think is important and how the investment community should be thinking about those.
Yes, good morning, Chris Thanks for the question I'd say.
Those three are certainly important and near term I might add one or two others, but.
As Chris mentioned Bohn mentioned in his prepared comments, we expect to be able to close the wagman transaction. Here later this year and that should certainly be additive to our.
<unk> normalized EBITDA numbers as you said whatever people project that to be.
In addition to that we're going to be starting up.
Cotwo sequestration project at Donaldson Bill the beginning part early in 2025 and be able to take advantage of the 45 Q tax credit that goes along with that that is a substantial amount of money.
Given that the 45 Q is $85 a ton metric ton and we're going to be sequestering 2 million metric tons a year. So the margin associated with just that one project is substantial and moves the needle relative to our.
Our performance on an annual basis, and then thats going to run for 12 years.
In addition to the <unk> project as you mentioned, we've got some ongoing opportunities in some of our other facilities and we hope to be able to announce a couple of those.
In the coming quarters. So we're excited about the opportunities that we have on the de carbonization and the 45 Q side.
You did mention clean ammonia into clean energy applications, we think that thats going to start taking off and reasonable volumes in 'twenty five 'twenty six and then growing from there Fortunately.
We will have the <unk> project up and running by then and be able to begin meeting that requirement from there and as mentioned we will evaluate.
The new build project, but that's a little longer wavelength I think on the timeframe that youre talking about but the two other things that I would add really Chris is.
The first one is there is broad based efforts right now thats driving industrial companies to onshore into the U S manufacturing operations and we've had advanced conversations with a number of them around.
Ratable off take of some of our products both on a on an ammonia as well as on an upgraded basis and that should provide attractive returns for new capital that we'd be able to deploy against those kind of opportunities and that would be additive to our business as well as just taking more ammonia and moving it into.
The higher margin pieces.
Pieces of business on a ratable basis and the last thing I'd add I'd just go back to our $3 billion authorization in the amount of free cash flow that we're generating we expect to dramatically reduce the number of shares outstanding over this timeframe. So whatever you thought previously in terms of.
A mid cycle kind of number that's going to increase based on the other initiatives that we talked about on a per share basis, that's going to be amplified as we move forward as well because of the amount of share reduction, we expect to be able to accomplish.
That's very helpful and just as a quick follow up there has just been a lot of let's say variable change in terms of regional operating rates between anywhere from Europe seems to be plateauing, a little bit after increasing early this year, India has been rumored to be up it kind of has been disappointing a little bit versus the otherwise expectations in North Africa.
And southeast Asia down now potentially up just in terms of just how youre thinking about your own order books in terms of just risk management not wanting to Miss a potential further rallying essentially what we've seen over the last six to eight weeks can you just do you disagree with any of those and just could you help us.
Think about how that thought process is playing into how you are managing your book not only to the fall application season, but also into 2024, just given all the change over the last.
12 to 24 months. Thank you.
To give just.
Real brief high level comment and then I'm going to turn it over to Bert to kind of go into a little more detail and the high level comment Chris as we saw kind of an unusual experience over the last two years 2022 based on energy differentials and where shutdowns were taking place and of course.
We're in Ukraine.
Created a scarcity of.
Nitrogen products in particular, and then that led to high high costs are high prices globally, which reduced demand and consumption. This year, we saw a moderating of pricing.
Which.
I would say reinvigorated some of the application rates in demand, particularly in.
Parts of the world that are more subsistence space.
But we saw a move toward just in time purchasing which really stresses the network and I think <unk> did a great job of managing kind of that stress, but but it adds.
A lot of complexity in terms of movements and so there's always a balance between trying to build in appropriate book and.
And making sure we're able to run the plants.
Safely and efficiently and keep them online and be able to ship against that book, but not wanting to miss opportunities. When you see some strengthening in the market and again I think it does a great job on doing that but it's always a little bit of a tight tight rope Act.
Thanks, Tony in terms of you touched on let's talk about supply for a minute and you touched on some of those areas where supply is constrained that probably wasn't considered to be a few months ago, India production has been growing in terms of capacity growth.
New and revamped operating units and so we would project of their internal production is probably close to 29 million tonnes and Thats and then manned for imports on an annualized basis will be between let's say $6 8 million tonnes, rather than the 10 million tons. We saw a few years ago.
And they are behind and so this dynamic that we saw in the United States of customers waiting and waiting and depleting their inventories has.
That situation has been multiplied globally, where many destination markets did the exact same thing and now they all need to step in and acquire those tons that being South America Asia.
As well as North America and Europe . So now you have this dynamic that has taken place where we've had a falling market.
Let's say really since February and in June the end of June and early July we started to see this recovery and has been more pronounced I think the industry had anticipated and that's also predicated on the lack of supply like you mentioned with lack of gas in Nigeria, and Egypt, and as well as Trinidad.
Europe , the European Union gas prices, Pakistan, Brazil, Many places that have produced tons in the past are not producing today and so when we look at our order book.
Tony is right we have to go into the.
The forward market with an order book Thats Shippable, we have to rely on our rail partners truck partners.
And moving product by vessel in barge and pipe.
To keep our system balanced and so I'm pleased with our order book for what we have for Q3.
And as I said in my prepared remarks, some of those products are extended to Q4.
And we've been able to move product pricing up along the way so I think youll see.
We're going to perform well as we always do.
Thank you so much.
The next question is from Andrew Wong with RBC. Please go ahead.
Hey, Thank you for taking my question. Good morning. So he has made the decision to.
Permanently closed billingham for economic purposes, which I think thanks, a lot of sense.
We've seen maybe one or two of these announcements in Europe , but maybe not as much as.
Some might expect given the economics from nitrogen today in Europe , and potentially looking forward. So.
What do you think is keeping some of these plants operating.
Do you expect more permanent shutdowns in Europe going forward.
Yeah, Andrew good morning.
I think we have a.
An interesting situation of Billingham and that we're able to import ammonia.
And then still upgrade it to.
Nitric acid and ammonium nitrate and there is pretty substantial upgrade margin that's available between at least over the last couple of years that deepwater price of ammonia and what the upgraded products are selling for us that's fertilizer and intermediate.
Our goals and so for us the option was.
It was pretty apparent.
As Chris mentioned, it's it is margin enhancing for us not to incur kind of the relatively high and volatile gas cost as well as the relatively high carbon costs associated with operating in that region, but still be able to get the upgrade margin by bringing in ammonia I think some plants in Europe don't have access.
To be able to bring ammonia into their facilities.
<unk> they may be making.
Urea based products that require the cotwo in order to be able to upgrade them as opposed to the nitrate based products. So I think for some.
Producers.
If you look at the gas cost versus the margin available for ultimately upgraded product you can probably still see.
Some level of operation during times of the year and I think Thats, probably why you see this variability in operating rates for those that are able to import ammonia.
I think there are several plants out there that have done that.
They've turned off ammonia production in the near term. We've just made a decision based on the age of the equipment the amount of capex required to keep it running and the ongoing carbon costs that it made sense for us to be focused purely as a and.
And the important ammonia and upgrade facility there.
That's great and maybe just kind of following up on that.
There is.
A few plants that are in.
The planning stages for the U S Gulf on glue ammonia.
And there has been some concern that there might be too much ammonia that gets brought online over that three to five year timeframe.
But there are some plans to import ammonia coming from different places into Europe .
And one of your peers have mentioned something like that as well so look at that.
Waiting to balance some of these new ammonia projects that we're seeing coming online potentially over the next few years.
Yes.
Thank you.
Just like happened in 2012.
That there is very likely a slew of announcements about projects.
And I think back in 2012, there was something like 26 projects that were announced of which only four got built.
And I think you probably saw some of that exuberance last year.
The end of this year as well, where you are seeing a lot of announcements and then when people really put pen to paper and need to go out and.
And begin construction there is a little more cautiousness that that goes into it its easy to announce something until a lot harder to build it.
And I think one of the interesting things about our potential Newbuild project is that we're partnering with ultimately folks that are going to be and users of the project.
From a volume standpoint, and putting it into new clean energy applications and so it's.
It's production, that's not going to create the kind of overhang situation that you were just talking about now.
That's very important for us the other piece of that is we're still collecting data on the cost side of the equation and it's got to make economic sense for us.
A fair rate of return for us to move forward with it but.
I think that between some of the shutdowns you are seeing in high cost.
Places in the World.
And some new demand centers that are springing up, particularly for clean energy applications.
Im pretty optimistic that we will end up with.
Our balance to tight ammonia market going forward through the balance of this decade.
The next question is from Joel Jackson with BMO capital markets. Please go ahead.
Hi, good morning.
It seemed you did a very good realized gas cost this quarter.
Q2, excuse me there were concerns at some of the inventory overhang higher cost higher cost gas from your winter hedges may have pushed the realized cost close around $4 can you talk about what happened positive lead to not have such a high gas realizations, yes.
Yes, Joe. Thanks, This is Chris.
There is really two items that occurred that allowed us to have lower guests and what we're projecting when we when we talked about some of that overhang from production in Q1 being sold into Q2, the first being <unk>.
Tony and Bert mentioned, we sold more product than we produce.
Went into inventory deeper than what we had anticipated doing during that particular quarter. So we bled through that overhang more quickly and then additionally, instead of doing first of month purchases first team that was purchasing natural gas did more of the daily buying and the daily number.
<unk>, we're quite a bit lower than what the first of month would have been.
Those higher prices that we saw in call. It March and April have bled through and as you look at the strip right now it's relatively flat kind of in the $2 50 to $2 75 range and Thats, what we will expect going forward, but but youre right. We we were expecting slightly higher natural gas costs, but sort of those two.
<unk> mitigated that a bit.
The next question is from Josh Spector with UBS. Please go ahead.
Yes. Thanks for taking my question I wanted to ask on just project returns broadly so I mean, as you're investing more in clean ammonia and various other applications. How do you think about the rate of returns on those projects that are required versus your historical investments I'm just thinking if youre looking at these differently, particularly if they are off.
Take instability.
You use a lower return versus some of the historical may FERC market's focus which could have more cyclicality, but also periods of much higher earnings if that requires a different return levels. So there is there any way to think about how you and the board are kind of working through those decisions would be helpful.
Yes, I mean, I'm certainly happy to give my perspective on this and I encourage Chris also jump in to the extent I step out of bounds on it but.
We typically target at a minimum a low teens kind of return and that's been fairly consistent with how we thought about things in the past that that tends to be well above our cost of capital, but it also takes into consideration some things like.
Particularly if you are talking about construction based projects.
Potential contingency on overruns and a few other things.
I think the benefit of.
Years like last year is that it meant that any of the projects. We have done historically ended up looking like they were absolutely fantastic from the standpoint of capital deployed versus.
Returns that we've been looking at and I do think that.
As we talk about bringing partners in that are both adding equity into the equation.
We are not proportionate way, but then also taking guaranteed offtake of it and moving it into non traditional applications that de risks the project substantially I don't think it fundamentally changes the return profile that we expect for the capital that we put into the project.
I would agree with what Tony said, there that as we look at these projects, we do look at them all as risk.
Adjusted returns and given what Tony said with a ratable offtake that has.
How's us to have better working capital.
From receivables inventory to all of that obviously that enhances the return profile.
Puts it in mind, even if it is slightly lower to begin with commensurate with what our other projects are sort of in the mid teens.
Thank you.
Next question is from Steve Byrne with Bank of America. Please go ahead.
Yes. Thank you.
Do you expect ammonia pricing to remain well below.
The unit nitrogen pricing for urea, just because of less industrial demand.
And if so do you think that.
That combined with what could be relatively early harvest might lead to very strong ammonia application season. This fall.
So are you planning accordingly.
A strong fall through your network of storage tanks in the corn belt So Steve.
And almost every point in time, barring maybe a blip here or there ammonia tends to trade at a pretty substantial discount on them.
On a margin per unit of nitrogen basis to the upgraded products and Thats just because it requires more capital to build.
To build the upgrades than it does the ammonia and really <unk>.
Direct application of ammonia is almost limited exclusively to North America. So.
So because of that.
You generally see a pretty big margin enhancement by upgrading ammonia and into other forms and I don't think thats going on going to substantially change, but youre certainly right.
That there has been a reduction in industrial demand for ammonia over the last year.
And.
Just given.
Sort of energy costs in other parts of the world.
What looks like is.
Whether you call it a soft landing or a slow recovery or wherever we are in terms of the global.
Economic condition.
I think.
<unk> is going to continue to be a very attractive product from <unk>.
Price per unit of nitrogen and based on where we think green prices are going to trade you've got conducive weather, we would expect to see a pretty strong ammonia season, but there is a limit to how much ammonia goes down in a lot of that is driven by what's the storage capacity of end market tanks.
In the fall, it's pretty hard to dump them, and then refill them and dump them again, you typically only get one dump in the fall. So there is a limit to availability of of ammonia for fall application.
Yes, just following up on Tony's comments that.
I do believe based on the pricing structure of ammonia and based on the opportunity the revenue opportunity by planting corn.
The harvest in 2024, we're going to see a positive.
Uptake in the ammonia demand now Tony's point of you basically have a month to move that product through the system and that's weather dependent so if we had an early snow or too much rain.
Then you would just carry that inventory and that demand into spring, but the fall pricing has basically been set and then we see it going up from those levels that were initially offered but I think demand will be robust given all of the considerations and if we have good weather.
And just wanted to follow up on on the Blue projects.
Down in Louisiana is there anything that you can do to pull forward.
Net.
The brownfield project in Donaldson Bill ahead.
Ahead of what Youre guiding to early 2025, any anything that you could do to crude shipments.
To fulfill some of this demand before there I don't know what the rate limiting factor is it is it your engineering or is it your.
Plastics injection will partner or whatever it is is there any chance you could pull that forward.
And if you start fulfilling these.
Interest from.
The.
Low teens in the gera rather than 2027.
Well.
Certainly we will have blue ammonia or low carbon ammonia available by 2025 and as that demand starts developing.
We.
One of the one of the value propositions that we offer companies like that is we will be able to service their needs as it's developing in advance of a potential new plant startup and so.
We've got we've got supply for them.
In terms of when were.
Able to began sequestering the cotwo, we should have.
Compression and dehydration equipment.
On site and commissioned and ready to go probably by.
At the end of 'twenty, four but part of the challenge has been getting class six permitting for the injection wells and getting.
All of that done in pipeline connections built and so forth I think exxonmobil has done a fantastic job of managing kind of that piece of the equation and it's very helpful that Louisiana has been granted primacy from the EPA over their ability to permit those kind of wells. So all of those.
Things are big steps forward, but as you know anything around this.
Particular area. It takes time and requires permitting and I think.
We're all trying to push forward as fast as we can because we see the economic value of getting it completed and beginning to inject.
But we're targeting right now kind of.
First quarter, maybe beginning of second quarter at 25 is likely one will begin doing that.
The next question is from Adam Samuelson with Goldman Sachs. Please go ahead.
Yes, Thank you and good morning, everyone.
Good morning, Adam.
Maybe first.
A little bit more on clean ammonia, but maybe on the sales side and as you work towards.
Help us think about or what are the key kind of.
Pain points are still on.
Kind of setting the contractual terms for those kinds of for that kind of product.
Would you be looking to do that with the with the take or pay kind of agreement in hand, with a major off taker.
How are you how is how are those getting structured or one of the parameters by which youre still negotiate just framing those discussions.
What would be helpful. Yes, So let me talk a little bit about the new project.
I'll throw it over to <unk> to talk about some of the interest that we're seeing from European users and others in terms of just decarbonize product.
In terms of the Newbuild project.
What were the kind of operating model, we're going into is the equity participation is going to be proportionate to your off take from that project and so that call that effectively.
<unk>.
Take or pay if you will.
On that piece of it and then.
It looks like demand.
Everything that we're hearing from our potential partners around the expected growth in demand and the volume that they are looking at is going to well exceed what their equity participation is.
We would be looking to try to enter into a back to back kind of.
Take or pay for the rest of it. So our approach is going to be very much one of trying to de risk.
This project.
Yes.
Have it done back to back and not have it be speculative kind of investment.
But one.
But you can pretty much bank on that.
The return profile.
Yes, good morning, and we're seeing it's interesting how this area is developing and how we're looking at it holistically and to our point of Derisking and how we manage the business. So we are in conversations with a lot of different end users in applications, but as various companies and industries.
At their scope emissions and their needs to improve their profiles low carbon products as a feedstock or the fertilizer.
Adds value and so we're in conversations and we have requests on the table today for when these products are available that we would supply them not only to United States, but to our European customers as well. So we're excited about the future and how we're building this capability both with people process equipment plant.
And customers for to be ready to go.
Alright, that's helpful and if I can just squeeze in a second one on just on share repurchase.
Obviously, you did resume at this quarter with the wagon when transaction.
Announced should we be thinking about that more.
Ratably Opportunistically.
How should we be considering share repo over over the balance of the year given kind of the other uses of capital and potential uses of capital you've got.
Adam This is Chris <unk>.
Tony and Bert and I mentioned in our prepared remarks, we are expecting to continue to generate a lot of free cash flow here and with that $3 billion authorization open.
We're starting to move into that now I think as we've talked about on other quarters, we're going to definitely favor opportunistic repurchases more so than the ratable.
I would say that that's going to be 100% that way, but if you look at this past quarter or even year to date, we repurchased over $200 million or 3 million shares in the mid sixties compared to where we're trading right now.
We felt that that was a very efficient use of capital going forward. So I think for the long term shareholder us being more opportunistic is going to provide much greater value as we look at our share repurchases, but if you look at historically, we've had share repurchase programs in over time and we.
We've closed them out.
Over the last 12 months, we've purchased over 11 million shares for about $1 billion as Tony mentioned earlier in his remarks, so I think it's something.
We're committed to doing we're just going to do it a little more opportunistically than we have in the past.
The next question is from Vincent Andrews with Morgan Stanley . Please go ahead.
Thank you Bert would you mind expanding on your comments earlier, just about the order book and I guess I'm just curious it sounded like summer fill was very well subscribed.
The industry. This year, so how much of the <unk> book do you think we should think about around the summer fill values versus sort of where the market.
Has headed and then how much liquidity is there in the fourth quarter in terms of being able to fill up the fourth quarter book value.
<unk> are today.
Yes, when you look at the fill programs in <unk> and <unk>.
The running of the business.
Youre always looking forward the months, because you need to logistically be in place as well as what customer needs and so the interesting thing I think about <unk>.
Focus on the UAS fill program on the.
The price that we launched at was actually higher than the spot price ending the quarter, but youre right. We filled a book out for Q3 and the same thing with as my prepared remarks on urea, we were booking some export values that are below the current values today.
And so that's kind of the Q3 position and will execute against that and now look to Q4 and Q1 of next year and how we're going to put product in the market as well.
It is a dynamic commodity business and so youre looking at the components of gas logistics and then the end price and what markets you put that too and Thats always the calculation that we look at the dynamic nature of our business into the matrix of options and how we execute against that how you should judge us so well.
When we report results for Q3.
Thanks, so much.
The next question is from Ben Theurer with Barclays. Please go ahead.
Thank you very much good morning, Congrats on the results two quick ones one on the regulatory approval process for <unk> is there anything you can you can share an update of this coming along as you expected is there any.
Any potential delays or maybe an acceleration of the process that would be my first question.
It's a pretty kind of routine.
Regulatory process dealing with the FTC These days.
I wouldn't say there is anything thats that odyssey ordinary compared to.
How the how these things run.
Chris mentioned, we do expect to be close by the end of the year.
Okay Perfect and then my second question is really to understand maybe the economic background of the decision to close down the ammonia production over in the UK.
Could you may.
Maybe somehow quantitatively elaborate what you expect the benefits are going to be because obviously youre going to be able to.
Allocate more U S produced ammonia, but then there's a shipping component to it versus the cost of producing at over days have you done any sort of sensitivity analysis or just economic value added analysis, So we understand better what.
Benefits for the whole CF group ultimately is going to be from this decision.
We always have the option of moving ammonia from Donaldson Bill over two.
To billingham, but often times, we can just source ammonia, whether it's from Algeria or other places and have it delivered on a lower cost basis and we've got.
Better.
Opportunity is to.
To sell ammonia coming out of Donaldson Bill at higher rates than then moving it into billingham so be it.
Analysis really is.
Both historically and as we look forward.
Given the given the volatile and high cost nature of gas in Europe , and also given the high cost of carbon.
In Europe .
And the age of the equipment and the ongoing cost for maintenance and turnaround of that asset.
What do we look at being able to buy ammonia into the facility versus the fully loaded cost of running the ammonia plant and it's just.
Cheaper for us to be able to buy the ammonia.
And so it's just a pure margin pickup by taking costs out of the system.
Okay perfect. Thank you very much.
The next question is from Andrew Lim Rodriguez with credit Suisse.
Thanks.
Thank you.
Good morning, everyone Tony.
Tony you've had it.
Even in a relatively challenging first half.
This is going down just in time demand as you look into the rest of the year.
Into next year like what concerns you. The most in terms of volume energy costs et cetera, and what excites you.
Well I'm going to re characterize your question just for a moment.
If I may which is.
Except for the fact that we're comparing year on year against an all time historic performance in 2022, delivering $1 $7 billion of adjusted EBITDA in the first half of this year as fans.
Fantastic by historical standards really by any stretch the imagination. So Bert has had to navigate.
And interesting market from the standpoint of delayed purchasing patterns in volatile pricing and so forth, but I think he's done at extra.
Extraordinarily well as we look forward, we actually think inventory and supply side is pretty tight.
Out there and as we've mentioned we.
Thank both India, and Brazil, as well as the North America channel, but is really running low inventory are all going to be important centers for demand for nitrogen moving forward. The forward curve on gas is very attractive for North America.
So we're optimistic about the second half of this year and into next year.
We do think that grain prices will continue to have attractive farmer profitability as we move into 2024. So we're expecting high acreage next year and strong demand on a global basis and we're just we're really optimistic about that.
Really have any.
Big concerns are boogeyman out there that I'm worried about our focus is we want to get safety back to the place that we've been operating at the last couple of years keep the plants online and just execute the way we normally do.
The next question is from Aaron Zuccarelli with Aaron Berg. Please go ahead.
Hi, good morning, I have two.
The first one is on.
Blue and Green ammonia, how do you see the potential for blue and Green ammonia.
Identity fuel for Marine which is complete and now with methanol and in one of your competitors in Europe yesterday was very bullish about it. The second question is on the slide number six of your presentation.
Can you help me understand a little bit better whats the.
Baidu assumption for the lower and the upper end of the.
Targets. Please thank you.
Yes so.
We're somewhat optimistic here about.
<unk>.
Retention for ammonia to be a clean energy source and marine applications. We do think that it's going to take a little bit longer time, because there is some.
Some obvious.
EHS concerns.
Onboard some retrofitting and then development of new propulsion systems that are being driven off of ammonia, but theres a couple of really great.
<unk>.
Development, including some engines that are in test right now.
So our belief is this will happen.
I think this is going to be a large center of demand in the next five years, but as you get out 10 years and beyond I think that is going to become a real demand source for for clean clean ammonia.
I don't know if you have other sort of thoughts on or Chris on.
I would just say theres going to be as Tony mentioned I think our thoughts are this is.
Really into 2030, where you start to see some of the demand build on ammonia from marine and a good portion of the reason for that is not only because of the development that Tony talked about with the engines, but it's also just the attrition of the fleet that's out there of the 60000 vessels.
In order for those.
To be replace with ammonia is just going to take time, when you see anywhere from a 1% to 3% per year attrition rate on those vessels. So we're being a little more conservative than others on the marine demand build as Tony mentioned, we do expect it to come but it's probably more closer to a 2030 post that.
Timeframe.
Regarding your second question on.
Page six of our our analysis and asking what are our assumptions.
These assumptions are based on one our active integration and understanding of the markets.
Conversations with those destination consuming areas being India, Brazil, and and Theyre just that dynamic of most of these markets have waited to purchase and don't have the inventory in place, but they have the pricing structure for the feed grains.
Support significant consumption of urea and so India just by limiting their rice exports. That's a significant move on the international market why are they doing that one to keep pricing in control, but theyre going to need the nutrients to produce that race and an acceptable monsoon season in Brazil, and the same cat.
<unk> with being a substantial producer going forward, you've got the cotton planting season that is in the in Q4, and then second crop corn for first quarter of <unk>.
2024 is going to require substantial.
Alex to be important and then when you look at the as we.
<unk> talked about earlier the gas limitations in some of the supply points. It just puts together a very positive market for the tail end of the year and into 2024.
Ladies and gentlemen that is all the time, we have for questions today.
Would like to turn the call back over to Martin <unk> for any closing remarks.
Thanks, everyone for joining us today, and we look forward to seeing you at upcoming conferences.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.