Q4 2023 LSB Industries Inc Earnings Call
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Greetings and welcome to the LSP industries fourth quarter 2023 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Operator: Greetings and welcome to the LSB Industries fourth quarter 2023 earnings call. At this time, all participants are in a listen-only mode.
Operator: A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Fred Buonocore, Vice President of Investor Relations for LSB Industries. Thank you, sir. You may begin. Good morning, everyone.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Mr. Fred Final Court, Vice President of Investor Relations for LSP industries. Thank you Sir you may begin.
Good morning, everyone. Joining me today are Mark Behrman, our Chief Executive Officer, and Cheryl Maguire, our Chief Financial Officer.
Fredric J. Buonocore: Joining me today are Mark Behrman, our Chief Executive Officer, and Cheryl Maguire, our Chief Financial Officer. Please note that today's call includes forward-looking statements. These statements are based on the company's current intent, expectations, and projections. They are not guarantees of future performance, and a variety of factors could cause actual results to differ materially.
Please note that today's call includes forward looking statements. These statements are based on the company's current intent expectations and projections. They are not guarantees of future performance and a variety of factors could cause the actual results to differ materially.
Fredric J. Buonocore: On the call, we will include references to non-GAAP results. Please see the press release in the investor section of our website, lsbindustries.com, for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. As a reminder, we have a stockholder rights plan to protect certain tax attributes. Please see the investors section of our website at lsbindustries.com for further important details. At this time, I'd like to go ahead and turn the call over to Mark. Thank you, Fred.
On the call. We won't include references to non-GAAP results. Please see the press release in the investors section of our website.
S B industries Dot com for further information regarding forward looking statements and reconciliations of non-GAAP results to GAAP results.
As a reminder, we have a stockholder rights plan to protect certain tax attributes. Please see the investors section of our website.
S B industries Dot com for further important details at this time I'd like to go ahead and turn the call over to Mark.
Thank you Fred.
Mark T. Behrman: Turning to page four of our presentation, while 2023 had its challenges, particularly in the form of product selling price headlines, when it came to aspects of our business within our control, we were very successful. This was particularly the case with our safety performers.
Turning to page four of our presentation, while 2023 had its challenges, particularly in the form of product selling price headwinds when it came to aspects of our business within our control we were very successful.
This was particularly the case with our safety performance for the full year of 2023.
Mark T. Behrman: For the full year of 2023, our total recordable injury rate was 0.33, a significant improvement over 2022. Protect What Matters is a fundamental company core value, and I'd like to thank our employees for continuing their efforts to attain our goal of zero, or zero reportable injury. We know this is possible to achieve, as 2023 was the eighth consecutive year without a recordable injury for our Baytown Nitric Acid Plant team. This site has continued to strive for excellence and represents a model for what we believe all of our manufacturing operations can achieve, in addition to our safety performance. We're also pleased with how our ammonia plants ran over the course of the year. However, with respect to our fourth quarter financial results, adjusted EBITDA was lower compared to the record fourth quarter of 2022.
Our total recordable injury rate was 0.33.
<unk> improvement over 2022.
Protect what matters is a fundamental company core value and I'd like to thank our employees for continuing their efforts to attain our goal zero with zero recordable injuries.
We know this is possible to achieve its 2023 was the eighth consecutive year without a recordable injury for our baytown nitric acid plant team.
This site has continued to strive for excellence and represents a model for what we believe all of our manufacturing operations can achieve.
In addition to our safety performance. We were also pleased with how our ammonia plants ran over the course of the year.
With respect to our fourth quarter financial results adjusted EBITDA was lower compared to the record fourth quarter of 2022.
Mark T. Behrman: This was largely due to a decline in market prices for nitrogen products relative to the prior year, which was the case for each of our quarters during 2023. As we discussed on our last earnings call, in early October, we announced our collaboration with Impex, Air Liquide, and Vopak Exelum Houston to develop a world-scale low-carbon ammonia production and export facility on the Houston Ship Channel. This project represents an important step in the emergence of LSB as a leader in the global energy transition and is potentially transformative to our growth profile as demand for clean energy increases. Since commencing this collaboration, we've reached some key milestones in the development of the ammonia loop, which is our section of the project. Lastly, in 2023, we repurchased 125 million of our outstanding bonds and repurchased approximately 29 million of our stock for a total return of value to shareholders of approximately $154 million.
This was largely due to due to a decline in market prices for nitrogen products relative to the prior year, which was the case for each of our quarters during 2023.
As we discussed on our last earnings call.
October we announced our collaboration with impacts air Lockheed and vote back excellent them Houston to develop a world scale low carbon ammonia production and exports facility on the Houston ship channel.
This project represents an important step in the emergence of a L. S. B as a leader in the global energy transition and is potentially transformative to our growth profile as demand for clean energy increases.
Since commencing this collaboration we've reached some key milestones in the development of the ammonia loop, which is our section of the project.
Lastly, in 2023, we repurchased $125 million of our outstanding bonds and repurchased approximately 29 million of our stock for a total return of value to shareholders of approximately $154 million.
Mark T. Behrman: Page five of our presentation illustrates our ammonia production trend for the past several years, pro forma fraternarine. This steady progress reflects the investments we've made in our facilities and the operating culture change that has occurred across our manufacturing facilities as we strive to be a top-tier operator of our product. Ultimately, we believe these efforts will allow us to consistently operate at 95% capacity, which will equate to a full-year ammonia production level of 875,000 tons.
Page five of our presentation illustrates our ammonia production trend for the past several years pro forma for turnarounds.
This steady progress reflects the investments we've made in our facilities and the operating culture change that has occurred across our manufacturing facilities as we strive to be a top tier operator of our plants.
Ultimately we believe these efforts will allow us to consistently operate at 95% capacity, which will equate to a full year ammonia production level of 875000 tons.
Mark T. Behrman: Our profitability is further enhanced as we will look to upgrade ammonia into higher-valued downstream products. And in 2024, we will be intensifying our efforts to maximize the production of our downstream plants while optimizing the mix of those products to capture the highest margins possible. Relative to the production capacity of our facilities, over the course of 2023, we evaluated several potential expansion projects at our Eldorado facility with the goal of materially increasing our capacity to produce one or more key products. After assessing the current commodity market conditions, coupled with the rising costs of construction and access to the required technical capabilities, we've determined that our best course of action at this time is to delay the expansion.
Our profitability is further enhanced as we will look to upgrade ammonia into higher value downstream products and in 'twenty 'twenty four we will be intensifying our efforts to maximize the production of our downstream plants, while optimizing the mix of those products to capture the highest margin as possible.
Relative to the production capacity of our facilities over the course of 2023 we evaluated several potential expansion projects at our El Dorado facility with the goal of materially increasing our capacity to produce one or more key products.
After assessing the current commodity market conditions, coupled with the rising cost of construction and access to the required technical capabilities. We determined that our best course of action at this time is to delay the expansion.
Mark T. Behrman: Balancing our resources to successfully execute on the multiple growth initiatives we have underway is something that we are very focused on as well. Lastly, as we've stated in the past, preserving the health of our balance sheet is one of our top priorities, and we believe that our decision to delay the Eldoretto expansion is consistent with that goal. We remain very interested in the Eldorado expansion and will continue to evaluate its feasibility and timing.
Balancing our resources to successfully execute on the multiple growth initiatives. We have underway is something that we are very focused on as well.
As we've stated in the past preserving the health of our balance sheet is one of our top priorities and we believe that our decision to delay the El Dorado expansion is consistent with that goal.
We remain very interested in the El Dorado expansion and will continue to evaluate its feasibility and timing.
Mark T. Behrman: Importantly, despite the delay, we will continue to work with the USDA on timing and eligibility for a potential USDA grant of up to $80 million towards the funding of this expansion project. On pages 6 and 7 of our presentation, we provide a current overview of our end markets and several commodity price dynamics that are important to our business. On the fertilizer demand side, while the corn stock-to-use ratios have been increasing, which has historically been a signal of potential pressure on grain prices, the price of corn has remained resilient, as evidenced by the December 24th corn price of approximately $4.60 per bushel.
Importantly, despite the delay we will continue to work with the USDA on timing and eligibility for a potential U S. D. A grant of up to $80 million towards the funding of this expansion project.
On page six and stepping up our presentation, we provide a current overview of our end markets and several commodity price dynamics that are important to our business.
On the fertilizer demand side, while the corn stocks to use ratios have been increasing which has historically been a signal of potential pressure on grain prices.
The price of corn has remained resilient as evidenced by the December 24, corn price of approximately $4 60 per bushel.
Mark T. Behrman: At these levels, we believe farmer incomes are healthy and that a strong incentive exists to maximize corn yields through the application of nitrogen fertilizer. As a result, we expect nitrogen fertilizer demand to be strong for the spring planting season, supporting robust fertilizer prices. In our industrial business, overall demand remains steady as U.S. production remains stable, U.S. single-family housing starts have rebounded, and mining commodity prices remain stable. Specifically, demand for nitric acid continues to be supported by the resilient U.S. economy, while demand for ammonium nitrate for mining activity has been strong, driven by the infrastructure-related production of aggregates, as well as metals mining to supply electric vehicle Lastly, on the cost and competitiveness of our business.
At these levels, we believe farmer incomes are healthy and that strong incentive exists to maximize corn yields for the application of nitrogen fertilizers as.
As a result, we expect nitrogen fertilizer demand to be strong for the spring planting season supporting.
Robust fertilizer prices.
In our industrial business overall demand remained steady as U S. Production remained stable U S. Single family housing starts has have rebounded and mining commodity prices remained stable.
Specifically to the products, we sell demand for nitric acid continues to be supported by the resilient U S economy, while demand for ammonium nitrate for mining activity has been strong driven by the infrastructure related production of aggregates as well as metals mining to supply electric vehicle production and other applications.
Lastly, on the cost competitiveness of our business.
Mark T. Behrman: The left-hand chart on page 7 shows the price trend for the TTF, the benchmark for natural gas prices in Europe, relative to the price for Henry Hub, the benchmark price for natural gas in the U.S. European gas prices spiked during 2022 and have come down significantly in 2023 due to a combination of a warm winter and heavy LNG imports. However, what is important to note is that gas prices in the U.S. continue to remain a fraction of those in Europe.
The left hand chart on page seven shows the price trend for the T. T S benchmark for natural gas prices in Europe relative to the price for Henry hub benchmark price for natural gas in the U S.
European gas prices spiked during 2022 and have come down significantly in 2023 due to a combination of a warm winter and heavy LNG imports. However, what is important to note is that gas prices in the U S continue to remain a fraction of those in Europe.
Mark T. Behrman: The key takeaway here is that this represents a significant competitive advantage to U.S. producers and is one that we believe will remain for the foreseeable future. Putting this all together, we believe that the fundamentals for nitrogen producers are attractive and that demand and pricing trends should allow for solid profitability and cash flow for the foreseeable future. Now, I'll turn the call over to Cheryl to discuss our fourth quarter results and our outlook. Cheryl?
Key takeaway here is that this represents a significant competitive advantage to U S producers and it's one that we believe will remain for the foreseeable future.
Putting this altogether, we believe that fundamentals for nitrogen producers are attractive and that demand and pricing trends should allow for solid profitability and cash flow for the foreseeable future.
Now I'll turn the call over to Sharon to discuss our fourth quarter results and our outlook Cheryl.
Thanks, Mark and good morning.
Cheryl A. Maguire: Thanks, Mark, and good morning. On page eight, you'll see a summary of our full year 2023 financial results. We generated adjusted EBITDA of $133 million and EPS of $0.37 for the full year. These results were down from 2022, which was a record year for us due to the strong selling prices for our product. With respect to our 2023 fourth quarter, page nine bridges our $25 million of adjusted EBITDA to our record $105 million of adjusted EBITDA for the fourth quarter of 2022. The story for the fourth quarter was much the same as the full year.
Page eight youll see a summary of our full year 2023 financial results, we generated adjusted EBITDA of 133 million and EPS at <unk> 37 for the full year. These results were down from 2022, which was a record year for us due to the strong selling prices for our products.
With respect to our 2023 fourth quarter page nine bridges, our $25 million of adjusted EBITDA to a record $105 million of adjusted EBITDA for the fourth quarter 2022, the story for the fourth quarter with much the same as the full year the impact of weaker selling prices for our products relative to the prior.
Cheryl A. Maguire: The impact of weaker selling prices for our products relative to the prior year is the major factor in the year-over-change in EBITDA. Page 10 provides a summary of our Key Balance Sheet and Cash Flow Metrics. Despite the pricing headwinds, for the full year 2023, we generated approximately $138 million in cash flow from operations, with approximately $68 million in capital expenditures, translating into approximately $70 million of free cash flow. Given our strong cash position and in light of our decision to put the El Dorado expansion on hold, we are reevaluating our capital allocation strategy in order to proceed in a manner that balances return of value to investors with investment in our manufacturing assets As our stated goal is to maintain our leverage at approximately 2.5 times debt to mid-cycle EBITDA, we will opportunistically reduce debt and repurchase stock, both while continuing to invest in our assets to improve our reliability and efficiency. Page 11 summarizes the key considerations with respect to our expectations for full year 2024.
The year is the major factor in the year over change in EBIT.
Page 10 provides a summary of our key balance sheet and cash flow metrics. Despite the pricing headwinds for the full year 2023, we generated approximately $138 million in cash flow from operations with approximately $68 million in capital expenditures translating into approximately 70 million of free.
Cash flow.
Given our strong cash.
Cash position and in light of our decision to put the El Dorado expansion on hold.
When evaluating our capital allocation strategy in order to proceed in a manner that balances return of value to investors with investment in our manufacturing assets.
Our stated goal is to maintain our leverage at approximately two and a half times debt to mid cycle EBITDA, we will opportunistically reduce debt and repurchase stock both while continuing to invest in our assets to improve our reliability and efficiency.
Page 11 summarizes the key considerations with respect to our expectations for full year 2024.
Cheryl A. Maguire: The table in the upper left shows our estimated ammonia production and sales volumes for the year. We expect that our ammonia production will be down by approximately 34,000 tons as compared to 2023 due to the turnarounds we have scheduled at prior and chair tests. Despite the turnarounds, however, we expect sales volumes for our downstream products to be up year over year as a result of operational improvements and the completion of margin enhancement projects that we have underway at our prior and El Dorado facilities. The right side of the slide covers a range of variable and fixed plant expenses, as well as SG&A and other expenses for 2024. Our expectations for fixed costs reflect investments we've elected to make in plant reliability as well as overall inflation. We expect our effective tax rate for the year to be approximately 25%, however, we do not expect to be a material cash taxpayer in 2024 as we continue to utilize our NOLs.
The table in the upper left shows our estimated ammonia production and sales volumes for the year.
We expect that our ammonia production will be down by approximately 34000 times as compared to 2023 due to the turnarounds, we have scheduled at Pryor and Cherokee.
Despite the turnarounds. However, we expect sales volumes for our downstream products to be up year over year as a result of operational improvements and the completion of margin enhancement projects that we have underway at our Pryor and El Dorado facilities.
The right side of this slide covers a range of variable and fixed plant expenses as well as SG&A and other expenses for 2024.
Our expectations for fixed costs reflect investments, we've elected to make in plant reliability as well as overall inflation, we expect our effective tax rate for the year to be approximately 25%. However, we do not expect to be a material cash tax payer in 2024 as we continue to use.
Our Nols.
In the table at the bottom right of this slide Youll see that we expect to invest approximately $60 million to $80 million of Capex in our facilities during 2024 with approximately 80% for investments related to plant reliability and safety and the remaining 20% earmarked for margin enhancement.
Cheryl A. Maguire: In the table at the bottom right of the slide, you'll see that we expect to invest approximately 60 to 80 million dollars in CapEx in our facilities during 2024, with approximately 80% for investments related to plant reliability and safety, and the remaining 20% earmarked for margin enhancement projects aimed at increasing production volumes, additional storage capacity for downstream products, and improving the efficiency of our operations. The two projects that we're particularly excited about are the expansion of our urea capacity at our prior facility and the construction of additional nitric acid storage at our Eldorado facility. The previous urea expansion will enable us to produce an additional 75,000 tons of UAN per year, giving us the ability to upgrade more of the ammonia we produce at that facility into a higher-margin product.
<unk> aimed at increasing production volumes additional storage capacity for downstream products and improving the efficiency of our operations.
New projects that we're particularly excited about are the expansion of our urea capacity at our Pryor facility and the construction of additional nitric acid storage at our El Dorado facility.
Prior urea expansion will enable us to produce an additional 75000 tons of UN per year, giving us the ability to upgrade more of your ammonia we produce at that facility into a higher margin product at El Dorado. The addition of 5000 tonnes of nitric acid storage allows us to get better at.
Cheryl A. Maguire: At El Dorado, the addition of 5,000 tons of nitric acid storage allows us to better optimize our product mix, ultimately translating into incremental profit. With respect to our outlook for the first quarter, TAMPA ammonia currently sits at $445 per metric ton, down from $625 in late 2023. NOLA UAN is currently around $240 per ton. Factors weighing on global ammonia prices include a heavy application by US farmers this past fall that could limit spring pre-plant applications. The impact of lower natural gas feedstock costs in Europe relative to early last year and sluggish nitrogen demand from Asian and European industrial producers. Urea prices, on the other hand, have been rising in the U.S. due in part to an absence of Chinese imports rendering supply relatively tight ahead of the spring planting season.
Otherwise our product mix ultimately translating into incremental profits.
With respect to our outlook for the first quarter Tampa ammonia currently sits at $445 per metric ton down from $625 in late 2023 NOLA.
<unk> is currently around $240 per ton factor.
Factors weighing on global ammonia prices include Xavi ammonia application by U S. Farmers. This past fall that could limit spring pre plant application the impact of lower natural gas feedstock costs in Europe relative to early last year and sluggish nitrogen demand from <unk>.
And European industrial producers.
Urea prices on the other hand have been rising in the U S. Due in part to an absence of Chinese imports rendering supply relatively tight ahead of the spring planting season.
Cheryl A. Maguire: We have recently started to see this flow through to UAN prices, a trend that we believe will continue. With respect to natural gas feedstock costs, we expect a significant decrease relative to last year when we had gas pricing locked in for most of the year. We are currently locking in gas at the beginning of each month for one month ahead, as well as layering in forward gas purchases in line with our forward sales of products. We expect this to allow us to capitalize on the current low prices, which should enhance our margins. For the first quarter, we expect our cost of gas to average approximately $3 per MMBTU, which includes the higher cost gas used in December production that was sold during the first quarter.
We have recently started to see this flow through to you Ann prices.
And that we believe will continue.
With respect to natural gas feedstock cost, we expect a significant decrease relative to last year, when we had gas pricing locked in for most of the year.
We're currently logging and gas at the beginning of each month for one month ahead as well as layering in forward gas purchases in line with our forward sales of product.
I expect us to allow us to capitalize on the current low prices, which should enhance our margins.
For the first quarter, we expect our cost of gas to average approximately $3 per MB to you, which includes the higher cost gas Houston December production that was sold during the first quarter.
Based on current pricing levels and volume trends, we expect our first quarter 2024, adjusted EBITDA to be lower than the first quarter of 2023, when the average Tampa ammonia price was more than 55% higher than the average for this year's quarter.
Cheryl A. Maguire: Based on current pricing levels and volume trends, we expect our first quarter 2024 adjusted EBITDA to be lower than the first quarter of 2023, when the average Tampa ammonia price was more than 55% higher than the average for this year's quarter. With that said, though, we do expect a healthy increase in adjusted EBITDA for Q1 2024 relative to the fourth quarter of 2023. Representing a solid start to the year, highlighted by strong ammonia demand, improved downstream production, and lower natural gas costs. Now, I'll turn it back over to Mark. Thank you, Cheryl.
With that said, though we do expect a healthy increase in adjusted EBITDA for Q1, 'twenty four relative to the fourth quarter of 2023.
Presenting a solid start to the year highlighted by strong ammonia demand improved downstream production and lower natural gas costs.
And now I'll turn it back over to Mark.
Thank you Cheryl.
Mark T. Behrman: Pages 12 and 13 highlight the two low-carbon projects that we currently have underway. Page 12 is our project with Lapras Energy at our Eldorado facility, which is on track. The main gating factor is the approval of our Class 6 permit application from the EPA that will enable Lapis to begin construction and then capture and permanently sequester more than 450,000 metric tons per year of CO2 that we produce at El Dorado. While the timing of the class-fix permit approval is largely out of our control, we are in regular contact with the EPA, and their indications are that we are on track to receive the permit during 20 With that said, of course, this timing is subject to the EPA's review process. As a reminder, LAPIS will receive the 45Q tax credit of $85 per ton of CO2 sequestered since it will own the capture facility, but it will buy the CO2 from us.
Pages, 12, and 13 and highlight the two low carbon projects that we currently have underway.
Page 12 represents our project with Lepper synergy at our El Dorado facility, which is on track.
The main gating factor is the approval of our class six permit application from the EPA that will enable LAPIS to begin construction and then capturing and permanently sequestering more than 450000 metric tons per year of C. O. Two that we produced at El Dorado.
While the timing of the classics permit approval is largely out of our control.
We are in regular contact with the EPA and their indications are that we are on track to receive the permit during 2025 and begin sequestering C. O. Two in early 2026.
With that said of course this timing is subject to the Epa's review process.
As a reminder, LAPIS will receive 45 Q tax credit of $85 per ton of C. O. Two sequestered since they will own to capture facility, but they will buy the C. O. Two from US at the same time, we will be producing more than 375000 tons of low carbon ammonia annually, which we believe we will be able to sell at a premium.
Mark T. Behrman: At the same time, we will be producing more than 375,000 tons of low-carbon ammonia annually, which we believe we will be able to sell at a premium. All combined, this should equate to an estimated $15 to $20 million in annual incremental EBITDA for LSB. We've been pleased with our commercial team's ability to leverage this project as part of our new business development effort, as we have been receiving strong expressions of interest in potential long-term off-take agreements for the low-carbon products that we will be producing at El Dorado. Page 13 is our current expectation of the timing of our Houston Ship Channel Low Carbon Ammonia Project with significant milestones. As a reminder, the project entails the design and construction of a world-scale ammonia plant that will produce approximately 1.1 million metric tons of low-carbon ammonia. The plant will be constructed on VOPEC Exelum's Houston Ship Channel Ammonia Terminal, which is currently equipped with storage and handling infrastructure and multiple deepwater berths. LSB, in partnership with Impex, Japan's largest EMP company, plans to build and operate an ammonia loop using low-carbon hydrogen produced by Air Liquide.
All combined this should equate to an estimated $15 million to $20 million in annual incremental EBITDA for L. S. P.
We've been pleased with our commercial team's ability to leverage. This project is part of our new business development efforts as we have been receiving strong expressions of interest and potential long term off take agreements for the low carbon products that we will be producing at El Dorado.
Page 13 is our current expectation of the timing of our Houston ship channel low carbon ammonia project with significant milestones.
As a reminder, the project entails design and construction of a world scale ammonia plant that will produce approximately $1 1 million metric tons of low carbon pneumonia.
The plant will be constructed on bulk pack excellent Imes Houston ship channel ammonia terminal, which currently has a quick with storage and handling infrastructure in multiple deepwater berths.
L S be in partnership with impacts Japan's largest E&P company.
Plans to build and operate an ammonia loop using low carbon hydrogen produced by early Kid, who will be handling the carbon capture and sequestration.
Mark T. Behrman: We'll be handling the carbon capture and sequestration, and Air Liquide will also be supplying our nitrogen. Since announcing the project several months ago, we've taken some meaningful steps in its development, including selecting KBR as the provider of the Technology, Licensing, and Proprietary Engineering design for our ammonia loop. Additionally, we have selected an engineering firm to perform a pre-feed that will refine the cost estimate for the ammonia loop, which we expect to be completed during the third quarter of this year. At the same time, we are working to secure off-date customers for the anticipated ammonia production. Based on our ongoing conversations, we expect offtakers to come from Japan and South Korea.
Well early cube will also be supplying our nitrogen needs since.
Since announcing the projects several months ago, we've taken some meaningful steps in its development, including our selection of KBR as the provider of the technology licensing and proprietary engineering design for our ammonia loop.
Additionally, we have selected an engineering firm to perform a precede that will refine the cost estimate for the ammonia loop.
Which we expect to be completed during the third quarter of this year.
At the same time, we are working to secure offtake customers for the anticipated ammonia production.
Based on our ongoing conversations we expect off takers to come from Japan, and South Korea.
More recently, though we have had conversations with potential European off takers and are encouraged as we now believe Europe to be a viable target market as well.
Mark T. Behrman: More recently, though, we have had conversations with potential European offtakers and are encouraged, as we now believe Europe to be a viable target market as well. While we are in the early phases of this project, we are encouraged by the progress we've made thus far and by the level of engagement, commitment, and cooperation of the companies we are partnering with in this leading-edge endeavor. 2023 was a year of significant progress for us in the transformation of our company. While product selling price trends were unsavorable, we were still able to generate meaningful cash flow and maintain our strong financial position. We achieved a solid increase in ammonia production volume, and we did it while significantly improving our overall safety performance. Combined, these accomplishments are a clear indicator that our ongoing safety and reliability initiatives are taking root.
While we are in the early phases of this project. We are encouraged by the progress we've made thus far and by the level of engagement commitment and cooperation of the companies we are partnering with and this leading edge in Denver.
2023 was a significant it was a year of significant progress for us and the transformation of our company.
While product selling price trends were unfavorable we were still able to generate meaningful cash flow and maintain a strong financial position, we achieved a solid increase in ammonia production volume and we did it while significantly improving our overall safety performance.
Combined these accomplishments are a clear indicator that our ongoing safety and reliability initiatives are taking root. Additionally, we positioned ourselves to be a leader in the production of low carbon ammonia products that we believe will be a critical enabler of global energy transition.
During 2024, we expect to make even greater strides in enhancing the earnings power of our manufacturing assets through the <unk>.
Capital investment and increased operational discipline.
At the same time, we are focused on advancing our low corporate ammonia projects, which we believe will be will enable us to significantly reduce our company's carbon footprint.
Mark T. Behrman: Additionally, we positioned ourselves to be a leader in the production of low-carbon ammonia products that we believe will be a critical enabler of the global energy transition. During 2024, we expect to make even greater strides in enhancing the earnings power of our manufacturing assets through capital investment and increased operational discipline. At the same time, we are focused on advancing our low-carbon ammonia projects, which we believe will enable us to significantly reduce our company's carbon footprint while also representing a source of meaningful bottom-line growth and increased value for our shareholders over the next several years. Before we open it up to questions, I'd like to mention that we will be participating in a Granite Research Management Conference series on March 20th and 21st. That concludes our prepared remarks, and we will now be happy to take any questions. Thank you. Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
I'll also representing a source of meaningful bottom line growth and increased value for our shareholders over the next several years.
Before we open it up to questions I'd like to mention that we will be participating in a granite research management Conference series on March 20th in 'twenty one.
That concludes our prepared remarks, we'll now be happy to take any questions. Thank you.
Thank you if you'd like to ask a question. Please press star one on your telephone keypad.
<unk> tone will indicate your line is in the question queue.
You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys in the interest of time, we ask that you each keep to one question and one follow up thank you.
Our first question comes from the line of Josh Spector with UBS. Please proceed with your question.
Right.
Operator: You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. In the interest of time, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Josh Spector with UBS. Please proceed with your question. Yeah, hi, good morning.
Yeah, Hi, good morning.
I wanted to ask on a couple of things around you add in some of your comments in the prepared remarks, I think you commented that you're starting to see pricing move up.
Not really seeing that yet and a lot of the data that we track. So just curious if first if you could comment on maybe why its lag some of the inventory dynamics relative to urea and then also what you're seeing now and what you view as the potential price catch up potentially for UAS.
Good morning, Josh.
Joshua David Spector: So I wanted to ask you a couple of questions about UAN and some of your comments during the prepared remarks. I think you commented that you're starting to see pricing move up. We're not really seeing that yet in a lot of the data that we track.
I would say that we've seen.
You really lead the pack and so urea is up 75 to $100 from its low.
We've seen U a N lag a little bit and the reason I think you a N is really.
Let the pricing increase just happens to be a less imports coming into the U S.
Joshua David Spector: So just curious, at first, if you'd comment on maybe why it's lagged some of the inventory dynamics relative to EUREA and then also, you know, what you're seeing now and what you view as a potential price catch-up, potentially for UAN. Morning Josh.
Especially with China, putting an export ban on Julia.
Really being out of the market.
Williams has lagged a little bit.
I think.
Mark T. Behrman: I would say that we've seen urea lead to PEC, and so urea is up 75 to 100 dollars from its low. We've seen UAN lag a little bit, and the reason I think UAN has really led the pricing increase just happens to be less imports coming into the U.S., especially with China putting an export ban on UIA and really being out of the market. UAN's lagged a little bit.
Potential buyers.
Probably are in a or at least were in a wait and see and believing that may be urea prices would come back down and then therefore.
Uhm wouldn't follow it.
We're now in a position where inventories are really tight on most fertilizers a lot of that has to do with.
Mark T. Behrman: You know, I think potential buyers probably were in a wait-and-see mode and believed that maybe urea prices would come back down and then, therefore, UAN wouldn't follow it. We're now in a position where inventories are really tight on most fertilizers. A lot of that has to do with lack of imports plus some of the storms that we had earlier this year took some production out and therefore lower inventories.
Lack of imports plus some of the storms that we had earlier this year took some production.
Out and therefore lower inventories so as we sit here today.
We're really confident.
Tories are really low out in the field, we're starting to see you again.
Pricing move to be more in the traditional relationship with urea and we're encouraged by.
The buying patterns right now.
Joshua David Spector: So as we sit here today, we're really confident that inventories are really low out in the field. We're starting to see UAN pricing move to be more in a traditional relationship with urea. And we're encouraged by the buying patterns right now and, of course, early spring. Okay, thanks. And I also wanted to ask just on your decision around the El Dorado expansion. I mean, I think it makes sense given the current environment, but I'd just be curious if you could share what you were evaluating, if you got to the point of saying what the cost would be for x tons, x what the credit is, so we can think about kind of what options are on the table, and maybe you'll be evaluating again in a So I'll start with that.
Or at least flat.
Okay. Thanks, and I also wanted to ask just on your decision around the El Dorado expansion.
It makes sense given the current environment, but I'd just be curious if you could share what you were evaluating if you got to the point of saying what the costs would be for X times X. What the credit is so they can think about kind of what options around the table and maybe you'll be evaluating again in the future.
Yeah, we're really excited about the project so I'll start with that it's not a question of.
We looked at the economics, and we can't make them work. We think we can make the economics work and when we look at the project, we actually look at the project without the USDA funding.
Right because we don't we don't have that in hand, and we don't know what their requirements are.
Mark T. Behrman: It's not a question of, you know, we looked at the economics and we can't make them work; we think we can make the economics work. And when we look at the project, we actually look at the project without USDA funding, right?
To give us that plant.
I think when we took a step back we said yes.
<unk> are a little bit lower so the market's a little bit soft in general.
We've got two turnarounds coming up this year, which are extremely important to our reliability going forward, we've got our Houston ship Channel project, which.
Mark T. Behrman: Because we don't, we don't have that in hand. And we don't know what the requirements are to give us that grant. I think when we took a step back, we said, you know, prices are a little bit lower, so the market's a little bit soft. In general, we've got two turnarounds coming up this year, which are extremely important to our reliability going forward. We have our Houston Ship Channel project, which, quite frankly, we think will add a lot of value to the company as a whole. So a lot of initiatives going on, and really, from a resource standpoint, we thought it was just best to put that project on hold right now. But, you know, on hold doesn't mean it's gone forever.
But frankly, we think we.
We will add a lot of value to the company as a whole.
So a lot of initiatives going on and really from a resource standpoint.
We thought it's just best to put that project on hold right now and you.
And our whole doesn't mean, it's gone forever, we have a lot of flexibility because it's a project that we can do at any time since it's debottlenecking existing assets. So.
We're excited about the project, we think it makes sense I think the U S. D. A I don't want to speak for them, but I think theyre pretty excited about the project and would like to see US do it I think the timing has to be right for us.
Would you be willing to share what the cost was versus the tons.
No I think we have.
Mark T. Behrman: We have a lot of flexibility because it's a project that we can do at any time since it's debottlenecking existing assets. So, again, we're excited about the project. We think it makes sense. I think the USDA, I don't want to speak for them, but I think they're pretty excited about the project and would like to see us do it. I think the timing has to be right for us.
We've talked about somewhere in the neighborhood of $4 million to $500 million for the full project, but there are three pieces to it and we don't have to do a full project we can do it in a.
Plant by plant so as a reminder, it was debottlenecking our ammonia plant.
So adding about between 60 and 75000 tons a year of annual production.
Joshua David Spector: Would you be willing to share what the cost was versus the ton? No, I think we've talked about somewhere in the neighborhood of, you know, four to $500 million for the full project, but there are three pieces to it. And we don't have to do a full project; we can do it, you know, plant by plant.
It was expanding our largest nitric acid plant.
And it was also.
Building, a new urea UA and plant two.
Produce about.
Six to 700000 tons of UA in on an annual basis.
Got it thanks, Mike.
Thank you. Our next question comes from the line of David Begleiter with Deutsche Bank. Please proceed with your question.
Mark T. Behrman: So as a reminder, it was the bottleneck or ammonia plant. So adding about, you know, between 60 and 75,000 tons of annual production. It was expanding our large nitric acid plant. And it was also building a new urea UAN plant to produce about 6,000 to 700,000 tons of UAN on an annual basis.
Good morning. This is Anthony <unk> on for David I'd, just like to get some more detail on what you're seeing so far from the pre spring planting season.
Mark would you say demand is below in line or above your expectation so far to start the year.
Joshua David Spector: Thanks, Mark. Thank you. Our next question comes from the line of David Begleiter with 3C Bank. Please proceed with your question. Good morning, this is Anthony Mercandetti on behalf of David.
Well I'd say one it's it's starting earlier the weather was really cooperating.
So we're starting we're not starting we're seeing.
Anthony R Mercandetti: I'd just like to get some more detail on what you're seeing so far from the pre-spring planting season. Mark, would you say demand is below, in line with, or above your expectations so far to start the year? I'd say, first, it's starting earlier. The weather is really cooperating.
<unk>.
Product kind of fly out of inventory, so I would say that it started earlier and it's even probably a little heavier than we would've anticipated.
Okay, and then I appreciate the insight into into Q1, where about two thirds of the way through the quarter now and again, just given those comments and what youre seeing on on demand how should we think about the ramp into into Q2 as we get into really the heart of the spring planting season here.
Mark T. Behrman: So we're starting, well, we're not starting, we're seeing product, you know, kind of fly out of inventory. So I would say that it started earlier and it's even probably a little heavier than we would have anticipated. Okay, and then appreciate the insight into Q1. We're about two-thirds of the way through the quarter now.
Yeah.
Oh, I think Q2 is always our best quarter, because it's the heart of spring.
We continue to see.
Tightness in the marketplace from a supply standpoint, I think we'll continue to see some.
Anthony R Mercandetti: And again, just given those comments and what you're seeing in demand, how should we think about the ramp into Q2 as we get into really the heart of the spring planting season here? Oh, I think, you know, Q2 is always our best quarter because it's the heart of spring. If we continue to see tightness in the marketplace from a supply standpoint, I think we'll continue to see some upward movement of prices, or at least that's what our expectations are. We're pretty open as far as what we've sold for the second quarter, for the most part, so we think we have opportunities to take advantage of higher prices during the second quarter. Great, thank you.
Upward movement of pricing or at least that's our expectations.
Where.
Pretty.
Open as far as what we've sold for the second quarter for the most part. So we think we have opportunities to take advantage of higher pricing during the second quarter.
Great. Thank you.
Sure.
Thank you. Our next question comes from the line of Adam Samuelson with Goldman Sachs. Please proceed with your question.
Yes. Thank you good morning, everyone.
Good morning.
So mark and Sheryl I was hoping to maybe take a step back you did the investor day about a year ago now.
Anthony R Mercandetti: Thank you. Our next question comes from the line of Adam Samuelson with Goldman Sachs. Please proceed with your question. Yes, thank you. Good morning, everyone.
Timing has had a mid cycle EBITDA target of about $200 million, which assumed a $500 a ton Tampa ammonia price 260, UAS and then $4 gas.
Adam L. Samuelson: Morning. Morning. So Mark and Cheryl, I was hoping to maybe take a step back.
Those happen to be pretty close to the full year averages for 2023 and on the gas side close to what you realized in your Cogs, even if Henry hub was lower.
Adam L. Samuelson: You did Investor Day about a year ago now. Time Eats had a mid-cycle EBITDA target of about $200 million, which assumed a $500-ton tamp ammonia price, $2.60 UAN, and $4 gas. Those happen to be pretty close to the full-year averages for 2023, and on the gas side, close to what you realize in your cogs, even if Henry Hub was lower. The EBITDA was 133 million dollars.
The EBITDA was 133 million.
$1 million.
Can you help us think about do you still think like under that set of pricing and operating conditions. The company is capable of doing.
$200 million before the benefits of some of the Debottlenecking and growth actions or has kind of inflation.
Adam L. Samuelson: Can you help us think about this? Do you still think that under that set of pricing and operating conditions, the company is capable of doing $200 million before the benefits of some of the debottlenecking and growth actions or has kind of inflation on labor and plant costs and all the other non-of the other variable expenses kind of eaten into the total company. Yeah, that's a great question. So it's one I asked my staff about a month ago. I'm sitting there thinking the same thing.
On labor and plant costs.
And all the other not all of the other variable expenses kind of eaten into the.
Into the total company performance.
Yes, that's a great question.
So it's when I asked about a month ago to my staff.
I'm sitting there thinking the same thing and quite frankly, I'm really comfortable saying.
That we're still around $200 million under those assumptions. So when we look back at 2023.
Mark T. Behrman: And quite frankly, I'm really comfortable saying that we're still around $200 million under those assumptions. So when we look back at 2023, I think we're pretty transparent about it, and I think it's been certainly published that we locked in gas at higher prices than we would have liked to.
I look at.
I think we're pretty transparent about it and I think it's been certainly published that we locked in gas at higher prices than we would have liked to.
So a lot of it has to do with that $200 million is us running our ammonia plants at 95% and as you can see in our.
Mark T. Behrman: So a lot of it, though, has to do with that $200 million being us running our ammonia plants at 95%. And as you can see in our earnings presentation, our target is to add another 60 or so thousand tons of ammonia production per year. So that probably gets us another, at those pricing levels, probably another $35 to $45 million.
Earnings presentation, our target is to add another 60, or so thousand tons of ammonia production per year.
That probably gets us another.
At those pricing levels, probably another.
$35 million to $45 million.
Adam L. Samuelson: And then it's pretty documented that we had some issues with our downstream plants, namely our nitric acid plants, which really did not allow us to upgrade as much product as we would have liked. So I think those two things would factor into the balance of pushing us back up to that $200 million. Okay, and maybe on the ammonia point, because I was reflecting on the Outlook kind of guidance details you gave for 24, and going back to the 23 actuals versus what you said you targeted a year ago, and your gross ammonia production for 23 came in below what you targeted, and I know there was an issue with the nitric acid plant, but I don't recall any major kind of unplanned downtime at the ammonia plants. So can you talk about kind of what still has to happen to get that ammonia utilization up to where you want it?
And then.
It's pretty document that we had some issues with our downstream plants, namely our nitric acid plants, which really.
<unk> did not allow us to upgrade as much product as we would've liked.
So I think those two things would factor into the balance of pushing us back.
Back up to that $200 million.
Okay, and maybe on the ammonia point, because I was reflecting on the outlook kind of guidance details you gave for 'twenty four and going back to the 23 actuals versus what you said of your targeted a year ago and gross ammonia production for 'twenty three came in below what you targeted.
I know there was issued the nitric acid plant, but I don't recall any major kind of.
Unplanned downtime at the ammonia plant. So can you talk about kind of what we're what still has to happen to get that ammonia utilization up to where you wanted to be.
Yeah, I mean, it's I'd say the continued maturation of our operating practices.
Mark T. Behrman: Yeah, I mean, it's the continued maturation of our operating practices. It's not significant capital; most of the capital that will be required is typically within our EH&S and reliability, kind of an annual maintenance capital, which is about 60 million, could take us a little bit of additional capital. But I just think it's, You know, I think if I look back five years ago, quite frankly, we were probably a bit devoid of technical talent, and we've worked really hard to bring on a lot of really high-quality technical people that we're really comfortable with. And when I look around the industry, I think we've got, you know, comparable people to what a lot of our competitors have today. So I think it's just, it's really, you know, a lot of blocking and tackling to really focus on the right operating procedures, the right maintenance procedures, and be predictive in our maintenance rather than wait for things to happen, right? I mean, that's never good.
It's not significant capital most.
Most of the capital that will be required.
It's typically within our EHS and reliability.
Annual maintenance capital, which is about $60 million could take us a little bit of additional capital, but I just think it's.
If I look back five years ago.
Quite frankly, we were probably.
A bit devoid of technical talent.
And we've worked really hard.
But to bring on a lot of really high quality technical people.
We're really comfortable with and when I look around the industry I think we've got you know.
Terrible people to what a lot of our competitors is today. So I think it's just it's really you know a lot of blocking and tackling to really focus on the right operating procedures, the right maintenance procedures be predictive in.
Be predictive maintenance rather than wait for things to happen right I mean, that's never good.
Mark T. Behrman: And I think, you know, our expectation would be that over the next 18 to 24 months, probably more like the 24 months, we're at that 95% rate. Okay, if I could just squeeze one more in. You alluded to an earlier comment around the weather in January impacting industry production, and at least one of your peers publicly has commented to that effect as well. Did you have any issues in terms of your operating rates with the weather in January, or did you kind of run as expected and didn't impact your plants and your output? Yeah, we had a power outage down at El Dorado, or at the El Dorado site.
And I think you know our expectation would be that over the next 18 to 24 months, probably more like the 24 months that we're at that 95% right.
Okay, and if I can just squeeze one one more in you alluded to an earlier comment around the weather in January impacting industry production and when at least one of your peers publically as commented to that effect as well.
Did you have any issues in terms of your operating rates with weather in January or you kind of ran as expected and didn't impact your plants and your and your output.
Yeah, we had.
Power outage down at El Dorado, or El Dorado sites, so that caused some downtime, but we also.
Mark T. Behrman: So that caused some downtime. But, you know, we also don't assume that we're going to run at 100% either. Okay. All right. That's all helpful. I'll pass it on.
Don't assume that we're going to run at a 100% either.
Okay Alright.
Alright, that's all helpful. I'll pass it on thank you.
Adam L. Samuelson: Thank you. Thank you. Our next question comes from the line of Lawrence Alexander with Jeffries. Please proceed with your question. Good morning. This is Dan Rizzo on behalf of Lawrence Alexander.
Yes.
Thank you. Our next question comes from the line of Laurence Alexander with Jefferies. Please proceed with your question.
Good morning. This is Dan Rizzo on for Laurence. Thank you for taking my question.
Daniel Dalton Rizzo: Thank you for taking my question. Is it possible, I know you said, and I think you said industrial demand is somewhat stable? Could we see a restock cycle there now or later in the year just given some of the low inventories that probably, presumably, your customers have? Oh, um... It's always possible.
Is it possible I know you said and I think you said industrial demand is somewhat stable could we see a restock cycle. There now or later in the year just given some of the low inventories that.
Presumably your customers have.
Yeah.
Oh.
It's always possible.
Mark T. Behrman: I actually think that our customers are taking what we expected or more today, so I'd be surprised if it's got much of an impact on us. Most of our non-fertilizer businesses have contracted. We do leave some spot tons available, so on those spot tons, maybe we could see some firming of price. But I don't think it's going to be demand.
I actually think that our customers are.
Taking.
What we expected or more today.
Today, so I'd be surprised if it's got.
Much of an impact on us most of our non fertilizer business is contracted we do leave some spot tons available so on.
And those spot tons, maybe we could see some some firming of price I don't think it's gonna be demand.
Okay.
Daniel Dalton Rizzo: Okay, and then, with the delay in El Dorado, some of the expansion there, I was wondering how much your expected ROIC has changed in the last 12 months, just given the changing macro environment, and how much that's playing into, you know, your thought process now and going forward. Are you talking about kind of our return profile? Yes. Yeah, I don't think the return profile has changed. You know, I think that, generally speaking, our hurdle rate is going to be a 15% IRR or better on any project. So, you know. Would we consider a lower return on a project if we think it's got a long-term, sustainable long-term benefit to the company?
And then.
With the delay in El Dorado somebody expansion. There I was just wondering how much you're your expected ROIC has changed in the last 12 months, just given the changing macro environment and how much that is playing into your thought process.
Now and going forward.
Are you talking about kind of return profile, yes.
Yeah, I don't think the return profiles changed.
I think that generally speaking our hurdle rate is going to be a 15% IRR or better.
On any project.
So.
You know.
Would we consider a lower.
Return on a project if we think it's got long term sustainable long term benefit to the company we'd have to take a look at that.
Mark T. Behrman: We'd have to take a look at that. But, generally speaking, our overall return profile hasn't changed. Thank you very much.
But generally speaking our overall return profile hasn't changed.
Alright, Thank you very much.
Sure.
Yeah.
Thank you. Our next question comes from the line of Andrew Wong with RBC capital markets. Please proceed with your question.
Andrew D. Wong: Thank you. Our next question comes from the line of Andrew Wong with RBC Capital Markets. Please proceed with your question. Hey, good morning.
Hey, good morning.
Andrew D. Wong: So maybe just at a higher level, I'm kind of curious how you feel about your sales mix of ag versus industrial sales. I think in the past, maybe you've mentioned that industrial sales do tend to give you a little bit more stability and that, you know, maybe you don't get some of that volatility that comes to the ag markets. And as that Lapis project comes online, and it sounds like there's more industrial demand for low-carbon ammonia, could your sales shift towards the industrial side a little bit more? That's a really good observation.
Maybe just a higher level I'm kind of curious how you feel about your sales mix on AG versus industrial sales.
I think in the past you've mentioned like industrial sales does tend to give you a little bit more stability.
Scott.
Maybe you don't get some of that volatility that comes in the AG markets.
And as that <unk> project comes online and it sounds like there's more industrial demand for low carbon pneumonia could yourselves shift towards industrial side, a little bit more.
Yeah.
That's a really good observation.
Yes, I think that.
Mark T. Behrman: Yes, I think that as we focus more on being a leader of low-carbon products, and given that the US farming community might be one of the last adopters of paying for low-carbon products, I think you could and probably will see us skew more towards the industrial side. And would the return profile on that be any different, you know, you get more stability, or is it still just... You know, looking at those mid-teens returns, but it's just a different cadence?
As we.
Focus more on.
Being a leader of low carbon products and given that.
The U S farming community.
Might be one of the last adopters of paying for low carbon products I think you.
Could and probably will see us skew more towards the industrial side.
And with the return profile on that be any different.
More stability or is it still just.
With me on those mid teens returns, but it's just a different cadence.
Yeah, I mean, it's.
Andrew D. Wong: Yeah, I mean, that's again, a great question. So if we're able to, you know, sort of contract our feedstock costs in a way that we can also hedge out that cost from a selling price perspective, And so, therefore, we have kind of a locked-in profitability, providing that we run at certain operating rates. What we've then created is more of an annuity, right? So it's a stable base of earnings.
Again, a great question so.
So if we were able to.
Sort of a contract or <unk>.
Feedstock costs.
In a way that we can also hedge out that cost from a selling price perspective, and so therefore, we have.
Kind of a locked in profitability, providing that we run at certain operating words. What we then created is more of an annuity right. So it's a stable base of earnings and so for that.
Mark T. Behrman: And so for that, on a long-term asset of some significance or size, I think we'd have to take a step back and really consider a somewhat lower return profile, but nothing significant. Okay, that all makes sense. And maybe just one quick one on the Houston Ship Channel.
On a long term asset of some significance or size.
We'd have to take a step back in.
And really consider a somewhat lower return profile, but nothing significant.
Okay that all makes sense and just maybe just one quick one on Houston ship channel.
Andrew D. Wong: I understand it's ATR that's being considered for the technology. Would the JV also consider using SMR with flue gas? And should that, if that's the case, should that work, kind of run in parallel? No, I think we're committed to an ATR. And remember, it's not a full ammonia plant. It's just that we're going to own the ammonia loop. So Errol Lequid is going to, um, you know, sell us under a long-term supply agreement both hydrogen and nitrogen. And so the technology that they've chosen is they've got their own internally developed ATR technology. There are a lot of benefits to ATR technology, right? capture economically 95 plus percent of the CO2 generated where in an SMR, you can economically capture about 60% of the CO2, with 40%, which is generated by the use of flue gas in that process.
Understand it's ATR, that's being considered for the technology.
Well the JV also consider using has tomorrow with flu gas and should that if that's the case I should that work.
Brian in parallel.
No I think we're committed to and ATR and remember.
It's not a full ammonia plant, it's just we're going to own the ammonia loop. So the key is going to.
Sell us under a long term supply agreement, both hydrogen and nitrogen.
And so the technology that they've chosen us they've got their own internally developed ATR technology.
Got it.
Lot of benefits to ACR technology right you can <unk>.
Capture economically 95 plus percent of the C O two generated wherein in SME.
You can economically capture about 60% of the C O two with 40%.
Which is generated during <unk>.
By the use of flue gas within that process.
Mark T. Behrman: It's uneconomical to capture today. Now, I think we fully expect, based on technologies that are being developed, that at some point in time, we will be able to capture that flue gas, the CO2 generated in the flue gas process, economically, but we're not there yet. Okay. Thank you. Yeah. Thank you. As a reminder, it's star one to join the question queue.
Uneconomical to capture today now I think we fully expect based on technologies that are being developed at some point in time, we will be able to capture that flue gas <unk> generated in the flue gas process.
Economically, but you know we're not there yet.
Understood. Thank you.
No.
Thank you as a reminder, its star one to join the question queue. Our next question comes from the line of Rob Mcguire with Granite Research. Please proceed with your question.
Operator: Our next question comes from the line of Rob McGuire with Granite Research. Please proceed with your question. Good morning. Hey Rob.
Good morning.
Robert Miles McGuire: Can you update us on when the Margin Enhancement Projects are expected to be completed in 2024 and just an update on the expected EBITDA from them as well? Yeah, so the first project would be the installation of several nitric acid tanks down at El Dorado. In fact, I was just down there about a month ago to see some of the construction going on. We would anticipate that kind of the July time frame, how much we should see on an annual basis. Probably $3 million of additional labor debt somewhere in that neighborhood. The second project is up at Pryor, it's an expansion of our urea plant from about 385 tons a day to about 485 tons a day. Although today we're running that plant a bit higher than 385 as our technical teams are really doing a good job pushing rates.
Hey, Rob.
You update us on when the margin enhancement projects are expected to be completed in 2024, and just an update on the expected EBITDA from them as well.
Yeah. So the.
The first project would be the installation of.
Several nitric acid tanks down at El Dorado effect.
I was just down there about a month ago to see some of the construction going on.
We would anticipate that.
Kind of the July timeframe.
How much we should see on an annual basis.
Probably $3 million of additional EBITDA somewhere in that neighborhood.
The second project is up at Pryor.
It's an expansion of our urea plant.
From about.
What was for 385 tons, a day to about 485 tons a day.
So today, we're running that plant a bit higher than 385 as our technical teams are really doing a good job.
To push rates.
So that will provide about 75000 tons of additional U a N. So.
Mark T. Behrman: So that will provide about 75,000 tons of additional UAN. So we'll make the margin difference between selling ammonia and then selling UAN, and it's about $5 million of annual EBITDA addition. Mark, and then shifting to the Houston Ship Channel, how should we be thinking about the potential EVDA generation for LSB on this project? Oh, that's a great question. I mean, if you could tell me what the cost is
So we will make the margin difference between.
Selling ammonia and then selling you Ann.
And it's about $5 million of annual EBITDA addition.
Thanks, Mark and then shifting to the Houston ship channel, how should we be thinking about the potential EBITDA generation for <unk> on this project.
Oh, that's a great question.
You could tell me what the cost is we're only in pre feed now.
Robert Miles McGuire: We're only in pre-feed now, but, you know, if we used an $800 million cost, and I'm not suggesting that that's the cost, I think we really need to go through our engineering. And we look at the types of returns that we would want. I would guess that, you know, for a very stable and steady stream of income, it's probably somewhere in the neighborhood of $150 million annually.
But you know if we used an $800 million cost and I'm not suggesting that that's the costs I think we really need to go through our engineering.
And we look at.
The types of returns that we would want I would guess that.
No.
They're very stable.
And steady stream of income, it's probably somewhere in the neighborhood of $150 million annually.
Mark T. Behrman: Thank you, and then just lastly, if I may, on a question, in terms of the delay in El Dorado, how long can you retain that USDA grant before the USDA decides that they'd like to give that to someone else? Is there a window?
Thank you and then just lastly, if I if I may ask a question.
In terms of the delay of El Dorado, how long can you retain that USDA grant.
USDA decides that.
I'd like to give that someone else or is that.
Is there a window there.
Robert Miles McGuire: Um, Well, I don't really have an answer for you because we haven't been approved for the grant. So, where we are is, we were asked to do an environmental assessment, which took us about four or five months. And as I've said before, it's not a traditional environmental review. So, we submitted that. They've acknowledged that they've received it. I believe we're in a 30-day comment period right now or heading into a 30-day comment period. We don't anticipate many comments since we didn't really have any comments in the first comment period we had. At that point, then, they'll come back to us and tell us, presumably, that we are awarded the grant and what the terms are, so we don't even know what those terms are that we would have to meet. Assuming, though, that we get to that point, I think it's really probably a negotiation with the USDA. Their original outline, although it was very high level, was that you had five years once you were approved for the grant.
Well I don't really have an answer for you because we don't we haven't been approved for the Glen So where we are is we were asked to do an environmental assessment.
Which took us about four or five months and as I've said before it's not a traditional <unk>.
Environmental review.
So we submitted that they've acknowledged that they've received it I believe we're in a 30 day comment period, right now or heading into a 30 day comment period.
We don't anticipate many comments since we didn't have really any comments in the first comment period, we had.
At that point, then they'll come back to us and tell us.
Presumably that that we are awarded the grant and what the terms are so we don't even know what those terms are that we would have to meet.
Assuming though that we get to that point.
I think it's really probably a negotiation with the USDA the original.
Outlined although it was very high level was you.
You had five years once you were approved for the grant.
Mark T. Behrman: So if we stick to that, I think we've got a fair amount of time to really get our project done, should it make sense for us to do so. Thank you, Mark. Sir. Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Behrman for any final comments.
So if we stuck to that I think we've got a fair amount of time to really get a project done should it makes sense for us to do.
Thank you Mark.
Sure.
Thank you, ladies and gentlemen that concludes our question and answer session I will turn the floor back to Mr. Bergman for any final comments.
Well again, thank you for all the questions and interest in OSB industry, and we appreciate everyone's support and look forward to speaking to you next quarter.
Mark T. Behrman: Well again, thank you for all the questions and interest in LSB Industry, and we appreciate everyone's support and look forward to speaking to you next quarter. Thank you. Thank you. Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
Okay.
Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.