Q2 2024 LSB Industries Inc Earnings Call
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Operator: Greetings, and welcome to the LSB Industries Second Quarter, 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Operator: A brief question and answer session will follow the formal presentation.
Operator: A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Fredric Buonocore: It is now my pleasure to introduce your host, Fred Buonocore, Vice President of Investor Relations.
Operator: Thank you, sir. You may begin.
Mark Behrman: Good morning, everyone. Joining me today are Mark Behrman, our Chief Executive Officer; Shana Maguire, our Chief Financial Officer; and Damien Renwick, our Chief Commercial Officer.
Speaker Change: Joining me today are Mark Behrman, our Chief Executive Officer, Cheryl Maguire, our Chief Financial Officer, Damien Renwick, our Chief commercial officer.
Mark Behrman: 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 different materially. On the call, we will reference 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.
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.
Speaker: 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.
On the call we will reference non-GAAP results. Please see the press release in the investors section of our website.
Speaker Change: OSB industries Dot com for further information regarding forward looking statements and reconciliations of non-GAAP results to GAAP results.
Mark Behrman: As a reminder, we have a stockholder rights plan to protect certain tax attributes. Please see the Investor section of our website at LSBindustries.com for further important details.
As a reminder, we have a stockholder rights plan to protect certain tax attributes. Please see the investors section of our website at L. S. B industries Dot com for further important details.
Mark Behrman: At this time, I'd like to go ahead and turn the call over to Mark.
At this time I'd like to go ahead and turn the call over to Mark.
Mark Behrman: Thank you, Fred. Turning to page four of our presentation, we took a major step forward with our low-carbon product strategy in the second quarter. In May, we entered into a multi-year agreement with Freport Minerals to supply low-carbon ammonium nitrate solution, or ANS, for use in Freport's copper mining operations. We believe that this agreement is the first of its kind in our industry, and we view it as a validation of our assertion that our industrial customers will value the low-carbon ammonia and derivative products we plan to produce in the coming years as a means of reducing their own CO2 emissions.
Mark: Thank you Fred.
Mark: Turning to page four of our presentation, we took a major step forward with our low carbon product strategy in the second quarter in.
Mark Behrman: In May we entered into a multiyear agreement with Freeport minerals to supply low carbon ammonium nitrate solution or a N S for use in freeport's copper mining operations.
We believe that disagreement is a first of its kind in our industry and.
And we view it as a validation of our assertion that our industrial customers will value the low corporate ammonia and derivative products, we plan to produce in the coming years as a means of reducing their own C. O two emissions.
Mark Behrman: With respect to our second quarter operating results, I'm very pleased to say that we had no recordable incidents during the quarter, thanks to the strong safety focus of the teams at our facilities. In terms of financial performance, our adjusted EBITDA was in line with our expectations. Pricing was once again down year over year. However, we believe we have seen our end-market pricing stabilize, and in fact, the fertilizer of summer-filled pricing clearly supports that. During the second quarter, we generated solid free cash flow, and that combined with our strong cash position allowed us to repurchase our stock and continue to reduce our debt.
Speaker: With respect to our second quarter operating results, I'm very pleased to say that we had no recordable incidents during the quarter thanks to the strong safety focus of the teams at our facility.
Speaker Change: With respect to our second quarter operating results I'm very pleased to say that we had no recordable incidents during the quarter. Thanks to a strong safety focus of the teams at our facilities.
In terms of financial performance, our adjusted EBITDA was in line with our expectations.
Speaker Change: Pricing was once again down year over year. However, we believe we have seen our end market pricing stabilize and in fact, the fertilizer summerfield pricing clearly supports that.
Mark: During the second quarter, we generated solid free cash flow and that combined with our strong cash position allowed us to repurchase our stock and continue to reduce our debt.
Mark Behrman: Lastly, on our low-carbon ammonia initiatives, our two projects remain on track, and I'll provide more color on both later in the call.
Mark: Lastly, on our low carbon ammonia initiatives are two projects remain on track and I'll provide more color on both later in the call now.
Damien Renwick: Now, I'll turn over the call to Damien, who will discuss our new ANS contract and review the current market dynamics and pricing trends.
Mark: Now I will turn it over the call to Damien who will discuss our new E&S contract and we view the current market dynamics and pricing trends Damian.
Damien Renwick: Damien? Thanks, Mark, and good morning everyone. On page 5, you'll find a summary of our low-carbon ammonia nitrate solution, or ANS, off-take agreement with Free-Port Minerals. This is a five-year agreement for up to 150,000 short tons per year of low-carbon ANS that we'll be producing at a well-deserved facility. Our off-take agreement with Free-Port starts at the beginning of 2025, at which time we'll be providing them with conventional. Then, we will phase in the low-carbon product upon completion of our well-durado carbon capture and sequestration project. We expect that low-carbon production to come online in early 2026. We're excited about this agreement because not only does it move us closer towards attaining our vision of becoming a leader in the global energy transition, but it also advances our strategy to shift the greater portion of our sales mix towards more stable, predictable contractual arrangements in our industrial and markets, further offsetting the volatility of spot pricing prevalent in our agricultural and market.
Damien: Thanks, Mark and good morning, everyone on page five you'll find a summary of our like Cabot and ammonium nitrate solution Orion is off take agreement with Freeport minerals.
Speaker: This is a five-year agreement for up to 150,000 short tons per year of low-carbon ANS that we'll be producing at our El Dorado facility. Then we will phase in the low carbon product upon completion of our El Dorado carbon capture and sequestration project.
Damien Renwick: This is a five year agreement for up to 150000 short tons per year of log cabin ideas that will be producing Edo El Dorado facility.
Damien: Now off take agreement with Freeport starts at the beginning of 2025 at which time, we'll be we'll be providing them with conventional I N S.
Mark: Then we will fight in the low carbon product upon completion of El Dorado carbon capture and sequestration project.
Mark: We expect the low carbon production to come online in early 2026.
Speaker: We're excited about this agreement because not only does it move us closer to attaining our vision of becoming a leader in the global energy transition, but it also advances our strategy to shift a greater portion of our sales mix towards more stable, predictable, contractual arrangements in our industrial and markets, further offsetting the volatility of spot pricing prevalent in our agricultural land market. Page 6 provides some key dynamics at play in our industrial end markets.
Mark: We're excited about this deployment because not only does it move us closer towards attaining our vision of becoming a leader in the global energy transition, but it also advances our strategy to shift a greater portion of our sales mix towards more stable predictable contractual arrangements and now industrial end markets.
Damien: Further offsetting the volatility of spot pricing equivalent in our agricultural end market.
Damien Renwick: Phase six provides some key dynamics at play in our industrial and markets. Overall, the man remains steady in our industrial business, reflecting the continued strength of the US economy and the contractual nature of our customer relationships. Our nitric acid is a critical input into the production of polyurethane. Polyurethane, in turn, is a primary material in home building and furnishings as well as a wood-o-manufacturing. As depicted in the top two charts, trends in US home building and auto production and furniture manufacturing, while having some movement up and down throughout the past year, have been generally stable over the past two years.
Damien: Page six provides some key dynamics at play in our industrial end markets.
Damien: Overall demand remained steady and our industrial business, reflecting the continued strength of the U S economy, and the contractual nature of our customer relationships.
Speaker Change: I'm not you're casting is a critical input into the production of polyurethane polyurethane insulin is it for me material and homebuilding and finishing as well as what our manufacturing.
Speaker: As depicted in the top two charts, trends in U.S. home building and auto production and furniture manufacturing, while having some movement up and down throughout the past year, have been generally stable over the past two years. Additionally, increased munitions production in the U.S. is also supporting demand for some of our specialized assets. Overall, we find the outlook for nitric acid very encouraging. With respect to the ammonium nitrate that we produce for the North American markets, we are significantly levered to the production of copper and aggregates, driven in part by demand for electric vehicle production and the build-out of technology infrastructure.
Damien: As depicted in the top two charts trends in U S home building and all that production in furniture manufacturing, while having some movement up and down throughout the past year have been generally stable over the past two years.
Damien Renwick: However, a reduction in interest rates later this year could stimulate consumer demand in both markets, leading to production rate increases and greater demand for nitric acid in 2025. Additionally, we are seeing opportunities developed to support government efforts to increase semi-conductive manufacturing in the US. Increased munitions production in the US is also supporting demand for some of our specialized assets.
Speaker Change: However, a reduction in interest interest rates later this year could stimulate consumer demand in both markets, leading to production rate increases and greater demand for natural gas in 2025.
Speaker Change: Additionally, we are seeing opportunities develop to support government, if it's to increase semiconductor manufacturing in the U S. In.
Speaker Change: Increased munitions production in the U S is also supporting demand for some of our specialized assets.
Damien Renwick: Overall, we find the outlook for nitric acid very encouraging. With respect to the amount of nitrate that we produce for the North American markets, we are significantly levered to the production of copper and aggregates. As the chart on the bottom right shows, copper production has increased significantly over the past year. Additionally, copper prices have been strong and sit above multi-year average levels, driven in part by demand for electric vehicle production and the build-out of technology infrastructure. Aggregates production is strongly correlated to new housing starts, given the infrastructure required to support housing development. As I mentioned, we believe that what is now appearing to be a likely reduction in interest rates, possibly before the end of this year, could stimulate new home starts, thus raising demand for aggregates.
Speaker Change: Overall, we found the outlook for natural gas, it's very encouraging.
Speaker Change: With respect to the ammonium nitrite, we produced for the North American markets, we have significantly lifted to the production of copper and aggregates as the chart on the bottom left shows copper production has increased significantly over the past year. Additionally, copper prices have been strong and <expletive> about multiyear average levels.
Speaker Change: And in part by demand for electric vehicle production and the build out of technology infrastructure.
Speaker Change: Aggregates production is strongly correlated to new housing starts given the infrastructure required to support housing developments as I mentioned, we believe that what is now appearing to be a likely reduction in interest rates, possibly before the end of this year could stimulate new home starts that's rising demand for aggregates.
Damien Renwick: On page 7 of our presentation, you'll find information pertaining to nitrogen product prices and natural gas import costs. A money-price has set at healthy levels for this time of year due, in part, to a healthy Somersault program and natural gas supply issues in Trinidad and Egypt, which constrained global supply. UAM prices have come down since earlier in the year, as it is seasonally typical. We saw an early but healthy Somersault campaign, which has positioned us well through to early fall. We believe that steady prices for your year, together with somewhat tight inventory levels due to a number of turnarounds taking place in the coming months, should keep UAM prices relatively stable through the balance of the year.
Speaker: On page 7 of our presentation, you'll find information pertaining to nitrogen product prices and natural gas input costs. After rising through the spring, European gas prices retracted somewhat over the past month, but remain at elevated levels. We believe this estimate could be high due to wet weather in certain corn growing regions. Additionally, ethanol production has moved back towards pre-pandemic levels, providing further support for corn prices.
Speaker Change: On page seven of our presentation, you will find information pertaining to nitrogen product prices and natural gas input costs.
Speaker Change: Ammonia prices sit at healthy levels for this time of year due in part to a healthy summer fill program and natural gas supply issues in Trinidad in Egypt, which constrained global supply.
Speaker Change: You I and prices have come down since it later in the year as it seasonally typical.
Speaker Change: We saw in Italy, but healthy summer two campaign, which has positioned us well through the early fall.
Speaker Change: We believe that steady pluses for urea together with somewhat tight inventory levels due to a number of turnarounds taking place in the coming months should take you I N plus is relatively stable through the balance of the year.
Damien Renwick: On the input cost side of the equation, the middle chart shows the natural gas price trend for the European TTF relative to the price for US Henry Hub. After rising through the spring, European gas prices retracted somewhat over the past month but remain at elevated levels. These high European gas prices continue to underpin global ammonia and nitrogen prices and advantage US producers.
Speaker Change: On the input cost side of the equation. The Middle chart shows the natural gas processing for the European T. T S relative to the parts of the U S. Henry hub.
Speaker Change: After rising through the spring European gas prices retracted somewhat over the past month, but remain at elevated levels.
Speaker Change: These high European gas prices continue to underpin global ammonia and nitrogen pluses and advantage U S producers.
Damien Renwick: On page 8, we show pricing trends and forecasts for corn and other grain prices, which drive our agricultural business. US corn prices have fallen over the past two years as global demand, particularly from China, has declined. Exasperating the weakness has been the USDA's forecast for 2024 acres planted of 91.5 million acres, down from last year but still above the 10-year average, suggesting an increase in corn supply. We believe this estimate could be high due to wet weather in certain corn growing regions. Additionally, ethanol production has moved back towards pre-pandemic levels, providing further support for corn prices.
Speaker Change: On page eight we show plus and trends and forecasts for corn and other grind classes, which draw they'll agricultural business.
Speaker Change: U S corn prices have fallen over the past two years as global demand, particularly from China has declined.
Speaker Change: That's abating the weakness has been the usda's forecast for 2024 acres planted of $91 5 million acres down from last year, but still above the 10 year average, suggesting an increase in corn supply.
Speaker Change: We believe this estimate could be high due to wet weather and sit in corn growing regions. Additionally, ethanol production has moved back towards pre pandemic levels, providing further support for cone process.
Damien Renwick: We believe that corn prices should rebound to a level that should motivate farmers to maximize yield through the application of nitrogen fertilizers. Corn futures suggest this is the case, with contract prices approaching around $4.50 per bushel by the middle of 2025. As we look to both sides of our business, we expect fundamentals for nitrogen producers to remain attractive and stable for the foreseeable future.
Speaker Change: We believe the corn prices should rebound to a level that should motivate farmers to maximize yields through the application of nitrogen fertilizers.
Speaker Change: Corn futures suggest this is the case with contract pluses approaching around $4 50 per bushel, while the middle of 2025.
Speaker Change: As we look to both sides of that business, we expect fundamentals for nitrogen producers remain attractive and stable for the foreseeable future.
Cheryl Maguire: Now I'll turn the call over to Cheryl to discuss our second quarter financial results and our outlook.
Speaker Change: Now I'll turn the call over to Cheryl to discuss our second quarter financial results and our outlook Cheryl.
Cheryl Maguire: Cheryl? Thanks, Damien, and good morning. On page 9, you'll see a summary of our second quarter 2024 financial results. We generated adjusted EBIDA of 41 million and EPS of 13 cents for the second quarter. Page 10 bridges our second quarter 2023 adjusted EBIDA of 47 million to our second quarter 2024 adjusted EBIDA of 41 million. Weaker selling prices relative to the prior year were once again a factor in the year-over-year change in EBIDA. However, the year-over-year decline in selling prices was much smaller in the second quarter than it has been for the previous several quarters.
Speaker: Thanks, Damien, and good morning. On page 9, you'll see a summary of our second quarter 2024 financial results. We generated adjusted EBITDA of $41 million and EPS of $0.13 for the second quarter. However, sales volumes of our products decreased in the second quarter of 2024 as compared to the same quarter of 2023, as a result of lower sales volumes of HGAN. This was the result of wet weather in key markets for this product in late May and June.
Cheryl Maguire: Thanks, Damien and good morning.
Cheryl Maguire: Page nine you'll see a summary of our second quarter 2024 financial results.
Cheryl Maguire: Adjusted EBITDA was 41 million and EPS of 13 cents for the second quarter.
Speaker Change: Page 10 bridges, our second quarter 2023, adjusted EBITDA was 47 million to our second quarter 2024, and adjusted EBITDA of 41 million weaker selling prices relative to the prior year were once again a factor in the year over year change in EBITDA. However, the euro are year over year decline in selling.
Speaker Change: Prices was much smaller in the second quarter than it has been for the previous several quarters. We view this as an indication of a stabilization in our markets, particularly in the AG market.
Cheryl Maguire: We view this as an indication of a stabilization in our markets, particularly in the ag market. Sales volumes of our products decreased in the second quarter of 2024 as compared to the same quarter of 2023 as a result of lower sales volumes of H-chan. This was a result of what weather in key markets for this product in late May and June. Also impacting our sales volumes was the timing of agricultural ammonia demand, which was heavier than average in the first quarter of 2024, translating into lower orders during the second quarter. The lower pricing and volumes were partially offset by materially lower natural gas costs as compared to last year.
Speaker Change: Sales volumes of our products decreased in the second quarter of 2024 as compared to the same quarter of 2023 as a result of lower sales volumes of <unk>. This was a result of wet weather in key markets for this product in late May and June also impacting our sales volumes was the timing of agricultural ammonia demand which was.
Speaker: Also impacting our sales volumes was the timing of agricultural ammonia demand, which was heavier than average in the first quarter of 2024, translating into lower orders during the second quarter. However, the lower pricing and volumes were partially offset by materially lower natural gas costs as compared to last year.
Speaker Change: Heavier than average in the first quarter of 2024 translating into lower orders during the second quarter.
Speaker Change: The lower pricing and volumes were partially offset by materially lower natural gas costs as compared to last year.
Cheryl Maguire: Page 11 provides a summary of our key balance sheet and cash flow metrics. We continue to use our strong cash position as an opportunity to further do risk or balance sheet. In the second quarter, we've repurchased 64 million of our notes, and year to date, we've repurchased 97 million of debt. We also repurchased approximately 800,000 shares of our stock during the second quarter and approximately 1.5 million shares year to date. As we move through the second quarter of this year, our capital allocation will be squarely focused on our facilities. As a reminder, we have turnaround scheduled at our Prior and Cherokee facilities in the second half of this year.
Speaker Change: Page 11 provides a summary of our key balance sheet and cash flow metrics. We continue to use our strong cash position has an opportunity to further derisk our balance sheet in the second quarter, we repurchased $64 million of our notes and year to date, we've repurchased 97 million of debt. We also repurchased approximately 800000.
Speaker Change: And shares of our stock during the second quarter and approximately $1 5 million shares year to date as we move through the second quarter of this year, our capital allocation will be squarely focused on our facilities. As a reminder, we have turnarounds scheduled at our Pryor and Cherokee facilities in the second half of this year. These turnarounds will be integral to our.
Cheryl Maguire: These turnarounds will be integral to our goal to improve plant reliability and efficiency, which we expect to lead to greater production volumes post turnaround. Looking to the third quarter of 2024, Tampa ammonia increased $60 per ton to $475 per metric ton for August, and NOAA UAN is currently around $205 per ton. We expect prices for both products to be higher than the same quarter last year as a result of its relatively tight inventories and ongoing global supply constraints from the impact of turnaround and unscheduled downtime at plants globally. Additionally, we expect our profitability to benefit from lower natural gas costs, which averaged approximately $2.70 for MMBtu in July, well below last year, and a trend we expect to continue.
Speaker Change: To improve plant reliability and efficiency, which we expect to lead to greater production volumes post turnaround.
Speaker Change: Going to the third quarter of 2020 for Tampa ammonia increased $60 per ton to $475 per metric ton for August and Noah U. A N is currently around $205 per ton.
Speaker Change: Prices for both products to be higher than the same quarter last year. As a result, it's relatively tight inventories and ongoing global supply constraints from the impact of turnarounds and unscheduled downtime I plants globally.
Speaker Change: Additionally, we expect our profitability to benefit from lower natural gas costs, which averaged approximately $2.70 per M. N V to you in July well below last year and I try and do we expect to continue.
Cheryl Maguire: We expect our third quarter results to reflect the impact of the seasonal slowdown and demand on our sales volumes. Additionally, we have a 30-day turnaround underway at our prior facility that will reduce our ammonia and UAN production by approximately 20,000 tons and 35,000 tons, respectively. We expect to incur approximately 15 million in turnaround expense during the third quarter as we execute the prior turnaround and gear up for our Cherokee turnaround, currently scheduled for the fourth quarter. Despite the lower production during the third quarter resulting from our prior turnaround, we expect our third quarter EVAIDA when adjusted to add back turnaround expense to be materially above our third quarter of 2023 as a result of higher selling prices combined with lower natural gas and other costs.
Speaker Change: We expect our third quarter results to reflect the impact of the seasonal slowdown in demand on our sales volumes. Additionally, we have a 30 day turnaround underway at our Pryor facility that will reduce our ammonia Andrew a N production by approximately 20000 tons and 35000 tons respectively.
Speaker Change: Expect to incur approximately 15 million in turnaround expense during the third quarter as we execute the prior turnaround and gear up for our Cherokee turnaround currently scheduled for the fourth quarter.
Speaker Change: Despite the lower production during the third quarter, resulting from our prior turnaround we expect our third quarter EBITDA when adjusted to add back turnaround expense to be materially above our third quarter of 2023 as a result of higher selling prices can buy combined with lower natural gas and other costs.
Mark Behrman: And now I'll turn it back over to Mark. Thank you, Cheryl. Pages 12 and 13 pertain to the two low-carbon ammonia projects that we currently have underway. Pages 12 summarizes the key information related to our project with LabRACE Energy at our Eldorado facility. This project remains on track with the timeline we discussed back in early mid. We continue to discuss the value of low-carbon products with potential customers and are encouraged by the level of engagement we're experiencing. Pages 13 summarizes the key aspects of our Euston Ship Channel project that we currently have under development with several partners.
Speaker Change: And now I'll turn it back over to Mark.
Mark Behrman: Thank you Cheryl.
Speaker: Pages 12 and 13 pertain to the two low-carbon ammonia projects that we currently have underway. We continue to discuss the value of low-carbon products with potential customers and are encouraged by the level of engagement we're experiencing. This is a world-scale ammonia plant that will produce approximately 1.1 million metric tons of low-carbon ammonia. We're pleased to find that Europe is emerging as an increasingly fertile market for low-carbon ammonia given the region's challenges in increasing clean energy generation as quickly as initially planned.
Speaker Change: Pages, 12, and 13 pertained to too low carbon ammonia projects that we currently have underway.
Mark Behrman: Page 12 summarizes the key information related to our project with labor synergy at our El Dorado facility.
Mark Behrman: This project remains on track with the timeline, we discussed back in early May we continue to discuss the value of low carbon products with potential customers and are encouraged by the level of engagement we are experiencing.
Mark Behrman: Page 13 summarizes the key aspects of our Houston ship Channel project that we currently have under development with several partners.
Mark Behrman: This is a world-scale ammonia plant that will produce approximately 1.1 million metric tons of low-carbon ammonia. We are working with Samsung Engineering and our partner Impex to complete our pre-feed, and we expect to receive preliminary results by the end of the third quarter, followed by a detailed review during the fourth quarter. It is anticipated that feed will begin early in the first quarter of 2025, be completed by the end of next year, with FID in the first quarter of 2026. We are having ongoing conversations with potential customers to secure long-term off-take for the anticipated ammonia production and remain encouraged with those conversations.
Mark Behrman: This is a world scale ammonia plant that will produce approximately $1 1 million metric tons of low carbon ammonia.
Mark Behrman: We are working with Samsung engineering, and our partner impacts to complete our precede and we expect to receive preliminary results by the end of the third quarter, followed by a detailed review during the fourth quarter.
Speaker Change: It is anticipated that feed will begin early in the first quarter of 2025 be completed by the end of next year with <unk> in the first quarter of 2026.
Speaker Change: We are having ongoing conversations with potential customers to secure long term off take for the anticipated ammonia production and remain encouraged with those conversations while Asia remains a target region for off takers.
Mark Behrman: While Asia remains a target region for off-takers, we've been pleased to find that Europe is emerging as an increasingly fertile market for low-carbon ammonia, given the region's challenges in increasing clean energy generation as quickly as initially planned, and the impending enactment of the EU's carbon-border adjustment mechanism or CBAM. We're very excited about the prospects for driving the growth of our top and bottom line through our participation in the developing low-carbon nitrogen products markets. Our vision is to become one of the leading suppliers of low-carbon ammonia and derivative products to the power generation, marine, and other industries in the coming years, and we believe we have the knowledge, expertise, assets, and relationships to achieve this vision.
Speaker Change: We've been pleased to find that Europe is emerging as an increasingly fertile market for low carbon ammonia given the region's challenges and increase in clean energy generation as quickly as initially planned and.
Speaker Change: And the impending enactment of the Eu's carbon border adjustment mechanism, where C band.
Speaker Change: We're very excited about the prospects for driving the growth of our top and bottom line through our participation in the developing low carbon nitrogen products markets.
Speaker Change: Our vision is to become one of the leading suppliers of low carbon ammonia and derivative products to the power generation Marine and other industries in the coming years, and we believe we have the knowledge expertise and assets and relationships to achieve this vision.
Mark Behrman: While our long-term vision is set at around low-carbon product opportunities, from a near-term perspective, we are more focused and ever on our opportunities to improve our current operations, which we expect will lead to higher production and sales volumes, enabling us to capitalize on the operating leverage inherent in our business and drive increased profitability and shareholder value. Combining these enhancements to our core operations with our low carbon activities, we believe we are well positioned to generate significant value for our shareholders.
Speaker Change: Well, our long term vision is set at around low carbon product opportunities from a near term perspective, we are more focused than ever on our opportunities to improve our current operations, which we expect will lead to higher production and sales volumes, enabling us to capitalize on the operating leverage inherent in our business and drive increased profitability in <unk>.
Mark Behrman: Holder value.
Mark Behrman: Combining these enhancements to our core operations with our low carbon activities. We believe we are well positioned to generate significant value for our shareholders.
Mark Behrman: Before we open it up for questions, I'd like to mention that we will be participating in the following conferences in September: the Jeffries Industrial Conference in New York on September 4th, the UBS Materials Conference also in New York on September 5th, and the RBC Industrial Conference in Las Vegas on September 20th. We look forward to speaking with some of you at those events.
Speaker Change: Before we open it up for questions I'd like to mention that we will be participating in the following conferences in September the.
Speaker Change: Jeffrey <unk> Industrial conference in New York on September 4th.
Speaker Change: UBS materials Conference also in New York on September 5th.
Speaker Change: And the RPC Industrials conference in Las Vegas on September 24th we look forward to speaking with some of you at those events that concludes our prepared remarks, and we will now be happy to take your questions. Thank you.
Mark Behrman: That concludes our prepared remarks, and we will now be happy to take your questions. Thank you.
Speaker Change: Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question. Kim You May Press Star two if you would like to remove your question from the queue. We ask the analysts limit yourself to one question and a follow up so that.
Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue.
Operator: We ask the analyst to limit yourself to one question and a follow-up, so that others may have an opportunity to ask questions. You may recue if you have additional questions by pressing star one. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Speaker Change: Others may have an opportunity to ask questions. You may re queue. If you have additional questions by pressing star one.
Speaker Change: It is supposed to be using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Operator: One moment please, while we pull for questions.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Yeah.
Joshua Spector: Our first question comes from Joshua Spector with UBS. Please proceed with your question.
Operator: Our first question comes from Joshua Spector with UBS. Please proceed with your question.
Speaker Change: Our first question comes from Joshua Spector with UBS. Please proceed with your question.
Lucas Spahn: Good morning. This is Lucas Spahn. I just want to start with the new agreement you signed with the free core minerals for the uptake. Did you get any premium there on the low carbon products, or was that sort of in line with the current pricing for the gray products? Is there any mechanism to adjust that kind of over time as the market develops further, or are you thinking about that now? Thank you.
Lucas Beaumont: Good morning, this is Lucas Beaumont. I'm here on behalf of Josh. I just wanted to start with the new agreement you signed with Free Quilt Minerals on the uptake. Did you guys get any premium there on the low carbon products or was that sort of in line with sort of the current pricing for the grey product? And if you didn't, is there any mechanism to adjust that kind of over time as the market develops further or how are you kind of thinking about that now? Thank you.
Speaker Change: Hi, Good morning, this is Lucas Beaumont on for Josh.
Speaker Change: Just wanted to start with a new agreement you signed.
Speaker Change: With our frequent minerals for the uptake.
Speaker Change: Did you guys did you get any premium they're on the low carbon products or was that sort of in line with sort of the current pricing for the great products.
Speaker Change: And if you sort of if you didn't is there any mechanism to adjust that kind of over time as the market develops further or how you're kind of thinking about that now. Thank you.
Mark Behrman: We're going to Lucas. How are you? So yeah, we feel like our customer realized the value of the low carbon aspect of our product. And so we feel like we got some premium to what we would consider to be the gray market today.
Speaker Change: Good morning, Lucas how are you so yeah, we feel like our customer.
Speaker Change: Realized the value of the low carbon aspects of our product and so we feel like we've got some premium to what we would consider to be the great market today.
Speaker Change: Okay.
Mark Behrman: Great.
Speaker Change: Alright. Thanks.
Mark Behrman: Thanks.
Lucas Spahn: And then just sort of sure about the seasonality of all that, maybe on the gas costs side. So we've had some sort of abnormal seasonality this year with sort of low pricing and then pricing coming up, and you know, you guys obviously saw the benefit of that in the second quarter with your realized costs coming in quite a bit below where the benchmarks were with the lag. So I just wonder if you can kind of help find how you think that dynamics can impact the core force. Thanks. Yes, yes.
Speaker Change: And then just just sort of spoke about the seasonality of all that.
Speaker Change: And maybe on the gas cost side.
Speaker Change: So we've had some sort of a normal.
Speaker Change: Seasonality this year, we've put a lot of crossing and then processing coming up and you guys. Obviously saw the benefit of that in the second quarter with your realized cost coming in quite a bit below where the benchmarks where with the lag.
Speaker Change: Just wondering if you can kind of help frame, how you think that dynamics can impact a quarter for us.
Speaker Change: Thanks.
Speaker Change: Yes, good morning, Luca so yeah. So the gas costs, specifically you know we did see a run up in gas cost at the end of June that's going to come through in July and then gas cost you know heading into August is you know I would say.
Mark Behrman: Morning, Lucas. So yeah, so the gas costs specifically, you know, we did see a run-up in gas costs at the end of June that's going to come through in July, and then gas costs, you know, heading into August is, you know, I would say 40 to 50 cents cheaper than the 270 that we realized. In July, so we are seeing some additional benefit and pick up a lower gas cost here in the third quarter.
Speaker Change: 40 to 50 cents cheaper than the $2 70 that we realized in July. So we are seeing some additional benefit in pick up lower gas costs here in the third quarter I think it actually we've talked about this previously about the change in <unk>.
Mark Behrman: Yeah, I think it actually we've talked about this previously about the change in strategy and really thought process when it comes to gas and not really purchasing forward too much other than for forward sales of products. So we are now able to realize the benefits. because we're basically going month to month. Thank you.
Speaker Change: Strategy and I'm really thought process when it comes to gas and not really purchasing forward too much other than for a forward sales of product. So we are now able to realize the benefits.
Speaker Change: We're basically going month to month.
Speaker Change: Yeah.
Speaker Change: Great. Thank you.
Laurence Alexander: Question comes from Laurence Alexander with Jeffries. Please proceed with your question.
Speaker Change: Question comes from Laurence Alexander with Jefferies. Please proceed with your question Hi.
Laurence Alexander: Hi, this is Dan with the one for Laurence. With the new agreement, you mentioned up to 150,000 short tons. I was wondering, and I'm sorry if this was said, but does already minimum requirement they have to take each year? Yeah, good morning. Look, I can't go into this specifics, but there are sort of traditional mechanisms in the arrangement that, you know, where there's minimums and off-take tolerance, etc. So, yeah, we've got a pretty clear line of sight as to what the off-take will be and what we'd expect going forward. Would you say that it's got traditional T or P terms?
Dan Rizzo: Hi, This is Dan Rizzo on for Laurence <unk> with the New agreement you mentioned up 250000 short tons of I was wondering and I'm sorry. If this was said but is there any minimum requirement they have to take each year.
Speaker Change: Give me one you answered it yes, good morning Luke.
Operator: Damien, why don't you answer that? Yeah, good morning.
Damien Renwick: Look, I can't go into the specifics, but there are sort of traditional mechanisms in the arrangement where there are minimums and off-take tolerances, etc. So yeah, we've got a pretty clear line of sight as to what the off-take will be and what we'd expect going forward. Would you say that it's got traditional T-COP terms?
Speaker Change: I kind of go into the specifics, but there are sort of traditional mechanisms in the arrangement that where there's minimums and offtake tolerance is a big citrus side, Yeah, We've got a pretty clear line of sight as to.
Speaker Change: To what the off cycle will be in and what we'd expect going forward would you say that it's got traditional take or pay terms.
Mark Behrman: Yeah.
Speaker Change: Yeah.
Laurence Alexander: Okay, and then for my second question, just in regards to ag, I was just wondering what percentage of your sales is for post-ag, I'm sorry, post-planting application. Like, how important is August and September, if at all? I can't quite you an exact percentage, but the full ammonia replication season is relatively important. You know, we've got a reasonable book going, Audible going forward coming out of the summer field and some full prepay sales, but we've got to turn around at prior at the moment. So, our participation is probably a little lower than what it's typically been, but, you know, we're pretty comfortable with where we're sitting from and from an order's perspective.
Speaker Change: Okay and then my second question just in regards to AG.
Speaker Change: I was just wondering what percentage of yourselves is for post Oh, sorry post planting application like how important is August and September if at all.
Speaker Change: Oh look I can't quote you an exact.
Speaker Change: Finish but.
Speaker: The fall ammonia application season is relatively important, and we've got a reasonable order book going forward, coming out of the summer fill and some fall prepay sales, but we've got our turnaround at prior at the moment, so our participation is probably a little lower than what it's typically been, but we're pretty comfortable with where we're sitting from.
Speaker Change: The the fall ammonia application season is relatively important you know, we've we've got a reasonable goal.
Speaker Change: Order book going forwards are coming out of the summer fill in and some full prepay styles that are you know we've got that sit around it at par at the moment. So yeah. After two supply chain is probably a little lower than what it has typically been but.
Speaker Change: We're pretty comfortable with where we're sitting from an from an orders perspective.
Laurence Alexander: Thank you very much.
Speaker Change: Thank you very much.
Andrew Wong: Our next question comes from Andrew Wong with RBC Capital Markets. Please proceed with your question. Hey, good morning. So, ammonia and nitrate prices have performed quite well. So, could you just talk about what's happening there?
Speaker Change: Our next question comes from Andrew Wong with RBC capital markets. Please proceed with your question.
Speaker: Hey, good morning. So ammonium nitrate prices have performed quite well. So could you just talk about what's happening there? You know, why the significant premium has come back? And what's your outlook on and versus some of the other measures?
Andrew Wong: Hey, good morning, so ammonium nitrate prices have performed quite.
Andrew Wong: Quite well.
Andrew Wong: So could you just talk about what's happening there you know why the significant premium has come back and what's your outlook on an versus some of the other nitrogen products.
Mark Behrman: You know, why the significant premium has come back and what's your outlook on Ann versus some of the other nice. Yeah, good morning, Andrew.
Speaker Change: Yeah, Good morning, Andrew.
Mark Behrman: Yeah, look, the premium we're pretty happy with, with that and the pricing that we're able to achieve. Look, really, it's probably just driven by typical supply and demand. Demand was pretty reasonable, and at certain times of the year, that premium can push out relative to some of the other products. You know, it can also go the other way, and we can see the premium narrow, and at this time of year, we will see it narrow closer to the, you know, our sense per pound for the other products. So, and that again is really due to just the timing of the year and where we're at in the cycle.
Speaker Change: Look the the premium we were pretty happy with with that and the pricing that we're able to achieve that Luke.
Speaker Change: Look really it's probably just driven by typical supply demand demand was pretty pretty reasonable.
Speaker Change: And at certain times of the year that that premium can can push out relative to some of the other products.
Speaker: It can also go the other way, and we can see the premium narrow, and at this time of year, we will see it narrow closer to the cents per pound for the other products. And that again is really due to just the timing of the year and where we're at in the cycle.
Speaker Change: It can also go the other way and we can see the the premium narrow in and at this time of year, we will see it narrow twice that.
Speaker Change: You know I know.
Speaker Change: Since per pounds for.
Speaker Change: So the other products and that again is really due to just the timing of the year and where we're at in the cycle.
Speaker Change: Okay.
Andrew Wong: Okay, and then maybe just switching to the pneumonia side of things.
Speaker Change: And then maybe just switching to.
Speaker Change: Ammonia side of things.
Mark Behrman: I just curious regarding the lapis partnership out of the rato. What happens is through the payments if there's a change to the 452 credits either up or down, and you see any risk of that happening if there's any administration that comes in with a different view and clean energy. Good morning, Andrew. It's a great question. We get that question all the time. Everyone's really focused on the election and some implications of that. When you think about the IRA, I think our view is there are definitely parts of the IRA that are more at risk than others.
Speaker Change: Curious regarding the office partnership at El Dorado.
Speaker Change: What happens if to the payments if theres a change in that 45, Q credits, either up or down and do you see any risk of that happening. If there's an administration that comes in with a different view on clean energy.
Speaker Change: Good morning, Andrew So it's a great question, we get that question all the time everyone's really focused on the election and some implications of that when you think about the I R. A I think our view is.
Speaker: Morning, Andrew. So it's a great question. We get that question all the time. Everyone's really focused on the election and some implications of that. When you think about the IRA, I think our view is that there are definitely parts of the IRA that are more at risk than others. And so when you start thinking about the EV incentives and things around electric vehicles, I think most people think that there's definitely some risk of rollback there, cash, pay, or tax credit.
Speaker Change: There are definitely parts of the eye or a that more.
Speaker Change: More at risk than others, and so when you start thinking about the EV incentives and things around electric vehicles I think most people think that there's definitely some risk of rolled back there.
Mark Behrman: And so when you start thinking about EV incentives and things around electric vehicles, I think most people think that there's definitely some risk of rollback there. When it comes to 45Q, I think the conventional thought, and certainly our thoughts as well. 45Q has been around for a while, so it's not something that's new. What the IRA did is really two main things. It increased it for sequestration from $50 a ton to $85 a ton of CO2. And then it also changed the first five years of eligibility from a tax credit to cash pay. So I don't know that I see those really changing.
Speaker Change: When it comes to 45 Q I think.
Speaker Change: The conventional thought and certainly our thoughts as well 45 Q has been around for a while so it's not something that's new with the IRI data is really two main things it increased it for sequestration from $50 a ton to $85 a ton of C O two.
Speaker Change: And then it also change.
Speaker Change: Changed by the first five years of eligibility from a.
Speaker Change: A tax credit to cash pay.
Speaker Change: So I don't know that I see those really changing if they really if the government really wants to incentivize and continue.
Mark Behrman: If they really, if the government really wants to incentivize and continue to support, you know, decarbonization, even at $85 a ton of cash pay or tax credit, you know, certain volumes below certain volumes are just not economical. And so now if you went down to $50 a ton, I think you'd see a number of projects. In fact, I would venture to say most of the projects that are canceled. So I don't see that happening. Could they change cash pay in the first five years back to a tax credit? Possibly. You could see that. The other thing to keep in mind is most of the activity, most of the new plants that have been announced and new plants equate to new jobs and lots of contractors coming in and lots of equipment being bought are all in the Gulf region.
Speaker Change: Continue to support you know.
Speaker Change: <unk>.
Speaker Change: Even at $85 a ton of.
Speaker Change: Cash pay your tax credit.
Speaker: You know, below certain volumes, it's just not economical. And so now if you went down to $50 a ton, I think you'd see a number of projects. In fact, I would venture to say most of the projects that are canceled.
Speaker Change: You know it.
Speaker Change: Certain volumes below certain volumes are just not economical and so now if you went down to $50 a ton I think you'd see a number of projects.
Speaker Change: In fact, I would I would venture to say most of the projects that are canceled.
Speaker Change: So I don't see that happening.
Speaker Change: Could they change.
Speaker Change: Cash pay in the first five years back to a tax credit, possibly you could see that some of the other thing to keep in mind is most of the activity.
Speaker Change: Most of the new plants that have been announced and new plants equate to new jobs and lots of contractors coming in and.
Speaker Change: Lots of equipment being bought are all in the Gulf region and so those are two Republican supported states and the last thing I would say is the eye area in general maybe there's certain parts of it that werent bipartisan, but generally speaking the IRA was pretty supported by both parties. So I think.
Mark Behrman: And so those are two Republican-supported states. And the last thing I would say is the IRA in general, maybe there are certain parts of it that warrant bipartisan, but generally speaking, the IRA was pretty supported by both parties. So I think when you take a step back, I don't see 45Q having dramatic changes that would impact our project. I do think that there is some vulnerability on EV, as I said, and then 45V, which is for green hydrogen and green ammonia. Okay, great.
Speaker Change: When you take a step back I don't see 45, Q, having dramatic changes that would impact our project I do think that there is some vulnerability on E. T. As I said, and then 45 Z, which is for green hydrogen and green ammonia.
Speaker Change: Okay, Great that's really good color. Thank you.
Mark Behrman: Let me just collect. Thank you.
Speaker Change: Okay.
Operator: As a reminder, if you would like to ask a question, please press star one on your telephone keypad.
Speaker Change: As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Rob McWire: Our next question comes from Rob McWire with Granite Research. Please proceed with your question.
Speaker Change: Our next question comes from Robyn Maguire with chronic research. Please proceed with your question.
Rob McWire: Good morning. Thank you for taking my questions. Rob.
Robyn Maguire: Good morning, Thank you for taking my questions.
Rob: Rob Good morning, with regards to your five year Freeport agreement can you discuss your existing E&S capacity any investments that you might need in order to fill this upcoming agreement.
Mark Behrman: With regards to your five-year free port agreement, can you discuss your existing ANS capacity, any investments that you might need in order to fill this upcoming agreement? Yeah, good morning, Rob. We've had to make some investments to support this arrangement. We do have the capacity already exists, but the investments have been around storage, rail, and loading capacity. So we're making that at the moment, and that'll all be ready and commissioned ahead of the start-up of the contract.
Rob: Yeah, Good morning, Rob.
Speaker Change: We've had to make some investments excuse me to support this arrangement, we do have the capacity the capacity already exists, but the investments have been around.
Speaker Change: Storage rile and lighting capacity side, when we're making that at the moment in that a little be a ready and commission ahead of the startup of the contract.
Mark Behrman: Thank you.
Damian: Thank you Damian does this supply agreement replace a gray nitrogen supply agreement or is this brand new business.
Damien Renwick: And, Damien, does this supply agreement replace a grey nitrogen supply agreement, or is this brand new business? Well, it's probably both. I mean, obviously it's brand new, a.n.s solution business for us, and we will move our product mixer around to accommodate it.
Damian: Ah well, it's probably both I mean, obviously, it's brand new medium or high end solution business for us and we will move.
Speaker: Well, it's probably both. I mean, obviously, it's a brand new ammonium or AN solution business for us, and we will move our product mix around to accommodate it. But yeah, we are transitioning a great product over to low carbon when the Carbon Capture Project is commissioned.
Speaker Change: Product mix around to accommodate it but yes, we are transitioning our great product either to the low carbon when the carbon capture projects commissioned.
Damien Renwick: But yeah, we are transitioning our grey product over to low carbon when the carbon capture projects are commissioned. Great.
Speaker Change: Great. Thank you and then.
Rob McWire: Thank you. And then the EPA indicating a final decision next spring on the Class six application. Can you discuss what the final decision is relative to the permit being issued, expected in the second half of this year? Oh, are you asking me what it will take to get approval rub? Yeah, I'm trying to just define what you are looking at in terms of that final decision? I know you're looking for a permit being approved in the second half of this year. And I believe that's one of the next milestones, but can you just sort of lay out the milestones and explain that part?
Speaker Change: The EPA, indicating a final decision next spring.
Speaker Change: On the classics.
Speaker Change: Application can you discuss what the final decision is relative to the permit being issued is expected in the second half of this year.
Speaker Change: Yeah.
Speaker Change: Oh.
Speaker Change: Are you asking me what it will take to get approval, Rob Yeah, I'm trying to just define what what are you looking at in terms of that final decision I know youre looking for a permit thing.
Speaker: Yeah, I'm trying to just define what you're looking at in terms of that final decision. I know you're looking for a permit.
Rob: Approved in the second half of this year and I believe Thats what are the next milestones, but can you just sort of lay out the milestones and explained that part.
Mark Behrman: Yeah, so I think what we're really looking for by November of this year is a sign-off on the technical review. So once we have that and the EPA signed off on their technical review, then it's actually drafting permits. There's a public comment period. So there's about 60 days of drafting the permit. There's another 45 days of public comment period. And then, of course, there's another 45 to 60 days of drafting final permitting. So what that permit would be in May would be a permit to construct. So that would allow us to drill, and then, of course, they take core samples, and as long as those core samples match the work that was done in the technical review, then the EPA would sign off and allow us to inject into the sequestration well.
Speaker Change: Yeah. So I think what we're really looking for by November of this year.
Speaker Change: As a sign off on the technical review.
Speaker Change: So once we have that and E. P. A signed off on their technical review.
Speaker: then it's actually drafting permits. There's a public comment period, so there are about 60 days of drafting the permit. Then there's another 45 days of public comment.
Speaker Change: Then it's actually drafting permits.
Speaker Change: There's a public comment period. So there's about 60 days of drafting the permit there's another 45 days of public comment period.
Speaker Change: And then of course, there is another 45 to 60 days of drafting final permitting so what that permit would be and may would be a permit to construct.
Speaker Change: So that would allow us to.
Speaker Change: Drill and then of course, they take core samples and as long as those core samples.
Speaker Change: Match the work that was done in a technical review the knee pay would sign off and allow us to inject into the sequestration will.
Rob McWire: I appreciate that.
Speaker Change: No I appreciate that I think I got the permit to construct a little confused with the permit to inject but it's.
Mark Behrman: I think I got the permit to construct a little confused with permit to inject, but is the permit to instruct still coming in the second half of this year? No, the technical review would happen in November. And then we're hoping, and we'll see how the EPA's process works, but we're hoping to pull in the kind of May permit to construct. A little bit forward. We think that given Louisiana got primacy at the end of last year and a lot of the draft permits or the permit applications were in the class. The region six office of the EPA has now moved to Louisiana, and that was the bulk of the projects that given the now shrinking number of class six permits at the EPA Dallas office region six office. That will help us out and hopefully speed up the timing a little bit.
Speaker Change: Is the permit to instruct still coming in the second half of this year.
Speaker Change: Another technical review would happen in November.
Speaker Change: And then we.
Speaker Change: We're hoping and we will see you know how the epa's process works, but we're hoping to pull in the kind of may permit to construct.
Speaker Change: A little bit forward, we think that given Louisiana got primacy at the end of last year and a lot of the.
Speaker Change: Draft permits or the permit applications were in the class a the region six office of the E. P. A and then now moved to Louisiana and that was the bulk of the projects.
Speaker: that given the now shrinking number of Class 6 permits at the EPA Dallas office, Region 6, that that will help us out and hopefully speed up the timing a little bit.
Speaker Change: That given the now shrinking number of plus six permits.
Speaker Change: The E P. A Dallas office reached six office that that will help us out and hopefully speed up the timing a little bit.
Speaker: Thanks Mark, I appreciate that, and with regard to
Mark Behrman: Thanks, Mark. I appreciate that.
Speaker Change: Thanks, Mark I appreciate that and with regards to.
Mark Behrman: And with regards to Deliverging and Repurchasing Shares. First off, nice job on that.
Speaker Change: Deleveraging in repurchasing shares during the first off nice job on that.
Mark Behrman: Where does that leave your existing authorization from the board with regards to repurchasing debt and shares? Well, from a debt standpoint, is really not an authorization that's needed. We will talk to the board and make a recommendation, and the board will approve it or not approve it.
Speaker Change: Where does that leave your existing authorization from the board with regards to repurchasing shares.
Speaker Change: Well from a debt standpoint, there's.
Speaker Change: There's really not an authorization that's need needed we will.
Speaker Change: We will talk to the board and make a recommendation and the board will approve it or not approve it when it comes to the share buyback authorization.
Mark Behrman: When it comes to the share buy-back authorization. North of 100 million remaining. Yeah, so we still have plenty of opportunity and plenty of room to buy back stock. Should that make sense for us? Okay, I appreciate that.
Speaker: It's north of 100 million remaining. Yeah, so we still have plenty.
Speaker Change: $100 million remaining yeah. So we still have plenty of opportunity and plenty of room to buy back stock should that makes sense for us.
Speaker Change: Yeah.
Speaker: Okay, I appreciate that. Um, and then also maybe on capital allocation, just can you discuss the M&A environment and, with all your projects in place, deleveraging, and returning cash to shareholders, are potential acquisitions very high on the priority list at this point?
Speaker Change: Okay. I appreciate that and then also maybe on capital allocation just can you discuss the M&A environment and with all your projects in place and deleveraging returning cash to shareholders.
Mark Behrman: And then also maybe on capital allocation just can you discuss the M&A environment and with all your projects and place and de-logging and returning cash to shareholders are potential acquisitions very high on the priority list at this point. Well, I don't know about high on the list. I think we look at all opportunities to grow the company and whether that's our internal reliability program that we think adds a lot of value. So we're really focused on that, and then, as you mentioned, the two projects and getting them up and running, or getting certainly the carbon capture and sequestration project that El Dorado actually up and running and operating. And then our other project, you know, the inflection point for us ultimately will be FID, so looking at getting to that point.
Speaker Change: For potential acquisition is very high on the priority list at this point.
Speaker Change: Yeah.
Speaker Change: Well I don't know about the high on the list I think we look at all opportunities to grow the company and whether that's our internal.
Speaker Change: Reliability program that we think adds a lot of value. So we're really focused on that and then as you mentioned the two projects.
Speaker Change: And getting them up and running are getting certainly.
Speaker Change: Carbon capture and sequestration project at El Dorado, actually up and running and operating and then our other project you know the inflection point for us ultimately would be S. I D.
Speaker: So I am looking at getting to that point.
Speaker Change: So looking at getting to that point.
Mark Behrman: I do think we are still interested in M&A where we can find strategic assets that make sense for us and support, you know, our vision and strategy. So, we absolutely will continue to look for those owning ammonia assets. We think is really important, and we want to be a larger player within the industry. Having scale, I think, would help us. So, I guess overall we continue to look for opportunities that to merge or combine, and that makes a lot of sense for us.
Speaker Change: I do think we are still interested in M&A, where we can find strategic assets that makes sense for us and support.
Speaker Change: Our vision and strategy and so we absolutely will continue to look for those owning ammonia assets. We think is really important.
Speaker Change: And we want to.
Speaker Change: The a larger player within the industry of having scale I think would help us.
Speaker Change: So I.
Speaker Change: I guess overall, we continue to look for opportunities that are to merge or combine and that makes a lot of sense for us.
Speaker: That's helpful, Mark. Thank you. Just last question. With regard to your ammonia production rates trending higher over the long term in your initiatives there, could there be a stair-step improvement coming out of the turnarounds this year? I know you always get a bump up in terms of production coming out of turnarounds, but can you just talk about what we might see in terms of improved reliability?
Mark Behrman: That's helpful, Mark. Thank you. Just last question with regards to your ammonia production rates trending higher over the long term and your initiatives there. Could there be a stair step improvement coming out of the turnaround this year? I know you always get a bump up in terms of production coming out of turnaround, but can you just talk about what we might see in terms of improved reliability? Yeah, look, I think that we're going to get a bump from going through our prior and Cherokee turnaround this year.
Mark Behrman: That's helpful. Mark. Thank you and just last question with regards to your ammonia production rates are trending higher over the long term and your initiatives there could there be a stair step improvement coming out of the turnarounds. This year I know you always get a bump up in terms of production coming out of turnarounds, but.
Speaker Change: Can you just talk about what we might see in terms of improved.
Speaker Change: Reliability.
Speaker Change: Yeah look I think that we're going to get a bump.
Speaker: Yeah, look, I think that we're going to get a bump from going through our prior and Cherokee turnarounds this year. You definitely trained into those turnarounds at some lower rates, particularly as catalyst starts to degrade, and you get some lower rates. So, I think that we should see a bump there. Stair-step, I'm probably a little...
Speaker Change: From.
Speaker Change: Going through our Pryor and Cherokee turnarounds this year.
Mark Behrman: You know anytime you know when you go particularly at Cherokee when you go three years or stretching even to four years between turnarounds, you definitely trained into those turnarounds at some lower rates, particularly as catalyst starts to degrade and you get some lower rates. So I think that we should see absolutely a bump there, stair step. I'm probably a little, you know, trying to be a little cautious on whether it's going to be a stair step or not. We expect to be significantly improved. and we're doing a lot of work at both of those sites to really improve the reliability.
Speaker Change: You know anytime you know when you go particularly at Cherokee when he goes three years or stretching even to four years between turnarounds.
Speaker Change: You definitely.
Speaker Change: Trained into those turnarounds at some lower rates, particularly as catalyst starts to degrade.
Speaker Change: Get some lower rates. So I think that we should see absolutely a bump their stair step I'm, probably a little.
Speaker Change: You know try and be a little cautious on whether it's gonna be a stair step or not we we expect to be significantly improved.
Speaker Change: And we're doing a lot of work at both of those sites to really improve the reliability and I think the investment that we're making.
Mark Behrman: I think the investment that we're making at Prior is north of $30 million, so it's a large investment for us and we think it's got significant returns. The same thing down or at Cherokee later this year. We're making big investments in our ammonia plant and we think that we'll actually run much more reliably. We've done a really good job; the teams have done a really good job in keeping our plants running, so the on-stream rate has improved dramatically. But the one thing that we need to focus on is getting every tone out of the plants, and so I think that's a lot of the turnaround that we're in now is really focused on that.
Speaker Change: At Pryor is north of $30 million. So it's a large investment for us and we think it's got significant returns.
Speaker Change: Thing down or at Cherokee later, this year, we're making big investments in our ammonia plant.
Speaker Change: And we think that.
Speaker Change: Well actually run much more reliably we've done a really good the teams have done a really good job in.
Speaker Change: Keeping our plants running so the onstream rate has improved dramatically, but the one thing that we need to focus on is getting every ton out of the plants and so I think that's a lot of the turnaround that we're in now is really focused on that.
Mark Behrman: We're also, we've run really well from an on-stream standpoint at El Dorado, ammonia, but probably at a little bit lower rates due to the degradation of our catalyst there, and so we are taking a small planned outage to replace the catalyst to get back up to maximum rates, and so we're excited about that to see the improvements that will get out of that plant as well.
Speaker Change: We're also.
Speaker Change: We've run.
Speaker Change: Really well from an on stream standpoint at El Dorado.
Speaker Change: Ammonia.
Speaker Change: But probably at a little bit lower rates due to the degradation of.
Speaker Change: Our catalyst there and so we are taking oh.
Speaker Change: A small planned outage to replace the catalyst to get back up to maximum rates and so we're excited about that to see.
Speaker Change: The improvements that we'll get out of that plant as well.
Mark Behrman: That's really helpful, and it seems like that the little more time today, Mark. I wonder one more question: if you go to elaborate on what you're seeing in terms of Europe and kind of shifting demand towards low carbon and legislation that might help move that along. Yeah, so if you go back, you know, 24 months or maybe even as recent as 12 months, I think Europe was very focused on their energy transition being hydrocarbons to zero hydrocarbons, right, so green, and I think the economics of green just broadly, you know, don't really make sense today.
Speaker Change: That's really helpful and I just it seems like there's a little more time today, Mark I Wonder if one more question. If you can elaborate on what youre seeing in terms of Europe.
Speaker Change: And kind of shifting demand towards low carbon and legislation that might.
Speaker Change: Helped.
Mark Behrman: That alone.
Mark Behrman: Yeah. So if you go back you know 24 months well.
Speaker Change: But maybe even as recent as 12 months I think Europe was very focused on.
Mark Behrman: Their energy transition being hydrocarbons to zero hydrocarbons, right, So green and.
Mark Behrman: I think the economics of Green just broadly.
Mark Behrman:
Mark Behrman: Don't really make sense today.
Mark Behrman: I think the cost of equipment, of course, construction and contractor costs, and then efficiencies put ammonia and hydrogen at a rate that makes it a big cost prohibitive for people to be okay paying for.
Mark Behrman: I think the cost of equipment.
Mark Behrman: Hum of course, construction and contractor costs.
Mark Behrman: And then efficiencies.
Mark Behrman:
Mark Behrman: Ammonia and hydrogen at a rate that.
Mark Behrman: Makes it a big cost prohibitive for people to be okay paying for so I think what we've seen over the last 12 to 18 months is really a little bit of a shift in Europe, where they are now focused on it's a true transition as opposed to I'll call. It a revolution going from hydrocarbons.
Mark Behrman: So I think what we've seen over the last, you know, 12 to 18 months is really a little bit of a shift in Europe where they're now focused on a true transition as opposed to I'll call it a revolution going from hydrocarbons to no hydrocarbons. And so blue has become a lot more of top of mind in a lot of our conversations with European, potentially European off-takers. And so that's really exciting for us because now we've got a real market and a lot of that not just in from a cost perspective and a creating a shift change, but also CBAM, which is their carbon border mechanism. And so that's a real tax that's coming into place starting in 2026 and so it'll scale in over time from 26 to 30. And we've got a lot of folks that either use ammonia today or are thinking about ammonia as a fuel source to replace coal or even that gas and looking at that tax and where's the inflection point, like at some point, you know, there needs to be a switch.
Mark Behrman: To to know hydrocarbons, and so blue has become a lot more of top of mind and a lot of our conversations with European a potential European off takers and so that's really exciting for us because now we've got a real market and a lot of that.
Speaker Change: Not just in from a cost perspective in our Caribbean shift change, but also see Bam, which is they are.
Speaker Change: Carbon border mechanism.
Speaker Change: And so that's a real tax that's coming into place starting in 2026, and so it'll it'll scaling over time from 26 to 30, and we've got a lot of folks that either use ammonia today or are thinking about ammonia as.
Speaker Change: Fuel source to replace coal or even Nat gas and.
Speaker Change: I'm looking at that tax and where is the inflection point like at some point you know there needs to be a switch so again I think.
Mark Behrman: So again, I think much change in Europe in the way that they're thinking about it, and we're waiting to see what the European regulation and incentive programs look like related to blue versus green.
Mark Behrman:
Speaker Change: Much change in Europe in the way that they're thinking about it and we're waiting to see what the European regulation and incentive programs look like related to blue versus green.
Charles Neivert: Our next question comes from Charles Neivert. I'm going to be taking, and I'm assuming overall that it's obviously that's a good thing, but is that going to take away from any other nitrogen product production because you're going to have to be focused more on that on the AN side, or that shouldn't be a problem at all. It won't affect them on your production, won't affect your rear or anything else.
Speaker Change: Our next question comes from Charles Meade Berg Piper Sandler. Please proceed with your question good.
Speaker: Morning, guys. Just a quick question. In terms of the new contract and the deal with Freeport, etc., and the amount of product they're going to be taking, and I'm assuming overall that, you know, obviously, that's a good thing, but is that going to take away from any other nitrogen product production because you're going to have to be sort of focused more on the AN side, or should that not be a problem at all? It won't affect ammonia production, won't affect urea, or anything else.
Speaker Change: Morning, guys. Just a quick question in terms of the new contract and the deal with with Freeport et cetera, and the amount of product, they're going to be taking out I'm. Assuming overall that you know it's obviously that's a good thing but is that going on.
Speaker: Anything specific on which products get most affected by the shift?
Speaker Change: Is that going to take away from any other nitrogen product production, because you're going to have to be sort of focus more on on that on that on the a N side or that shouldn't be a problem at all it won't affect ammonia production won't affect urea or anything else.
Charles Neivert: Is there a sort of a trade-off, so to speak, in trying to ramp up production for that?
Speaker Change: Is there a is there a sort of a trade off so to speak and trying to ramp up production for that.
Mark Behrman: Yeah, good morning, Charles. Look, it certainly won't affect our ammonia production, but from an ammonium nitrate perspective, yes, there'll be a shift in tons away from other products and into supporting the contract with Freeport. Anything specific on which products get most affected by the shift?
Mark Behrman: Yeah. Good morning, Charles look at certainly wanted to take down our ammonia production that from in the money and not try perspective, yes, there'll be a shift in in tons of a wife from from other products.
Speaker Change: D C to supporting the contract with Freeport.
Speaker Change: Anything specific on which products get most affected by the shift.
Speaker: No, nothing specific. We'll just manage it through the portfolio.
Mark Behrman: No, nothing specific. We'll just manage it through the portfolio.
Speaker Change: No nothing specific we will just manage that through their portfolio.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Hum.
Operator: We have now reached the end of our question-and-answer session.
Mark Behrman: We have now reached the end of our question and answer session I would like to turn the floor back over to Mark Behrman for closing comments.
Mark Behrman: I would like to turn the floor back over to Mark Derman for closing comments. Well, thank you everyone for your interest in LSB Industries. I hope you can see that we continue to make progress quarter to quarter and also progress in really our long range growth prospects for the company. So thanks for your support, and we look forward to speaking you next quarter.
Mark Behrman: Well. Thank you everyone for your interest in OSB industry as I Hope you can see that we continue to make progress quarter to quarter and also.
Speaker Change: Progress in really our long range growth prospects for the company. So thanks for your support and we look forward to speaking to you next quarter.
Operator: This includes today's teleconference.
Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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Operator: You may disconnect your lines at this time.
Operator: Thank you for your participation.
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Operator: Thank you.
Mark Behrman: Yeah.
Mark Behrman: [music].
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Mark Behrman: Yeah.
Mark Behrman: Yes.
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