Q4 2024 LSB Industries Inc Earnings Call
Greetings and welcome to the L. S. B industries fourth quarter 'twenty 'twenty four earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation should anyone require operator assistance during the conference. Please press star zero on your telephone.
Operator: Greetings and welcome to the LSB Industries 4th 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. Should anyone require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Pat: Pat as.
As a reminder, this conference is being recorded.
Fred Buonocore: It is now my pleasure to introduce your host, Fred Buonocore, Vice President of Investor Relations. Thank you. You may begin.
It is now my pleasure to introduce your host Fred Buonocore, Vice President of Investor Relations. Thank you you may begin.
Pat: Good morning, everyone. Joining me today are Mark Behrman, our chairman and Chief Executive Officer, Cheryl Maguire, our Chief Financial Officer, Damien Renwick, our Chief commercial officer.
Mark Behrman: Good morning, everyone.
Mark Behrman: Joining me today are Mark Behrman, our Chairman and Chief Executive Officer, Cheryl Maguire, our Chief Financial Officer, and Damien Renwick, our Chief Commercial 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.
Pat: 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.
Mark Behrman: On the call we will reference non-GAAP results.
Pat: On the call we will reference non-GAAP results. Please see the press release in the investors section of our website LSP industries Dot com for further information regarding forward looking statements and reconciliations of non-GAAP results to GAAP results.
Mark Behrman: Please see the press release in the investors section of our website lsbindustries.com for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results.
Mark Behrman: At this time, I'd like to go ahead and turn the call over to Mark. Thank you, Fred. Turning to page four of our presentation, our adjusted EBITDA was up significantly year-over-year despite performing a planned turnaround during this year's fourth quarter versus no turnarounds last A key driver of the increase was the improved performance of our ammonium nitrate and nitric acid operations, both of which had strong production and sales volume increases as compared to the fourth quarter of 2023. During the fourth quarter, we continued to invest in the reliability and safety of our facilities. We completed a turnaround of the ammonia plants at our Cherokee facility that we expect to lead to increased production volumes during 2025.
Mark Behrman: At this time I'd like to go ahead and turn the call over to Mark.
Speaker Change: Thank you Fred turning to page four of our presentation or adjusted EBITDA was up significantly year over year. Despite performing a planned turnaround during this year's fourth quarter versus no turnarounds last year.
Speaker Change: A key driver of the increase was the improved performance of our ammonium nitrate nitric acid operations, both of which had strong production and sales volume increases as compared to the fourth quarter of 2023.
Speaker Change: During the fourth quarter, we continued to invest in the reliability and safety of our facilities. We completed a turnaround of the ammonia plant at our Cherokee facility and we expect to lead to increased production volumes during 2025.
Mark Behrman: We are seeing the benefits of that work with daily production rates for urea and UAN at their highest levels on record. We completed that turnaround injury-free, and in fact, our Cherokee site finished 2024 with zero recordable injuries for the year. Additionally, our Baytown Nitric Acid Facility had an injury-free year and is now on its ninth year of no recordable injuries.
Speaker Change: We are seeing the benefits of that work with daily production rates for urea and you went in at their highest levels on record.
Speaker Change: We completed that turnaround injury free and in fact, our Cherokee side finished 2024 with zero recordable injuries for the year.
Speaker Change: Additionally, our baytown nitric acid facility had an injury free year and is now in its ninth year of no recordable injuries.
Mark Behrman: Big congratulations to the teams at both of these facilities for exemplifying our Protect What Matters corporate value.
Speaker Change: Big Congratulations to the teams at both of these facilities for exemplifying our protect what matters corporate value.
Speaker Change: Lastly, we continue our efforts to advance our two energy transition projects, which I'll discuss later in the call.
Mark Behrman: Lastly, we continue our efforts to advance our two energy transition projects, which I'll discuss later in the call.
Damien Renwick: Now I'll turn the call over to Damien, who will review current market dynamics and pricing trends. Damien? Thanks Mark and good morning everyone.
Speaker Change: Now I'll turn the call over to Damien, who will review current market dynamics and pricing trends Damian.
Damien Renwick: Thanks, Mark and good morning, everyone.
Damien Renwick: Page 5 summarises some key dynamics in our industrial and market. Our industrial business continues to be a core focus of our commercial strategy for 2025 and beyond. The vast majority of our industrial sales are covered under contractual arrangements with rateable off-take. Additionally, our industrial contracts typically utilise cost-plus-pricing arrangements that provide us with stable margins and enhance our visibility into our future results. These attributes underpin our motivation to grow the industrial side of our business, which we believe will ultimately accrue to the value of our company. We continue to benefit from healthy demand from our primary industrial end markets and have been successfully increasing our production volumes to meet it.
Damien Renwick: Page five summarizes some K, you're talking about mix in our industrial end markets our.
Damien Renwick: Our industrial business continues to be a core focus of our commercial strategy for 2025 and beyond the.
Damien Renwick: The vast majority of our industrial styles are covered under contractual arrangements with ratable offtake. Additionally.
Damien Renwick: Additionally, our industrial contracts typically utilized cost plus pricing arrangements that provide us with stable margins and enhanced visibility into our future results.
Damien Renwick: These attributes underpin a motivation to grow the industrial sort of bad business, which we believe will ultimately accrue to the value of our company.
Damien Renwick: We continue to benefit from healthy demand from our primary industrial end markets and have been successfully increasing our production volumes to make it.
Damien Renwick: More specifically, we have been ramping up our sales of ammonium nitrate solution to meet new contractual commitments.
Damien Renwick: More specifically, we have been ramping up that sales of ammonium nitrite solution to meet new contractual commitments in terms of the broader money market. We continue to be encouraged by strong copper production and processing as copper continues to be supported by the build out of electrical infrastructure full technology applications.
Damien Renwick: In terms of the broader mining market, we continue to be encouraged by strong copper production and pricing as copper continues to be supported by the build-out of electrical infrastructure for technology applications. Gold prices are also at record highs, driven by continued global economic uncertainty, which is supporting healthy U.S. gold production. Our other primary industrial product category, nitric acid, has also been performing well. Pricing and demand have been stable, and we see opportunities for growth with existing and new customers, with our primary constraint being our production capacity. auto production and home building, while not particularly robust, have remained stable for several years, which translated into steady demand for our nitric acid business to remain in a sold out position.
Damien Renwick: Thought process a rule so at record highs driven by continued global economic uncertainty, which is supporting healthy U S gold production.
Damien Renwick: And while the primary industrial product category nitric acid has also been performing well.
Damien Renwick: And demand has been stable and we see opportunities for growth with existing and new customers with our primary constraint being out production capacity.
Damien Renwick: Auto production and time building well not particularly robust have remained stable for several years.
Damien Renwick: This translated into steady demand for our nitric acid business to remain in a sold out position.
Damien Renwick: Notably in December 2024, and despite persistent high interest rates, new housing start ticked up to the highest level. Since early 2024, driven by strong demand for <unk> and continued solid economic conditions.
Damien Renwick: Notably, in December 2024, and despite persistent high interest rates, new housing starts ticked up to their highest level since early 2024, driven by strong demand for homes and continued solid economic conditions.
Damien Renwick: On page 6 of our presentation, you'll find a summary of current nitrogen market dynamics. UAN prices have increased steadily since the summer fill. A key factor in the strength has been the rise in urea prices, driven in part by robust demand from India. Additionally, UAN pricing benefited from a favourable trade balance, where US imports remain low compared to recent history.
Damien Renwick: On page six of our presentation Youll find the summary of current nitrogen market dynamics.
Damien Renwick: Uhm process has increased steadily since the summer fill a key factor in the strength has been the rise in urea prices driven in part by robust demand from India.
Damien Renwick: Additionally, U I N pricing benefited from a favorable trade balance where U S imports for mine life compared to recent history.
As we enter the spring 2025 planting season, we are encouraged by what we're saying on the U I N landscape with rising home prices acting as a potential stimulant strong fertilizer demand.
Damien Renwick: As we enter the spring 2025 planting season we're encouraged by what we're seeing on the UAN landscape with rising corn prices acting as a potential stimulant for strong fertilizer demand. That, coupled with tightening supply, will likely translate into healthy demand and pricing. The Tampa Ammonia benchmark price remains above year-ago levels. This is a result of numerous factors, including ongoing delays in the commissioning of new domestic production capacity and a fairly tight supply and demand balance. The tamper ammonia price strength continues to be impacted by high natural gas prices in Europe, which is driving higher European marginal production costs for ammonia.
Damien Renwick: That coupled with tightening supply will likely translate into healthy demand and pricing.
Damien Renwick: The Tampa ammonia benchmark price remains above year ago levels.
Damien Renwick: This is a result of numerous factors, including ongoing delays in the commissioning of new domestic production capacity and the fairly tight supply and demand balance.
Damien Renwick: The Tampa ammonia price strength continues to be impacted by high natural gas prices in Europe, which is driving higher European marginal production costs for ammonia.
Damien Renwick: The middle chart shows the gas price trend for the European TTF, relative to the price for US Henry Hub. European natural gas prices are significantly higher than a year ago levels. The increase is driven by a combination of factors, including geopolitical instability in the Middle East and, more recently, cold winter weather in Europe resulting in depletion of storage.
Damien Renwick: The Middle chart shows the gas price trend for the European T. T S relative to the Pos for U S. Henry hub.
Damien Renwick: European natural gas prices are significantly higher than year ago levels. The.
Damien Renwick: The increase was driven by a combination of factors, including geopolitical instability in the middle East and more recently cold winter weather in Europe, resulting in depletion of storage.
Damien Renwick: While U.S. natural gas prices are also higher than a year ago levels, U.S. ammonia producers continue to have a material competitive advantage compared to European producers.
Damien Renwick: While U S. Natural gas prices are also higher than year ago levels U S. Ammonia producers continue to have a material competitive advantage compared to European producers.
Damien Renwick: On page seven we show pricing trends and forecasts for corn and other grant process, which drive our agricultural business.
Damien Renwick: On page 7, we show pricing trends and forecasts for corn and other grain prices, which drive our agricultural business. U.S. corn prices rose over the past several months in reaction to revisions of USDA's outlook for grains, which called for smaller supplies and reduced ending stocks relative to their earlier estimates.
Damien Renwick: U S corn prices rise over the past several months in reaction to revisions of Usda's outlook for Brian's, which caused the small supplies and reduced ending stocks relative to their real your estimates.
Damien Renwick: Heading into the spring planting season home prices of close to $5 per bushel, which we believe is a level that should incentivize farmers to apply a healthy level of nitrogen fertilizers.
Damien Renwick: Heading into the spring planting season, corn prices are close to $5 per bushel, which we believe is a level that should incentivise farmers to apply a healthy level of nitrogen fertilisers.
Damien Renwick: Finally, we continue to monitor developments and tariffs related to our end markets.
Damien Renwick: Finally, we continue to monitor developments in tariffs related to our end markets.
Damien Renwick: Sure brought by tariffs on Canada, and Mexico to be implemented we foresee potential impacts to U S nitrogen imports from Canada impacting pricing in both our AG and industrial markets.
Damien Renwick: Should broad-based tariffs on Canada and Mexico be implemented, we foresee potential impacts to U.S. nitrogen imports from Canada, impacting pricing in both our ag and industrial markets. Anti-retaliatory tariffs are also likely to have impacts on U.S. exports, with cost increases likely to be passed on to customers.
Damien Renwick: Andy Retaliatory tariffs are also likely to have impacts on U S exports with cost in places likely to be passed onto customers.
Damien Renwick: We're also closely following the recent announcement by the European Commission of a proposal to introduce fixed right tariffs on several fertilizer products sourced from Russia and Belarus.
Damien Renwick: We're also closely following the recent announcement by the European Commission of a proposal to introduce fixed rate tariffs on several fertiliser products sourced from Russia and Belarus.
Damien Renwick: This proposal will be considered by the European Parliament before it is adopted. If implemented, we believe this will encourage Russian nitrogen producers to divert volumes to other major import markets, including the US.
Damien Renwick: This proposal will be considered by the European Parliament before it is adopted.
Damien Renwick: If implemented we believe this will encourage Russia nitrogen producers to divert volumes to other major import markets, including the U S.
Damien Renwick: Now I'll turn the call over to Cheryl to discuss our fourth quarter financial results and our outlook Cheryl.
Cheryl Maguire: Now, I'll turn the call over to Cheryl to discuss our fourth quarter financial results and our outlook. Cheryl? Thanks, Damien, and good morning. On page 8, you'll see a summary of our fourth quarter 2024 financial results. We generated adjusted EBITDA of $38 million. This is a material improvement over the prior year fourth quarter, despite an estimated $7 million impact from the plan turnaround we completed at our Cherokee Facilities ammonia plant in December. Page 9 provides some color to the quarter-over-quarter results by bridging our fourth quarter 2023 adjusted EBITDA of $25 million to our fourth quarter 2024 adjusted EBITDA of $38 million.
Cheryl Maguire: Thanks, Damien and good morning on page eight you'll see a summary of our fourth quarter 2024 financial results. We generated adjusted EBITDA of 38 million. This is a material improvement over the prior year fourth quarter. Despite an estimated 7 million impact from the planned turnaround we completed at our Cherokee facilities ammonia play.
Cheryl Maguire: And in December page nine provides some color to the quarter over quarter results by bridging our fourth quarter 2023, adjusted EBITDA of 25 million to our fourth quarter 2024, adjusted EBITDA of 38 million.
Cheryl Maguire: Stronger sales volumes from improvements in plant reliability, higher ammonia prices, and lower natural gas costs benefited us during the period. Notably, excluding the sales volume impact of our Cherokee turnaround, we estimate that our fourth quarter adjusted EBITDA would have been approximately $45 million. These financial results reflect the positive impacts of the work that we completed during 2024 to improve our manufacturing operations.
Cheryl Maguire: Longer sales volumes from improvements in plant reliability higher ammonia prices and lower natural gas costs benefited us during the period.
Cheryl Maguire: Notably, excluding the sales volume impact of our Cherokee turnaround, we estimate that our fourth quarter adjusted EBITDA would have been approximately 45 million.
Cheryl Maguire: These financial results reflect the positive impact of the work that we completed during 2024 to improve our manufacturing operation.
Cheryl Maguire: We expect to make further progress on this front in 2025, as I will discuss shortly.
We expect to make further progress on this front in 2025 as I will discuss shortly page.
Cheryl Maguire: Page 10 provides a summary of our key balance sheet and cash flow metrics. Our cash flow balance remains strong, and our 2024 year-end leverage ratio was below our target level for a mid-cycle pricing environment. At the same time, we've made significant investments in the reliability of our facilities, as well as in capacity expansion, storage, and logistics capabilities. Much of this investment is reflected in our $92 million of CapEx for the full year 2024, of which approximately $25 million was targeted towards growth with the balance to sustain reliable operations.
Cheryl Maguire: Page 10 provides a summary of our key balance sheet and cash flow metrics, our cash flow balance remains strong and our 2024 year end leverage ratio was below our target level for a mid cycle pricing environment.
Cheryl Maguire: At the same time, we've made significant investments in the reliability of our facilities as well as in capacity expansion storage and logistics capabilities.
Cheryl Maguire: Much of this investment is reflected in our $92 million of Capex for the full year 2024 of which approximately 25 million was targeted towards growth with the balance to sustain reliable operations.
Cheryl Maguire: In addition to investing in our manufacturing assets over the two years ended December 31, 2024, we've derisked our balance sheet by repurchasing approximately $222 million and principal amount of our senior secured notes. We also returned capital to stockholders through the repurchase of approximately $4 six.
Cheryl Maguire: In addition to investing in our manufacturing assets, over the two years ended December 31, 2024, we derisked our balance sheet by repurchasing approximately $222 million in principal amount of our senior secured notes. We also returned capital to stockholders through the repurchase of approximately 4.6 million shares of our stock in the same period.
Cheryl Maguire: Shares of our stock in the same period.
Cheryl Maguire: Slide 11 summarizes the key considerations with respect to our expectations for full year 2025. The table in the upper left shows our estimated ammonia production and sales volumes for the year. We expect that our ammonia production will increase as compared to 2024, with the improvements made in the turnarounds we completed at our prior and Cherokee facilities last year. This production should more than offset the impact of the 30-day turnaround planned at our El Dorado site during the second half of this year. Also, we expect the work completed in 2024 to yield meaningful increases in production and sales volumes of our downstream products, AN, nitric acid, and UAN.
Cheryl Maguire: Slide 11 summarizes the key considerations with respect to our expectations for full year 2025.
Cheryl Maguire: Table in the upper left shows our estimated ammonia production and sales volumes for the year, we expect that our ammonia production will increase as compared to 2024 with the improvements made in the turnaround we completed at our Pryor and Cherokee facilities last year.
Cheryl Maguire: This production should more than offset the impact of a 30 day turnaround planned at our El Dorado site. During the second half of this year also we expect the work completed in 2024 to yield meaningful increases in production and sales volumes of our downstream products and nitric acid and U a N.
Cheryl Maguire: At the same time, you can see that we expect our ammonia sales volumes to decline in 2025, reflecting the upgrade of a greater portion of our ammonia production into higher-margin downstream products. The slide also covers our estimates of variable and fixed plant expenses, as well as SG&A and other expenses for 2025. Our expectations for fixed costs reflect investments we are making to achieve our production volume goals. We expect to see fixed costs trend down beginning in 2026. 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 2025 as we continue to utilize our NOLs.
Cheryl Maguire: At the same time, you can see that we expect our ammonia sales volumes to decline in 2025, reflecting the upgrade of a greater portion of our ammonia production into higher margin downstream products.
Cheryl Maguire: The slide also covers our estimates the variable and fixed plant expenses as well as SG&A and other expenses for 2025, our expectations for fixed costs, reflecting investments, we are making to achieve our production volume golf.
Cheryl Maguire: Back to the fixed cost trend down beginning in 2026, we expect our effective tax rate for the year to be approximately 25%. However, we do not expect to be immaterial cash taxpayer in 2025, as we continue to utilize our Nols.
Cheryl Maguire: In the table at the bottom right side of the slide, you'll see that we expect to invest approximately $80 to $90 million of CapEx in our facilities during 2025. That includes $60 to $65 million for annual EH&S and reliability CapEx, and $20 to $25 million earmarked for growth investments, including enhanced logistics and storage capabilities for our growing AN business. As Damien pointed out, urea prices are rising in the U.S., resulting in a corresponding rise in UAN pricing, a trend we believe will continue through the forthcoming spring application season. We expect our first quarter volumes to be relatively flat compared to the first quarter of 2024.
Cheryl Maguire: In the table at the bottom right side of this slide you'll see that we expect to invest approximately $80 million to $90 million of capex in our facilities during 2025.
Cheryl Maguire: That includes $60 million to $65 million for annual Ehm, asking reliability, Capex and 20 to 25 million earmarked for growth investments, including enhanced logistics and storage capabilities for our growing an business as.
Cheryl Maguire: As Damien pointed out urea prices are rising in the U S, resulting in a corresponding rise in U a N pricing a trend we believe will continue through the forthcoming spring application season.
Cheryl Maguire: Expect our first quarter volumes to be relatively flat compared to the first quarter of 2024. This is largely the result of lower inventory levels heading into 2025, following our turnarounds in the final months of the year with that said as indicated on this slide we do expect a volume uplift for the full year 2025.
Cheryl Maguire: This is largely the result of lower inventory levels heading into 2025, following our turnarounds in the final months of the year. With that said, as indicated on this slide, we do expect a volume uplift for the full year 2025. Through the first two months of the year, our cost of gas has averaged approximately $3.85 per MMBTU. This is consistent with our expectations for 2025 natural gas prices to be higher relative to 2024. We previously discussed our focus on upgrading and increasing amount of ammonia to capture additional margins.
Cheryl Maguire: Through the first two months of the year, our cost of gas has averaged approximately $3 85 per M. B to you there.
Cheryl Maguire: This is consistent with our expectations for 2025 natural gas prices could be higher relative to 2024, we previously discussed our focus on upgrading and an increasing amount of ammonia to capture additional margin page 12 illustrates the favorable sales volume trends were driving in our major major product groups adjusted for the.
Cheryl Maguire: Page 12 illustrates the favorable sales volume trends we're driving in our major product groups, adjusted for the impact of turnarounds. The first chart shows the increase in AN and nitric acid sales volumes recognized in 2024 as a result of our reliability improvements to our downstream operations and the full-year volume impact we expect in 2025. The middle chart shows UAN sales volumes, which despite the impact of turnarounds at both our prior and Cherokee facilities, were flat in 24 compared to 23. This strong performance results in part from the AREA expansion we completed at our prior facility in the third quarter.
Cheryl Maguire: The impact of turnarounds. The first chart shows the increase in a N and nitric acid sales volumes recognized in 2024 as a result of our reliability improvements to our downstream operations and the full year volume impact we expect in 2025.
Cheryl Maguire: The Middle chart shows you a N sales volumes, which despite the impact of turnarounds at both our Pryor and Cherokee facilities were flat in 24 compared to 23. This strong performance resulted in part from the urea expansion, we completed at our Pryor facility in the third quarter, excluding the impact of turnarounds shown in the white and blue.
Cheryl Maguire: Excluding the impact of turnarounds shown in the white and blue striped section of the middle bar, we estimate that UAN sales volumes would have been up significantly. Our projection for a further increase in UAN volume in 2025 reflects the full year benefit of the new capacity as well as improved plant reliability.
Cheryl Maguire: <unk> drive section of the Middle Bar, we estimate that you and sales volume would have been up significantly our projection for a further increase in UA and volume in 2025 reflects the full year benefit of the new capacity as well as improved plant reliability.
Cheryl Maguire: The chart on the far right shows a downward trend in ammonia sales volumes. In this case, a down and to the right trend is a good thing.
Cheryl Maguire: The chart on the far right shows a downward trend in ammonia sales volumes in this case it down until the right trend is a good thing.
Cheryl Maguire: Turning to page 13, you'll find a summary of the multiple initiatives we have underway to drive earnings growth. First, over the course of 2024, we talked about our two margin enhancement projects, the expansion of our urea capacity at our prior facility that we expect to allow us to produce an incremental 75,000 tons of UAN annually, and the construction of an additional 5,000 tons of nitric acid storage at our Alderedo facility.
Cheryl Maguire: Turning to page 13, you'll find a summary of the multiple initiatives, we have underway to drive earnings growth first over the course of 'twenty 'twenty four we talked about our two margin enhancement projects the expansion of our urea capacity at our Pryor facility that we expect to allow us to produce an incremental 75000 tons of U a N <unk>.
Cheryl Maguire: Ali.
Cheryl Maguire: And the construction of an additional 5000 tons of nitric acid storage at our El Dorado facility.
Cheryl Maguire: Both projects were completed in the second half of 2024. We expect to see the full-year incremental EBIDTA benefit in 2025. Second, our stated goal of increasing our ammonia production volume represents an important earnings lever, and while we recognize some of those benefits post the work performed during the 2024 turnarounds, we have additional opportunity ahead of us. We expect the turnaround of our Eldorado ammonia plant in the second half of this year to move us further towards our ammonia production goals. Third, during 2024, we put a great deal of focus on improving the reliability of our downstream production.
Cheryl Maguire: Both projects were completed in the second half of 'twenty 'twenty four we expect to see the full year incremental EBITDA benefit in 2025.
Cheryl Maguire: Second our stated goal of increasing our ammonia production volume represents an important earnings lever and while we recognize some of those benefits post the work performed during the 2024 turnarounds. We have additional opportunity ahead of US we expect the turnaround of our El Dorado ammonia plant in the second half of this.
Cheryl Maguire: Year to move us further towards our ammonia production goals.
Cheryl Maguire: Third during 2024, we've put a great deal of focus on improving the reliability of our downstream production. We are pleased with our progress in 2024 and have ongoing initiatives to capture additional production that we expect to see in 2025.
Cheryl Maguire: We are pleased with our progress in 2024 and have ongoing initiatives to capture additional production that we expect to see in 2025.
Cheryl Maguire: Lastly, we believe we can generate meaningful incremental earnings by driving efficiencies and focusing on profit optimization. There are numerous opportunities to realize efficiencies in our business and capturing them will be a focus for 2025. Additionally, our spending levels have been elevated over the past several years as we've made investments aimed at increasing production and maximizing sales volume. We expect these costs to reach an inflection point in 2025 and begin trending downward in 2026.
Cheryl Maguire: Lastly, we believe we can generate meaningful incremental earnings by driving efficiencies and focusing on profit optimization. There are numerous opportunities to realize efficiencies in our business and capturing them will be a focus for 2025.
Cheryl Maguire: Additionally, our spending levels have been elevated over the past several years as we've made investments aimed at increasing production and maximizing sales volumes.
We expect these costs to reach an inflection point in 2025 and begin trending downward in 2026.
Cheryl Maguire: One additional point to keep in mind is that on top of these value creation activities, we also have the expectation of 15 to 20 million of incremental annual EBIDTA once we have our CCS project at our El Dorado facility complete.
Cheryl Maguire: One additional point to keep in mind is that on top of these value creation activities. We also have the expectation of $15 million to $20 million of incremental annual EBITDA. Once we have our Ccs project at our El Dorado facility complete and now I'll turn it back over to Mark.
Mark Behrman: And now I'll turn it back over to Mark. Thank you, Cheryl.
Mark Behrman: Thank you Sarah.
Mark Behrman: Page 14 pertains to a low carbon ammonia projects.
Mark Behrman: Page 14 pertains to our low-carbon ammonia project. The EPA's approval of our Class 6 permit application remains the key gating item for our Eldorado CCS project. We continue to have meaningful dialogue with the EPA regarding their technical review of our permit applications. To provide the most site-specific data possible to the EPA, we plan to drill the deep injection well as the stratigraphic well. We expect that this approach will decrease the overall timeline, and we estimate our first CO2 injections would begin in the latter half of 2026.
Mark Behrman: The Epa's approval of our class six permit application remains the key gating item for El Dorado Ccs projects.
Mark Behrman: We continue to have meaningful dialogue with the EPA regarding their technical review of our permit application.
Mark Behrman: To provide the most site specific data possible to the EPA, we plan to drill the deep injection will as the stratigraphic well.
Mark Behrman: We expect that this approach will decrease the overall timeline and we estimate our first <unk> injections would begin in the latter half of 2026.
Mark Behrman: In May of 2024, we announced our first off take customer for low carbon ammonium nitrate solution that will produce at our El Dorado facility.
Mark Behrman: In May of 2024, we announced our first off-take customer for low-carbon ammonium nitrate solution that we'll produce at our Eldorado facility. We've begun shipping conventional AN to that customer and will transition the low-carbon product upon startup of this operation.
Mark Behrman: We've begun shipping conventional a end to that customer and will transition to low carbon product upon startup startup.
Mark Behrman: Operations.
Mark Behrman: With respect to our Houston ship Channel project.
Mark Behrman: With respect to our Houston Ship Channel project, following the completion of pre-feed in late 2024, our focus has been on having price discovery discussions with potential off-date customers. Those discussions have centered around both demand and pricing levels for low-carbon ammonia that are transactable. Based on these discussions, we believe that higher-volume, multi-year demand for low-carbon ammonia exists, providing that the price per ton is less than $600. We are working with our partners on gaining knowledge to assess all aspects of the project, including the evaluation of alternative configurations, to ensure our project obtains the required customer demand and generates our targeted return on investment.
Mark Behrman: Following the completion of pre feed in late 2024.
Mark Behrman: Our focus has been on having price discovery discussions with potential off take customers.
Mark Behrman: Those discussions have centered around both demand and pricing levels for low carbon ammonia that are transactional.
Mark Behrman: Based on these discussions we believe that higher volume multiyear demand for low carbon ammonia exists providing that the price per ton is less than $600.
Mark Behrman: We are working with our partners on gaining knowledge to assess all aspects of the project, including the evaluation of alternative configurations to ensure our project obtains the required customer demand and generates our targeted return on investment.
Mark Behrman: If this assessment continues to support our assumptions about the economics of the project. Our next step will be a full feed study.
Mark Behrman: If this assessment continues to support our assumptions about the economics of the project, our next step will be a full feed study.
Mark Behrman: We continue to believe that the global momentum to reduce CO2 emissions will drive new demand for low-carbon ammonia. What we don't know is the timing of that new demand. Therefore, we are trying to be disciplined in our approach to the market and how we invest capital.
Mark Behrman: We continue to believe that the global momentum to reduce Cotwo <unk> will drive new demand for low carbon ammonia. What we don't know is the timing of that new demand. Therefore, we are trying to be disciplined in our approach to the market and how we invest capital.
Mark Behrman: We expect to provide a more definitive update on this project on our first quarter conference call. As we move into 2025, we are excited about the prospects for further transforming our company and increasing value for our stockholders. We accomplished a great deal during 2024 towards improving the reliability and production capacity of our facilities and we expect to make more progress on this front this year. We continue to shift our sales mix towards higher-margin downstream products and to drive efficiencies across the business to enhance our profitability. Collectively, we believe that these initiatives will translate into significant incremental EBITDA.
Mark Behrman: We expect to provide a more definitive update on this project on our first quarter conference call.
Mark Behrman: As we move into 2025.
Mark Behrman: We're excited about the prospects for further transforming our company and increasing value for our stockholders, we accomplished a great deal during 2024 towards improving the reliability and production capacity of our facilities and we expect to make more progress on this front this year.
Mark Behrman: We continue to shift our sales mix towards higher margin downstream products and to drive efficiencies across the business to enhance our profitability collectively we believe that these initiatives will translate into significant incremental EBITDA.
Mark Behrman: At the same time, we continue to navigate our low carbon ammonia projects through the necessary phases of development.
Mark Behrman: At the same time, we continue to navigate our low-carbon ammonia projects through the necessary phases of development. While certain aspects of them are largely out of our control, particularly the EPA Class VI permit process, as I mentioned earlier, we are firm believers in low-carbon ammonia's place in the global energy transition landscape and are confident in our ability to be a meaningful player in this evolving market in the coming years.
Mark Behrman: While certain aspects of them are largely out of our control, particularly the EPA classics permit process.
Mark Behrman: As I mentioned earlier, we are firm believers in low carbon ammonia is placed in the global energy transition landscape and are confident in our ability to be a meaningful player in this evolving market in the coming years.
Mark Behrman: Before we open it up to questions.
Mark Behrman: Before we open it up to questions, I'd like to mention that we will be participating in the following virtual events in the coming months. The New York Stock Exchange Basic Materials Day on March 11. and a Granite Research Management Conference Series on April 3rd and April 4th. We look forward to speaking with some of you at those events.
Mark Behrman: I'd like to mention that we will be participating in the following virtual events in the coming months.
Mark Behrman: The New York Stock Exchange basic materials day on March 11.
Mark Behrman: And our granite Research Management Conference series on April <unk> and April 4th well.
Mark Behrman: Look forward to speaking with some of you with those events.
Mark Behrman: 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'll 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 would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate 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 will now be conducting a question and answer session. If you would 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. You may press star 2 if you would 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. One moment, please, while we poll for questions.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please wildly poll for questions.
Speaker Change: The first question is from David Begleiter from Deutsche Bank. Please go ahead.
David Begleiter: The first question is from David Begleiter from Deutsche Bank. Please go ahead. Thank you. Good morning. Mark, you mentioned a $600 price for low carbon as maybe the key price for customers. Why is that the right price for them? What's the implications underpinning that price?
David Begleiter: Thank you good morning.
Speaker Change: Good morning, Mark Human too you mentioned, a 600 dollar price for low carbon as maybe they they keep price for customers why is that the right price for them, what's the implications on the underpinning that price.
Speaker Change: Well I don't know if it's the right price for them I mean, they've got a deal with their own customers and what they think that they can pay but just from our.
Mark Behrman: Well, I don't know if it's the right price for them. I mean, they've got to deal with their own customers and what they think that they can pay. But just from our you know information out in the marketplace from all the conversations we've had, you know, there's been a lot of talk about price bantering in the marketplace and we're pretty confident now saying that we've got to be under $600 a ton FOB to really transact. Understood.
Speaker Change: Information out in the marketplace from all the conversations we've had.
Speaker Change: There's been a lot of talk about price branded in the marketplace and we're pretty confident now saying that we've got to be under $600 a ton will be to really transact.
Speaker Change: Understood and it looks like we'll get some tariffs on Canada shortly could you.
David Begleiter: And it looks like we'll get some tariffs on Cata shortly.
David Begleiter: Could you frame that opportunity for yourself and other U.S.-based producers if that comes to pass? I'm sorry, I didn't understand the first part of the question. In terms of Canadian tariffs, could you frame the potential opportunity for U.S.-based producers if those tariffs come into place?
Speaker Change: You frame that opportunity for yourself and other U S based producers of that come to pass.
Speaker Change: I'm, sorry, I didn't understand the first part of the question.
Speaker Change: In terms of the Canadian Canadian tariffs could you frame the potential opportunity.
Speaker Change: For U S based producers if those tariffs come into place.
Mark Behrman: Yeah, I'll take that.
Speaker Change: I mean, you want to take that one yeah I'll take that.
Mark Behrman: So good morning David. I think there is probably some opportunity there on the different molecules Canada exports as a net exporter of ammonia to the US. I think it's going to be difficult for them to find a home for that product outside of the U.S. So that should likely increase prices here as they either seek to pass it on, but then I think over time it will probably net out somewhat as they get pressure from other import sources. And then UAN as well, they're a net exporter into the U.S., but I think there's a lot more optionality on UAN, and so while we might see some short-term price benefits, that will probably level out over time as different trade routes are found.
Speaker Change: David I think there is probably some opportunity there.
Speaker Change: A different molecule.
Speaker Change: Canada exports is a net exporter of all the money to the U S.
Speaker Change: I think it's going to be difficult for them to find the answer to that product outside of the U S side.
Speaker Change: That would should likely increase prices here.
Speaker Change: Like to pass it on but then I think over time it will probably.
Speaker Change: Net out somewhat as they get pressure from from other important sources.
Speaker Change: And then in UAE and as well they are a net exporter into the into the U S. But I think that a lot more optionality on UA in and so while we might see some short term cost benefit that will probably.
Speaker Change: Level out over time as different trade routes are fine.
Speaker Change: Thank you.
David Begleiter: Thank you.
Speaker Change: Okay.
Speaker Change: The next question is from Lucas Beaumont from UBS. Please go ahead.
Lucas Beaumont: The next question is from Lucas Beaumont from UBS, please go ahead. All right, thank you. Yeah, so I just wanted to ask about the Houston Ship Channel Project. I mean, when we look at the pre-war cost curve, that was kind of 40% or more below where the current outlook is. Given the uncertainty in Europe about this potentially shifting at least somewhat lower, I mean, I don't think anyone's sort of assuming it's going to go back to those levels, but it's probably going to come down somewhat.
Lucas Beaumont: Alright. Thank you, yes, so I just wanted to ask about the Houston ship channel projects.
Speaker Change: I mean, when we look at the pretty wall cost curve that was kind of 40% or more below where the current outlook.
Lucas Beaumont: Given the uncertainty in Europe.
Speaker Change: Potentially shifting at least somewhat.
Speaker Change: I don't think anyone's sort of assume it's going to go back to those levels, but it's probably going to come down somewhat and then just how are you kind of thinking about that in the context of the economics of the project and says Hey, you would factor that in when you assess whether it's against all day long.
Mark Behrman: I'm interested, how are you kind of thinking about that in the context of the economics of the project and sort of how you would factor that in when you assess whether to go forward? Hey Lucas, how are you? So I think we've been pretty public on we're not going to build a plant and hope they come. And so I think the key really in a lot of the activities that have been going on over the last number of months have really been conversations with potential offtakers and really trying to understand at what price point could we transact.
Speaker Change: Hey, Lucas how are you. So I think we've been pretty public on.
Speaker Change: We're not going to build a plant and hope they come.
Speaker Change: And so I think the key really in a lot of the activities that have been going on over the last number of months have really been conversations with potential off takers.
Speaker Change: Really trying to understand at what price point could we transact for.
Mark Behrman: for stated volumes, long-term contracts, so offtake for 7, 10, 12 years so that we can underpin a project. Because without that, I think certainly we won't take the risk to build a plant and, as I said, hope they come. I think, you know, when we think about the capital cost today, as I said in my prepared comments, we are looking at some different configurations and ways that we might be able to bring that capital cost down in hopes that we can get below the $600 a ton that we could offer on a long-term contract to customers.
Speaker Change: For stated volumes long term contracts alright, so offtake for yeah.
Speaker Change: 710 12 years.
Speaker Change: So that we can underpin the project because without that.
Speaker Change: I think we're not certainly we won't take the risk to build a plant and as I said hope they come so.
Speaker Change: I think when we think about the capital cost today as I said in my prepared comments, we are looking at some different configurations and ways that we might be able to bring that capital costs down.
Speaker Change: In hopes that we can get below the $600 a ton or that we could offer on a long term contract to customers. If we can't then I think we'll sit on the sidelines for now and we'll wait till the market unfolds in the meantime, there will continue to have conversations with partners and off takers and at such time that we think it makes sense to.
Mark Behrman: If we can't, then I think we'll sit on the sidelines for now and we'll wait till the market unfolds. In the meantime, though, we'll continue to have conversations with partners and offtakers, and at such time that we think it makes sense to really move forward on a project, we've done some work and we've certainly gained a lot of knowledge on what it would take to get a project done.
Speaker Change: Sure.
Speaker Change: To really move forward on the project we've done some work and we certainly gained a lot of knowledge on what it would take to get a project done.
Speaker Change: Alright, Thanks, and then just I guess on your outlook for Carson ammonia production, sorry, you're projecting that you're going to get back to 87% or so in operating rates. This year, which is quite good year on year progress.
Lucas Beaumont: Great, thanks. And just I guess on your outlook for gross amount of production, so you're projecting that you're going to get back to 87% or so on operating rates this year, which is a good year on your progress. It's just how do you kind of see the pathway from here forward to kind of drive more volumes out of the system there over the next couple of years? Yeah, that 87% I think is low just because we've got a large turnaround at our Eldorado facility this year. We've been running, you know, sort of between 90 and 92%, you know, X planned activities, planned turnaround.
Speaker Change: How do you kind of see the pathway from here forward to kind of drives.
Speaker Change: <unk> out of the system there over the next couple of years.
Speaker Change: That 87% I think is low just because we've got a large turnaround at our El Dorado facility. This year, we've been running.
Speaker Change: It's sort of between 90, and 92% ex land activities planned turnaround and so I think the.
Mark Behrman: And so I think the real focus this year, and we brought in some outside resources to help us, is to really move those rates forward.
The real focus this year and we brought in some outside resources to help us.
Speaker Change: Is to really move those rates forward and so by the end of next year. So the end of 'twenty six we would hope to be much closer to that 95% and on consistent basis.
Lucas Beaumont: And so by the end of next year, so the end of 26, we would hope to be much closer to that 95% on a consistent basis. Right, thanks.
Speaker Change: Alright, Thanks, and then.
Lucas Beaumont: And then just one from your expense outlook for the year. So I just I noticed you guys have increased.
Speaker Change: Just one from your expense outlook for the year. So I just I noticed you guys have increased.
Lucas Beaumont: Your assumption on the gas consumption per tonne of ammonia to 34 this year from 32 previously, is that being driven by the increased sort of upgrade product usage or is something else kind of driving the change there? Yeah, good morning. I think the main change there is, you know, just updating it to include both the process gas and the fuel gas. Lucas, that's kind of the main Great, thanks very much.
Assumption on me.
Speaker Change: Gas consumption per ton of ammonia and <unk>.
Speaker Change: For this year from 32 previously is that being driven by the increased sort of upgraded product usage errors.
Speaker Change: Something else kind of driving the change there.
Speaker Change: Yeah. Good morning, I think the main change there is just updating it to include both the price of gas in the fuel gas.
Speaker Change: Lukas that's kind of the main things there.
Speaker Change: Alright, thanks very much.
Speaker Change: The next question is from Laurence Alexander from Jefferies. Please go ahead.
Lawrence Alexander: The next question is from Lawrence Alexander from Jeffrey. Please go ahead. Excuse me. Hi.
Speaker Change: Excuse me Hi, it's Dan Rizzo on for Laurence.
Dan Rizzo: It's Dan Rizzo on for Lawrence. After the Eldorado turnaround in the second half of this year, how should we think about turnarounds and say, after that, in 26, 27, are you done for a while, or will there be more as you kind of try to expand capacity further? outside of the low carbon projects, of course.
Speaker Change: The El Dorado turnaround at the <unk> in the second half of this year, how should we think about turnarounds and say that's about in 'twenty six 'twenty seven or eight are you done for a while or would it be more.
Speaker Change: As you kind of tried to expand capacity further.
Speaker Change: Outside of the low carbon projects of course.
Mark Behrman: Sure, good morning.
Speaker Change: Sure. Good morning, So I think the way we think about turnarounds.
Mark Behrman: So I think the way we think about turnarounds, we have, generally speaking, we want to be on a three to four year full turnaround schedule, right? And you may have some outages, small outages through those years, to work on some other projects. So I think, you know, we'll finish Eldorado, or we'll go through the Eldorado turnaround this year. We would expect Eldorado to not have a turnaround for another three years. Our Cherokee ammonia plant went through a turnaround in 2024. They're not scheduled for another ammonia turnaround until 2027. And then prior actually went through a full turnaround, including ammonia this year.
Speaker Change: We have gen.
Speaker Change: Generally speaking we want to be on a three to four year full turnaround schedule right and you may have some outages small outages through those years.
Speaker Change: To work on some other projects but.
Speaker Change: So I think we'll finish elder.
Speaker Change: El Dorado will go through the El Dorado turnaround. This year, we would expect El Dorado to not have a turnaround for another three years.
Speaker Change: Our Cherokee ammonia plant went through a turnaround in 2024.
Speaker Change: They are not scheduled for another ammonia turnaround until 2027.
Speaker Change: And then prior actually went through a full turnaround including ammonia this year.
Mark Behrman: but they will go on another two years, so until 2026, and then they'll move to a three-year turnaround.
Speaker Change: But they will go on another two years, so until 2026, and then they'll move to a three year turnaround.
Speaker Change: Okay. Thanks, and then you mentioned some wood supply with some some delays and possibly a new ammonia I was just wondering if youre seeing.
Mark Behrman: Okay, thanks.
Mark Behrman: And then you mentioned some with supply with some some delays and possibly a new ammonia.
Mark Behrman: I was just wondering if you're seeing people, I don't know, move a little bit downstream, and you're seeing additional UAN or UA capacity coming online in North America or elsewhere. No, not really. Most of the talk and most of the focus has really been on low-carbon ammonia. So in the US, we really haven't seen much, certainly no new build of urea, UAN, and expansions. There may be on the margin some expansions.
I dunno move a little bit downstream are you seeing additional you Ann are you a capacity coming online in North America or elsewhere.
Speaker Change: No not really.
Speaker Change: Most of the talk and most of the focus has really been on low carbon ammonia. So in the U S. We really haven't seen much certainly no new build.
Speaker Change: <unk> you again.
Speaker Change: And expansions.
Speaker Change: There may be on the on the margin some expansions.
Mark Behrman: We did an expansion this past year at Pryor, and there's another opportunity to take a look at a further expansion at Pryor, but we're not finished with our analysis yet on whether the economics make sense for us.
Speaker Change: We did an expansion this past year at Pryor and Theres another opportunity to take a look at a further expansion of prior but we're not finished with our analysis yet on whether the economics makes sense for us.
Speaker Change: Alright, Thank you very much.
Mark Behrman: Thank you very much.
Andrew Wong: Sure. The next question is from Andrew Wong from RBC Capital Markets. Please go ahead. Hey, good morning. Can I just understand a little bit more on the $600 per ton number? Is that where your current cost estimates look like you'll get a good return for the Houston Strip Channel project? And it's also where it's acceptable for customers as well? Is that that pivot point?
Speaker Change: Sure.
Speaker Change: Yeah.
Speaker Change: The next question is from Andrew Wong from RBC capital markets. Please go ahead.
Hey, good morning.
Speaker Change: Can I just understand a little bit more on the $600 per ton number is that where your current cost estimates looks like youll, yes.
Speaker Change: We have a good return for the Houston ship Channel project, and that's also where it's applicable for customers as well as that about that.
Speaker Change: Yeah.
Mark Behrman: Well, good morning, Andrew. So, what I would say is I think that's a level that we think we could get the appropriate offtake to make us comfortable to move forward on a project would be a price of less than $600 a ton. However, I think our capital costs, I mean, where, you know, there's been other projects that have been announced, including some of our competitors, where capital costs continue to go up and up pretty significantly. So, you have to think about how do you get a return on that. And as we sit here today, after going through our pre-feed, and then having these conversations with offtakers, at the current capital costs that we have for our project, we don't think that there's anything transactable.
Speaker Change: Good morning, Andrew So what.
Speaker Change: What I would say is I think.
Speaker Change: That's a level that we think we could get.
Speaker Change: The appropriate offtake to make us comfortable to move forward on a project would be a price.
Speaker Change: 600 or less than $600 a ton.
Speaker Change: Ever I think our capital costs, and where theres been other projects that have been announced including some of our competitors where capital costs continue to go up and.
Speaker Change: Up pretty significantly so you have to think about how do you get a return on that and as we sit here today.
Speaker Change: Going through our pre feed and then having these conversations with the off takers at the current capital cost that we have for our project. We don't think that there's anything transacted deals. So we are now working with our partners to figure out is there a way that we can reconfigure that project to bring down our capital cost and our cost of operations. So that we can get below that 600.
Mark Behrman: So, we are now working with our partners to figure out is there a way that we can reconfigure that project to bring down our capital costs and our cost of operations so that we can get below that $600 a ton. So, we do think that there's a possibility. Otherwise, we wouldn't spend the time to really go through this.
Speaker Change: There's a ton.
Speaker Change: So we do think that theres, a possibility otherwise we wouldn't spend the time to really go through this but we're not there yet and as I mentioned I think we'll be in a position to really have a more meaningful conversation.
Mark Behrman: But we're not there yet.
Andrew Wong: And as I mentioned, I think we'll be in a position to really have a more meaningful conversation and to talk about it publicly on our first quarter conference call at the end of April. Okay, that makes a lot of sense.
Speaker Change: And to talk about it publicly on our first quarter conference call at the end of April.
Speaker Change: Okay that makes a lot of funds.
Speaker Change: Well on the EPA.
Mark Behrman: On the EPA, with the changeover in the administration, and previously you had already said it seemed like the resources were constrained, has there been any change in their capacity to process permits and how does that impact the timeline on Eldorado? No, we haven't seen that. We're still having ongoing conversations with them. We're actually You know, favorably disposed to some of the changes, so, you know, the new head of the EPA, Lee Zeldin, I think, You know, we feel like you'll be a good steward for the EPA and focus on the right things. in a sort of streamlining regulation, which I think, in general, is probably a good thing, and certainly in this process, for us, is a good thing.
Speaker Change: But the changeover in the administration and previously you had already said it.
Speaker Change: It seemed like the resources were constrained.
Speaker Change: Has there been any change in their capacity to.
Speaker Change: Process permits and how does that impact the timeline on the Eldorado.
Speaker Change: No we haven't seen that we still have an ongoing conversations with them.
Speaker Change: We're actually.
Speaker Change: Favorably disposed to some of the changes.
Speaker Change: So these are the new head of the EPA lease Hilton I think.
Speaker Change: We feel like Youll.
Speaker Change: We are good stewards for the EPA and focus on the right things.
Speaker Change: Sort of streamlining regulation, which I think in general is probably a good thing and certainly in this process for US is a good thing the new head of the region six office down in Dallas, The EPA Dallas Office.
Mark Behrman: The new head of the Region 6 office down in Dallas, the EPA Dallas office, is actually someone that is known to our team. He's the former Deputy Secretary of Energy of Oklahoma, so we think that that's a positive for us. We're hoping that after some initial, you know, kind of... Slowdown or sideways movement here, that when things settle down, you know, we'll see, we'll start to see some real progress. So I think, I think we're feeling pretty good about some of the changes in the EPA and where it's going.
Speaker Change: Actually someone that is known to our team.
Speaker Change: So the former Deputy Secretary of energy of Oklahoma. So we think that that's a positive for us so we're hoping that.
Speaker Change: After some initial.
Speaker Change: You know kind of.
Speaker Change: A slow down or sideways movement here that when things settle down.
Speaker Change: We'll see we'll start to see some real progress.
Speaker Change: So I think.
Speaker Change: I think we're feeling pretty good about some of the changes in the EPA and where it's growing.
Speaker Change: Okay, great and if I can just ask tomorrow on ammonium nitrate it looks like the U S Midwest and southern Plains benchmark prices have been quite kept up with what we're even seeing NOLA or with urea in general.
Andrew Wong: Okay, great.
Andrew Wong: If I can just ask more on ammonium nitrate. It looks like the U.S., Midwest, and Southern Plains benchmark prices haven't quite kept up with what we're even seeing in NOLA or with urea in general. Why is that? And what do you expect for HDAN prices this year?
Speaker Change: Why is that and what do you expect for H and prices this year.
Speaker Change: Yeah, Hi, Andrew I think what you're saying is some some changes in the supply and demand balance here in the U S. So over the last couple of years.
Mark Behrman: Yeah, hi, Andrew. I think what you're seeing is some changes in the supply and demand balance here in the US. So, over the last couple of years, some major offtakers of AN on the ag side have switched away due to reasons around security concerns or high insurance costs, coverage costs, things like that. And so, they've chosen to move to alternative products. And the supply balance here in the US hasn't really changed. So, you're just seeing some natural play there as we're sort of competing also again. cheaper imports that are coming in. And that's really what's driving that that pricing dynamic.
Speaker Change: The major major off takers.
Speaker Change: On the AG side as had switched to a y J.
Speaker Change: Reasons.
Speaker Change: Around security concern during high insurance cost coverage costs things like that and said it Jonathan.
Speaker Change: To move to alternative products.
Speaker Change: And the supply balance here in the U S hasn't really changed so you're just saying some.
Speaker Change: Natural apply there as we sort of competing also again.
Speaker Change: Shape of imports that are coming in and.
Speaker Change: And that's really what's driving that.
Speaker Change: That pricing dynamic.
Speaker Change: Okay I appreciate it thank you.
Andrew Wong: Okay, appreciate it. Thank you.
As a reminder to ask a question. Please press star one.
Operator: As a reminder, to ask a question, please press star 1.
Speaker Change: The next question is from Rob Maguire from Granite Research. Please go ahead.
Rob McGuire: The next question is from Rob McGuire from Granite Research. Please go ahead. Good morning, guys. Nice quarter. Thanks, Rob.
Rob Maguire: Good morning, guys nice quarter.
Speaker Change: Thanks, Rob.
Mark Behrman: So, could you just discuss, Mark, if you're seeing any, you know, updates on European legislation coming down the pipe, just shifting the focus from zero to low-carbon? Well, there was a lot of talk. You know, it's interesting because as we talk to potential offtakers, a lot of them are European, right? So we're getting some on the ground, pretty good information. So I would say there is a lot of talk about that shifting policy, and a lot of it has to do and it's kind of flowing through in some of the election results that you're seeing over in Europe.
Speaker Change: So could you just discuss mark if youre seeing any updates on European legislation coming down the pipe just shifting the focus from zero to low carbon and ammonia.
Speaker Change: Well there is a lot of talk.
Speaker Change: Yeah, it's interesting because as we talk to potential offtake theres a lot of them are European right. So we're getting some on the ground pretty good information. So I would say there is a lot of talk about that shifting policy and a law.
Speaker Change: Lot of it has to do and it's kind of flowing through in some of the election results that you're seeing over in Europe.
Mark Behrman: I think Europe in general is dealing with some of the same things I think that we're dealing here, right? So pushback on inflation, pushback on just overall cost, pushback on tax basis and the ability to fund some of these projects. So I do think that Europe is maybe revisiting their policies. And rather than just going green, low carbon or blue is becoming something that's much more high on the list. One thing that we're watching, there is a lot of talk. CBAM is actually supposed to start January 1, 126. And so there is a lot of conversation now about pushing that back a year, or even some people trying to lobby to push it back two years.
Speaker Change: I think they're dealing Europe in general is dealing with some of the same things I think that we're dealing here right. So pushback on inflation.
Speaker Change: Back on just overall cost.
Pushback on tax basis, and the ability to fund some of these projects. So I do think that.
Speaker Change: Europe is maybe revisiting their policies and rather than just going green.
Speaker Change: Low carbon or blue is becoming.
Speaker Change: Something that's much more high on the list.
Speaker Change: One thing that we're watching there was a lot of talk.
Speaker Change: <unk> is actually supposed to start January one $1 26, and so there is a lot of conversation now about pushing that back a year or even some people trying to lobby to push it back two years. So I think there is some one thing that we'll all have to keep an eye on.
Mark Behrman: So I think that is one thing that we'll all have to keep an eye on. Because if that's the case, then there's not as much pressure on European potential users of ammonia to really switch to ammonia. It may be delayed a year or two.
Speaker Change: Because if that's the case, then theres not as much pressure on European potential uses of ammonia to really switch to ammonia.
Speaker Change: It may be delayed a year or two.
Speaker Change: That's helpful. Thank you.
Mark Behrman: That's helpful. Thank you.
Mark Behrman: And with the Trump administration announcing... tent to withdraw from the U.S. Paris.... This is probably the U.S. overall.
Speaker Change: The Trump administration announcing his intent to withdraw from the U S per cigarette excuse me.
Speaker Change: The U S. Overall from the Paris agreement are you seeing customers, becoming less interested in participating in 2030 carbon reduction goals are they just as interested.
Mark Behrman: Are you seeing customers becoming, you know, less interested in participating in 2030 carbon reduction goals? Are they just as interested? Oh, I think I don't I'm not sure that that's a catalyst for the interest or non interest. I think the catalyst is when you really cut down to it all. You know, what's the financial impact to people? And what does that do to their business? You know, I'd like to think that people are doing it for the environmental benefit of it. And I don't want to say that people aren't. But the reality is, this is all financially based.
Speaker Change: Oh I think.
Speaker Change: I'm not sure that that's a catalyst for the interest or non interest I think.
Speaker Change: The catalyst is when you really cut down to it all.
Speaker Change: Whats the financial impact of people.
Speaker Change: And what does that do to their business.
Speaker Change: I'd like to think that people are doing it for the.
Speaker Change: Environmental benefit of it and I don't want to say that people aren't but the reality is this is all financially based if you can if you can use it to keep costs flat and keep profitability or make more money.
Mark Behrman: If you can't, if you can't use it to keep costs flat and keep profitability or make more money, And ultimately, most people aren't going to do that. I don't think it'd be hard for most people to go to their shareholders and say. You know, we're going to make less money because we want to be good environmental stewards. I mean, there's some reality to that, but it's, you know, it's not a big loss to take that on.
Speaker Change: And ultimately most people aren't going to do that.
Speaker Change: I don't think it would be hard for most people to go to their shareholders and say.
Speaker Change: We're going to make less money, because we want to be good environmental stewards, I mean, theres some theres some reality to that but it's you know.
Speaker Change: It's not a big loss to take that on so I think ultimately.
Mark Behrman: So I think ultimately, and I said this in the prepared comments, we are a big believer in the energy transition. We do think that demand will materialize over time. But as I said, what that timing is is really the wild card here. That's helpful.
Speaker Change: And I've said this in the prepared comments, we are a big believer in the energy transition. We do think that demand will materialize over time, but as I said, what that timing is is really the wildcard here.
Speaker Change: Okay. That's helpful and just one last question just on the stronger fourth quarter sales volumes was that a function of let's say reliability, increasing capacity where are you.
Mark Behrman: And just one last question, just on the stronger fourth quarter and sales volumes, was that a function of, say, reliability, increasing capacity? Or are you actually shifting downstream production in that direction just due to the strong Yeah, it's probably a bit of both, Rob. You know, we're seeing some good uptake on the industrial side with AN solution and we've been able to capitalise that with growing reliability of our plants. So, you know, as you know, we try and upgrade every molecule we can and the improved reliability is allowing us to do so and then also leveraging some really good relationships we've got with our customer base and they can take the additional volume.
Speaker Change: Shifting downstream production in that direction, just due to the strong demand.
Speaker Change: Yes, it's probably a bit of both Rob.
Speaker Change: We're seeing some some good good uptake in on the industrial side with <unk> solution.
Speaker Change: And we've been able to capitalize that with growing reliability of that plant.
Speaker Change: As you know, we try and upgrade every molecule we can.
Speaker Change: The improved reliability is allowing us to do so and then also leveraging some really good relationships, we've got with our customer base and I can take the additional volumes.
Mark Behrman: Yeah, just to add to that, I mean, I want to give kudos to our manufacturing team and our commercial team. I mean, we've talked about this before. We have a real big focus, not just on improving the reliability, right? We spent lots of time talking about that, but really optimizing our production. And at the end of the day, it's about taking that product that we produce and trying to make the most money, right? And so I think, ultimately, the commercial team is really doing a good job on focusing on that. And you'll see that more.
Speaker Change: Yes, just to add to that I mean, I want to give kudos to our manufacturing team and our commercial team I mean, we've talked about this before we have a real big focus not just on improving the reliability right. We spent lots of time talking about that but really optimizing our production and.
Speaker Change: At the end of the day, it's about taking that product that we produce and trying to make the most money right. So I think.
Speaker Change: Ultimately the commercial team is really doing a good job on focusing on that and you'll see that more I think the slide in our presentation really points that out we've talked about it and I think it was important for us to just.
Mark Behrman: I think the slide in our presentation really points that out. We've talked about it, and I think it was important for us to just You know, kind of pictorially show that we are making progress there and it's coming through in the results. Appreciate that. Thanks, guys.
Speaker Change: Kind of Pictorially show that we are making progress there and it's coming through in the results.
Speaker Change: I appreciate that thanks, guys.
Mark Behrman: Thank you. There are no further questions at this time.
Speaker Change: Kim.
Speaker Change: There are no further questions at this time 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 Behrman for closing Well as always, thank you so much for participating in the conference call. We appreciate everyone's interest. If there's further questions, feel free to give either Fred Buonocore, Cheryl Maguire, or myself a call. We look forward to seeing you at some of the events that we have going forward. Thanks and have a great day.
Mark Behrman: Well as always thank you so much for participating in the conference call.
Speaker Change: We appreciate everyone's interest if this further questions feel free to give either Fred.
Speaker Change: <unk>, Cheryl Maguire or myself, a call and we look forward to seeing you at some of the events that we have going forward, thanks and have a great day.
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.
Speaker Change: [music].
Okay.
Speaker Change: Tom.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: [music].
Speaker Change: Yes.