Q2 2025 Methanex Corp Earnings Call

Good morning. My name is Gail, and I will be your conference operator. Today at this time, I would like to welcome everyone to the Methanex Corporation Second Quarter 2025 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session.

If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you.

Sarah Herriott: Thank you. Good morning, everyone. Welcome to our Q2 2025 Results Conference Call. Our 2025 Q2 news release, Management's Discussion and Analysis, and financial statements can be accessed from the Financial Reports tab, the Investor Relations page on our website at methanex.com. I would like to remind our listeners that our comments and answers to your questions today may contain forward-looking information. This information, by its nature, is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. Certain material factors or assumptions were applied in drawing the conclusions or making the forecasts or projections which are included in the forward-looking information. Please refer to our Q2 2025 MD&A and to our 2024 annual report for more information.

I would now like to turn the conference call over to the director of corporate development and investor relations at methanex Miss Jessica Woodcraft, please go ahead Miss woodro,

Thank you. Good morning everyone. Welcome to our second quarter. 2025 results conference call.

our 2025 second quarter news, release Management's discussion and Analysis and financial statements can be accessed from the financial reports tab, the investor relations page on our website at mnx.com

Forward-looking information, this information by its nature, is subject to risks and uncertainties. That may cause the stated outcome to differ materially from the actual outcome.

Certain material factors or assumptions were applied in drawing, the conclusions, or making the forecasts or projections, which are included in the forward-looking information.

Sarah Herriott: I would also like to caution our listeners that any projections provided today regarding Methanex's future financial performance are effective as of today's date. It is our policy not to comment on or update this guidance between quarters. For clarification, any references to revenue, EBITDA, adjusted EBITDA, cash flow, adjusted income, or adjusted earnings per share made in today's remark reflect our 63.1% economic interest in the Atlas facility, our 50% economic interest in the Egypt facility, our 50% interest in the Natgasoline facility, and our 60% interest in Waterfront Shipping.

Please refer to our second quarter of 2025 mdna. And to our 2024 annual report for more information

I would also like to caution our listeners that any projections provided today regarding methanex is future, financial performance or effective, as of today's date. This is our policy. Not to comment on or update this guidance between quarters.

For clarification, every reference to revenue, keep it at adjusted EBITDA, cash flow, adjusted.

Sarah Herriott: In addition, we report our adjusted EBITDA, adjusted net income to exclude the mark-to-market impact on share-based compensation and the impact of certain items associated with specific identified events. These items are non-GAAP measures and ratios that do not have any standardized meaning prescribed by GAAP, and therefore unlikely to be comparable to similar measures presented by other companies. We report these non-GAAP measures in this way because we believe they are a better measure of underlying operating performance, and we encourage analysts covering the company to report their estimates the same way. I would now like to turn the call over to Methanex's President and CEO, Mr. Rich Sumner, for his comments and a question and answer period.

income or adjusted earnings per share, made in today's remark, reflect our 63.1% economic interest in the atlas facility, our 50% economic interest in the Egypt, facility are 50%, interest in the NAT gasoline facility and our 60% interest in Waterfront shipping

In addition, we report our adjusted EPA adjusted net income to exclude. The mark-to-market impact on share-based compensation and the impact of certain items associated with specific identified events.

These items are non-gaap measures and ratios. That do not have any standardized meaning standardized meaning prescribed by a gap and therefore and likely to be comparable to similar. Measures presented by other companies

We report these non-gaap measures in this way, because we believe they are a better measure of underlying underlying operating performance. And we encourage analysts covering the company to report their estimate the same way,

Rich Sumner: Thank you, Sarah Herriott, and good morning, everyone. We appreciate you joining us today to discuss our Q2 2025 results. Our Q2 average realized price of $374 per ton and produced sales of approximately 1.5 million tons generated adjusted EBITDA of $183 million and adjusted net income of $0.97 per share. Adjusted EBITDA was lower compared to Q1 2025, primarily due to a lower average realized price. On 27 June, we successfully closed the previously announced acquisition of OCI's methanol business. This is a highly strategic acquisition for Methanex, which we believe significantly strengthens and expands our production portfolio with two world-scale methanol facilities in Beaumont, Texas, which have access to stable and economic supply of natural gas feedstock.

I would now like to turn the call over to methanex is president and CEO Mr. Rich sumar for his comments and a question and answer period.

Thank you, Jessica and good morning everyone. We appreciate you joining us today to discuss our second quarter of 2025 results.

Our second quarter average realized price of 30074 per ton and produce sales of approximately 1.5 million tons generated adjusted ibida. A 183 million and adjusted net income of 97% per share.

Just a Deepa de was lower compared to the first quarter of 2025 primarily due to a lower average realized price.

On June 27th, we successfully closed the previously announced acquisition of oci's methanol business.

Rich Sumner: The integration is proceeding as planned, and we're focused on maintaining safe and reliable operations, continuing to meet customer commitments, and delivering the strategic and financial benefits of this acquisition. I would like to extend my personal thanks to the team for their hard work and dedication in planning and carrying out a safe, reliable, and seamless day one continuity of operations. It's been very exciting to welcome the new talented team members into our organization. Now turning to methanol market conditions. After realizing over $400 per ton in Q1 2025, we continued to achieve strong results with Q2 global average realized price of $374 per ton. We estimate global methanol demand was about 4% higher in Q2 compared to Q1. The increase was primarily driven by higher demand in China across all applications.

This is a highly strategic acquisition for methanex, which we believe significantly, strengthens and expands our production portfolio with 2 Worlds, scale methanol facilities in balmonte, Texas, which have access to stable and economic supply of natural gas feed stock.

The integration is proceeding as planned and we're focused on maintaining safe and reliable operations, continuing to meet customer commitments and delivering the Strategic and financial benefits of this acquisition.

I would like to extend my personal. Thanks to the team for their hard work, and dedication and planning, and carrying out a safe reliable and seamless day 1 continues of operations. It's been very exciting to welcome the new talented team members into our organizations.

now, turning to methanol market conditions, after realizing over 400, 400 dollars per ton in the first quarter of 2025, we continue to achieve strong results with second quarter, global average realized price of 374 per ton

Rich Sumner: Traditional and other energy demand in China rose in line with seasonal construction and transportation activities, as well as strong export manufacturing and domestic consumption, which offset a continued strained property market. Demand was also supported by methanol to olefins operating rates, increasing gradually throughout the quarter as supply from Iran increased post-winter gas curtailments. In the rest of the world, demand remained largely stable with minor regional differences. On the supply side, methanol production from Iran steadily increased throughout the Q2 as feedstock restrictions eased. We believe the disruptions to Iranian methanol production in June, as a result of the significant escalation in the ongoing conflicts in the region, was short-lived, and we estimate Iran's operating rates increased by over 50% from the previous quarter. Globally, we believe the methanol industry operated very high rates with limited outages.

We estimate Global methanol demand was about 4% higher. In the second quarter compared to the first quarter. The increase was primarily driven by higher demand in China across all applications.

Traditional and other energy demand in China rose in line with seasonal construction and transportation activities, as well as strong export manufacturing and domestic consumption.

Which offset a continued strain property Market.

Demand was also supported by methanol to olifan operating rates increasing gradually throughout the quarter as Supply from Iran, increased post-winter, gas or tilmans.

In the rest of the world. Demand remain largely stable with minor Regional differences.

On the supply side methanol production, from Iran, steadily increase throughout the quarter second quarter as speed stock restrictions eased, we believe the disruptions to Iranian methanol production in June. As a result of the significant escalation in the ongoing conflicts in the region was short-lived. And we estimate Iran's operating rates increased by over 50% from the previous quarter.

Rich Sumner: In the Atlantic Basin, strong production and stable demand led to inventory rebuilding from a low point over the course of the quarter, with pricing softening from high levels in Q1 as a result. In the Pacific Basin, and in particular China, the inventory buildup was more moderate as increasing MTO operating rates absorbed much of the increased supply availability in the market. Looking ahead to Q3, we estimate the methanol affordability into MTO and the marginal cost of production in China to be in the range of approximately $270 to $290 per ton. We continue to see realized pricing in all other major regions at premiums to these pricing levels. We posted our Q3 European quarterly price at €530 per ton, representing a €95 decrease from Q2.

Globally. We believe the methanol industry, operated very high rates with limited outages in the Atlantic Basin, strong production and stable demand led to inventory rebuilding from a low point. Over the course of the quarter with pricing softening from high levels in q1, as a result,

Was more moderate as increasing MTO operating rates absorb much of the increased Supply availability in the market.

Rich Sumner: Our North America, Asia Pacific, and China prices for August were posted at $778, $370, and $350 per ton respectively. We estimate that based on these posted prices, our July and August realized price range is between approximately $335 and $345 per ton. Now turning to our operations. Methanex production in Q2 was similar compared to Q1, with higher production from Geismar and Trinidad, offset by lower production from Chile, New Zealand, and Egypt due to gas constraints, as well as a planned turnaround in Medicine Hat. In Geismar, production was higher in Q2 as G1 and G2 operated at full rates for Q2, and G3 successfully restarted in early May.

Looking ahead to the third quarter, we estimate the methanol affordability, end to MTO, and the marginal cost of production in China to be in the range of approximately $270 to $290 per ton. We continue to see realized pricing in all other major regions at premiums to these pricing levels. We posted our third quarter European quarterly price at €500 per ton, representing a €95 decrease from the second quarter. Our North America, Asia-Pacific, and China prices for August were posted at $778, $370, and $350 per ton, respectively. We estimate that based on these posted prices, our July and August realized price range is between approximately $335 and $345 per ton.

Now turning to our operations methanex production in the second quarter with similar compared to the first quarter with higher production from guiser and Trinidad offset by lower production from Chile, New Zealand and Egypt. Due to gas constraints, as well as a planned turnaround in Medicine Hat.

Rich Sumner: As it relates to the previous challenges we've experienced on G3, we feel confident we've addressed these with new startup conditions that allow us to safely and reliably start up without risk to the autothermal reformer. Towards the end of June, we experienced utility and power outages, which reduced methanol production at the Geismar site. All plants returned to production in early July and are currently operating at full rates. For both the 100%-owned Beaumont facility and the 50%-owned Natgasoline facility, as previously mentioned, integration is going well, and both assets have operated safely and at full rate since acquisition. In Chile, we operated both Chile plants at capacity for the period September 2024 through April 2025, achieving our highest production rate since 2007. On 1 May, we idled one facility as planned and are currently conducting maintenance in preparation for restart late in Q3.

in in geyser production was higher in the second quarter as G1 and G2 operated at full rates for the second quarter and G3 successfully restarted in early May

as it relates to the previous challenges we've experienced on G3. We feel confident we've addressed these with new startup conditions that allow us to safely and reliably start up without risk to the autothermal reformer

Towards the end of June, we experience utility and power outages, which reduced methanol production. At the guy's Mercury site. All plants returned to production in early July and are currently operating at full rates.

For both the 100% owned Omaha facility in the 50% owned na gasoline facility. As previously mentioned, integration is going well. And both assets, have operated safely and at full rate since acquisition.

in Chile, we operated both chili plants and capacity for the period September 2024 through April 2025 achieving, our highest production rate since 2007,

Rich Sumner: While seasonality in production is expected to continue, we continue to see positive developments in natural gas availability and are working closely with gas suppliers to improve production rates over time. In New Zealand, we had lower production due to temporary idling of operations in mid-May through the end of June under a short-term commercial agreement to redirect contracted natural gas to the New Zealand electricity market. The plant successfully restarted in early July, and we forecasted our production for 2025 for New Zealand to be approximately 400,000 tons. Gas supply availability in New Zealand continues to be challenged, and we continue to work with our gas suppliers and the government to sustain our operations in the country. In Egypt, we experienced some curtailments due to significant import disruptions, which ended in late June.

On May 1, we idled 1 facility as plant and are currently uh conducting maintenance in preparation for restart late in the third quarter, while seasonality and production is expected to continue, we continue to see positive developments in natural gas availability and are working closely with gas suppliers, to improve production rates over time.

In New Zealand we had lower production due to the temporary idling of operations in mid-may. Through the end of June, under a short-term commercial agreement to redirect contracted natural gas to the new and electricity Market.

The plant successfully restarted in early July. And we forecasted our our production for 2025 for New Zealand to be approximately 400,000 tons.

Gas supply, availability in New Zealand continues to be challenged and we continue to work with our gas suppliers, and the government to sustain our operations in the country.

Rich Sumner: We're monitoring the gas market closely and would expect to experience some curtailments in 2025, particularly in the summer months, depending on gas supply and demand dynamics. Our expected equity production guidance for 2025 is approximately 8 million tons, including the fully owned Beaumont facility, both its methanol and ammonia production, as well as our share of production from the Natgasoline plant. Actual production may vary by quarter based on timing and turnarounds, gas availability, unplanned outages, and unanticipated events. Turning to our current financial position and outlook. We ended Q2 with $485 million of our share of cash, which is inclusive of approximately $50 million that was acquired with the transaction and access to an undrawn revolving credit facility, which was upsized with the closing of the transaction to $600 million.

in Egypt, we experienced some curtailment due to significant import disruptions, which ended in late June, where monitoring the gas market closely and would expect to experience some curtailment in 2025, particularly in the summer months, depending on gas supply and demand Dynamics,

Our expected Equity. Production, guidance for 2025, is approximately 8 million tons, including the fully owned, Bulma facility, both its methanol and ammonia production as well as our share of production from the NAT gasoline plant.

Actual production may vary by quarter based on timing, a turnarounds gas availability, unplanned, outages, and unanticipated events.

Rich Sumner: Our priorities for H2 2025 are to safely and reliably operate our business and smoothly integrate the new assets. Our top capital allocation priority will be to direct all free cash flow to deleveraging in the near term through the repayment of the Term Loan A facility. We do not anticipate significant growth capital over the next few years and remain focused on maintaining a strong balance sheet and ensuring we have financial flexibility. Based on higher produced sales offset by a lower forecasted average realized price, we expect higher adjusted EBITDA in Q3 2025 compared to Q2. As we move through 2025, we would expect production and sales of produced product to more fully reflect our run rate capacity. We'd now be happy to answer questions.

Now, turning to our current financial position and Outlook, we ended the second quarter with 485 million of our share of cash, which is inclusive of approximately 50 million that was acquired with the transaction and access to an undrawn revolving credit facility, which was upsized with the closing of the transaction to 600 million.

Our priorities for the second half of 2025 are to safely and reliably, operate our business and smoothly integrate. The new assets, our top Capital, allocation priority will be to direct all free cash flow to deleveraging in the near-term, through the repayment of the term loan, a facility.

We do not anticipate significant growth Capital over the next few years and remain focused on maintaining a strong balance sheet, and ensuring we have Financial flexibility.

The second quarter.

Operator: This time, I would like to remind everyone, in order to ask a question, press star then the 1 on your telephone keypad. Your first question comes from the line of Joel Jackson with BMO Capital Markets. Your line is open.

As we move through 2025, we would expect production and sales of produced product to more fully reflect our run rate capacity, we'd now be happy to answer questions.

this time I would like to remind everyone in order to ask a question, press star, then the number 1 on your telephone keypad,

Joel Jackson: Hi. Thanks. I'm going to ask two questions and ask them one by one. Rich and team, just on operating rates at G3, Beaumont and OCI. Can you talk about, it looks like G3's been running other than the hiccup you said at the site. It's been running over 90% since you restarted it? Then can you talk about how Beaumont and NatGas have been running in the month or so since you've had it?

Your first question comes from the line of the Jobo Jackson with BMO Capital markets, your line is open.

Rich Sumner: Thanks, Joel. G3's operated really well since we restarted in early May. We did have those, the disruptions towards the end of the quarter. Beyond that, G3 has operated at high rates for that period and is operating at those high rates today. Probably wouldn't give you exact percentage, but G3, when we run the asset, it's been at very high rates, so above 90%. The assets, Natgasoline and Beaumont, these assets have been running at full rate since acquisition. I'll just say the Beaumont asset went through a turnaround in March, successful turnaround there, and operating well for 2025. Natgasoline went through a turnaround in 2024, had an outage towards the end of the year and has a really good run on six months of high operating rates. Believe it's a record six month of production there. Those assets going really well.

Hi, thanks again. 1 by 1, um, rich in team, um, just on uh, operating rates at G3. Excuse me, Bulma and oci. Can you talk about? Uh, it looks like G3 is been running other than the hiccup you said at the site uh with um it's been running over 90%. Uh since you restarted it and then can you talk about how Bowmont and Matt gas have been running in the month? Or so since you've had it

Yeah, so thanks Joel. Um

Yeah G3 is operator really well since we restarted in early, May uh we did have those the the disruptions towards the end of the quarter, but beyond that G3 is operated at high rates for that period and and is operating at those High rates today, um, what probably wouldn't give you exact percentage but you know the G3 when it when we when we, when we run the asset, it's been at, you know, very high rate. So above 90%. Um,

Rich Sumner: Of course, we've got to get in, and we're currently doing that with our global manufacturing team and making all the connections there with the operations. They've done a lot of great work with those assets. For us, it's getting in and working with the team, bringing our global expertise to the table as well.

Joel Jackson: My final question is, when you announced the OCI deal, you had a slide in your September 2024 presentation deck where you said, Look, if we get $350 realized methanol, and if we get $3.50 gas, we will deliver post-OCI run rate, including synergies, $1.125 billion EBITDA, a very specific number.

The, uh, the assets not gasoline. And, and bont, um, has, you know, these assets have been running at at at full rate since since since acquisition. I'll just say, the Bowmont asset went through a turnaround in in March, successful, turnaround there, and operating. Well, for, for the, for the, uh, for 2025 Nack gasoline, went through a turnaround in 2024 had an out outage towards the end of the year and has a really good run on 6 months of high, operating rates, believe it's a, a record 6-month of production there. So you know those assets go in really well of course we've got to get in um and we're we're currently doing that with our Global manufacturing team and making all the connections there with the operations so they've done a a lot of great work with those assets and and for us it's getting in and and working with the team bringing our Global expertise uh to the table as well.

Rich Sumner: Yeah.

Joel Jackson: In your new slide deck from last night, you've guided that down slightly, $50 million down to $1.075 under the same assumptions. What I want to ask you is.

Rich Sumner: Sorry, Joel, just to be clear.

Rich Sumner: It isn't actually the same assumptions. We have brought down production mainly in New Zealand.

Okay, then my final question is, when you announced the OC ideal, you had a slide in your September 2024 presentation deck where you said, "Look, if you get 350 realized methanol and if we get 3 off 50% gas, we will deliver post-OCI run rate, including synergies, $1.125 billion," a very specific number. In your new slide that you presented last night, you've got that down slightly, $50 million, down to $1.075 billion under the same assumptions. I want to ask you.

Joel Jackson: That's my question?

Rich Sumner: $50 million has everything to do with New Zealand. Yeah.

Joel Jackson: That is my question, which is the $50 million difference, is that all New Zealand?

Sorry, Joel Just to be clear, it isn't actually the same assumptions. It's uh, we have brought down production mainly in New Zealand and so that that 50 million is just everything.

Rich Sumner: Yeah, it is all New Zealand. You'll see that the equity tons in that previous slide deck would have been around 10.2 million equity tons. It's now 9.6. We've brought New Zealand down by 600,000 tons. New Zealand's at 400,000 tons now in the run rate based on the reality about gas and the outlook, the difficulty in really assessing gas beyond what we're producing this year. That really has been the main adjustment to free cash flow and EBITDA and those numbers as well. Just to be clear, because it is a point and it's one that we certainly want to clarify that has nothing to do with the transaction.

Yeah, so that that is my question which is the 50 million dollar difference is that all New Zealand

yeah, it it is all New Zealand so we you'll see that the the equity tons

Joel Jackson: Just following up on that, two parts. Is that a number that you can achieve next year, assuming no unplanned outages? As part of that, yes, New Zealand is down at 400,000 tons. Are you not getting the proceeds from selling the gas back to the grid? Are you not being made whole anyways?

Previous, slide deck would have been around 10.29% tons. So it's, you know, New Zealand's at 4 4000 tons. Now, in the Run rate, based on the really about gas, and, and the Outlook, the difficulty, and really assessing gas beyond what we're producing this year. So, and that really has been an adjustment, the main adjustment to free cash flow and iban those numbers as well. So just to be clear because it is a point. And uh it's 1 that we certainly want to clarify that has nothing to do with the transaction.

Just following up on that then.

Rich Sumner: Well, we're in the numbers in the run rate today for New Zealand, the 400,000 tons. At that level, really the earnings relative to the fixed, adjusted EBITDA relative to our fixed cost, there is not a lot of earnings and cash flows left in for New Zealand. We've not forecasted any gas sales in those numbers either. When we look at it next year, could we achieve it? The number includes synergies, so it includes the $30 million in synergies, and we've said that it's going to take us 18 months to achieve those synergies. We're working on that $30 million. Everything that we've done so far has validated our initial assumptions around those hard synergies. We're going to be progressing towards that. It is a good number, 9.6 million equity tons.

2 parts. Is that a number that you can achieve next year assuming No 1 planned outages and as part of that, yes, new Zoom is down at 400000 times. Are you not getting the proceeds from selling the gas back to the grid? Like are you not being made whole anyways?

Well, we're in the numbers in the Run rate today. For New Zealand, the the 400,000 tons at that level.

Rich Sumner: I think that it's always going to be subject to production and our ability to run the assets and a lot of that's on gas feedstock. Now with 65% of our production in North America with stable gas, we think that those run rates are achievable and everything from an EBITDA and free cash flow, we feel really confident. Of course, we've got to prove that out, and we've got to have a good run on our assets, and we're going to continue to work on our gas feedstock.

Joel Jackson: Thank you.

Ated our initial assumptions around those hard synergies. So we're going to be progressing towards that but it is a good number, you know, 9.6 million Equity tons. I think the, you know, it's always going to be subject to production and and our our ability to to run the assets and and and uh a lot of that's on gas feed stock, you know, now with 65% of our production in North America was stable gas. We think you know that those run rates are achievable and and everything on on a from a ibadan free cash flow. We feel really confident? Of course, we've got to prove that out and we got to have a good run on our assets and we're going to continue to work on our gas feed stock.

Operator: Your next question comes from the line of Sameer Patel with CIBC. Your line is open.

Thank you.

Sameer Patel: Hi, good morning. Rich, with your entry now into the ammonia business, what's your outlook for the market there and how you see operations expanding?

Your next question comes from the line of Amir Patel with CIBC your line is open.

Hi, good morning.

Rich Sumner: Well, thanks, Sameer. It's early for us in ammonia. Right now we're really trying to understand the operations there and integrate it into our business. As far as the market goes, we know that the market we entered this year in a pretty tight market, pricing's rebalanced with more supply coming in. I think we're right now Tampa is above $400 a ton. The view is there's been some tightening on supply and that has likely projection to go up. That's about where we modeled the pricing when they did the transaction. We're going to continue to learn more. Right now, the ammonia business represents about 3% to 5% of our global sales, but it's an area we want to continue to understand better.

Rich with your your entry now into the ammonia business. Um, you know, what's your outlook for the, for the market there. And, uh, how you see, um, operations, uh, expanding

Yeah. Well we're we're thanks. Hmm, we're we're, we're really uh you know it's early for us in ammonia right now. We're uh we're really trying to understand the operations there and integrate it into our business as far as the market. You know, as we know that the the market we entered this year in a in a in a pretty tight market, pricing is rebalanced with more Supply coming in. I think we're right now.

Rich Sumner: We know that's something we need to focus on, especially at least initially, it's about operations and integrating this into our marketing and our supply chain and getting a better understanding of it. Right now, it's very similar conditions as we would have predicted when we did the deal. We'll have more to report, I think, as we learn more about the operations, get a better understanding in the medium, longer-term outlook in ammonia.

Sameer Patel: Great. Thanks, Rich. How should we think about the gas hedging associated with the new OCI assets?

Tampa is above 400 dollars a tonne. The view is there's been some tightening on Supply and then and that that has likely projection to go up. That's about where we modeled the uh, the pricing when we when they did the transaction. Um, we're going to continue to learn more right now. The ammonia uh SEC, the ammonia business represents about 3 to 5% of our Global sales but it's in. It's an area we want to continue to understand better. We know that, uh, that that's something we need to focus on, especially at least initially. It's about operations and integrating this into our marketing, and our supply chain, and, and getting a better understanding of it. But right now, it's very similar conditions as we would have predicted, uh, when we did the deal. So we'll have more to report. I think, as we learn more about the operations, get a better understanding in the medium longer term Outlook Inn in ammonia.

Rich Sumner: What we said previously is that our hedging strategy in North America is to be meaningfully hedged in the short term, and where we target is to be around 50% to 70% hedged in the first 3 years. Beyond that, we stagger the hedging down 25% to 50% in the 3- to 5-year period, and then lower beyond that. Because OCI assets are coming to us largely unhedged, and we were already at the top end with Geismar, we're now at around the 50% hedge level, which is a comfortable place for us to be. The forward curve today is not at a price in the short run anyway that's real attractive for us and spot pricing's at $3 an MMBtu. We're comfortable with where we're at in the short term.

Great, uh, thanks Rich. And how should we think about the Hedge gas hedging associated with the new uh, oci assets?

Yeah, so we uh like we said, we said previously, is that our hedging uh strategy in North America is to be meaningfully hedged in the in the short term and where we target is to be around 50 to 70% hedged in the first 3 years. Uh, beyond that we, we stagger the hedging down 25 to 50% and the 3 to 5 year period and then lower beyond that.

Rich Sumner: Interestingly, the longer end of the curve is pricing down. We've been able to get in some, I would call it small hedging, in the 2030 plus range at below $3.50 all-in cost. We're going to continue to be opportunistically in the market, but we're comfortable with where we're at right now.

Sameer Patel: Great. Thanks, Rich. That's all I had. I'll turn it over.

Because oci assets are coming to us largely on hedged. Um, and we were already at the top end with guisar. We're now at the around the 50% heads level, which is a comfortable place for us to be the forward curve. Today is not, you know, at a price in the short run. Anyways, that's that's, that's real attractive for us and and spot pricing is at 33 dollars in mmbb to use. So, we're comfortable with where we're at. In the short term interestingly, the the longer and the curve is down and we've been able to get in some, I would call it small hedging uh, in the 2030 plus range at below $3.50, all in cost. So we're going to continue to be opportunistically in the market, but we're comfortable with where we're at right now.

Operator: Your next question comes from the line of Jeffrey Zekauskas with J.P. Morgan. Your line is open.

It's a great. Uh, thanks Rich. It's all handle. I'll turn it over.

Jeffrey Zekauskas: Thanks very much. With the OCI acquisition, how much does your quarterly depreciation rise?

Your next question comes from the line of Jeff. Zakowski with JP Morgan. Your line is open.

Uh, thanks very much um with the oci acquisition.

Rich Sumner: Yeah. I'll turn this over to Dean Richardson, our CFO.

How much does your quarterly? Uh, depreciation rise?

Dean Richardson: Yeah. Good morning. One thing with the assets is, of course, we've got the Natgasoline joint venture. Excuse me. That's going to be accounted for on an equity basis. You do need to consider that. Approximately $25 million per quarter would be the change inclusive of that.

Jeffrey Zekauskas: Okay, great. On the very last page of your release, you provide a pro forma if you owned the OCI for 6 months. There are various disclaimers, but you show net income of $241 million, I guess, versus the $215 that you reported for the 6 months. Can you explain a little bit of your calculation and what that implies, either for EBITDA or for EBIT? When I do a rough calculation, it seems to imply about $100 million in EBITDA for H1, but maybe I did it incorrectly.

People, I'll turn this over to Dean Richardson, our CFO. Yep. Uh, good morning. Um, you know, one thing with the assets is, of course, we've got the Knack Gasoline Drug Venture, excuse me. So that's going to be accounted for on an equity basis, so you do need to consider that. But approximately $25 million per quarter would be the change, inclusive of that.

Okay, great. And then um, on the very last page of your release, you provide a proforma, if you owned the oci business for

15, that you.

Reported for the 6 months.

Rich Sumner: Yeah. No, thanks. You go right to the end. This is a GAAP requirement.

Um, can you explain a little bit of your calculation and what that implies either for EBA or for ebit? When I do a rough calculation, it seems to imply about a 100 million in ebit da, um, for the first half. But but maybe I did it incorrectly.

Jeffrey Zekauskas: Yeah

Rich Sumner: go on a pro forma basis to what the prior business was. It's prescriptive as to how that's done, and you take the OCI prior information. That's at last year's information with regards to price, with regards to operating rates, which is not the business that we have today. I would encourage you to not look at that disclosure. It's a GAAP requirement.

Yeah, no. Thanks. And you you're you know right to the end. Um this is a gaap requirement to

Jeffrey Zekauskas: Perhaps you could assist us in some form. No?

Go on a performance basis to what the prior business was. So we we were we it's prescriptive as to how that's done and you take the oci prior information. And so, that's at last year's information with regards to price with regards to operating rates, which is, which is not the business that that we have today. So I I would, um, encourage you to not. Look at that disclosure. It's it's a gaap requirement.

Then perhaps you could assist us.

Rich Sumner: I'm happy to take that offline with you and walk you through that.

Jeffrey Zekauskas: Okay, good. Thank you so much.

Uh, you know, in in in some some form.

No.

Yeah, I'm happy to take that offline with you and walk you through that.

Operator: Your next question comes from the line of Ben Isaacson with Scotiabank. Your line is open.

Okay, good. Thank you so much.

Ben Isaacson: Thank you very much, and good morning. Two questions.

Rich Sumner: Yes.

Your next question comes from the line of Ben hacen with Scotia Bank. Your line is open.

David Brown: Rich, can we talk about salvage value, or maybe a better term is trapped value within your portfolio? You have two plants not running in New Zealand and kind of moving toward a third. You have the big Atlas plant not running. Now you have these two Dutch plants not running. What is that collection worth? Is there a way that you can monetize that and then return that capital to shareholders? I was just thinking, is that like $10, $15, $20 a share of value potentially locked up?

Thank you very much and uh good morning, uh, 2 questions. Um,

Rich Sumner: Thanks, Ben. I guess the first thing to say is the value in place comes down largely to the gas stock and feedstock availability and the economics of that. That's in place value will be determined by that. The reason those assets aren't running is because of the outlook. Do they have option value? We've seen over time that many, many times where assets or gas basins aren't performing, that those dynamics change. There's certainly option value in place, and that's something that we look at is how do we preserve option value. In terms of relocation value, what we've learned through our relocation, because that's also an option, would be to sell the assets and have a buyer relocate to a location where there is economically priced gas.

Rich, can we talk about salvage value or maybe a better term is trapped value within your portfolio? So you have 2 plants not running in New Zealand. And, and kind of moving toward a third, you have the big Atlas, uh, plant not running. Um, and uh, now you have these 2, uh, Dutch plants, not running, you know, what are what is that collection worth? And is there a way that you can monetize that and then, uh, return that Capital to shareholders? You know, I was just thinking is, is that like 10, 15, 20 dollars, a share of value potentially locked up.

Thanks been um, I I guess the the the first thing to say is the the value will in the value. In place comes down, largely to, to the gas, gas in the stock, and feed stock availability, and the economics of that. That's, you know, in place value will be determined by that. And the reason those assets are running is because of the assets because of the Outlook, do they have they have option value because we've seen over time that many many times where assets are the or gas basins um aren't performing that those Dynamics change and so there's there's certainly option value.

In place and and that's that's something that we look at is how do we preserve, do we preserve option value?

Rich Sumner: The value in relocation is not on the ability or the overall capital savings that you get from a relocation. The real value is in speed. If you wanted to execute a project quickly, that's the way to do it, which obviously affects project economics, the speed at which you can execute a project. Right now the market's not. Firstly, the dynamics in each of those locations is challenged for the reason they're down. Secondly, the market's not telling us to move quickly on a project. Will that value change over time? Becomes a question of market dynamics, whether it's the gas or the feedstock in those locations or what happens in the market. If the market tells us to move quickly on a project, there's value there. Which, of course, we would like to give to shareholders before we give it away.

Terms of relocation value. Uh what we what we've learned through our relocation because that's also an option would be to sell the assets and and have a buyer relocate to a, a bit, a location where there is economically price gas, the value in relocation is not on on on uh,

The ability or the overall Capital Savings that you get from a relocation, the, the, the real value is in speed. And so, if you, if you wanted to execute a project quickly, um, that's that's the way to do it, which obviously affects project economics. The speed at which you can execute a project. So, you know, right now, the Market's not

Rich Sumner: We're always looking at these things. I would say that we're not in a $15 to 20 per share value at all for those assets.

Co firstly, the the the Dynamics in each of those those those locations is challenged for the the reason they're down. Um, secondly, the Market's not telling us to move quickly on a, on a project. Will those that will that value change over time? Question becomes a question of of market dynamics whether it's the gas or the feed stock in those locations or uh you know, what happens in the market and if the market tells us to move quickly on a project, there's value there which of course we would like to, we would like to give to shareholders before we give it away so but we we are always looking at these these things.

Ben Isaacson: That's very helpful. Thank you for that. Just as a follow-up question, we saw Trump this week penalize, or at least talk about penalizing India via secondary sanctions for purchasing petroleum from Russia and maybe from Iran as well. A month ago, the US placed secondary sanctions on Kaveh Methanol, which I think is a first for Iran with respect to secondary sanctions. Rich, can you talk about what this means? Do secondary sanctions mean anything in terms of impacting trade flow or impacting how much methanol gets out of Iran, or is it just kind of more of the same? Thank you.

I would say that, you know, we're not in a 15 to 20 dollars per share value at all, uh, for those assets.

Rich Sumner: Thanks, Ben. Yeah, the secondary sanctions, and we can take this offline, but we believe that this is not the first secondary sanctions that's been applied, and some of these have been applied to individual plants starting in 2020. The Kaveh is a newer plant, and they've now applied that to those operations. The secondary sanctions, Iran has been very successful in avoiding secondary sanctions, whether it be through the use of the shadow fleet and other means to get product to market. We don't think that it will impact the actual production and ability to sell it into the market, but it may limit which customers. I think your reference to India there, I think secondary sanctions, you may find that certain buyers will not touch anything that is coming from a plant that has those sanctions on them.

Thank you. Thanks, Ben. Yeah, the the, uh, the secondary sanctions and and we can take this offline. But we, we, uh, we believe that this is not the first secondary sanctions that have been applied. And some of these have been applied to individual plants, uh, starting in 2020. So the cave was, is a new newer plant and they've they've, uh, they've now applied that to, to to that uh, that those operations, the the secondary sanctions. Um, Iran has been very successful in in, in avoiding secondary sanctions whether it be through the use of the Shadow Fleet and other means to get product to Market. So we don't think that it will impact the actual production and ability to sell it as the market, but it may limit, which customers. And I think you know your your your your reference to India there. I think secondary sanctions.

Rich Sumner: There could even be buyers in China that will avoid it as well. We've seen product that has secondary sanctions still getting into the market, so there still is willing customers for that product. It may mean that it comes in at a lower price as well. We aren't forecasting any big changes in overall balances because of those actions.

Ben Isaacson: That's helpful. Thanks so much.

You may find that that certain buyers will not touch, anything that is coming from a plant that has that has those sanctions on them, and there could even be buyers in China that will avoid avoid it as well, but we've seen product that has secondary sanctions still getting into the market. So there still is willing willing customers for that product and may may mean that it comes in at a lower price as well. So, but we haven't, we don't, we aren't forecasting any big changes in overall.

Balances because of because of those actions.

Operator: Your next question comes from the line of Steve Hansen with Raymond James. Your line is open.

That's helpful. Thanks so much.

Steve Hansen: Good morning, guys. Just a couple quick ones. Rich, can you just maybe speak to some of the integration priorities as you bring OCI into the tent here? It sounds like the facility's already running quite well. I think when the transaction was proposed, you were thinking there'd be some upside to potential operating rates over time. Just maybe describe what those near-term priorities are on integration, whether it be operational or marketing or other things.

Your next question comes from the line of Steve Hansen with Raymond James, your line is open.

Rich Sumner: Yeah, for sure. Thanks, Steve. The team's done a really fantastic job in getting us off to a great start with the integration. Day 1, everything safe and seamless operations was really critical. Right now, we're making all the connections into the business, working with our new team members. The first things we wanted to do is make sure the safe, reliable assets are running, the commitment to customers that we're delivering product, and we can do that seamlessly in our operations. What we're doing right now is obviously looking at all the systems and processes that need to be incorporated because we run our business on a global platform, so all of our systems and processes need to speak to each other. All of those things will be happening. When it comes to synergies, the $30 million that we gave were really hard.

Yeah, good morning guys. Um just a couple quick ones. Rick. Can you just maybe speak to some of the integration priorities as you bring Iko Iko oci into the tent here? It sounds like the facility is already running quite well, I think when the transaction was proposed you were thinking, there'd be some upside to potential operating over time but just maybe describe what those in your term priorities are on integration and whether it be operational or marketing or other things,

Yeah for sure, thanks Steve. Uh it's it's the team's done a, a a really fantastic job in getting us off to a great start with the integration day. 1 everything's safe. And seamless operations was was really critical. Um, you know, we're we're we're right now we're making all the connections into the business working with our new team members. So the, the the first things we wanted to do is make sure the, you know, safe reliable asset for running, uh, like the commitment to customers that we're delivering product and we can do that seamlessly in our operations. Um, and then what we're doing right now is obviously looking at all the systems and processes that need to be incorporated because we run our business on a global platform. So all of our systems and processes need to speak to each other.

Rich Sumner: Those were hard synergies we felt we could get at within an 18-month period. Things like logistics costs, as we've incorporated this reasonably quickly into our global supply chain, those are things that we can get at relatively quickly. The other parts are a lot of SG&A costs, insurance, tax, IT. Some of those we can get at quickly, some of those will take time. Switching over all your systems will take time because there's a lot of integration that has to happen around the other business systems. We feel really confident with that, and that work's all ongoing. The operation side in the synergy numbers, we didn't put anything in there. When we modeled these assets, we modeled them with 85% to 90% operating rates, in that range. We also put meaningful capital against those assets.

Rich Sumner: We can see that the teams, for both of those sites, have done a real fantastic job in work they've done over time. Now we're bringing in our global manufacturing expertise and we want to work with those teams in continuing to improve operations as well as capital deployment. We think there are further synergies beyond the $30 million, but of course, we want to learn first and be able to give guidance that we feel really good about. We'll take our time over the next six months to learn more before we start setting new KPIs around that.

And all of these, those things will be happening when it comes to synergies. The 30 million that we gave were really hard. You know, those were heart synergies. We think we felt we could get at within an 18-month period things like Logistics costs and as we've Incorporated, this reasonably quickly into our Global Supply Chain. Those are things that we can get at relatively quickly. The other parts are, you know, a lot of sgna, costs Insurance, uh, tax it, some of those we can get at quickly. Some of those will take time, you know, switching over a whole, your all your, uh, your, your systems will take time because there's a lot of integration that has to happen around other business systems. So we feel really confident with that and that works all ongoing the operation side in this energy numbers, we didn't put anything in there. Um, so when we modeled these assets, we modeled them, you know, with 85 to 90% operating rates, in that in that range, we also put meaningful capital,

Capital uh against those assets. And you know the you can you can we can see that the team's done a

In for both of those sites, have done a real fantastic job in in, in work. They've done over time and now we're bringing in our, our Global manufacturing expertise. And, and, and we want to work with those teams and, and continue to improve operations, as well as capital deployment. So, we think there are further synergies, uh, beyond the

Steve Hansen: That's really helpful. Thanks. Just to follow up on the broader market, there's been a lot of, I'll just say, chatter in the trade pubs about China taking action against some of the older stock facilities in the country, and it's even created a little bit of upward pressure in the market there on a spot basis. Is that something that you're monitoring, and is it worth us paying attention to? Do you think that has an impact on that broader market from a supply side perspective? Just be curious to know if you're paying attention to that, thanks.

30 million. But of course, we want to learn first and be able to, uh, you know, give guidance that we feel really good about and, and we'll take our time over the next 6 months to learn more before we start, uh, setting new kpis around that

Rich Sumner: Yeah. We're monitoring it closely, because anything China does to rationalize overbuilt industries would be helpful. I think methanol is not an overbuilt industry. First for us, we're in a very healthy industry when it comes to supply and demand balances, and I do think that's a difference between us and some of our chemical peers, that we don't have the overbuild that we've seen in other industries. Having said that, we do indirectly get impacted, in particular in the olefins market. Any rebalancing that could happen in the olefins market would be really a positive to our pricing in our industry, because really it's about affordability of methanol into that sector, which is a big sector for us. If those policies were introduced, of course, it looks like they'd be targeting idling of older facilities and possibly deferring projects that haven't reached construction.

Against some of the older uh, stock facilities in the country and it it's it's even created a little bit of upward pressure in the market. There on the spot basis. Is that something that you're monitoring and is it worth us paying attention to do you think that has an impact on that broader Market? From a supply side perspective? Just be curious to know if you pay attention to that. Yeah, yeah. We're we're we're monitoring it closely uh, because anything China does to rationalize overbuilt, Industries would be helpful. Um, I think methanol is not an overbuilt industry. So, first for us it's we're in a, we're in a very healthy industry when it comes to supply and demand, balances. And I do think that's a difference between us and some of the, our chemical peers, uh, that we don't have the overbuild that that we've seen in in other Industries. How having said that we do indirectly get impacted in particular in the elephants market and and any rebalancing that could happen in the elephants Market would be really a a positive to to our

Rich Sumner: I think it was initially introduced with maybe an aggressive mandate. Now there's a bit more softening of it. We're going to continue to watch it. It's still early. Anything there would obviously be a positive for us.

Our to to our pricing and our industry because it really it's about affordability of methanol into that sector, which is a big sector for us. So this if those policies were introduced of course it looks like they'd be targeting idling of older facilities and cost possibly deferring projects that haven't met, you know, haven't reached construction. I think it was initially introduced, you know, with maybe an aggressive mandate now there's a bit more softening of it, but we're going to continue to walk.

Steve Hansen: That's great. Appreciate the time.

Watch it. It's still early uh but anything there would would would obviously be a positive for us.

Operator: Your next question comes from the line of Joshua Spector with UBS. Your line is open.

That's great, appreciate the time.

Joshua Spector: I had two follow-ups. First, I wanted to ask on Iran, and if the questions or the answer is the same, feel free to answer as briefly as you'd like. More around the ability to ship out of Iran. In addition to Iran being sanctioned directly, indirect sanctions, there's some sanctions that appear to be on the shippers themselves, and there's some debate about whether you could actually get enough ships to actually ship enough methanol out of Iran, and that's how you get supply impacted. Is that something you see at all?

Your next question comes from the line of Josh Spectre with UBS. Your line is open.

Rich Sumner: It's something we're going to watch closely, but to date, they've really been able to get around the shipping through the use of the shadow fleet and whether they're able to impact the operations of those vessels that operate there. We think there's enough methanol within that fleet today to be able to put product into the market, and we continue to see, compared to Q1, that Iran is opaque for us. We don't have a lot of on-the-ground information of what's happening. What we do see is imports into China, and imports into China have continued to increase as they've increased their operating rates. Josh, something we'll continue to track, and if they're able to get at those vessels, which we think there's adequate capacity today, then that could have a meaningful impact, but not seeing anything yet. Something we'll continue to monitor.

Um, I had 2, follow-ups. First, I wanted to ask on Iran and if the questions or the answers, the same feel free to answer it briefly as you'd like. Um, but more around the ability to ship out of Iran. So in addition to Iran being sanctioned directly, you know, indirect sanctions, there's some sanctions that appear to be on the shipping shippers themselves. And there's some debate about whether you could actually get enough ships to actually ship enough methanol out of Iran and that's how you get supply impacted. Is that something you see at all?

It's it's something we we we're going to watch closely but to to date they've really been able to to get around this, the shipping through the use of the, the shadow Fleet and whether they're able to, uh, impact the operations of those vessels that operate there. We think there's enough methanol within that Fleet today to be able to put product into the market and we continue to see, you know, compared to the the first quarter that we or Iran is opaque for us. We don't have a lot of on the ground information of what's happening but we do see as Imports into China and imports into

Joshua Spector: Thanks. That makes sense. A question for Dean Richardson on the accounting side. When we look at your balance sheet, you have about $2.9 billion in debt. We thought with the OCI deal, there was another half a billion or so to come from basically assumed net debt and lease liabilities, and we didn't see anything go up on that. I'm not sure if there's some weird accounting because the deal closed late, if that's maybe in non-consolidated, or is your kind of aggregate net debt less than what we were expecting?

China continued to increase as the of the as they've increased their operating rate. So Josh something will continue to to, to track and if they're able to get at those those vessels, which we think there's adequate capacity today, then that could have a meaningful impact but not seeing anything yet. Um, something will continue to monitor

Dean Richardson: Yeah. Well, thanks, Josh. I think there's nothing about the closing date or anything like that. I think what it is is the Natgasoline debt, which when we did the purchase price and when we did all our valuations, we assumed half of the debt in our modeling. That's how we look at it, even though it gets accounted for on an equity basis. It's really sort of hidden in the investment and associate line on the balance sheet. That's an asset value, less debt. It's a GAAP thing. We'll continue to do all of our measures on a proportionate basis, notwithstanding the accounting, because we do full consolidation for Egypt. Now we do equity for Natgasoline, but when it comes to our disclosures, it'll all be reconciled back to our proportionate interest in our assets. Happy to follow up with you, Josh.

Thanks. That makes sense. And the question for Dean on the accounting side. Um, you know, when we look at your balance sheet, you have about $2.9 billion in debt. We thought with the OC deal, there was another half a billion or so to come from basically assumed net debt and lease liabilities, and we didn't see anything go up on that. So I'm not sure if there's some weird accounting, because the deal closed late, if that's maybe a non-consolidated, or is your kind of, in aggregate, net debt less than what, you know, we were expecting.

Yeah, well, thanks Josh. Uh, I think there's nothing about the closing date or anything like that. I think what it is is the net gasoline, uh, debt, which when we did the, you know, the purchase price and and when we did all our valuations, we assumed, you know, half of the debt in our modeling. That's how we look at it, even though it gets accounted for on an equity basis. So it's really sort of hidden in the investment and Associate line on the on the balance sheet. That's that's an asset value than less debt. So uh, it's it's a, it's a gas thing, but we'll continue to do all of our measures on, on a proportionate basis, like not.

Joshua Spector: Okay. That makes sense.

Rich Sumner: If you want to walk through that.

Withstanding the accounting uh because we do full full consolidation for Egypt. Uh, now we do equity for Nack gasoline, but when it comes to our disclosures, uh, it'll all be reconciled back to proportion. Our proportionate interests in our, in our, in our assets.

Joshua Spector: Yep, understood. Thank you.

Happy to follow up with you if you want to walk through that.

Operator: Your next question comes from the line of Laurence Alexander with Jefferies. Your line is open.

Understood, thank you.

Kevin Estroff: Hey, guys. This is Kevin Estroff on for Laurence. My first question is just about global operating rates. I know you said they sort of improved over Q2, especially towards the back half. I'm just wondering sort of where they maybe started out in April, how they kind of ended the quarter, and maybe what you're seeing so far into Q3.

Your next question comes from the line of Lawrence Alexander with Jeffrey. Your line is open.

Rich Sumner: Yeah, thanks. We think that Q1 was a real low point, especially particularly for Iran, as well as there were outages in the Atlantic Basin. We saw a number of different outages across the industry there and/or restrictions, which meant the industry was operating pretty low. Inventories drew down, and we saw premiums outside of China pricing in at around $280, $290, and premiums outside of China got above $100 a ton. As Iran began to produce better coming out of the winter period, and a lot of the other issues across the industry got resolved, we've seen healthy production rates. At this point, we look at production in the Atlantic, we look at production in the Pacific, Iran mainly, Middle East, and even China. The industry's operating really well.

Hey guys. Uh this is Kevin suck on the Lawrence. Uh so my first question is just about global operating rates. I know you said they sort of improved over Q2, especially toward the back half. I just wondering sort of where they Maybe started out in April, how they kind of ended the quarter and maybe what you're seeing so far into Q3.

Yeah. Thanks. Um, we

We think the q1 was a real low Point especially particularly for Iran as well as they were outages in the Atlantic Basin. So we saw a number of different outages across the industry there at Andor restrictions, which meant the the industry was operating pretty low, uh, inventories Dru Down. And we saw premiums

Outside of China, China China pricing in at around 2, 8, 2. 9 0.

Got over a hundred dollars a ton.

Rich Sumner: If you were to look at the numbers on operating rates, it might not be compelling because you'd see a number probably 65%, 70%. A lot of the capacity that is in that number is structurally constrained. Whether it's feedstock constraints that those plants are not turning on, whether it's sanctions that aren't allowing that product to get into market, or even in China, when you look at a 65% operating rate in China, you have to look at that as the coal producers are operating at 75% to 80%, and some of the other production, coke oven operates structurally lower. That's just the business because it's a byproduct. The natural gas-based plants that are in China, some of that structurally shut down.

As Iran began to, to produce better coming out of the winter period, we and a lot of the other issues across the industry got resolved. We've seen healthy production rates at this point. We look at production in the Atlantic, we look at production in the Pacific, Iran, mainly the Middle East, and even China. You know, the industry is operating really well.

Rich Sumner: You have to really look at the percentages closely, and that's something that we're trying to help the investment community understand that, because as of today, we just don't see a lot of latent supply in the market that can turn on. At this point, we've got inventories in China still below historical norms and MTO not operating at full rate. We've got a lot of capacity to absorb supply, and I think that's just indicative of even though we're in a slower growth phase, methanol markets are balanced to tighten even when things are operating well.

If you were to look at the numbers on operating rates, it would might not be compelling because you'd see a number, probably 65 70%, but a lot of the capacity that are is in that number is structurally constrained. Uh, whether it's feed stock constraints that those plants are not turning on, uh, whether its sanctions that aren't allowing that that, that product to get into Market or even in China. When you look at a 65% operating rate in China, um, you have to look at that as the coal producers are operating at 75 to 80% and some of the other production Coke oven operates, structurally lower, that's just the business because it's a byproduct. And then that gasoline, or that natural, gas based plants that are in China, some of that structurally shut down. So you have to really look at the percentages, uh, closely and that's something that we want. We're, we're, we're, we're trying to help help the investment.

Kevin Estroff: Got it. Okay, thank you. Just my second question. I guess, by your estimates, how much potential marine fuel demand on a run-rate basis, I guess, could be sort of operational by the year-end if all those dual-fuel ships ran on methanol? Sort of blue-sky scenario.

Community understand that. Because as of today, we just don't see a lot of latent Supply in the market that can turn on. And at, at this point, we've got inventories in China, still below historical norms and MTO, uh, not operating at full rate. So, we've got a lot of, we've got a lot of capacity to absorb absorb Supply, and I think that's just indicative of not even though we're in a slower growth, uh, phase methanol, markets are balanced to tighten even.

When things are operating well.

Got it. Okay, thank you. And just in my second question I guess.

Rich Sumner: By the end of 2025, I believe our estimated number is around 2 million tons. What we have to do is be real cautious about what will shippers actually burn. We do think when the ships get into the water, that methanol will be burned to test the engines, for sure. Ultimately, if you're talking about conventional fuels, it will come down to energy-equivalent economics between methanol and marine gas oil and the VLSFO. Today, methanol is cheaper than MGO, but it's more expensive than VLSFO. The abundance of fuel is the low sulfur fuel oil. Today, there isn't an economic prize of switching. Shippers, when it comes to methanol, the discussions are more about low-carbon methanol, especially because of some of the recent policy initiatives by the International Maritime Organization. We're working with the shipping companies on both conventional as well as low carbon.

By your estimate how much potential marine fuel Demand on a run rate basis. I guess could be sort of operational by the year end if if if all those dual fuel ships random methanol.

These guys scenario.

By the end of 2025, I believe are estimated numbers around 2 million tons. Um, you know that,

Rich Sumner: Their focus area is a lot on the low-carbon end. In the event that stringent policy is actually implemented, they could have a fairly large gap where they have to burn low-carbon fuel or be subject to penalties. A lot of our discussions are in that area and not really in the conventional methanol area today.

That what we have to do is be real cautious about what, what, what will shippers actually burn. We do think, when the ships get into the water that methanol will be burned to to test the engines for sure. Ultimately, if you're talking about conventional fuels, it will come down to energy equivalent economics between methanol and, and, uh, marine gas oil, and very the, the lsfo. Um, and today methanol is, is, is cheaper than mg MGO, but it's more expensive than blso, which is the abundance of fuel, is the low sulfur fuel oil. So today there isn't an economic price of switching. Um, we are looking shippers when it comes to methanol are more. The discussions are more about low carbon methanol, especially because of some of the recent, uh, policy initiatives by the international Maritime organization. And so we're working with the shipping companies.

On both conventional as well as low carbon. Their focus area is a lot on the low carbon. And, and, and in the event that stringent

Kevin Estroff: Okay. Thank you very much.

Conventional methanol area today.

Operator: Your next question comes from the line of Nelson Ng with RBC Capital Markets. Your line is open.

Okay, thank you very much.

Nelson Ng: Great. Thanks. First one's just a quick follow-up. On the Natgasoline debt, I think back in September, the assumption was there would be about $450 million of debt and leases. Is that still a good number to use?

Your next question comes from the line of Nelson, with RBC Capital Markets. Your line is open.

Rich Sumner: Yeah, that's a good number, Nelson. Obviously, since that time, there's been normal course payments. The Natgasoline entities also refinanced the debt. There's been some puts and takes, and we're going through an adjustment period, but $450 is still a good number to use.

Great, thanks. Uh, just first, just a quick follow-up on the Nat gasoline debt. I think back in September the assumption was there would be about $450 million of debt and leases.

Um, is that still a good number to use?

Nelson Ng: Great. Thanks. Next question is on New Zealand. I think, Rich, you mentioned that you took your New Zealand production assumptions down 600,000 to 400,000. Is there a minimum amount that the gas suppliers need to provide you with? I guess the second part of the question is, for this year, if gas were not diverted to the electricity market, what would production look like?

Yeah, it's a good number uh Nelson. Obviously since that time there's been normal course uh payments. Uh, the net gasoline. Uh, entities is also refinanced to that. So there's been some puts to take and we're going through an adjustment period, but 450 is still a a good number to use.

Great, thanks. Um and then next question is on New Zealand. Uh, I think Rich you mentioned that you took your New Zealand production assumptions down. Uh, 600,000 uh, to 400,000. So is there a minimum amount of uh, that the gas suppliers that need to provide you with? And then

Rich Sumner: Thanks, Nelson. In New Zealand, maybe I'll address that question in a number of different ways. We're operating the plant at around 60% operating rate, so well below full capacity. That is not an efficient way to be operating a facility. When you look at the earnings there relative to the fixed cost and also the operation of the plant, it's certainly something that on a sustained basis, that's a challenging gas profile. You can take 60% of 1 plant, which is 850,000 tons, and that kind of would be sort of where we would've produced for the year.

And I guess it's the second part of the question is like, for for this year, if gas were not diverted to the electricity Market, what would production look like?

Thanks Nelson in New Zealand. Maybe I'll I'll I'll I'll address that question in a number of different ways. So so first I've had we, we hadn't diverted, we probably would have been. We're operating the plant at at around 60%, operating rate. So well below, uh, full capacity. You know, that is not an efficient way to be operating a facility. And when you look at the, when you look at the

Rich Sumner: When we look forward, we're really looking in the short term because where we are today, our gas profile there has really deteriorated to this level because of the performance of existing wells as well as the limited capital that's going into the Taranaki Basin. The current government recognizes this, and they're trying to address that through new policy incentives. Whether that spurs on more investment is a question mark. Even if it does, it will take time. We're really focused on the short to medium term there. Obviously, we're looking at the best way to optimize our operations there. Our team's been doing a fantastic job of doing that in the face of a lot of uncertainty.

The the earnings there are relative to fixed costs and also the operation of the plant. It's it's certainly something that we on a sustained basis. That's a challenging, that's a challenging uh, uh, gas profile. But you can take 60% of 1 plant which is 850,000 tons and that kind of would be sort of where we would have produced, uh, for the year when we look forward. We're really looking in the short term because where we are today, you know, our gas profile there has has really deteriorated to this level because of the performance of existing Wells as well as the limited Capital. Uh, that's going into the taranaki Basin and

The government current government recognizes this and they're they're trying to address that through through uh, through new policy incentives.

Rich Sumner: We are, in terms of how much margin overproduction, overproducing we've made within the quarter, that was probably about $5 to 10 million over and above methanol. We'll continue to look at what the demands of that local electricity market are, but we're really trying to optimize the site, and ultimately, we're trying to get more gas to support our operations there.

But whether that Spurs on more investment, uh, is a question, mark. And then the amount even if it does, it will take time. So we're really focused on the short to medium medium-term there. And obviously we're looking at the best way to optimize optimize our our our operations there and our team's been doing a fantastic job of doing that uh in in the face of a lot of uncertainty. So you know we are

In terms of how much margin over.

Nelson Ng: Just a quick clarification on that. When you divert gas to the electricity sector, you would idle your facility rather than run it at even a lower rate?

Over production over producing. We've made, you know, in the quarter that was probably about 5 to 10 million dollars over and above methanol. We'll continue to look at uh, what the demands of that local electricity Market are but uh we're really trying to optimize the site and ultimately we're trying to get more gas to support our our operations there.

Rich Sumner: Well, we're at a point there right now with the gas that we're getting, we're already on minimum operating rates. To the extent that we're diverting, we're very close to minimum operating rates. We do think that this largely does happen seasonally. Right now, it's the winter period there, where there is more demand from the electricity sector. If there is large demand there, we would shut down the plant.

And and just a quick clarification on that. So when, when you divert gas to the electricity sector, like, you would idle your facility rather than run it at even a lower rate.

Well, we're at a point there right now with the gas that we're getting. We're already on minimum operating rates. So the the the extent that we're diverting we're very close to to to minimum operating rates.

Nelson Ng: Okay. Thanks for all the color. I'll leave it there.

And we do think that this is largely does happen seasonally. So right now it's the winter period there where there is more demand from the electricity sector. So if there is large demand there, then we we would we would shut down, shut down the Plant.

Operator: Last question comes from the line of Roger Spitz with Bank of America. Your line is open.

Okay, thanks for all the color. I'll leave it there.

Roger Spitz: Thanks very much. First off is a request, tagging onto Jeff. Will you consider putting out perhaps in an 8-K sort of OCI methanol sales and EBITDA, at least as you pick it up? I know you didn't take the bad hedge for the past 6 quarters. Recognize that might be beyond what you're required to file, but it would be very helpful. Anyway, that's not a question, Michael.

The last question comes from the line of Roger Speeds with Bank of America. Your line is open.

Rich Sumner: Yeah.

Roger Spitz: Question. Go ahead.

All right, thanks very much. Uh, first was a request, uh, tagging on to uh, Jeff. Will you consider uh, putting out perhaps in an 8-K sort of OCI methanol sales in uh, EBITDA? At least as you pick it up. I know you didn't take the uh, the bad hedge for the past six quarters. Uh, recognize that might be beyond what you're required to file, uh, but it would be very helpful anyway.

Rich Sumner: We'll take that feedback. We certainly, when we get to Q3, we want to make sure that the investment community has a good understanding of the impact on our earnings. How we do that, we haven't quite worked that out specifically yet, but we do want to make sure that we're giving guidance on the impact that's having on our results. We'll take back that feedback for sure.

Roger Spitz: Great. Thanks very much. We're having to just put it together from what they used to publish and make adjustments and I guess, assumptions. The realized net price discount versus your posted non-discount benchmark price has been moving higher over the quarters. I wonder, how do you think the OCI methanol acquisition will impact that discount? Meaning, will it potentially lower the discount? Will it be higher than the discount? About the same? I guess it depends on how that's all being sold.

Yeah. Go ahead. We'll take that feedback. We certainly when we get to the third quarter, we we want to make sure that that the investment Community has a good understanding of the impact on our earnings. How we do that, we haven't quite worked that out, uh, specifically yet. But we will, you know, we do want to make sure that we're giving guidance on, on the impact that's having on our results. So, we'll take back that feedback for sure.

Great, thanks. Thanks very much. Because of we're having just put it together from what they, they used to publish, and, and make adjustments, and

I guess assumptions. Um so the the realized net price discount uh versus your posted non-discounted the quarters, but I wonder how do you think the oci methanol acquisition will impact that discount? Meaning, will it potentially

Rich Sumner: Yeah. Largely what we focus on is our realized pricing. What we have seen is that over time, discounts in the Atlantic Basin have gotten larger over time. At the same time, those regions also price at a premium over the cost curve. When we announced the deal, we knew that the business we were buying was largely selling in the Atlantic markets. That's confirmed. Most of the customer contracts that we have are Atlantic-based pricing. I would expect that could move the average discount up. What that will mean is for our portfolio is higher realizations with a shorter supply chain. It's an improvement in the portfolio, notwithstanding it might be an increase in the discount.

Lower the discount; will it be higher than the discount about the same? I mean, I guess it depends on how that's all being sold.

Yeah. So for um,

Roger Spitz: Got it. Just so I understand, I thought another reason these discounts were getting larger was having to send more Atlantic Basin-produced methanol to the Pacific Basin, so you got higher shipping costs on a relatively greater amount of methanol you ship was another driver of why the discounts were rising. Is that a fair comment or?

For for our, our focus is really it largely. What we're what we focus on is our realized pricing. Um, what we have seen is is is that over time, discounts in the Atlantic Basin have gotten larger over time. Uh, but at the same time, those those Mark, those those regions also price at a premium over the the cost curve. Uh, when we announced the deal, we we knew that that the business we were, we were buying was largely selling in the Atlantic markets, that's confirmed. Most of the customer contracts that we have, are, are Atlantic based pricing. Um, so I would expect that could move the average discount up, but what that will means is for our portfolio is higher realizations with a shorter supply chain. So it's an improvement in the portfolio, notwithstanding it might be a an increase in the discount.

Got it. And it, it just—just so I understood, I thought another reason these discounts were getting larger was.

Uh, having to send more.

uh,

Rich Sumner: I wouldn't say that was the driver. I think what happens is in the methanol markets, the way that suppliers and the way consumers buy and the way sellers sell is based off of a contract price less a discount. As there's been more Atlantic production over time and with the rise in shipping costs, a greater incentive to stay closer to the plant, that's led to an increase in discounts with the competition that's been in the market. That has led to that expansion in discounts, notwithstanding the price realizations are still at premiums over the cost curve.

Atlantic base and produce methanol to the Pacific Basin. Uh so you you got more shipping, you know, higher shipping costs on a relatively greater amount of methanol or ship was another driver of why the discounts were Rising. Is that fair comment? Or I wouldn't say, I wouldn't say that was the driver. I think.

Roger Spitz: Interesting. Thank you very much.

What happens is in the methanol markets, the way that suppliers, and the way consumers, Buy in the way, in the way sellers sell is based off of a contract Price, Less a discount. And as there's been more Atlantic production over time, and with the rise in shipping costs, greater incentive to stay close closer to to the plant. That's led to an increase in in, in discounts with the competition that's been in the market. And so that has led to that expansion and discounts notwithstanding the real. The price realizations are still at premiums over the cost curve.

Operator: There are no further questions at this time. I will now turn the call over to Mr. Rich Sumner. Please go ahead.

Interesting, thank you very much.

Rich Sumner: Well, thank you for your questions and interest in our company. We hope you will join us in October when we update you on our Q3 results.

There are no further questions at this time. I will now turn the call over to Mr. Rich Sumner. Please go ahead.

Operator: This concludes today's conference call. You may now disconnect.

Well, thank you for your questions and interest in our company. We hope you will join us in October when we update you on our third-quarter results.

This concludes today's conference call, you may now disconnect