Q2 2025 Methanex Corp Earnings Call
8-K, a sort of OCI methanol sales and EBITDA at least as you pick it up I know you didn't take.
The bed hedge for the past six quarters.
Recognize that might be beyond what you're required to file but it'd be very helpful anyway.
That's not the question Mike.
Well go ahead.
Well I think the feedback we certainly when we get to the third quarter, 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 will we.
Do want to make sure that we're giving guidance on on the impact that's having on our results. So I will take back that feedback for sure.
Great. Thanks, very much because we're.
We're having just put it together from what they used to publish and make adjustments and.
I guess assumptions.
So the realized net price discount.
Versus your posted non discount benchmark price is.
Then moving higher over the quarters, but I wonder how do you think the OCI methanol acquisition will impact that discount meaning will it potentially.
Potentially.
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.
For.
Our focus is really largely what we're what we focus on is our realized pricing. What we have seen is is that over time discounts in the Atlantic basin have gotten larger over time.
But at the same time those those mark those those regions also priced at a premium over the cost curve.
When we announced the deal we knew that.
The business. We were we were buying was largely selling in the Atlantic market. That's confirmed most of the customer contracts that we have are our Atlantic based pricing.
So I would expect that could move the average discount up but what that will mean for our portfolio is higher realization with a shorter supply chain. So it's an improvement in the portfolio notwithstanding it might be an increase in the discount.
Got it and just just so I understand I thought another reason these discounts we are getting larger was okay.
Having just 10 more.
Atlantic Basin produce methanol to the Pacific Basin.
You got more shipping higher shipping costs on a relatively greater amount of methanol viewership 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 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 and as there's been more Atlantic production over time.
With the rise in shipping costs, a greater incentive to stay close closer to the plant.
That's led to an increase in dividend and discounts with the competition that's been in the market.
So.
That has led to that expansion of discounts notwithstanding the price realization are still at premiums over the cost curve.
Interesting. Thank you very much.
There are no further questions at this time I will now turn the call over to Mr. Rich. Please go ahead.
Well. Thank you for your questions and interest in our company, we hope you'll join US in October when we update you on our third quarter results.
This concludes today's conference call you may now disconnect.
Yeah.
Okay.
Hum.
Yeah.
Hum.
Integration is going well and both assets operated safely and at full rates 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.
On May one we idled one facility as planned and are currently conducting maintenance and 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 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 Zealand electricity market.
Planned successfully restarted in early July and we forecasted our our production for 2025 for New Zealand to be approximately 400000 tonnes gas.
Gas supply availability in New Zealand continues to be challenged and we continue to work with our gas suppliers in the government to sustain our operations in the country.
In Egypt, we experienced some curtailments due to significant important disruptions, which ended in late June 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 methanol and ammonia production as well as our share of production from the Nat gasoline class.
Actual production may vary by quarter based on timing of turnarounds gas availability unplanned outages and unanticipated events.
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 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.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Your first question comes from the line of trouble Jackson with BMO capital markets. Your line is open.
Alright, Thanks, I'm going to ask two questions one by one.
Richard and team.
Just on <unk>.
Operating rates at G. III excuse me Beaumont and OCI can you talk about it looks like she sees in running other than a hiccup you set up the sites.
But youre running over 90%.
Since we restarted it and then can you talk about how Beaumont and Thats actually been running in the month or so since you had it.
Yeah. So thanks Joel.
At G. III is operating really well since we restarted in early may.
We did have those.
The disruptions towards the end of the quarter, but beyond that G. III is operating at high rates for that period and and is operating at those high rates today.
What probably wouldn't give you exact percentage, but you know.
G. Three went out when we when we when we run the asset it's been at.
Very high rates of above 90%.
The the assets Nat gasoline and adds a lot.
Has you know these assets had been running at full rates since since <unk> since acquisition and I'll just say.
The Beaumont asset went through a turnaround in March successful turnaround there.
<unk> well probes for the for the for 2025, Nat gasoline went through a turnaround in 2024 had it not an outage towards the end of the year and has a really good run on six months of high operating rates I believe it's at a record six month of production. There. So you know those assets going really well.
Well of course, we've got to get in.
And where were currently doing that with our global manufacturing team and making all the connections there with the operation. So they've done a lot of great work with those assets and for US, it's getting in and working with the team, bringing our global expertise to the table as well.
Okay and then my final question is when you announced the OCI deal you had a slide in your September 'twenty 'twenty four presentation deck, where you said look if we get 350 realized methanol and if we get if we don't have to be syngas, we will deliver post OCI run rate, including synergies $1 <unk> 5 billion EBITDA very specific number in your slide that you want.
Thanks, you've guided that down slightly $50 million down to one point they were getting five under the same assumptions.
All right.
Sorry, Joel just to be clear it isn't actually the same assumptions that we have brought down production, mainly in New Zealand and so that's kind of a question.
Thanks.
Yeah.
So that was my question, which is the $50 million difference is that all New Zealand.
Yeah and it is all of these Zealand so you'll.
You'll see that the equity tons in that previous slide deck would've been around $10 2 million equity tonnes. It's about nine six so we brought in New Zealand down by 600000 tonnes. So it's new Zealand's at four 400000 tonnes now and the run rate based on the really about gas and in the outlook Dave difficult.
And really assessing gas beyond what were producing this year, so and that really has been an adjustment the main adjustment to free cash flow and EBITDA in those numbers as well so just to be clear because it is at a point and it's one that we certainly want to clarify that has nothing to do with the transaction.
Just following up on that then.
Two parts is that a number that you can achieve next year, assuming no unplanned outages and as part of that yes. The zune is down 400000 tons are you not getting the proceeds from selling the gas back to the grid like are you not be made whole anyways.
Well were in the numbers in our run rate today for New Zealand.
400000 tonnes at that level.
The really the earnings relative to the ex U.
Adjusted EBITDA relative to our fixed cost there is not a lot of earnings and cash flows left and for New Zealand and we have not forecasted any gas sales in those numbers either so you know 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 where it's going to take US 18 months to achieve those synergies. So we're working on that that 30 million everything that we've done so far has validated our initial assumptions around those hard synergies. So we're gonna be progressing towards that.
But it is a good number you know $9 6 million equity tonnes I think.
It's always going to be subject to production and at our our ability to run the assets and a lot of that's oil and gas feedstock you know.
Now with 65% of our production in North America was stable gas, we think that those run rates are achievable and and everything on a from a EBITDA and 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 feedstock.
Thank you.
Your next question comes from the line up.
Then CIBC your line is open.
Hi, good morning.
Rich with your at your entry now into the ammonia business, what's your outlook for the market. There and are you see operations are expanding.
Yeah. We're we're we're we're really Oh, it's early for us in pneumonia right now where.
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 the market. We entered this year and are in a pretty tight market pricings rebalanced with more supply coming in I think we're right now Tampa is above $400 a ton.
The view is theres been some tightening of supply and that likely projection to go up but that's about where we modeled the the pricing when we when they did the transaction we're.
We're going to continue to learn more right now of the ammonia.
The ammonia business represents about 3% to 5% of our global sales, but it is an area. We want to continue to understand better we know that Ah, but 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 but right now it's.
Very similar conditions as we would've predicted 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 and longer term outlook in pneumonia.
Great. Thanks, Richard and how should we think about the headrick gas hedging associated with the new OCI assets.
Yeah. So we are like we said we said previously is that our hedging strategy in North America has 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 three years.
Beyond that we stagger, the hedging down 25% to 50% than the three to five 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 you know at a price in the short run anyways, that's a that's real attractive for us and and spot pricings at three $3 an M. M. Btu. So we're comfortable.
With where we're at in the short term interestingly the longer end of the curve is pricing down and we've been able to get in some I'll call. It small hedging in the 2030 plus range at below $3 50, all in costs. So we're going to continue to be opportunistically in the market, but we're comfortable with where we're at right.
Now.
Great. Thanks, Rich said still had I'll turn it over.
Your next question comes from the line of Jeff Zekauskas with JP Morgan Your line is open.
Thanks very much.
<unk>.
With the OCI acquisition, how much does your quarterly depreciation rise.
Yeah.
Yeah.
Turn this over to Dean Richardson our CFO.
Good morning.
One thing with the outside the of course, we got the Nat gasoline joint venture.
It gives me so that's gonna 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.
Then on the very last page of your release you provide the pro forma if you own the OCI business or.
Six months.
There are various disclaimers, but you show net income.
241.
$241 million I guess versus the $2 15 that you.
Uh huh.
Reported for the six months.
Hum.
Can you explain a little bit of your calculation.
And.
What that implies either for it.
Or for EBIT.
I do a rough calculation it seems to imply about $100 million and EBIT da.
For the first half, but maybe I did it and correct.
Yeah, no. Thanks Denise.
Right to the end.
This is a GAAP requirement to go on a pro forma basis to what the prior business was so we were.
It's prescriptive as to how that's done and you take the OCI prior information and so that's <unk> information with regards to price with regards to operating rates, which is which is not the business that we have today. So I would encourage you to not look at that disclosure is a GAAP requirement.
And then perhaps you could assist us.
Uh huh.
And some some form.
Yeah.
Yeah, I'm happy to take that offline with you and walk you through that.
Great. Thank you so much.
Okay.
Your next question comes from the line of Ben asked some with Scotiabank. Your line is open.
Thank you very much and good morning, two questions.
Rich can we talk about salvage value or maybe a better term is practical value within your portfolio. So you have to plant not running in New Zealand and kind of moving toward a third you have the big Atlas.
And not running.
And now you have these two Dutch plant not running.
I'm wondering what is that collection worse.
And is there a way that you can monetize that and then a return that capital to shareholders.
Just thinking is that like 10, 15, $20 a share of value potentially locked up.
Thanks Ben.
I guess the.
First I can say is that the value will and the value in place comes down largely to the gas cap stock and feedstock availability on the economics of that that's in place value will be determined by that and the reason those assets aren't running it as of yet.
The outlook do they have they have option value because we've seen over time that many many times where assets are that our gas basins.
Aren't performing.
That those dynamics change and so there's there's certainly option value in place and that's something that we look at is how do we preserve do we preserve option value.
In terms of relocation values.
What we what we've learned through our relocation because that's also an option would be to sell the assets and the Abbott buyer relocate to a location where there is economically priced gas the value and relocation is not on on on.
The ability or the overall capital savings that you get from a relocation.
The real value is in speed and so if you. If you wanted to execute a project quickly. 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 is not called for.
The dynamics in each of those those those locations is challenged for the reason they're down.
Secondly, the market is not telling us to move quickly on a on a project will those that will that value change overtime question becomes a question of market dynamics, whether it's the gas or the feedstock in those locations or are you know what happens in the market and if the market tells us to move quickly on a project there.
<unk>, there, which of course, we would like to we would like to give to shareholders before we give it away so but we're.
We're always looking at these things I would say that we're not in a 15 to $20 a share valuing it at all.
Uh huh.
That's very helpful. Thank you for that and just as a follow up question.
We saw trumped this week penalize or at least talk about penalizing India.
Secondary sanctions for purchasing petroleum from Russia, and maybe from Iran. As well a month ago. The U S placed secondary sanctions on how they methanol.
Because the first free Iran with respect to secondary sanctions, which can you talk about what it means.
Secondary sanctions mean anything in terms of impacting creates lower impacting how much methanol gets out it would be wrong or is it just kind of more of the same. Thank you.
Thanks, Ben Yeah, the secondary sanctions.
And we can take this offline, but we are we believe that this is not the first secondary sanctions that have been applied in some of these have been applied to individual plants are starting in 2020. So the cafe wasn't as a new class of newer plants and then they've developed played that two two to that.
Rich Sumner: We'd now be happy to answer questions.
Sarah Herriott: Thanks, Sam. I would like to remind everyone, in order to ask a question, first start on the number one on a telephone keypad. Your first question comes from the line of Joel Jackson with BMO Capital Markets. Your line is open.
Those operations the secondary sanctions.
Iran has been very successful in in avoiding secondary sanctions, whether it be through the use of the shadow fleet and other means to get product to market.
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, excuse me, Beaumont and OCI, can you talk about, it looks like G3 has been running, other than the hiccup you said at the sites, with, it's been running over 90%, since you restarted it. And then can you talk about how Beaumont and that DAF have been running in the month or so since you've had it?
So we don't think that it will impact the actual production and ability to sell it in the market, but it may limit, which customers and I think you're you referenced India there.
Secondary sanctions.
They find that at certain buyers will not touch anything that is coming from a plant that has that have those sanctions on them and there could even be buyers in China that will avoid avoided as well, but we've seen product that has secondary things are still getting into the market. So there still is willing willing customers.
Rich Sumner: Yeah. So thanks, Joel. yeah, G3 has operated really well since we restarted in early May. we did have those, the the disruptions towards the end of the quarter, but beyond that, G3 has operated at high rates for that period and is operating at those high rates today. I wouldn't give you exact percentages, but you know, the G3, when it, when we, when we, when we run the asset, it's been at, you know, very high rates, so above 90%. the, the assets, NAC Gasoline and and Beaumont, has, you know, these assets have been running at at at full rate since since since acquisition. I'll just say the Beaumont asset went through a turnaround in in March, successful turnaround there, and operating well for for the, for the, for 2025.
For that product and it may mean that it comes in at a lower price as well so but we haven't we don't know arent forecasting any big changes in overall balances because of because of those actions.
That's helpful. Thanks, so much.
Yeah.
Your next question comes from the line of Steve Hansen of at Raymond James Your line is open.
Yeah, Good morning, guys.
Just a couple quick ones Rick could you just maybe speak to some of the integration priorities as you bring ICU OCI ended the tent here. It sounds like the facility is already running quite well I think when the transaction was proposed you were thinking there would be some upside to potential offerings over time.
Rich Sumner: NAC Gasoline went through a turnaround in 2024, had an added outage towards the end of the year, and has a really good run on six months of high operating rates. I believe it's a a record six months of production there. So, you know, those assets going really well. Of course, we've got to get in, 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 for us, it's getting in and and working with the team, bringing our global expertise, to the table as well.
But just maybe describe what those in your comparator or an integration, whether it be operational or marketing or other things.
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 one everything.
Safe and seamless operations was was really critical where we're at right now we're making all the connections into the business working with our new team members. So the first things. We wanted to do is make sure the safe reliable assets are running.
Joel Jackson: Okay. Then 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 you get 350 realis in methanol and if you get $3.50 in gas, we will deliver post-OCI run rate, including synergies, 1.125 billion EBITDA," a very specific number. In your new slide deck you launched late, you've guided that down slightly, $50 million down to 1.075 under the same assumption. What I want to ask you is, if you could.
<unk> commitment to customers and we're delivering product and we can do that seamlessly in our operations.
And then what we're doing right now is obviously looking at all of 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: Sorry, Joel. Just to be clear, it isn't actually the same assumptions. It's, we have brought down production mainly in New Zealand. And so that 50 million, everything to do with New Zealand. Yeah.
And all of these things will be happening when it comes to synergies of $30 million that we gave were really hard you know those were hard synergies. We think we felt we could get out 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 a relatively quick.
Joel Jackson: So that that is my question, which is the $50 million difference, is that all New Zealand?
Rich Sumner: Yeah, it is all New Zealand. So we, you'll see that the the equity tons in that previous slide deck would have been around 10.2 million equity tons. It's now 9.6. So we've brought New Zealand down by 600,000 tons. So it's, you know, New Zealand's at 400,000 tons now in the run rate based on the really about gas and and the outlook, the difficulty in 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 EBITDA and those numbers as well. So 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.
The other parts of our.
A lot of SG&A costs insurance tax.
Some of those we can get out quickly some of those will take time switching over a hole you're all your are your systems will take time, because theres a lot of integration that has to happen around other business system. So we feel really confident with that and not works are ongoing the operation side and the synergy numbers we didnt.
Put anything in there so when we model. These assets, we modeled them you know, 85%, 90% operating rates in that in that range. We also put meaningful capital against those assets and you know that.
Joel Jackson: Just following up on that, Ben, two parts. Is that a number that you can achieve next year, assuming no unplanned outages? And as part of that, yes, New Zealand is down to 400,000 tons. Are you not getting the proceeds from selling the gas back to the grid? Like, are you not being made whole anyways?
You can see you can we can see that the team has done it in for both of those sites have done a really fantastic job in and work they've done over time and now we're bringing in are our global manufacturing expertise and and and we want to work with those teams and continuing to improve operations as well as capital.
Rich Sumner: Well, we're in the numbers and the run rate today for New Zealand, the 400,000 tons at that level, you know, the really the earnings relative to the fixed, the adjusted EBITDA relative to our fixed cost, there's not a lot of earnings and cash flows left in for New Zealand. And we've not forecasted any gas sales in those numbers either. So, you know, 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. So we're working on that 30 million. Everything that we've done so far has validated 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.
Deployment. So 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 and we will take our time over the next six months to learn more before we start setting new kpis around that.
That's really helpful. Thanks, and just a follow up on the broader market theres been a lot of I'll, just say chatter in the trade pubs about trying to taking action against some of the older.
Stock facilities in the country and it created a little bit of upward pressure in the market. There on a spot basis is that something that you're monitoring.
Worth us big attention to do you think that has an impact on that broader market from a Wi Fi perspective, just be curious to know if you're paying attention Matt yeah, we're monitoring it closely.
Rich Sumner: I think that, you know, 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. You know, now with 65% of our production in North America with stable gas, we think, you know, that those run rates are achievable. And everything on 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.
Because anything China does to rationalize overbuilt industries would be helpful.
I think methanol is not an overbuilt industry. So first Boston, where they were in a very healthy industry. When it comes to supply and demand balances and I do think that the difference between us and some of our chemical peers are that we don't have the overbuild.
That that we've seen in other industries, how having said that we do indirectly get impacted in particular in the olefins market and any rebalancing that could happen in the olefins market would be really a positive two two or two to our pricing in our industry because.
Joel Jackson: Thank you.
Sarah Herriott: Your next question comes from the line of Amir Patel with CIBC. Your line is open.
Joel Jackson: Hi, good morning. Rich, with your entry now into the ammonia business, you know, what's your outlook for the market there and how you see operations expanding?
It really it's about affordability of methanol into that sector, which is a big sector for us. So there's if those policies were introduced of course, it looks like they would be targeting idling of older facilities and costs, possibly deferring projects that haven't met you now have.
Rich Sumner: Yeah, well, we're, thanks, Amir. We're really, you know, 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 that has likely projection to go up. That's about where we modeled the the pricing when we 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.
Reach construction I think it was initially introduced.
Maybe an aggressive mandates now there's a bit more softening of it but we're going to continue to watch it it's still early.
But anything there would would obviously be a positive for us.
Okay.
That's great.
Yeah.
Your next question comes from the line of Josh Spector with UBS. Your line is open.
I had two follow ups first I wanted to ask on Iran, and if the questions are the answer is the same feel free to answer briefly as you'd like.
But more around the ability to ship out of Iran. So in addition to Iran being sanction directly indirect sanctions Mr 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.
Rich Sumner: We know 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 getting a better understanding of it. But right now, it's very similar conditions as we would have predicted 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 in ammonia.
Something you see at all.
It's 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.
Joel Jackson: Great. Thanks, Rich. And how should we think about the gas hedging associated with the new OCI assets?
Impact the operations of those vessels that operate there that we think theres 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 first quarter the weight or Iran is paying for US we don't have a lot of on the <unk>.
Rich Sumner: Yeah. So we, like we've 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 three years. Beyond that, we stagger the hedging down 25% to 50% in the three to five-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% hedged 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 anyway that's that's real attractive for us and spot pricings at $3 an MMBTU. So we're comfortable with where we're at in the short term.
<unk> information on what's happening, but we do see as imports into China and imports into China continue to increase as the <unk>.
They've increased their operating rates, so Josh something we will 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 will continue to monitor.
Thanks that makes sense and I had a question for dean on the accounting side.
When we look at your balance sheet about $2 9 billion in debt.
Rich Sumner: Interestingly, the the longer end of the curve is pricing down, and we've been able to get in some, I would call it small hedging in the 20-30 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.
Thought it was the OCI deal there was another half a billion or so to come from basically assume net debt and lease liabilities and we didnt 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 in non consolidated or you're kind of in aggregate net debt less than one.
Joel Jackson: Great. Thanks, Rich. That's all I had. I'll turn it over.
We were expecting.
Sarah Herriott: Your next question comes from the line of Jeff Zygalskis with JP Morgan. Your line is open.
Yeah, Thanks, Josh I think.
There's nothing about the closing date or anything like that I think what it is is the nat gasoline debt, which when we did the purchase price and when we did all our valuations we assumed.
Jeff Zygalskis: Thanks very much. With the OCI acquisition, how much does your quarterly depreciation rise?
The debt in our modeling.
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 in associate line on the balance sheet.
Rich Sumner: Yeah, I'll turn this over to Dean Richardson, our CFO.
Dean Richardson: Yeah. Good morning. You know, one thing with the assets is, of course, we've got the NAC Gasoline joint 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.
As an asset value than less steps. So it's it's a it's a gap, but we will continue to do all of our measures on on a proportionate basis like notwithstanding the accounting because.
Because we do full full consolidation for Egypt.
Now, we do equity for Nat gasoline, but when it comes to our disclosures it'll all be reconciled back to proportionate our proportionate interest in our in our and our assets.
Jeff Zygalskis: Okay. Great. And then on the very left page of your release, you provide a pro forma if you owned the OCI business for six months. And you know there are various disclaimers, but you show net income of 241 million, I guess, versus the 215 that you reported for the six 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 the first half, but maybe I did it incorrectly.
Yeah.
I've got a follow up.
It's always fun to walk through that.
Yeah understood. Thank you.
Yeah.
Your next question comes from the line of Laurence Alexander with Jefferies. Your line is open.
Hey, guys. This is Kevin Estok on for Laurence. So my first question is just about global operating rates I know you said they improved over Q2, especially towards the back half I'm, just wondering sort of where they maybe started out in April how are they kind of ended the quarter and maybe what youre seeing so far into Q3.
Yeah. Thanks, we.
We think that Q1 was a real low point, especially particularly for Iran. As well as there were outages in the Atlantic Basin. So we saw a number of different outages across the industry there.
Dean Richardson: Yeah. No, thanks. And you're you're going right to the end. This is a gap requirement to go on a pro forma basis to what the prior business was. So we we were 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 we have today. So I I would encourage you to not look at that disclosure. It's a gap requirement.
<unk> restrictions, which meant that the industry is operating pretty low.
Inventories drew down and we saw premiums outside of China, China pricing in and around 280 to 90 in premiums outside of China.
Got it got above $100 a ton.
As Iran began to produce better coming out of the winter period.
Jeff Zygalskis: Then perhaps you could assist us, you know, in some some form.
And a lot of the other issues across the industry got resolved we've seen healthy production rates at this point if you look at production in the Atlantic We look at production in the Pacific, Iran, mainly middle East and even China.
Dean Richardson: Yeah. I'm happy to take that offline with you and walk you through that.
Jeff Zygalskis: Okay. Good. Thank you so much.
Sarah Herriott: Your next question comes from the line of Ben Ashton with Scotiabank. Your line is open.
The industry is operating really well if you were to look at the numbers on operating rates it when it might not be compelling because you'd see a number probably 65, 70%.
Ben Ashton: Thank you very much. And good morning. Two questions. Rich, can we talk about salvage value, or maybe a better term is trapped value within your portfolio? So you have two plants not running in New Zealand and kind of moving toward a third. You have the big Atlas plant not running. And now you have these two Dutch plants not running. You know, what is that collection worth? And is there a way that you can monetize that and then return that capital to shareholders? You know, I was just thinking, is that like 10, 15, 20 dollars a share of value potentially locked up?
A lot of the capacity that is in that number is structurally constrained.
Whether its feedstock constraints that those plants are not turning on.
Whether its sanctions that arent, allowing that 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 a coal producers are operating at 75% to 80% and some of the other production Coke oven operate structurally lower that's just the business because it's a byproduct and then that gasoline or natural gas based plants that are in China some of that structurally shut.
Rich Sumner: Thanks, Ben. I guess the first thing to say is the value will in the value in place comes down largely to the gas stock and feedstock availability and the economics of that. That's, you know, in place value will be determined by that. And the reason those assets aren't running is because of the outlook. Do they have they have option value? Because we've seen over time that many, many times where assets or gas basins aren't performing, that those dynamics change. And so there's certainly option value in place. And that's something that we look at is how do we preserve, 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 bit a location where there is economically priced gas.
So you have to really look at the percentages are.
Closely and that's something that we want where we're trying to help them help the investment community to understand that because as of today. We just don't see a lot of latent comply in the market that can turn on and at this point, we've got inventories in China still below historical norms and MTO are not operating at full.
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.
Faith methanol markets are balanced to tighten even when things are operating well.
Got it okay. Thank you and then just the second question I guess.
By your estimate how much potential marine fuel demand on a run rate basis, I guess it could be operational by year end, if all of those dual fueled ships random methanol.
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. And so 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. So, you know, right now, the market's not called, 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? It becomes a question of market dynamics, whether it's the gas or the feedstock in those locations or, you know, what happens in the market.
You guys scenario.
So by the end of 2025, I believe are estimated numbers around 2 million tonnes.
You know that.
What we have to do is be real cautious about what are what what will shippers actually burn we do think when the ships get into the water that methanol will be burns.
First the engines for sure of.
Ultimately if you are talking about conventional deals that will come down to energy equivalent economics between methanol and marine gas oil and very low L. S. S O.
And today methanol is cheaper than M. G. M M. G O, but it's more expensive the meal S O, which is the abundance of fuel as the low sulfur fuel oil. So today there isn't an economic prices switching we are looking at shippers when it comes to methanol or more in discussions or more.
Rich Sumner: 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're always looking at these things. I would say that, you know, we're not in a 15 to 20 dollars per share value at all for those assets.
More about low carbon ethanol, especially because of some of the recent.
Ben Ashton: That's very helpful. Thank you for that. And 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 Kabeh methanol, which I think is a first for Iran with respect to secondary sanctions. Rich, can you talk about what this means? And 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.
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 areas a lot on the low carbon endo.
And in the event that stringent.
Policy is actually implemented they could have a fairly large gap, where they have to meet they have to burn low carbon fuel or be subject to penalties. So a lot of our discussions and are in that area and and not really in the conventional methanol area today.
Okay. Thank you very much.
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 have been applied, and some of these have been applied to individual plants starting in 2020. So the Kabeh 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. So 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. And I think, you know, 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.
Yeah.
Your next question comes from the line of Nelson <unk> with RBC capital markets. Your line is open.
Great. Thanks, just first one just a quick follow up on the Nat gasoline that 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.
Yeah, that's a good number Nelson obviously since that time, there's been normal course payments the Nat gasoline entities also refinance the debt. So there's been some puts and takes and we're going through an adjustment period, but for 15 is still a good number to use.
Great. Thanks.
And then next question is Sun New Zealand.
Rich you mentioned that you took your New Zealand production assumptions down 600000 to 400000.
So is there a minimum amounts of.
That the gas suppliers need to provide you with that and then I don't know.
I guess the second part of the question is six four for this year.
Rich Sumner: And there could even be buyers in China that will avoid it as well. But we've seen product that has secondary sanctions still getting into the market. So there still are willing customers for that product. And it 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 those actions.
Yes, we're not diverted to the electricity market what would production look like.
Yeah.
Thanks, Nelson and newsroom at all.
The dress that question a number of different ways. So so first I've had we hadn't diverted we probably would've been operating the plant debt at around 60% operating rates, so well below full capacity.
Ben Ashton: That's helpful. Thanks so much.
That is not an efficient way to be operating a facility and when you look at the when you look at the.
Sarah Herriott: Your next question comes from the line of Steve Hansen with Raymond Jean. Your line is open.
The earnings there relative to fixed costs and also the operation of the plant, it's certainly something that we.
Steve Hansen: Yeah, good morning, guys. Just a couple of 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 is already running quite well. I think when the transaction was proposed, you were thinking there'd be some upside to potential operating needs over time. But just maybe describe what those near-term priorities are on integration, whether it be operational or marketing or other things.
On a sustained basis, that's a challenging that's a challenging Ah Ah gas profile, but you can take 60% of one client, which is 850000 tons and that kind of would be sort of where we would have produced for the year.
When we look forward, we're really looking in the short term because where we are today.
Rich Sumner: Yeah, for sure. Thanks, Steve. It's the team's done a really fantastic job in getting us off to a great start with the integration day one. Everything, you know, safe and seamless operations was really critical. You know, we're right now, we're making all the connections into the business, working with our new team members. So 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. 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. And all of those things will be happening.
Our gas profile. There has 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 and.
The government current government recognizes this and there they're trying to address that through through our through new policy incentives.
Whether that spurs on more investment.
Is a question Mark and then <unk>.
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 operations there and our team has been doing a fantastic job of doing that in.
In the face of a lot of uncertainties. So you know we are.
Rich Sumner: When it comes to synergies, the 30 million that we gave were really hard. You know, those were hard 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 SG&A costs, insurance, 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, your your systems will take time because there's a lot of integration that has to happen around the other business systems. So we feel really confident with that, and that works all ongoing. The operation side in the synergy numbers, we didn't put anything in there.
In terms of how much.
Margin over.
Overproduction over producing we've made in the quarter that was probably about $5 million to $10 million over and above methanol will 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.
And just a quick clarification on that so what when you divert gas to the electricity sector, you would idle your facility rather than run it at even at lower rates.
Well, we're at a point right now with the gas that we're getting we're already on minimum operating rates so that.
To the extent that we're diverting we're very close to the minimum operating rates.
Rich Sumner: so when we modeled these assets, we modeled them, you know, 85 to 90% operating rates in that in that range. We also put meaningful capital, against those assets. And you know, you can see, we can see that the team's done it, in for both of those sites. They've 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 continuing to improve operations as well as capital deployment. So we think there are further synergies beyond the 30 million. But of course, we want to learn first and be able to, you know, give guidance that we feel really good about. And we'll take our time over the next six months to learn more before we start setting new KPIs around that.
And we do think that this is largely does happen seasonally so right now as the winter period, there where there is more demand from the electricity sector and so if there is a large demand there than we were.
We would shut down shut down the plant.
Okay. Thanks for all the color I'll leave it there.
Yeah.
Yeah.
The last question comes from the line of Roger Spitz with Bank of America. Your line is open.
Alright, thanks, very much our first two I'm, saying I request tagging on to yes, but when you consider putting out.
Perhaps in an 8-K, a sort of OCI methanol sales and our EBITDA at least as you pick it up I know you didn't take the Uh huh.
The bad hedge for the past six quarters recognize that might be beyond what you're required to file.
It'd be very helpful anyway.
Steve Hansen: That's really helpful. Thanks. And 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 there.
That's not a question Mike.
Yeah, well, we'll go ahead.
Well I think the feedback we certainly when we get to the third quarter, 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 will.
We do want to make sure that we're giving guidance on on the impact that's having on our results. So I will take back that feedback for sure.
Rich Sumner: Yeah, 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. So 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. And 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.
Great.
Very much because we're.
We're having just put it together from what they used to publish and make adjustments and.
I guess assumptions.
So the realized net price discount versus your posted non discount benchmark price.
Then moving higher over the quarters, but I wonder how do you think the OCI methanol acquisition will impact that discount meaning will it.
Potentially.
Well, we're the discount would be higher than the discount.
The same.
I mean, I guess it depends on how that's all being sold.
Yeah, so for.
Our focus is really largely what we're what we focus on is our realized pricing. What we have seen is it is that over time discounts in the Atlantic basin have gotten larger over time.
Rich Sumner: So 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 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 watch it. It's still early. But anything there would would obviously be a positive for us.
But at the same time those those mark those those regions also priced at a premium over the cost curve.
When we announced the deal 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 our Atlantic based pricing.
Steve Hansen: That's great. Appreciate the time.
Sarah Herriott: Your next question comes from the line of Josh Spector with UBS. Your line is open.
So I would expect that could move the average discount up but what that will mean for our portfolio is higher realization with a shorter supply chain. So it's an improvement in the portfolio notwithstanding it might be an increase in the discount.
Josh 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. 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 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?
Got it and just just so I understand I thought another reason these discounts we are getting larger was.
Having just been more.
Right.
Atlantic Basin produce methanol to the Pacific Basin.
So you got more shipping higher shipping costs on a relatively greater amount of methanol. Your ship was another driver of why the discounts were rising is that fair comment or.
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, you know, compared to the first quarter, that Iran is opaque for us. We don't have a lot of on-the-ground information of what's happening. But we do see is imports into China. And imports into China have continued to increase as they've increased their operating rate. So, Josh, something we'll continue 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.
I wouldn't say 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 in the.
<unk>.
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, a greater incentive to stay close closer to the plant.
That's led to an increase in dividend and discounts with the competition that's been in the market.
And so.
That has led to that expansion and discounts notwithstanding the real price realizations are still at premiums over the cost curve.
Rich Sumner: Something we'll continue to monitor.
Interesting. Thank you very much.
Josh Spector: Thanks. That makes sense. And a question for Dean 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 leaf 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 we were expecting?
There are no further questions at this time I will now turn the call over to Mr. Richard Sun. Please go ahead.
Well. Thank you for your questions and interest in our company I 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.
Yeah.
Hum.
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 NAC Gasoline debt, which when we did the purchase price and when we did all our evaluations, 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. So it's really sort of hidden in the investment and associate line on the balance sheet. That's an asset value than less debt. So it's a gap thing.
Rich Sumner: But we'll continue to do all of our measures on a proportionate basis, like notwithstanding the accounting, because we do full consolidation for Egypt. Now we do equity for NAC Gasoline. But when it comes to our disclosures, it'll all be reconciled back to our proportionate interests in our assets.
Dean Richardson: Happy to follow up with you, Josh.
Rich Sumner: Yep. Understood. Thank you.
Sarah Herriott: Your next question comes from the line of Lawrence Alexander with Jefferies. Your line is open.
Nelson Ng: Hey, guys. This is Kevin Estecamp with Lawrence. 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'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?
Rich Sumner: Yeah, thanks. We think the Q1 was a real low point, especially particularly for Iran, as well as there were outages in the Atlantic Basin. So 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, 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. You know that the industry is operating really well.
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 percent. But 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 percent. And some of the other production, Coke oven operates structurally lower. That's just the business because it's a byproduct. And the NAC gasoline or natural gas-based plants that are in China, some of that's structurally shut down. So you have to really look at the percentages closely.
Rich Sumner: And that's something that we want 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. And at this point, we've got inventories in China still below historical norms and MTO not operating at full rate. So we've got a lot of we've got a lot of capacity to absorb supply. And I think that's just indicative of not even though we're in a slower growth phase, methanol markets are balanced tight and even when things are operating well.
Nelson Ng: Got it. Okay. Thank you. And then just on my second question, I guess 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 all those dual fuel ships ran on methanol in a sort of blue sky scenario?
Rich Sumner: So by the end of 2025, I believe our estimated number is around 2 million tons. You know, that 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 VLSO. And today, methanol is cheaper than MGO, but it's more expensive than VLSO, which is the abundance of fuel is the low sulfur fuel oil. So today, there isn't an economic prize of switching. We are looking at shippers when it comes to methanol are more the discussions are more about low carbon methanol, especially because of some of the recent policy initiatives by the International Maritime Organization.
Rich Sumner: 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 end. And in the event that stringent policy is actually implemented, they could have a fairly large gap where they have to meet they have to burn low carbon fuel or be subject to penalties. So a lot of our discussions are in that area and not really in the conventional methanol area today.
Nelson Ng: Okay. Thank you very much.
Sarah Herriott: Your next question comes from the line of Nelson Ng with RBC Capital Markets. Your line is open.
Nelson Ng: Great. Thanks. This first one is just a quick follow-up. On the NAC Gasoline 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?
Dean Richardson: Yeah, it's a good number, Nelson. Obviously, since that time, there's been normal course payments. The NAC Gasoline entities also refinance the debt. So there's been some puts and takes, and we're going through an adjustment period, but 450 is still a good number to use.
Nelson Ng: Great. Thanks. And then the 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. So is there a minimum amount that the gas suppliers need to provide you with? And then I guess the second part of the question is, like for this year, if gas were not diverted to the electricity market, what would production look like?
Rich Sumner: Thanks, Nelson. In New Zealand, maybe I'll address that question in a number of different ways. So first up, if we hadn't diverted, we probably would have been we're operating the plant at around 60% operating rate, so well below full capacity. You know, that is not an efficient way to be operating a facility. And when you look at the earnings there relative to the fixed costs and also the operation of the plant, it's certainly something that we, on a sustained basis, that's a challenging gas profile. But you can take 60% of one plant, which is 850,000 tons, and that kind of would be sort of where we would have produced for the year.
Rich Sumner: When we look forward, we're really looking in the short term because where we are today, you know, 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. And the current government recognizes this, and they're trying to address that through new policy incentives. But whether that spurs on more investment is a question mark. And then even if it does, it will take time. So we're really focused on the short to medium term there. And obviously, we're looking at the best way to optimize our operations there. And our team's been doing a fantastic job of doing that in the face of a lot of uncertainty.
Rich Sumner: So, you know, we are, in terms of how much margin 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 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.
Nelson Ng: And just a quick clarification on that. So when you divert gas to the electricity sector, you would idle your facility rather than run it at even a lower rate?
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. So to the extent that we're diverting, we're very close to minimum operating rates. And we do think that this 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 would shut down the plant.
Nelson Ng: Got it. Okay. Thanks for all the color. I'll leave it there.
Sarah Herriott: The last question comes from the line of Roger Spitz with Bank of America. Your line is open.
Roger Spitz: Thanks very much. First, there was a request tagging on to Jeff. Will you consider putting out perhaps in an AKA sort of OCI methanol sales in EBITDA, at least as you pick it up? I know you didn't take the the bad hedge for the past six quarters. Recognize that might be beyond what you're required to file, but it would be very helpful. Anyway, that's not a question, Mike.
Rich Sumner: Yeah. We'll take that feedback. We certainly, when we get to the third quarter, 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 will, you know, we do want to make sure that we're giving guidance on the impact that's having on our results. So we'll take back that feedback for sure.
Roger Spitz: Great. Thanks very much because we're having to just put it together from what they used to publish and make adjustments and, I guess, assumptions. So the realized net price discount versus your posted non-discount benchmark price has been moving higher over the quarters. But 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 mean, I guess it depends on how that's all being sold.
Rich Sumner: Yeah. So for our focus, it's really 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. But 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. So I would expect that could move the average discount up. But what that will mean is for our portfolio is higher realizations with a shorter supply chain. So it's an improvement in the portfolio, notwithstanding it might be an increase in the discount.
Roger Spitz: Got it. And just so I understood, 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 more shipping, you know, higher shipping costs on a relatively greater amount of methanol your ship was another driver of why the discounts were rising. Is that fair comment, or?
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. And 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. And so that has led to that expansion in discounts, notwithstanding the price realizations are still at premiums over the cost curve.
Roger Spitz: Interesting. Thank you very much.
Sarah Herriott: There are no further questions at this time. I will now turn the call over to Mr. Rich Sumner. Please go ahead.
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 third-quarter results.
Sarah Herriott: This concludes today's conference call. You may now disconnect.