CF Industries Holdings Inc (CF) — Q4 2023 Earnings Call Transcript

Good morning and thanks for joining the CF Industries earnings conference call. With me today are Tony Will, CEO; Chris Bohn, Executive Vice President and Chief Operating Officer, and Bert Frost, Executive Vice President of Sales, Market Development and Supply Chain. CF Industries reported its results for the full-year and fourth quarter of 2023 yesterday afternoon. On this call, we'll review the results, discuss our outlook, and then host a question-and-answer session. Statements made on this call and in the presentation on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statements. More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available on our website. Also, you'll find reconciliations between GAAP and non-GAAP measures in the press release and the presentation posted on our website. Now let me introduce Tony Will, our President and CEO.

Thanks, Martin, and good morning, everyone. Yesterday afternoon we posted financial results for the full year 2023, in which we generated adjusted EBITDA of approximately $2.8 billion. Net cash from operations was also $2.8 billion, and free cash flow was $1.8 billion. These results reflect a healthy nitrogen supply-demand balance and global energy spreads that favor our low-cost production base in North America. They also represent outstanding execution by the CF Industries team. We worked safely, ran our plants well, and navigated dynamic industry conditions. Our investments in people, safety, and reliability have built the industry's highest-performing manufacturing network. Looking ahead, over the next four years, confirmed construction of new nitrogen production capacity is not sufficient to keep pace with the historical nitrogen demand growth rate of roughly 1.5% per year in traditional applications. Adding to this tight supply-demand situation is the risk that existing ammonia production capacity in several important regions remains on the verge of permanent closure due to constrained availability and cost of natural gas. Meanwhile, emerging demand for low carbon ammonia into clean energy applications should further tighten the already strained global supply-demand balance. As a result, we are confident that our cash generation will remain strong, as underscored by the recent increase in our quarterly dividend and continued share repurchases. We look to continue to invest in high-return organic and inorganic projects to grow our cash generation. As such, we continue evaluating a new low carbon ammonia production plant at our Blue Point Complex in Louisiana with our partner, Mitsui. Our company shares a belief that North America is the best location for production of low carbon ammonia, given natural gas cost advantages and access to CCS sites and expertise. We and Mitsui are targeting a final investment decision in the second half of 2024, when we have additional information on low carbon ammonia production technologies and better clarity on customer requirements for carbon intensity levels, along with regulatory developments. While taking a disciplined approach to growth, we will continue to return capital through our dividends and share repurchases. We have approximately $2.6 billion remaining on our current share repurchase authorization and fully expect to complete it before its expiration at the end of 2025. With that, let me turn it over to Bert, who will discuss the global nitrogen market conditions in more detail.

Thanks, Tony. The fourth quarter of 2023 was an active period for our team, highlighted by the largest fall ammonia application season in North America in years. A strong fall application season indicates a commitment to nitrogen-consuming crops on these acres and robust demand for additional urea and UAN applications through the first half of 2024. This, along with strong ag fundamentals, supports our outlook for a positive spring application season. We expect 91 million acres of corn to be planted in the United States. As we continue to work with customers in advance of spring applications, we believe supply is more constrained in the North American nitrogen channel than industry expectations. Inventories were below average entering the year and net imports of nitrogen to the region are not making up the difference. The cold snap we experienced in North America during January has exacerbated this situation. We believe that there has been significant volume of domestic nitrogen production lost due to weather-related shutdowns across the region's supply base. We estimate that CF Industries lost approximately 150,000 tons of ammonia production in January from our own network due to the weather, unexpected supply tightness often leads to follow-on logistics challenges, and early spring would further strain the supply chain. We believe that our in-region production and extensive logistics and distribution capabilities will serve us well in this environment. Global grain stocks use ratios have returned to normal levels after two robust growing seasons. However, we do not project a significant impact on global nitrogen demand, given the imperative to seed growing populations. We expect continued supply constraints in key producing regions, most notably ammonia production economics in Europe remain challenging. Global ammonia spot prices continue to align with the full cost of European ammonia production, confirming Europe as the industry's marginal producer. This continues to support elevated imports of nitrogen products into Europe compared to a decade ago. Beyond Europe, natural gas availability continues to affect ammonia and UAN production in Trinidad. Based on its actions in the fourth quarter of 2023, we believe the Chinese government will limit exports through the first half to ensure supply availability and urea price stability for the Chinese domestic market. Looking ahead, forward energy curves suggest continued favorable energy spreads between low-cost North American production and high-cost production in Europe and Asia. We believe this will support sustained margin opportunities for our low-cost manufacturing asset base. With that, let me turn the call over to Chris.

Thanks, Bert. For the full year 2023, the company reported net earnings attributable to common stockholders of approximately $1.5 billion, or $7.80 per diluted share. EBITDA was $2.7 billion and adjusted EBITDA was approximately $2.8 billion. In the fourth quarter, we completed the acquisition of Incitec Pivot's Waggaman ammonia production facility. After adjustments and accounting for the value assigned to a long-term supply agreement with IPL's Dyno Nobel subsidiary, our cash purchase price was approximately $1.2 billion. The Waggaman facility has operated as expected since closing and has generated margin commensurate with our existing ammonia segment. Looking ahead to 2024, we expect capital expenditures for the year to be in the range of $550 million and for gross ammonia production to be near 10 million tons. As Bert said, we experienced unplanned weather-related outages in our network during January. During these outages, we pulled forward some planned maintenance activities. This should reduce scheduled downtime later this year, mitigating some of the production loss in January. As a result, we expect gross ammonia production for the year to be near our projection. Commissioning of our green ammonia project at Donaldsonville is underway. We are currently evaluating the purchase of renewable energy credits to pair with the start-up of the electrolyzer to enable green ammonia production and maximize the value of the 45B production tax credit. We expect that the CO2 dehydration and compression unit at Donaldsonville will be ready for start-up in 2025. This will enable low carbon ammonia production and generate substantial 45Q tax credits. We are also making progress on other CCS opportunities with returns above our cost of capital. Turning to the potential new low-carbon ammonia plant at our Blue Point complex in Louisiana, we completed our FEED study on a conventional steam methane reformer ammonia plant with CCS technologies. The FEED study estimates the cost of the ammonia plant at approximately $2.5 billion. We estimate another $500 million for scalable infrastructure, such as storage tanks and loading docks. Our FEED studies focused on autothermal reforming or ATR ammonia production technology and flue gas capture are progressing well. Alongside disciplined clean energy investments, we are committed to returning capital to long-term shareholders. In 2023, we returned almost $900 million to shareholders through share repurchases and dividend payments despite being locked out of the repurchases for part of the year. We expect share repurchase activity to increase over the two remaining years on our current authorization. As you can see on Slide 7 and 8, on both a free cash flow yield and a precedent transaction basis, our enterprise value is significantly undervalued, supporting continued share repurchases. With that, Tony will provide some closing remarks before we open the call to Q&A.

Thanks, Chris. Before we move on to your questions, I want to thank everyone at CF Industries for their contributions to an outstanding year. I especially want to highlight the progress our team made in the second half of the year regarding our safety performance. After a challenging start to 2023, we ended the year with a 12-month recordable incident rate of 0.36 incidents per 200,000 work hours, in line with our performance in recent years and significantly better than industry averages. Our operational excellence and significant structural advantages underpin our cash generation. This enables us to invest in the business to further increase cash generation and drive increased shareholder participation in our free cash flow. In the last three years, we acquired the Waggaman ammonia production facility, advanced high return clean energy initiatives, increased our dividend by 67%, and deployed $2.5 billion to repurchase more than 31 million shares, which represented approximately 15% of the outstanding share count at that time. Additionally, we have strengthened our balance sheet to provide us tremendous flexibility as we are able to grow our business at the same time as we return significant cash to shareholders. This approach has had a dramatic impact. We're excited about the opportunity ahead of us to build on this track record. In the near term, we expect industry fundamentals to remain favorable to our low-cost production network. Longer term, disciplined investments in low-carbon ammonia production can provide a robust growth platform for the company. Taken together, we expect to continue creating substantial value for long-term shareholders. With that, operator, we will now open the call to your questions.

Yes, thank you. Good morning, everyone.

Good morning, Adam.

So I guess, Tony, I guess the first question is we think about the decision to pursue additional FEED studies on the Blue Point complex evaluating the different technologies. Just help us frame the increment on carbon reduction that could come from either ATR or the flue gas capture? And maybe any additional color on the policy drivers of your potential offtakers as they evaluate what threshold is needed to commit to taking the blue ammonia volumes longer term?

Yes, Adam. One reason we're exploring various options is to ensure we have a broad range of solutions that align with the carbon intensity levels our customers will require. Our conventional carbon capture and storage (CCS) implemented in Donaldsonville currently allows us to remove and sequester process CO2, achieving nearly a 70% reduction in carbon intensity compared to traditional ammonia methods, especially since the plant in question is one of the most efficient and modern plants globally. If we consider capturing flue gas alongside processed gas CCS, we believe we can eliminate over 95% of the CO2 emissions from that specific plant. For autothermal reforming, estimates indicate it could also achieve a reduction of 90% to 95%. However, a major challenge with this technology is that it requires a large air separation unit to reintroduce nitrogen into the process, which is not needed in steam methane reforming. The electricity demand from such a large air separation unit significantly increases project costs and operational expenses. Moreover, in the regions we're considering, Scope 2 emissions could be considerable, necessitating additional measures to limit the emissions that arise to reach those 90% or 95% reduction targets. This adds further costs and operational and capital expenditures. Therefore, we're evaluating all these different options to give us a comprehensive suite of choices and a full understanding of operational and capital costs needed to meet the customers' specifications. Additionally, we have a long-term goal of achieving carbon neutrality within the next 25 years, making flue gas capture a key aspect of our strategy moving forward. Engaging more deeply in this area and understanding the various pathways is essential for our long-term strategy. This represents an opportune moment for us to delve in further as we consider investment decisions for new production.

All right. That's very helpful. And if I could just squeeze a quick market question just on natural gas. As you think about the decline recently in TTF and LNG prices broadly, it doesn't seem like you expect a quick restart of idled or high-cost European production? Just how are you thinking about that over the course of the year?

Yes. Adam, good morning. This is Bert. When you look at the spreads, what's going on in the world with Henry Hub trading today at $1.60, $1.65 and NBP and TTF in Europe, trading at around $7 to $8 range, you have a pretty big spread. And as I mentioned in my prepared remarks, where we are in the ammonia supply chain, you're bidding close to that full cost range for European and some high-cost Asian producers, especially when you consider carbon costs. And so the competitiveness, we're still in our position of the European producer as the marginal producer, and that will set the cost floor or the price floor. And we don't see in the short term an improvement in gas supply taking place to lower that value.

Yes. And I would just add to that that the decision goes beyond just the cash cost immediately. It goes into the idea of cycling these plants is not necessarily good additional maintenance that may be needed prior to starting those back up or turnarounds that are coming forward or even holding inventory at certain periods of time that have a working capital cost to them. So I think gas is obviously the primary driver, but there are a lot of other ancillary drivers that go into factoring whether you restart.

Overall, I think, though, the message you'll hear from us is we're very optimistic about what the S&D balance looks like and what the demand for our products are on a global basis. It gives Bert a lot of optionality to think about exports and satisfying in-market demand here. And we just have a lot of roads to help get us there.

I appreciate all the color. I will pass it on thanks.

Good morning. A couple of questions. I noticed in your slide deck, your new updated sensitivity table, right, that shows EBITDA for every level of gas price and urea price, it's down in every single cell by $300 million at the same gas price and the same U.S. gas price in the same urea price versus what you had in the fall. Can you explain what's going on? And it's that higher volume now. You're at 1 million tons higher volume. Can you explain the drop in EBITDA at every single cell?

Yes. Let's start off with the volume issue first because I think that's an important one to kind of get on the table, and then we'll go through the table in a little more detail. But although we did add the Waggaman facility into the network, there is a maintenance turnaround event on that facility, and there's also a couple of significant maintenance activities. One of them is on debuild number six, which is our largest operating ammonia plant in the world. And so when you've got a 40-day outage on a plant like that, that takes our production down. Now that said, as Chris and Bert talked about, we still expect to generate about circa 10 million tons of ammonia this year, which is in line with what we've historically done. The big issue in terms of last year versus this year was we entered into last year with a fairly high inventory level. So we had pretty substantial additional sales volumes last year based on inventory drawdown that we're not able to tap into. So our volumes year-on-year are going to be order of magnitude fairly similar last year to this year.

Yes, Joel, I believe one of the significant changes is the revised pricing relationship between the products, which has been aligned with 2023 standards. We typically use the previous year's figures as a reference point compared to 2022. As a result, you may notice a closer alignment between the products than in the past when UAN had a premium pricing. Given that we handle a substantial volume of UAN, this adjustment is reflective not only of the 2023 cost structure, which includes higher non-gas costs primarily due to logistics, but also of the new pricing dynamics we have observed over the past year.

Okay. So my follow-up will be kind of two-parter because first, I just want to follow up on that. So I guess you're saying at the same gas price and same urea price, excuse me, UAN and ammonia prices are lower at the same urea and gas price? And then my true follow-up question would be when looking at the Blue Ammonia Project. Obviously, we saw a very good valuation comp with coke and the weaver plant a couple of months ago that you obviously didn't buy would it not make sense to just buy back stock as much as you can, just attack the authorization, don't do any greenfield plants because the market's not giving you the valuation that Coke is obviously giving to Weaver. I know it's not exactly 1-to-1, but wouldn't it just make sense just to buy back stock as much as you can?

Yes. Let me take the first one first, and then I'll come back to your second point. The first one, not really being a full-on question, more of a statement. So every year, we try to update the table based on what the relationship was in terms of margin per nutrient ton of the previous year. And so the table will naturally evolve up and down and sideways and whatnot based on previous year. It doesn’t mean that this is precise because if UAN starts on a nutrient basis starts trading at a premium to urea, then the numbers are going to go up in every cell because of the volume of UAN that we sell. So this is illustrative as opposed to a point estimate. But your general comment of the relative premium of UAN versus urea dropped last year compared to where it was the year before is the right kind of takeaway, and that's the basis and underlying the sensitivity table. On the second question, we think that the price paid for Weaver is a fair but a full price for that asset. And our view is that at any point in time where we have made decisions to expand our network, someone could have made exactly the same argument that you just made, which is it's cheaper to buy back shares than it is to add capacity. Therefore, you should never add back or add capacity. That would have been true back in 2010 when we bought Terra, that would have been true when we acquired the Medicine Hat slice that we didn't know and that would have been true when we did the expansion projects at Donaldsonville and Port Neal or even probably the Waggaman asset that was just acquired. At every stage, we have been able to invest capital and earn a rate of return well above our cost of capital. So that's a value-adding transaction, whereas buying shares back at market price by definition is sort of NPV zero. Our view is if you look at the aggregate amount of cash that we generate and shareholder participation, the ratio of the number of shares outstanding. Our shareholders have been much better off based on the combined approach that we've taken to both disciplined add capacity and also take shares out of the marketplace. And that has created a lot of value relative to an exclusive pathway of one versus the other. And so we're going to continue to evaluate the attractiveness of adding capacity on a basis of can we generate returns on a risk-adjusted basis above our cost of capital because generating more cash flow simply allows larger share repurchases in the future, and it’s not necessarily a point-in-time comparison about where we're trading in that moment because as you well know, these assets go 40, 50, 60 years in length. And so we really need to take a view of do we fully expect it to be a positive IRR and PP positive transaction to invest in a new plant because we can always default to buying shares back. And by the way, because of how well the business is operating, it’s not an either/or question for us; we can actually do both at the same time.

Thank you. Bert, I have a couple of questions regarding your near-term outlook. Could the strong ammonia fall application season be influenced by the spring demand for urea, possibly more than for UAN? Is that why your UAN production was so strong in the fourth quarter? Additionally, considering the imports coming into the U.S., you mentioned low inventory levels and some reduced production domestically. We have heard that there may be significantly fewer imports this spring compared to previous years. Does that align with your view? How much have you pre-sold for the second quarter?

Good morning, Steve. Those are important questions. Looking outside in Chicago, it's currently 43 degrees with good soil moisture, which leads me to expect an early spring based on historical trends in the Midwest. This suggests an increase in demand, and the earlier opening of river barges will facilitate product movement. Our outlook remains positive with 91 million acres of corn and ample moisture in wheat-producing areas, alongside favorable pricing. We anticipate nitrogen applications across all segments to be at or above normal levels. The fall ammonia application this year was likely our second-best in a decade, and in light of potential tons that could be applied, there is significant demand for ammonia, UAN, and urea in the spring, possibly a few hundred thousand tons above the norm. We believe our strong logistics and distribution capabilities positioned us advantageously throughout November of Q4. Thus, we expect very strong demand this spring for UAN, urea, and ammonia. Although imports have been consistently low, the combination of our low entry inventory and the anticipated lower import levels this spring presents a challenge. Additionally, an early spring could further influence these dynamics. Overall, we foresee some price increases along with an earlier demand surge, and we're ready to tackle this situation despite some production setbacks we experienced in January, which we believe impacted others in the industry as well. These are the challenges we face, and we are prepared to meet them.

And maybe just one quick one for you, Chris. In that flue gas carbon capture analysis that you're doing, there's a variety of technologies out there. Are you looking at several different technologies? And are you also looking at potentially using oxygen in the boiler instead of urea?

Well, I'll say the engineering team has reviewed several different engineering types for the flue gas capture, but we are focusing on one specific as we're moving through the FEED study rather than doing multiple FEED studies with additional technology providers through that.

Yes, hi guys, good morning. So I wanted to follow up on the additional FEED studies for carbon capture. And I just specifically asked about if there's been any changes in what you're hearing in terms of policy in Japan. I thought Japan was kind of leading the way that clean ammonia 60%, 70% lower carbon was something they were comfortable with accepting with their first move to reduce coal intensity, maybe other countries wanted to push it further. So has anything changed on the Japan side and how that relates to your first potential investment here?

Yes, from Japan's perspective, they have not yet clearly outlined their requirements for carbon intensity. We have engaged in numerous discussions with both our partners and the government regarding this matter. There are several scenarios being explored. However, we do not yet have a definitive understanding of their specific desires. They have indicated, as you noted, that they might accept a lower carbon intensity level, while other countries, particularly Korea, are seeking a carbon intensity reduction in the range of 90%. This has led us to consider various alternatives. As Tony highlighted in his prepared remarks, we expect to gain more clarity about Japan's stance soon. Currently, the cabinet in Japan has advanced a package towards the diet, and we anticipate some form of approval from the diet within the next few months. Following that, Medi will be in a position to allocate funds and we can start submitting applications for projects alongside our partners. Our position has not shifted from where we were three to six months ago, although we are exploring several different options, as Tony mentioned.

Okay, thanks. And just on Waggaman. I mean, I don't believe you mentioned at all that anything update on what you're doing in terms of potential CCS at that site. So just curious if you have any thoughts there on what that could look like timeline-wise? And if there's anything to note about why CapEx or even OpEx, I guess, as you think about sending it on pipeline to get sequestered if that’s meaningfully different versus what you're doing in Donaldsonville or similar?

Well, I think Waggaman is just another site within our whole entire network now. So we're viewing Waggaman similarly to how we're reviewing all our sites when it comes to CCS, that being specifically Yasu City and Medicine Hat in Alberta, some of the projects that are a little bit further along, but our team is evaluating CCS at Waggaman, but again, similar to how we're evaluating at all other sites. What I would say from a pipeline and sequestration, I think with Louisiana getting primacy on Class 6, we should be seeing a little bit more expedited approvals of those Class 6, specifically in Louisiana, and that’s going to help move things along much more quickly. And I think based on some of where those Class 6 wells, particularly are also going to direct us where we're going to put more of our time on each of our network sites for CCS. So more to come on that, but we continue to evaluate and be very optimistic about Waggaman just as we are at Donaldsonville today.

Thanks very much. Who are the natural buyers for your green ammonia? And how do you think about the price at which you might sell it?

So what we're working on now is just that the volume of product that we will be producing could be digestible in a vessel, which could go to Europe. We're working with some of the ethanol producers for a low-carbon corn value chain, which we believe will lead then to sustainable aviation fuel and low carbon fuel products. We're talking to some of the food companies and some of their labeling ventures and how do we do that and incorporate that? So both blue and green or let's just call it low carbon and no carbon products, we're moving forward. And we think we have quite a few opportunities to market those products out of value over conventional products.

Yes. And I think if you look at it, Jeff, both similar with blue and green, we're going to be the first to market with these. And as you look at the green, there's just not a lot of supply there. So as Bert mentioned, you're probably going to see a premium based on that product that is significantly above our cost, I would say, just because it's a smaller amount. As we bring on Blue, we will be the first in the world with any measurable amount of volume with that. And I think there's a lot of activity, as Bert said, on the demand pull side that we're beginning to see that we feel fairly confident that we'll be able to receive some sort of premium on it. What that is, that is yet to be determined 100% at this time.

Okay. And then natural gas prices have fallen pretty sharply, but you also hedge. Do you expect much hedging penalty in the first quarter?

So how we talk about gas is just that. We do hedge and we saw that the reason why in January with the spikes up to $50 in our Iowa facilities and actual availability or lack thereof in some other facilities. So hedging and securing supply during the cold months of Dec, Jan, and Feb are important. But you're correct on the reverse side of that is those hedges were taken at higher value than we are in the cash market today. So your first quarter value for gas will be over what the cash value is, and more to come on that.

I would say, though, the offset to that is we're clearly not 100% hedged. We do, as Bert mentioned, prefer basis hedging over hedging related to Henry Hub. We are benefiting from the decline in the daily cash rate to some extent. In some situations, it’s not fixed price; there might be some swaps or collars involved. As a result, we can take advantage of some of the reduction in gas costs. However, our main goal is to safeguard the margin against unexpected weather events that could negatively impact us. If we have to give up a small amount to protect against potential losses, we consider that a reasonable insurance policy. The situation from Q2 onward remains open.

Thanks. Good morning. My first question was just on the update to the Mitsui JV and the Clean Energy Project. So it looks like the initial CapEx estimate from the FEED study is roughly $3 billion. Just curious, where does that compare to the original estimate when you signed the MOU back in early 2022? How much capacity does that entail, and what protocols are you putting in place to maintain that cost estimate as you progress through development?

Yes. So we have not made a final investment decision on that yet. We have an estimate that we think is within kind of plus/minus 10%-ish of the final cost. But we have not made a decision to proceed with that. And therefore, there's nothing that we've done to kind of "lock in" that price because no decision has been made to progress. Relative to when we initially began talking with Mitsui and created kind of the MOU around the joint venture to pursue this project. We had, I would say, some very high-level estimates of where we thought the cost might come in, but we certainly had not gone through the process of doing the FEED study to get an accurate cost estimate. And so it was just directional at best. I would say that the cost to complete, including the site level and a scalable infrastructure that Chris mentioned in his comments, is a bit higher than what we had maybe initially thought. But I think that's reflective of the relatively tight labor market and inflation in general, particularly around some of the exotic metals that are required. But what that also suggests is that the value of existing assets is that much higher as we saw with the sale of the Weaver asset here just recently and suggests that the value of the rest of our network is, again, even that much higher as well. So we're still in the process of evaluating whether there's a project that we want to fund here or not. And as part of that, we are evaluating different production technologies and different amounts of carbon reduction levels. And we'll make that ultimate decision sometime in the back half of this year along with our partner, Mitsui.

Okay. Great, thanks for that. And then just talking about the nitrogen market. It looks like you cited about 40% of ammonia capacity in Europe being shut down in early January. And that's up versus around 25%, I believe, as of early November. And this is during a period when European natural gas prices have actually come down over 40%. So I guess, what is driving that? Is that part of that curtailment maintenance shutdowns? Or are these part of these permanent shutdowns they expect to continue through 2024?

I mean, I think it can be both of that. There's also an issue of if you can acquire deepwater traded ammonia at a cost that's lower than what you can produce using domestic gas. There's no reason not to do it. If you are in a facility primarily doing nitrite as opposed to urea, you don't need the CO2.

I believe the current gas prices are reflected in the cash market, which were not available a short while ago. The 40% figure reflects a look back on Q4 and how we are entering Q1. You may notice some plants restarting, particularly following Russia's recent announcement about limiting ammonium nitrate exports. This will significantly affect Eastern and Central Europe and potentially impact the export capabilities of Western European producers. For instance, Brazil, which consumes a million tons of ammonium nitrate, and Central America will require suppliers. Currently, with gas prices around $8, it is manageable given the lack of product from Russia. Changes are occurring in both the gas and supply markets.

Thank you. Good morning, everyone. This question is for Tony or Bert. If we compare our current situation to three, four, or five months ago, do you feel more optimistic or pessimistic about the industry's prospects or NCF for 2024? Specifically, considering major factors like corn prices, corn acreage, and the supply-demand dynamics in the energy sector? Are there any other points you would like to discuss? Are you feeling more positive or negative about the outlook?

Yes. I mean, I think gas has been very constructive for us. Our costs, it looks like as they're shaping up for the balance of the year should be down substantially relative to where we were back in kind of November when we put together our thoughts on where we expected the year to come out. I also think that some of the other changes kind of structurally, whether it's potential imports running slower than expected in early spring and what we believe is lower channel inventories than kind of many expect out there. All of those things, I think, are net positives for our business, particularly for the first half. So overall, my sense is we're feeling pretty good about the way the year is shaping out.

I agree. Coming into a declining urea market in Q4, we are now seeing a rising urea market in Q1. This change is linked to energy issues, a non-competitive position for European producers, and increased imports. The global market is very tight, affected by downtime in Malaysia, export restrictions in Indonesia and China, along with heavy imports into India and Brazil. As we enter our season, we need to secure product in this tight market, which is also driving prices up. The feed grain values, particularly corn at $4.60 to $4.70, are very appealing, especially with trend yields over 180 and yields in Iowa, Illinois, and Indiana exceeding 200, making it quite profitable. This year is projected to be the fourth-best for American farmers in a decade. Considering all these factors in conjunction with global supply and demand, I remain optimistic for 2023 and 2024.

Okay, thank you. That's all I have.

Yes, good morning, and thanks for taking my questions. Just wanted to follow up a little bit on the international trade dynamics and in particular, the export market versus the import markets and where you're seeing especially in South America, Brazil inventory levels. We've talked about North America as being low, but we all know Brazil has been a little bit more of an issue. So within that 7 million to 8 million tons of import need, what's your sense on the ground inventories in Brazil right now? And how does that shape up for your opportunities to potentially export into the region? Thank you.

Yes. So CF is an active exporter of our major products, ammonia, UAN, urea, and some ammonium nitrate. The UAN has predominantly gone to Europe, Argentina, and Australia, and urea is more spot and situational. Where we are in Brazil today with about 44 million tons of consumption of NPK and the targets for 2024 are closer to 46 million tons, you're going to need our projections are over 8 million tons of urea imports to Brazil for the calendar year. And that's a very positive move. That will push Brazil to the largest importing country surpassing India, who is between 6 million and 7 million tons now. Brazil did have high levels of inventories and imports entering the year. Much of that was consumed during the Safrinha season of which is January, February, and March of applications, and they are low-level importers 200,000 tons, 300,000 tons a month. Their wheat application starts in April, and then we move to corn applications in July, August, September, and then cotton later in the year and again, repeating the cycle. So Brazil is the positive, I'd say, consumption train in the world of fertilizer economies, and it's going to continue to play a major part and so the S&D right now is balanced against the global for urea.

Hi, good morning. Regarding the hurdle rate for investment decisions at Blue Point, if you secure a take-or-pay offtake agreement with stable volumes and margins, does that reduce the hurdle rate compared to your other projects or buybacks you may be considering?

Yes, I think as you look at any return on a project, it's a set return with a risk premium based in there. If you have take-or-pay offtake on a ratable basis, you're probably willing to take a lower return profile on that. I mean that allows a lot of additional synergies that run throughout the entire network as we see with our contract with them taking ammonia on a ratable basis; lower inventory, lower receivables, different things like that, lower risk involved, and therefore, that allows you to have a lower risk premium and therefore take a slightly lower return on that.

Okay. Great. And then just regarding the Donaldsonville ammonia project, could you just provide the latest update on the injection well permits? And I think you mentioned this Louisiana gaining primacy on the classic wells. What does that mean, and how quickly can you get approvals there? And how quickly can drilling be completed?

Yes. So the approval timeline on that is really based on our partner, Exxon, and what they're doing both with the Class 6, and some of that’s probably been accelerated some by their acquisition of the Denbury pipeline, because it allows access to different states with Class 6 that may have a, I would say, shorter queue time than what Louisiana or some of the other states. So we are confident that in 2025, we will economically be receiving a benefit related to the 45Q and therefore, we'll have low carbon ammonia ready.

Thank you. Tony, on the blue ammonia JV with Mitsui, I guess a couple of questions. One, if we get to the second half of '24, and I assume that's probably the third quarter call or maybe you'll have an update and you're not moving forward at that point, what's happened, do you think? And then just secondly, I believe there are several other potential MOUs or JV partners that you have out there. Is there any update on those? Or is that all pending sort of the outcome with Mitsui?

Yes, we're very happy with the agreements that we have in place and the partners that we have lined up to pursue these opportunities with us. A lot of them that we have come out publicly with tend to be Asia-focused, so a couple of Japanese firms as well as South Koreans. I would say that the Korean government and the customers as a result are a little bit behind from a timeline perspective compared to the Japanese. And so we'll likely be making a decision around a plant principally targeting the Japanese market first, and then we'll eventually look at both the Korean market and potentially European partners that we've discussed with as well further out. That could be served by one in the same plant or it might have different requirements associated with it. But if we decide not to proceed, I think it's a combination of very likely just aggregate costs associated with moving forward and lack of line of sight on making sure that we can earn an appropriate risk-adjusted rate of return against that cost nut. Relative to the global S&D, I think I kind of went through that a bit in my prepared remarks, which is we're constructive on where we sit right now. Our results last year were strong. We're looking at another good year this year. Longer term, traditional applications for nitrogen continue to grow in the kind of 1.5 plus or minus percent range per year, and there's not enough new projects that are currently under construction globally to meet that requirement. Adding into the either supply deficit or demand increase is you've got some plants around the world, including Trinidad and probably Europe that are facing challenges with gas availability and gas cost. And then you've got new or potentially new applications for ammonia that are also developing. So all of those things lead to a tighter global S&D marketplace bidding in higher and higher cost of production around the world. And that provides, I think, a reasonable backdrop for us to be considering building new production capacity. But we have to, at the end of the day, be comfortable that we can earn an appropriate rate of return that's well above our cost of capital for us to want to proceed with a project like that.

Hi, good morning. Thanks for taking my question. My first one is about the comments you made on farmer incomes in your press release. You talked about improving farmer income in North America and in 2024. I was wondering what's the thought process here considering that we saw John Deere on year-to-date being a little bit more downbeat, and I think USDA report last month was a little bit downbeat too. My second question is around blue ammonia and the news around the potential partnership with POSCO. Is there any color you can provide about the implied blue premium you are assuming or you have in mind? And my final one is on exports from China. I think Yara last week in Europe mentioned that Chinese exports could potentially come back a little bit messaging today in the presentation seems that there could be some temporary windows about where China could export. So just wondering if you see the situation changing pretty much you would expect, again, a very tight export market from China at this stage. Thank you.

Good morning. Regarding farmer income, it's the fourth best in approximately 10 years. When you compare it to last year and the year before, while referencing John Deere and some chemical or seed suppliers, it may be lower, but we are still seeing corn prices around $4.60 to $4.70 for December contracts. Just a few months ago, prices were hedgeable at $5.10 to $5.20, which is quite attractive, especially considering our target trend yield of 180 bushels per acre for 2024. Many high-state farmers are averaging between 200 to 250 bushels, making it very profitable even with the decreases in fertilizer and diesel prices. It's important to consider the entire cost structure for farmers, whether they own or rent land, looking at variable costs versus fixed costs. Overall, it remains a favorable time to be a farmer. Regarding exports from China, we have observed a different China roughly every other year. In our prepared remarks, we communicate our expectations that government restrictions on urea and some phosphate products will persist into Q2. We anticipate that China will return to the export market, and based on the past five years, we expect exports to be logical at around 3 million to 4 million tons for 2024.

And then relative to blue ammonia premium, blue ammonia for us makes great economic sense even if there were no premium in the marketplace because of the 45Q tax credit. I think we've kind of gone through that math a little bit in the past, but we expect a net benefit from the Donaldsonville blue ammonia project in order of magnitude of roughly about $100 million net benefit to us per year. So just on the face of it, that's a great investment for us. Now that said, we have had, I would say, ever-increasing interest levels in blue ammonia from a variety of different constituents, including a number of our existing customers, but also some other folks that have reached out. And so based on a relatively small volume of decarbonized or blue ammonia that's going to be available principally just from us beginning in 2025. And the appetite in the marketplace, we absolutely believe that it's going to be a commodity in scarce supply relative to the appetite for it. And so it will carry with it a premium in the marketplace just on the S&D; there's more demand than there is supply on. We have not formalized exactly how we're thinking about selling that in because we want to begin actually producing it, and that's going to be dependent to some extent on the timing of our per ExxonMobil in this deal. But we feel very good about the likelihood of a reasonable premium that adds on to what's a very attractive regulatory framework for Blue.

Plus, I'll add one more positive comment for the team, for the company and for what we are about as a company with the Do It Right culture, we have the highest onstream factor. We have the best safety statistics in the world, and we're going to lead the world in this move to low-carbon ammonia because it's the right thing to do, and the government is incentivizing us, and our shareholders want us to do this. And so there's a lot of positive energy going forward with that and what we will bring to the market.

Thank you very much.

Thanks, everyone, for joining us today. We look forward to seeing you at upcoming conferences.