CF Industries Holdings Inc (CF) — Q1 2025 Earnings Call Transcript

Good morning, and thanks for joining the CF Industries earnings conference call. With me today are Tony Will, President and CEO; Chris Bohn, Executive Vice President and Chief Operating Officer; Bert Frost, Executive Vice President of Sales, Market Development and Supply Chain; and Greg Cameron, Executive Vice President and Chief Financial Officer. CF Industries reported its results for the first quarter of 2025 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 these 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 presentation posted on our website. Now, let me introduce Tony Will.

Thanks, Martin, and good morning everyone. Yesterday afternoon we posted results for the first quarter of 2025 in which we generated adjusted EBITDA of $644 million. These results reflect outstanding performance by the CF Industries team against the backdrop of very constructive global nitrogen industry conditions. We are operating safely and at a high level across all aspects of our business. Over the longer term, we have positioned the company for attractive growth through our Blue Point joint venture with JERA and Mitsui. This industry-defining project will not only supply ammonia that the world desperately needs, but it will also develop additional demand for low carbon ammonia in brand new applications. We also remain committed to returning capital to long-term shareholders. Since the beginning of 2022, we have returned $5 billion to shareholders through share repurchases and dividends. Given the confidence we have in our free cash generation going forward, and the disciplined nature of our investment at Blue Point, the Board has authorized an additional $2 billion share repurchase program. This new program will begin immediately after we complete our existing authorization and will run through the end of 2029. With that, I'll turn it over to Chris to provide more details on our operating results and the status of key strategic initiatives.

Thanks, Tony. Our production network continued to operate very well in the first quarter. For the second quarter in a row, we produced over 2.6 million tons of gross ammonia, which reflects a 100% utilization rate. We continue to project approximately 10 million tons of gross ammonia production in 2025. Turning to our strategic initiatives, we are nearing completion of our landmark Donaldsonville Complex, carbon capture and sequestration project. Commissioning activities for the carbon dioxide dehydration and compression unit are in advanced stages, and we expect startup sequestration in the second half of 2025. This will also initiate the 45Q tax credit generation on up to 2 million metric tons of carbon dioxide on an annual basis. Longer term, we believe our Blue Point joint venture presents a compelling growth opportunity for the company given the tighter global nitrogen supply-demand balance we project for the end of the decade. Additionally, our positive FID announcement has advanced existing conversations and spurred interest in our portion of Blue Point ammonia production. We are pleased that the joint venture includes world-class partners in JERA and Mitsui, with whom we will share cost and offtake. The joint venture's priorities for the rest of 2025 are to build out our project team, order long lead equipment items, and further prepare the site for construction. With that, let me turn it over to Bert to discuss the global nitrogen market.

Thanks, Chris. The CF Industries team navigated a dynamic environment through the first part of 2025, driven by a tight nitrogen supply-demand balance. In particular, we have seen strong global demand as the very low corn stocks-to-use ratio points to a need to replenish global corn stocks. In North America, farmer economics favor corn; the USDA reported corn planting expectations of 95 million acres in the United States this year. However, based on the nitrogen demand we are seeing, we believe that the final planted corn acres for 2025 will likely be higher. At the same time, channel inventories of nitrogen fertilizer are low due to high demand, industry production outages, as well as lower than typical net imports of UAN and urea. This has supported prices well into the second quarter. Given the strong demand and tight availability across our network, we expect to end the spring season with low inventory across all our products, positioning us well for our fill programs and the rest of 2025. We expect the global nitrogen industry conditions to remain constructive into the second half of the year. Globally, we believe nitrogen inventory is average to lower throughout the key consuming regions, supporting strong demand. This includes Brazil, the world's largest importer of urea, as well as India, which has not secured target volumes for its last few urea tenders. However, the expected startup of new ammonia capacity in North America this year may bring more volatility in global ammonia prices as trade flows adjust. Longer term, we expect the global nitrogen supply-demand balance to tighten through the end of the decade. Capital availability, long-term feedstock costs, and geopolitical events continue to limit the number of new projects. As a result, projected new capacity growth is not keeping pace with demand growth for traditional fertilizer and industrial applications. We believe demand for low carbon ammonia for new applications such as power generation will only further tighten the global supply-demand balance. With that, Greg will cover our financial performance.

Thanks, Bert. For the first quarter of 2025, the company reported net earnings attributable to common stockholders of approximately $312 million or $1.85 per diluted share. Net earnings increased approximately 60% compared to the first quarter of 2024, while earnings per share were approximately 80% higher, reflecting our significantly lower share count. EBITDA was $617 million, and adjusted EBITDA was $644 million. On a trailing 12-month basis, net cash from operations was $2.4 billion, and free cash flow was approximately $1.6 billion. We continue to be efficient converters of EBITDA to free cash flow. Our free cash flow to adjusted EBITDA conversion rate for this time period was 63%. We returned $530 million to shareholders in the first quarter of 2025. This included $434 million to repurchase 5.4 million shares. Over the last 12 months, we have returned approximately $2 billion, repurchasing nearly 20 million shares for approximately $1.6 billion, and returning another $353 million in dividend payments. Entering the second quarter, we had approximately $630 million remaining on our current share repurchase authorization. We anticipate completing the remainder of this program before its expiration in December. Upon completion, we will begin an additional $2 billion share repurchase program, which expires at the end of 2029. For the full year, we expect CF Industries capital funded expenditures, which will be approximately $650 million. This includes approximately $500 million related to activities within our existing network and approximately $150 million related to our portion of the Blue Point activities. As we will be consolidating the Blue Point joint venture into our financial statements, our reported capital expenditures will also include the portion of the Blue Point activities funded by the joint venture partners going forward. With that, Tony will provide some closing remarks before we open up the call to Q&A.

Thanks, Greg. Before we move on to your questions, I want to thank everyone at CF Industries for their contributions to an outstanding first quarter of 2025. I also want to note that we are holding an Investor Day on June 24 in New York. Martin and Darla will be contacting you with specific details and invitations. We look forward to talking in more detail about our strategy, initiatives, and long-term outlook at that time. CF Industries is exceptionally well positioned for the years ahead. In the near term, industry dynamics remain favorable for our low-cost North American production network. Longer term, we expect the global nitrogen supply-demand balance to tighten, while our investments in low carbon ammonia production provide a robust growth platform with attractive returns. Taken together, we expect to continue to drive strong cash generation and create substantial value for long-term shareholders. With that, operator, we will now open the call to your questions.

Thank you. You're only a couple of months away from having some blue ammonia to sell out of Donaldsonville. Do you have any offtake lined up for this as of yet?

So we've been working on that, Steve, for quite a while, having a lot of conversations, and yes, we do have agreements in place for when that product is available. They're structured for growth, so as we bring on the tons, and some of these are tied to exports to Europe and some other locations as well as some industrial contracts, we're not fully booked yet and don't anticipate that. We're anticipating demand to grow as the understanding of this product becomes available. We're the first and only producer with these tons to the market. And I think, when you look around the world with what people are trying to do with their own carbon structures, as well as CBAM, there's a lot of opportunity in front of us.

And I'm sure you're aware also in Ascension Parish with Donaldsonville and your Blue Point project is the project that Air Products is trying to get on stream, and they would like to either bring on a partner or just sell off the ammonia loop. And I'm just curious, is this a potential project that you might be interested in? You would be the only one that might be able to put that product into the NuStar pipeline. If that opportunity for low carbon corn really develops down the road, is that of interest? And you, you also highlighted your view of tightening supply and demand in nitrogen through the end of the decade. So is this a potential project you might also get involved in?

Yes, Steve, this is Tony. I think this project, at least from an ammonia producer's perspective, suffers from some of the challenges that we saw with the OCI project, and why we opted not to participate in that discussion, which is that the hydrogen producer in this case, Air Products, is looking to earn a nice return risk-free off of the production of hydrogen and enter into take-or-pay agreements with the ammonia loop operator at something that has a very high operating cost. Basically it puts your gas cost in the third or fourth quartile. So while you might get a little bit of a break on CapEx, if you're on the hook to buy gas at $10 per MMBtu, come high water, you're going to be paying on a gas cost basis $300 of energy content for a ton of ammonia, whereas our project doesn't suffer from that. So that is not a project that we would be interested in in any way because we don't want to deploy that level of capital against non-competitive assets.

Understood. Thank you.

Thanks. Nice quarter. Just a question on Blue Point. Congrats on the close of the JV. But just on the partnership stakes, JERA has an option to reduce your stake before the end of the year. If you can just give us some clarity on some of the conditions there. And in terms of what the potential changes in offtake for the other partners would be, if you took I guess, the remaining stake, taking you up to 60%, how would that impact sort of marketing the tons going forward, easy?

Yes. So we fully expect that JERA is going to want to maintain their ownership level at 35%. On the other hand, if they opt to return kind of 15% of the economics back to us, we're very comfortable with that. It still only puts us at 55% ownership of the overall project. And we believe that the economics around this project are very attractive. So having incrementally a little more of the equity and offtake, which is proportionate to equity ownership is something that we are 100% comfortable with. But we don't believe that's going to be the ultimate outcome of all of this. The incremental tonnage that you're talking about on that 15% is roughly 200,000 tons. Bert has plenty of options in terms of where to take those tons, both at home and abroad, so again, we have no issues at all with that.

Yes. Just building on that, Richard, as we've mentioned in our prepared remarks, we're seeing more interest since the announcement of this particular project, with individuals looking for low carbon production assets or production offtake. So I don't think it would be that big of a stretch for us to find a home for that, but I agree with Tony that I would find that to be somewhat of an unlikely case, given JERA's position.

Tony, Bert, can you maybe talk about the market? It's obviously been quite a hot spring market in the U.S. for urea and UAN. Maybe talk about what you've seen. It seems like now we're starting to cool off; what are your views going into the spring and summer? Do you have a view on where fall-summer market be? Would you be able to capture in Q2 here, a lot of the surge, or what does your book look like?

Yes, we're pleased with our order book. Normally, through this type of environment in our commodity business, you're always building your order book for the subsequent one, two, and three months. And so as you see the results in Q1, we exceeded expectations. And for Q2, we had a book coming in, but also open positions, which we're executing against today and you're seeing those in the publications. It has been a very positive market. A lot of that is related to some of the issues we've talked about, which is that the inventory coming into North America was lower. Because of the tariffs, you've seen some diversions of vessels, which limited probably prompt availability for the April, May, June time frame. Our plans have operated very well, and our network was prepared. I've got to give a shout out to our logistics team, Mike Muller, and the folks in the supply group for putting the product in the terminals at the right time understanding where, due to weather, demand would be. We capitalized on that. Some of the prices you're seeing in the market we're executing against that; we feel very good about Q2. And that will probably extend into Q3. The fill programs are going to be later than anticipated just because of low inventories in North America, outside of CF as well as CF. We'll execute accordingly but believe that we have a positive market in front of us.

And then on a different tack here, Tony, when you did the FID about a month ago on Blue Point, it was obviously remains a very interesting macro and tariff environment. Just thinking about historical context, you see other Gulf producers, the capital inflation we saw on products a decade ago, early last decade, the problems with labor rates, and getting good labor and what gets paid for it. How do you mitigate what could be very strong capital inflation or not? What can you do with your partners to make this so it's not going to really affect the level of buyback you can do in the next four years?

Yes, Joel. We're taking a fundamentally different approach to production of this plant than what we employed historically. By that, I mean, the last projects we did, and in fact, the ones we did prior to that were all what you'd call stick build. Individual beams were going up, creating attachment points for the vessels and continuing to build it piece by piece. When you're doing that, the vast majority of consumed content is happening here on site. And you are subject because of the way that those are contracted on a reimbursable basis to the possibility of inflationary pressures and potential time delays. The approach that we're taking on this project is really one of modular construction. So these very large integrated modules are being constructed overseas and will be shipped here and basically just positioned in place, secured to the mounting locations, and then connected together. The amount of on-site construction content here in the U.S. has dramatically reduced. We are choosing, with our partners and our EPC provider, to find locations where we can construct it, which are much less likely to be affected by any kind of tariff regime so it can be in place in the long term. Those modules are all being constructed on a fixed-price basis. A lot more of the content is what you'd call lump sum turnkey, therefore, you are not subject to the kind of inflationary pressures or the potential overrun of labor content that we experienced the last time we were doing this.

Great. Thank you so much. So Tony, there's been a lot of debate around the intermediate to long-term cost curve, just given gas supply issues elsewhere in the world, geopolitics, so on and so forth. Can you just give us an update on how you're thinking about that as it relates to the nitrogen cost curve? And within that basically how you're thinking about free cash flow conversion and your ability not only to buy back shares but also obviously fully facilitate the CapEx updates, which you gave us today, which were roughly in line with our expectations?

Yes, you bet. It's pretty undeniable that the U.S. is one of the lowest cost regions in the world from a gas production perspective. With rule of law and access to cavern space for CCS and supportive regulation, it is arguably the best place in the world to build these kinds of assets. We expect that to be true, not only today but going into the future. Despite the fact that some LNG capacity is coming online in the U.S., the level of demand for natural gas continues to go up at a rate that, I think, is equal to or above the level of liquefaction capacity that is coming online. That's particularly true when you consider the number of data centers going in to support AI and other applications and the power consumption those things draw. As we look at it, we do not see substantial long-term compression between gas cost in Europe and parts of Asia and the U.S. We think that's going to be much more sticky than what some people are forecasting. But as you look through what energy consumption continues to be in demand for natural gas, we couldn't be happier locating this production asset in the U.S.

Got it. And when we take a step back and we think about the ultimate return for Blue Point, presumably we're looking at a site fee tax credits as well as the return on your proportion of what's produced. Can you kind of walk us through how we should be thinking about not only those baselines and what's locked in versus the variability of the tons? And then also presumably, you'll be selling some of those tons to yourself in the U.K. and getting a benefit there. So can you help us just conceptualize the structure of how we should be forecasting that?

Yes. At a 40% ownership, we're going to have about roughly 650,000 tons. It will likely be a bit more than that, given that historically, we operate our assets above their nameplate capacity. About half of that is tentatively earmarked to go into the U.K. to be able to produce extremely low carbon ammonium nitrate for the U.K. and European marketplace. This should have a significant advantage given the CBAM regime that's being put in place. The rest of it, we have a lot of options for it. As Bert talked about, we've been working on this for a while, just on the CCS project but are beginning to now talk about extremely low carbon intensity product coming out of Blue Point. We're talking about a relatively small amount of tons given the scope of our ongoing operation. Bert's got more demand than we do in terms of available tons, given half of that is going to go to the U.K. The rest of the tons will be offtake for our partners who will be using that product in Asia. They're basically, because they're into the project on the equity side, are going to be paying full cost on those the same as we are, and we'll receive production economics just like we will.

Good morning. I just wanted to ask about tariffs. I wanted to get your view on how you see that impacting the various nitrogen derivative markets in the U.S., I guess, over the near term to start with. And then, if we look a bit further out 12 to 18 months to give trade flows the chance to adjust, would you expect to sort of see pricing uplift in the range of where the marginal importer is, so at least kind of 10%? And do you think that could be reduced over time? Or how do you kind of see those factors playing out?

In a weird way, even though there tend to be tariffs and/or sanctions on a lot of Russian product, Russian fertilizer comes unabated into the U.S. with no tariff regime at all. So in a lot of ways, we are creating trade policy that is advantageous to the Russians to access this marketplace at potentially the expense of much more closely allied countries. There is a perversion in terms of what's going on with trade policy in that particular event. But I'll let Bert go into some of the more details here.

When you look at the tariff structures that are in place for today for certain countries, and Tony is 100% correct, the frustration is that Russia is the largest supplier of UAN and urea to the United States, exporting almost 1.5 million tons of urea at zero tariff. Of the total imports, we have almost 2 million tons of common tariff-free imports. The rest comes from the Middle East and North Africa: Qatar at 10%, Algeria at 30%, Nigeria at 14%, Oman, UAE, and Egypt all at 10%. There will be an impact, and you're exactly right. There's going to be a trade flow movement of tons going in different directions for the time being. The U.S. has consistently been one of the lowest-priced markets in the world for nitrogen fertilizers. I think this will have an impact and we'll probably move closer to a Brazil parity or even maybe slightly above that. It will influence purchasing behavior in terms of when and how people buy imported tons. We feel very confident that the North American market is the best market in the world, and we've got great customers. We're working with them to ensure that they're adequately supplied today, as well as in the forward market, and we may be positioning more of our tons domestically, which is a perfect solution.

And then, sorry, I had a follow-up on Blue Point. I just wanted to kind of - you called out a couple of other components there to the agreement I just wanted to check. You said it was like some bad service revenue components on the management of the facility. And then just with regard to sort of the credit side, I was assuming that would be split evenly based on the ownership percentage in the offtake as well. Is that right?

Yes. So from the common facility standpoint, CF will be funding that, which said $550 million that will be over the five-year period in which we'll receive a fee and payment that will more than cover the cost of capital and then some from our partners as we go forward. Related to the 45Q tax credit incentive associated with the carbon sequester there, that will be spread throughout the JV and essentially go back on equity percentage terms.

Hi, good morning. On tariffs here, if the EU implements tariffs on Russian products, what's your thought on how UAN trade flows range? So could you see more Russian urea entering the U.S.? And then, maybe does it make more sense for the U.S.—I understand there's a benefit from the tariffs right now and other sources, but Russia doesn't a lot to the U.S. on the UAN. Like does it make more sense to send it into Europe if tariffs are high and Russian products are affected there?

So those are being discussed and implemented for Russian products into the EU. There are various discussions on different structures, but that could be an eventual outcome. We are an exporter to the EU and the U.K. for UAN and have been for years. We have some strong relationships there. The value of the end molecule regarding UAN, urea, ammonia, or ammonium nitrate will impact behavior in terms of what we see from buyers. The volume that comes into the U.S. today, I would assume continues at least in the present structure of tariffs, likely continuing at the same level, and we will see how the rest of the world settles out.

Okay, thank you. And then maybe just on clean ammonia pricing when you are discussing your potential customers. I'm curious about what factors you talked about, are you discussing energy content equivalent, and then looking at that from price-equivalent pricing you—for industrial users, you take like a merchant ammonia and then put a clean ammonia premium on it. Are building a new plant, the returns factor into those pricing conversations? Any of that detail would be great.

In terms of how this is being laid out in the market, it's a fairly understood value proposition of low carbon. As companies look at their scope emissions and their structures and what they're doing, whether that be in ag with the corn value chain or with an industrial production like synthetic fiber production, everyone is trying to improve their position and obviously, their cost structure. Conversations with the customers are that if we have this product, it is a unique product that's coming online, and this is part of the preparation to get ready; are you interested? Okay, you're interested at what level? How does this work with contracts, because we want to contract generally on an industrial basis, with annual or multiyear contracts. The intention is that initially, that will start off at a relatively lower level, but as demand builds, there will be competition for the molecule. The first series of low-carbon ammonia coming off of Donaldsonville in preparation for the new plant that will come on in 2029 will likely be close to zero carbon product, an even more attractive position for the market. We're well prepared and we're in the market. We communicate clearly with our customers with the expectation of a carbon premium for this product.

Yes, thank you very much for taking my question. One quick one is, you saw news that the Chinese government is setting an export window from May through September for urea as it relates to the potential quota to be similar to the 2023 level. So when we look through your materials, is that something that's basically as expected from you guys, or is that meaningful from a negative perspective, just as it goes out? And also if you could comment anything around the fact that the Chinese are restricting this to India, which seems to be a big purchase.

Yes. The world is very tight and arguably short on urea capacity. The world really needs these tons to become available as part of the global trade flow. We're fully expecting and have considered somewhere in the neighborhood of 3 million, maybe 4 million tons to come out of China during this period of time. I think that's wholly consistent with our expectations. One of the things to keep an eye on is what happens to the domestic price of urea within China, because the last time the market opened and prices started rising, they rescinded the provision of export licenses to people. So what came out was actually a lot less than what was expected. The world needs these tons, and so it's helpful to the overall functioning market.

Okay. And then there has been noise that goes in different directions. Some say there might be collaboration between the U.S. and Russia to figure out the gas flow back to the European Union, which was cut with the innovation a few years ago. However, there are rumors of the European Union considering a potential embargo on Russian gas. Have you seen or heard any news regarding expectations for Russian gas into Europe? What are your thoughts on how this would affect gas prices in Europe?

Yes. The initiative that we've been following is the plan to completely wean Europe off of Russian gas by 2027 and potentially restrict access to that marketplace. I don't know what the U.S. has to say about that or the role we play because if the Europeans decide they don't want it, there's very little anyone can do to make them take it. That has become very much a European policy issue, which has become somewhat opaque.

Hi, thank you. We are seeing a pretty strong divergence between urea and ammonia prices currently. In terms of the delta and margin between the two, can you talk about how it compares to history, and how you expect that to play out going forward?

We're seeing a divergence internationally. The market is long in ammonia today, especially in the East, and there's a noted price differential between East and West markets. With the expectation of two new plants coming online in the Gulf Coast, there's going to be an additional 200,000 tons a month coming online needing to find a home. That's projected weakness. You're correct; there is a divergence and urea is remaining fairly strong worldwide, almost closing the gap to ammonia at $400 a ton coming into North America or Brazil. This reflects the supply-demand situation, and an additional supply coming on. In terms of how that looks historically, that's been imbalanced. I would expect that to be corrected through the addition of more urea plants to soak up the extra tons, as well as the growth in ammonia consumption for low-carbon markets.

I'd also add to that, it's important to separate the price of traded ammonia, Tampa, North Sea, and other pricing points, versus the price of ammonia in interior used for agricultural applications. Those two are historically fairly different. The new plants referenced earlier don't have access to in-market terminals in the corn belt for use in agricultural applications. That's why you see a little bit of, as Bert said, that overhang in divergence. But from an in-market agricultural application, the price of ammonia is still very strong, although you're also getting near the end of the application window, whereas urea requirements are still very strong, which is also part of the reason why you see a difference there.

Got it. Okay. Thank you. The general sense was that farmers underplied last fall; do you think farmers will get down all of the nitrogen that they would like to this spring? Or are there any constraints such as urea or UAN supply that you would call out?

I think there's a question on availability of the type of nitrogen that farmers in different regions are wanting. So Tony talked about ammonia in the Midwest, which has been very attractive out of our terminals, around $650 per ton compared to the international market at $400. There’s a very tight market today in North America for urea and UAN. We expect that additional side dress of ammonia may take place that might not have happened in other years. The corn-bean ratio and the crop insurance for revenue guarantees available to a farmer make selecting corn this year economically sensible. Maximizing yield through the use of nitrogen makes practical sense. We actually see that 95 million acres will likely be higher just based on what we're seeing with demand. For application rates, they're likely going to be higher, with good yields in irrigated areas and high-yielding regions of the U.S. However, dry land places could be interesting as well. We have a stocks-to-use ratio that's very low for corn globally, creating a need for nitrogen production in North America, and it's been a very exciting market.

Thank you. And good morning everyone. When you're looking at the level of grain inventories and crop prices, how would you describe the current ag fundamentals—good, great, mixed? It could be either globally or in the U.S.; how would you describe the ag fundamentals right now?

Yes, it would differ based on location, crop, activity, and timing. The inventories for corn are very low globally, reaching decade lows, excluding China, which is always a question mark in terms of inventories. The fundamentals at the farm gate are not as positive as they've been in previous years based on input costs, land rent, and the output values of corn, soybeans, and wheat. With crush margins suffering and soybeans a bit lower, we believe corn will be the preferred choice among farmers in North America. Other years, in places like Brazil or Argentina saw devaluations assisting farmers in profitability, and we've seen some taxes come off in Argentina. We see those countries continue to grow, but growth will also occur alongside protein production and ethanol production specific to Brazil. Overall, it's a differentiated market; I think it's challenging but acceptable with historical regard to returns, while farmers need to watch their spending.

Thanks very much. Was the quarter in some ways unusually profitable in that sequentially your gas costs were up maybe $1.25 per MMBtu? And maybe sequentially, that's something like, I don't know, $130 million in cost inflation. And your cost of goods sold was up sequentially, maybe by about $90 million. Can you talk about... I get it, you sold a few more tons in the first quarter than you did in the fourth, and your price per ton was a little bit higher. But when you net it out, it seemed that the sequential change was a little bit larger than expected?

Yes, I think it comes down to just a couple of big moving pieces here. Bert was able to get great price realization against a little bit of a headwind of higher gas costs, which subtracted from that a little bit. That remains very robust. We think about this business on a half-year or full-year basis, not on an individual quarter basis. That said, we expect much more moderated gas environment and an even stronger pricing environment entering Q1, and are excited about what the first half of this year looks like.

I would actually add to that our controllable cost per ton was significantly lower than what they have been in the past. That's our cost of goods sold less gas and depreciation in our distribution. We're producing at 100% utilization. What you're seeing in COGS is related to higher gas costs on a sequential basis, but also purchases that come into the U.K. and also our LSB agreement where we purchased some of their ammonia tons, and additionally, our point leases. Prices were elevated a bit; you see that in COGS. Backing those out from that perspective shows a much more efficient quarter than what we had in Q4 and definitely what we had in the prior year quarter.

Okay. And in terms of your capital expenditures, what might they be in 2026 or '27 ballpark exclusive of the monies that would come from...?

Yes. Our business historically has run about $500 million a year for the legacy business. That includes a bit of improvement capital like we've done with the CCS projects and expanding our DEF capacity, as well as investments in infrastructure on the IT side, etc. So $500 million is a reasonable estimate for how we've managed the business. In terms of our portion of the CapEx for Blue Point next year, it’s more likely until 2027 and '28 when the bulk of that expenditure starts. Chris mentioned we will have some site prep and civil work next year. I expect next year to run somewhere in the neighborhood of about $300 million. Ultimately, we're still talking about $750 million to $800 million of our CapEx. The carbon dioxide is going to be stored for Donaldsonville exactly where we have ongoing active dialogue with our partner, ExxonMobil. They have a number of alternatives and permits in advanced stages. We are working through the details on that to partner with them. This may mean that we go to EOR for a couple of months until that Class 6 permit comes through, or we may opt to wait until the Class 6 is ready. These are ongoing conversations to ensure we maximize project economics. We expect likely to begin flowing gas here in the second and third quarters and are excited about the outcome, not only for reducing greenhouse gas emissions but getting the 45Q credit, having a low-carbon product Bert can market at a premium.

Thank you. It's a while away, but I'd be curious about your plan in terms of how you're going to report Blue Point within your financials. Are you intending to just put it in the existing ammonia segment? Or is this an opportunity for differentiation, maybe not including your other ammonia facilities with contracted volume that has less volatility in their profitability through the cycle? How are you thinking of disclosing everything to us?

Yes, Vincent. The first big step we’ve gone through is determining that we'll consolidate the entire entity into our financials, and that's our plan to do that. First, all the revenue and costs associated with Blue Point will come through our statement, and then we'll take that out at the end through the 60% that goes to them through the non-tolling inter side. Given that the product is ammonia, we expect to report this in the ammonia segment and keep our business segment intact. The way we run the business is consistent with how we report it, and the team responsible for the ammonia segment from a commercial perspective will also be responsible for these tons just like they are for other facilities. I don't foresee any change at all in that. When we get into reporting, you’ll see in the second quarter you saw it in our press release this time, where we talked about the CapEx of the entire entity. In the second quarter financials, since we’re receiving from the joint venture, our cash balances will include what the joint venture consolidates. We'll break that out through footnotes and other disclosures to give clarity on where the legacy business is in addition to the JV for total comparisons.

Okay. As a follow-up, you're in conversations both for the Blue Point product out of Donaldsonville and ultimately for Blue Point. What type of offtake agreements are you looking for? Do you feel the need to have them? Or is there some percent of the volume you'd like to have on them? What are the terms you're looking at?

In general, when you lock in a prearranged offtake agreement, you tend to do it off of some type of gas-plus basis or a mix of gas-plus-end market impact. Broadly speaking, those contracts tend to lower margins over long periods compared to having the ability to move it into marketplaces and take advantage of upside opportunities in the market. For instance, supply contracts on ammonia with Mosaic, while important as we brought on the Donaldsonville project, have resulted in favorable prices for Mosaic, as the contract formula has been below what we could achieve otherwise. We may consider small pieces for specific cases, but we’re certainly not looking to pre-contract the whole of our production volume, as our historical data shows we’ve achieved better returns by allowing Bert to maximize market opportunities.

Sorry for the follow-up. I think, Tony, I think you said that run rate sort of CapEx next year might be $750 million to $800 million. But when you look at your Slide 11, if you add up the numbers, assuming $500 million maintenance, you get something like $900 million to $950 million. Can you just clarify?

Yes, Joel. I think what Tony was talking about one was the CF portion. For '25 and '26, we're expecting about 10% to 15% of our total amount for those years. We have $500 million that is our EHS and sustaining CapEx, and then incremental to that you can plan about $150 million over the next two years. It's really '27 and '28, as you're referencing in the deck, where you start to see larger amounts, which would be a couple of hundred million dollars. Ultimately, you get to a light tail by '29 when the project comes online.

If you take the chart as we have, and we've tilted them, there's a range we work with internally, and it ties close to the tilt, but some variables are in play. We previously stated our sustaining CapEx would be at the $400 million to $500 million mark. And then Blue Point this year we have about $150 million that aligns with that—the same as Chris mentioned. We are moving up slightly next year. Take into account the larger scalable infrastructure, and it brings you closer to the number you gave.

Thanks for joining us today, and we look forward to seeing you at upcoming conferences.