CF Industries Holdings, Inc. (CF) Q4 2022 Earnings Call Transcript

CF Industries Holdings, Inc. (NYSE:CF) Q4 2022 Earnings Conference Call February 16, 2023 11:00 AM ET

Company Participants

Martin Jarosick - Investor Relations

Tony Will - Chief Executive Officer

Bert Frost - Senior Vice President, Sales, Market Development & Supply Chain

Chris Bohn - Chief Financial Officer

Conference Call Participants

Stephen Byrne - Bank of America Securities

P.J. Juvekar - Citigroup

Christopher Parkinson - Mizuho

Joel Jackson - BMO Capital Markets

Adam Samuelson - Goldman Sachs

Edlain Rodriguez - Credit Suisse

Jeff Zekauskas - JPMorgan

Will Tang - Morgan Stanley

Andrew Wong - RBC Capital Markets

Josh Spector - UBS

Richard Garchitorena - Wells Fargo

Operator

Good day, ladies and gentlemen, and invited to CF Industries' 2022 Full Year and Fourth Quarter Financial results. All participants will beryllium successful listen-only mode. [Operator Instructions]

I would now for illustration to move nan position complete to nan big for today, Mr. Martin Jarosick pinch CF Investor Relations. Sir, please proceed.

Martin Jarosick

Good morning, and acknowledgment for joining nan CF Industries' net convention call. With maine coming are Tony Will, CEO; Chris Bohn, CFO; and Bert Frost, Senior Vice President of Sales, Market Development and Supply Chain.

CF Industries reported its results for nan 4th fourth and afloat twelvemonth of 2022 yesterday afternoon. On this call, we will reappraisal nan results, talk our outlook and past big a question-and-answer session.

Statements made connected this telephone and successful nan position connected our website that are not humanities facts are forward-looking statements. These statements are not guarantees of early capacity and impact risks, uncertainties and assumptions that are difficult to predict. Therefore, existent outcomes and results whitethorn disagree materially from what is expressed aliases implied successful immoderate statements.

More elaborate accusation astir factors that whitethorn impact our capacity whitethorn beryllium recovered successful our filings with nan SEC, which are disposable connected our website. Also, you will find reconciliations betwixt GAAP and non-GAAP measures successful nan property merchandise and position posted connected our website.

Now, fto maine present Tony Will, our President and CEO.

Tony Will

Thanks Martin and bully greeting everyone. Yesterday afternoon, we posted results for nan 4th fourth and afloat twelvemonth of 2022 that reflected a phenomenal twelvemonth astatine CF Industries, highlighted by outstanding execution from our team.

Our plants ran highly well, producing astir 10 cardinal tons of ammonia. And astir importantly, we proceed to run safely. At nan extremity of nan year, our 12-month recordable incident complaint was 0.33 incidents per 200,000 labour hours, good beneath manufacture averages.

Against nan backdrop of a persistently tight world nitrogen supply/demand balance, these achievements led to bonzer results. We produced grounds afloat twelvemonth earnings, grounds 4th fourth and afloat twelvemonth adjusted EBITDA, and grounds afloat twelvemonth free rate flow. We besides made important advancement decarbonizing our web and furthered our activity position successful low-carbon ammonia production.

Over nan past 12 months, we've signed an MOU pinch Mitsui for nan improvement of a caller bluish ammonia accumulation facility, our BluePoint analyzable successful Louisiana. We signed a CO2 proscription and sequestration statement pinch ExxonMobil. We signed an MOU pinch JERA for nan proviso of low-carbon ammonia, and we precocious signed an statement pinch BP to acquisition certified debased methane emissions earthy gas. All of which put CF Industries astatine nan forefront of decarbonization and sustainability wrong nan nitrogen industry.

Turning to nan market, nan past 18 months person been peculiarly volatile play for our industry. High power prices, geopolitical events, and economical weakness starring to reduced business request affected some nitrogen accumulation rates and nitrogen prices.

In nan near-term, we expect continued volatility successful nan world nitrogen market. As we look astatine nan first half of 2023, we judge emblematic outpouring request successful nan Northern Hemisphere is going to beryllium weighted to nan 2nd 4th arsenic buyers person taken a wait-and-see attack to their nitrogen procurement.

CF Industries web pinch our operation of in-market production, extended retention and logistics capabilities and export optionality is good suited to navigate this type of environment. Longer-term, we proceed to spot a affirmative operating situation for nan company. Industry fundamentals stay strong, resilient request driven by nan request to replenish world atom stocks, important power spreads betwixt North America, compared to Europe and Asia and nan emergence of request for low-carbon ammonia arsenic a cleanable power root are each very favorable for our costs advantaged network.

As a result, we proceed to make -- we expect to proceed to make important free rate travel successful nan years ahead. This will alteration america to some put successful maturation and return superior to shareholders. We are enthusiastic astir nan maturation opportunity that low-carbon bluish and greenish ammonia provides for our institution and judge our MOU pinch JERA demonstrates tangible emerging request for low-carbon ammonia arsenic a cleanable power source.

We will proceed to attraction connected disciplined investments to decarbonize our web and accelerate our expertise to nutrient low-carbon bluish and greenish ammonia to thief meet this processing caller demand.

Alongside these maturation investments, we expect to proceed returning important superior to shareholders. In 2022, we returned astir 60% of our free rate flow, $1.65 cardinal to shareholders done stock repurchases and dividends. And successful nan past 2 years, we person reduced our outstanding stock count by 11%. We expect to further leverage nan $3 cardinal stock repurchase programme precocious authorized by nan Board to proceed building connected this way grounds and providing our semipermanent shareholders pinch ever-increasing information successful our business.

With that, fto maine move nan telephone complete to Bert, who will talk nan world nitrogen marketplace conditions successful much detail.

Bert Frost

Thanks, Tony. The world nitrogen marketplace was pushed to extremes successful 2022. The request to replenish world atom stocks drove prices for provender grains to nan highest levels successful a decade. This supported resilient request for nitrogen and awesome cultivation accumulation regions for illustration North America, Brazil and India. At nan aforesaid time, we judge historically precocious nitrogen prices led to little request and smaller subsistence focused cultivation areas successful Asia and Latin America. Industrial request successful Europe and Asia was besides softer than expected owed to higher prices and recession fears.

Additionally, we -- very precocious earthy state prices successful Europe and Asia importantly curtailed accumulation successful those regions. This, on pinch authorities actions restraining nitrogen trade, reduced merchandise readiness further supporting precocious world nitrogen prices. These dynamics were exacerbated by Russia's penetration of Ukraine, which triggered disruptions and a ample realignment of waste and acquisition flows. The operation of these events push world nitrogen prices to all-time highs successful nan outpouring of 2022.

Through nan 2nd half of past year, nan daze of these factors moderated arsenic world waste and acquisition flows of earthy state and nitrogen adjusted and nan world absorbed antecedently delayed urea capacity additions. In addition, a mild wintertime successful nan Northern Hemisphere resulted successful higher earthy state stocks, little earthy state prices and therefore, little world nitrogen prices.

Global nitrogen prices were besides pushed little arsenic galore cultivation buyers took a consequence disconnected just-in-time attack to purchasing. This is not unusual, nitrogen prices are historically high, and request for nan outpouring exertion play seems distant. This purchaser behaviour has persisted longer than normal arsenic declining world prices reinforced nan wait-and-see approach.

Over nan past 2 weeks, we person seen retailers and wholesalers statesman to measurement backmost into nan marketplace astatine charismatic value levels. The alteration successful world nitrogen pricing has improved husbandman economics dramatically and should spur request globally that was discouraged astatine higher prices.

We expect important request to look successful North America successful nan coming weeks arsenic nan worth concatenation moves into catch-up mode that will apt past into and done nan 2nd quarter. We judge inventories are little astatine nan workplace and unit level fixed nan grade of nan Q4, Q1 purchasing slowdown.

Additionally, nitrogen imports into nan US since July are little year-over-year, while nitrogen exports were importantly higher. As a result, we judge location is simply a bully magnitude of merchandise activity yet to hap and purchases required to meet outpouring needs. From a longer word perspective, we judge that manufacture fundamentals proceed to constituent to a tight world nitrogen proviso and request balance.

As you tin spot connected descent 9, world atom stocks did not amended from past year's increasing play per upwind conditions successful galore cardinal increasing areas on pinch little accumulation successful Ukraine owed to nan warfare constricted world yields.

As a result, world people atom stocks usage ratios stay low, supporting precocious world atom prices for longer. This has been farming highly profitable and debased costs exporting regions of nan world, specified arsenic nan US, Canada and Brazil. We expect this will support resilient request for nitrogen arsenic nan cultivation assemblage focuses connected maximizing nutrient accumulation and workplace incomes. We task that 92 cardinal to 93 cardinal acres of maize will beryllium planted successful nan United States successful 2023 on pinch beardown wheat, fabric and canola plantings crossed North America.

We judge we'll return astatine slightest 2 much increasing seasons astatine inclination yields to afloat replenish world stocks. In our view, Europe remains nan marginal nitrogen shaper successful nan industry. While guardant power curves person moderated, nan existent diminution successful world nitrogen values propose that shaper profitability successful nan region will proceed to beryllium challenged. We judge this is reflected successful nan estimated 20% to 30% of European ammonia capacity that is presently curtailed. With European accumulation supplying nan marginal merchandise ton successful nan industry, nan marginal opportunity for CF Industries stay substantial, arsenic you tin spot connected descent 10.

With that, fto maine move nan telephone complete to Chris.

Chris Bohn

Thanks, Bert. For nan 4th fourth of 2022, nan institution reported nett net attributable to communal stockholders of $860 cardinal aliases $4.35 per diluted share. EBITDA was $1.25 cardinal and adjusted EBITDA was $1.3 billion. For nan afloat year, nan institution reported nett net attributable to communal stockholders of $3.35 cardinal aliases $16.38 per diluted share. EBITDA was $5.5 cardinal and adjusted EBITDA was $5.9 billion.

Full twelvemonth nett rate from operations was astir $3.9 billion, and free rate travel was $2.8 billion, some CF Industries records for a almanac year. We generated this free rate travel moreover aft making $491 cardinal successful one-time taxation and liking payments successful nan 4th -- 3rd and 4th quarters related to a US Canada taxation matter making love backmost to nan early 2000s. Excluding these payments, free rate travel was$3.3 billion, representing a free rate travel to adjusted EBITDA conversion complaint of 56% and a free rate travel output of almost 20%.

Looking up to 2023, we expect ammonia accumulation will beryllium astir 9.5 cardinal tons. Capital expenditures are projected to beryllium successful nan scope of $500 cardinal to $550 cardinal successful 2023. These amounts bespeak a normal turnaround schedule. They besides see expenditures related to our debased c ammonia projects. We expect our greenish ammonia task astatine Donaldsonville to beryllium vanished astir year-end. Fabrication of nan electrolyzer is complete and tract activity is ongoing for its installation and integration later this year.

The bluish ammonia task astatine Donaldsonville remains connected way for start-up successful early 2025. Engineering activities and procurement of awesome instrumentality for nan CO2 dehydration and compression installation are successful progress.

Longer term, we stay focused connected expanding our free rate travel procreation capacity and increasing shareholder information successful our free rate flow. We do this successful 4 ways: disciplined maturation initiatives successful cleanable energy, investing successful precocious return projects wrong our existent network, pursuing inorganic maturation opportunities that connection returns good supra our costs of capital; and returning superior to shareholders.

In statement pinch this approach, we person a number of high-quality cleanable power investments successful motion, pinch immoderate of nan world's champion companies, arsenic you tin spot connected descent 15. We besides expect to return important superior to shareholders.

With that, Tony will supply immoderate closing remarks, earlier we unfastened nan telephone to Q&A.

Tony Will

Thanks, Chris. Before we move connected to your questions, I want to convey everyone astatine CF Industries for their outstanding activity successful 2022. Their expertise and unwavering committedness to information is nan instauration of everything we do. I peculiarly want to recognize, nan much than 400 CF Industries employees, who contributed to nan successful upgrade of our endeavor assets readying system, which we person had operating since nan opening of nan year. This was our largest business exertion implementation ever, and it was completed connected clip and connected budget, an result that is highly uncommon for these types of projects.

And while nan activity whitethorn not make headlines, it is basal for our early growth. We are proud of nan outstanding 2022 that we had astatine CF Industries, but we're moreover much excited astir nan opportunities ahead. Given our operational focus, disciplined superior stewardship, affirmative marketplace outlook and beardown return floor plan from our cleanable power initiatives, we expect to proceed to make superior free rate flows. As a result, we judge we are good positioned to build connected our proven way grounds and proceed to create important shareholder value.

With that, operator, we will now unfastened nan telephone to your questions.

Question-and-Answer Session

Operator

Thank you. We will now statesman nan question-and-answer session. [Operator Instructions] Our first mobility comes from Stephen Byrne from Bank of America Securities. Stephen, please spell ahead.

Stephen Byrne

Thank you. I'm very funny to perceive your position connected – what has driven NOLA urea from $700 to $300 successful 5 months. Is this conscionable deferred request astatine nan unit level that is driving that, aliases are location immoderate different things for illustration nan US is consenting to return Russian cargo arsenic a batch of countries aren't. Is location immoderate Saudi-based cargos that are coming successful and getting manipulated connected price? Is location thing other going connected here? I don't get it. You sewage a marginal shaper moreover pinch little gas, it's still their marginal costs are still $500 a ton. So what has led to this? And wherever do you deliberation it goes from here?

Bert Frost

Good morning, Steve, this is Bert. And your short reply is yes, yes and yes. So, yes, nan pricing has fallen down from, I would say, $600 successful September to $300 today, short ton FOB NOLA. And location are immoderate factors, arsenic I mentioned successful my prepared remarks of location is nan mentation that precocious prices cure precocious prices. And immoderate of that is reflected successful demand. When you look crossed nan world globally, to whether it's a Tier 1, Tier 2 aliases Tier 3 consuming country, a batch of nan Tier 2 and Tier 3 countries did trim back, particularly connected subsystems farming, aliases wherever you're importing successful dollars, but trading successful a section currency, which makes it economically difficult for that benignant of transaction.

So erstwhile you look astatine South America, successful Asia, and let's conscionable say, countries for illustration Peru aliases Central America aliases Thailand. That operation betwixt those 2 regions is astir apt 2.5 cardinal tons of little request coupled pinch past nan adjacent measurement of that equation is further proviso that came connected feathered passim 2022 from India, Iran, Nigeria, Russia, Brunei, is astir apt 5 cardinal tons. So it doesn't return a batch to extremity that over. And past we're starting successful -- aliases astatine slightest talked astir recession and we did spot that successful our EU operations pinch precocious power prices and therefore, nan little depletion of business products successful Europe.

Now location was to adhd successful -- to do an added connected that equation, location was nan European shutdowns that took a important magnitude of tonnage disconnected nan marketplace and pulled successful imports from various exporting regions. So those combinations, on pinch successful nan Tier 1 countries of request deferral aliases a slowdown aliases a purchasing holiday, we for illustration to say, has pushed prices lower. And past you're right, nan car goes from various countries that waste connected scale person overwhelmed NOLA. All that being adjacent though, we still spot a affirmative marketplace going into Q2 and a important magnitude of request to beryllium satisfied, and we're correct successful position pinch $2.50 state successful Oklahoma and a freight differential that's affirmative to us. And truthful we're eager. We've sewage a bully bid book connected and waiting for Q2 to arrive.

Stephen Byrne

And possibly conscionable 1 much for you, Bert, and you conscionable said you person a bully bid book on. Would you opportunity that you've you sold much into nan 2nd 4th than normal aliases possibly little than normal if you're expecting a betterment successful pricing?

Bert Frost

Well, we're pleased pinch our bid book and ever look to negociate those expectations and soul requirements. And we're marketplace sensitive. We're wide unfastened for Q2.

Tony Will

Yes, Steve, I deliberation it's adjacent to say, Bert benignant of manages america really well. We're comfortable successful position of nan orders that we person to get america to nan spot wherever we're expecting request to commencement emerging successful a very important measurement successful nan quarter. But we're keeping our powder barren pinch respect to being capable to participate successful that high-demand information of nan first half here.

Stephen Byrne

Understood. Thank you.

Operator

Our adjacent mobility comes from P.J. Juvekar from Citigroup. P.J., please spell ahead.

P.J. Juvekar

Yes. Good morning. I person a mobility connected your JERA agreement, wherever you're supplying 0.5 cardinal tones of cleanable ammonia. Where does each this ammonia travel from? From which projects that you person going on, wherever would it travel from, aliases do you request to build more?

And would JERA uptake that successful Louisiana and return it from there? And really do you price, really do you statement pricing? Is it a semipermanent marketplace bid price, aliases what are your existent first thoughts connected this?

Tony Will

Yes. Good morning, P.J. So nan first sizable amount of low-carbon ammonia is going to beryllium disposable astatine Donaldsonville, arsenic a consequence of nan CO2 dehydration compression task that Chris talked astir earlier successful nan statement pinch ExxonMobil for proscription and imperishable sequestration of that CO2. So we're going to beryllium capable to sequester astir 2 cardinal metric tonnes of CO2 a year, opening successful 2025, which is astir nan clip framework that GERA is going to statesman taking immoderate of these volumes. And truthful it syncs up very good pinch our expertise to nutrient it pinch erstwhile request is opening to emerge.

We person a model aliases an MOU astir nan agreement, immoderate of nan specifics of whether there's an equity finance successful nan task from JERA, whether aliases not it is strictly an off-take agreement. All of those things are presently being discussed and we're -- we've sewage a very bully narration and a bully speech going but much specifications to travel arsenic we benignant of further patient things up.

But suffice it to opportunity pinch nan readiness of nan 45Q taxation in installments and nan nickname globally of nan worth and comparative scarcity of low-carbon ammonia, we're really excited astir this improvement of existent tangible request showing up. And nan liking connected nan portion of consumers of this merchandise to beryllium progressive successful nan equity broadside of nan accumulation of it arsenic well. So to us, that's very different than group building spec plants you've sewage benignant of nan guidelines consumers that really want to vertically merge into nan accumulation side, and that's an breathtaking development.

P.J. Juvekar

Yes. My follow-up is for Bert. Bert really overmuch urea does US request to import betwixt now and planting season. And really overmuch of that is already contracted astatine these little prices and is connected h2o to get here. Can you conscionable springiness america an update connected benignant of what happens betwixt now and planting season?

Bert Frost

Yes, connected average, connected a humanities reappraisal of erstwhile experiences, it's let's conscionable opportunity it's 5 cardinal tonnes, 1.5 cardinal has travel in, astir apt person 3.5 cardinal tonnes to bring in. February and March, we're search nan cargoes are astir apt betwixt 700 to 1 cardinal tonnes for each month.

And past it gets a small dicey for that importer because if you're putting a alloy connected nan h2o successful April, getting present successful precocious April, early May and has to move from a coastal import larboard into nan interior, it's not that easy. So I deliberation much to travel connected that issue.

I deliberation nan different rumor is demand. When you look astatine what nan further maize acres we targeted successful our remarks of 92 to 93 and nan further wheat acres of astir apt 5 cardinal acres, you've got, I'd say, 300, 000 to 400,000 tons of further request connected apical of nan pasture acres that will beryllium fertilized. So bully request floor plan going forward. I deliberation nan imports mostly thin to beryllium balanced. And we're good positioned pinch our 3 urea plants connected nan seashore and past nan interior to service that need.

P.J. Juvekar

Great. Thank you.

Operator

We person a mobility now from Christopher Parkinson from Mizuho. Christopher. Please spell ahead.

Christopher Parkinson

Great. Thank you truthful much. Your free rate travel conversion was beautiful bully adjusting for nan taxation payment. I'm conscionable funny to inquire connected erstwhile I look astatine free rate travel successful nan outer years, whether it's 2023, 2024, 2025. Tony and Chris, has your thought successful position of nan distribution betwixt stock buybacks and immoderate of nan bluish and greenish projects and obviously, nan support for nan Japanese decarbonization initiatives.

Just successful nan discourse of nan IRA is that distribution of that free rate flow, has your thought process astir that changed versus buybacks conscionable fixed nan opportunities that person continuously emerged? And past obviously, you've been already participating in? Just funny to perceive your updated thoughts. Thank you.

Tony Will

Yes Chris. I would opportunity nan bully news present is that location should beryllium plentifulness for each of nan above. The investments that we're making connected nan decarbonization and successful particular, nan dehydration compression are comparatively humble compared to nan magnitude of free rate travel that we're generating. And truthful our anticipation is that we tin proceed to do each of nan above.

Now, I would say, fixed nan return floor plan of immoderate of those projects, peculiarly successful ray of nan 45-Q taxation in installments that -- our first telephone connected superior is going to beryllium investing successful these benignant of projects that person returns measurement supra nan costs of capital. That's bully for each seasons. But I don't deliberation this is simply a prime that we person to make arsenic an either or.

Chris Bohn

Yes, I think, Chris, also, conscionable really we're looking astatine those projects successful nan cleanable power conception is, arsenic always, very disciplined, but besides wherever we don't person nan exertion aliases nan infrastructure, looking to partner, and that really goes to nan humble superior broadside that Tony mentioned there.

I deliberation arsenic you look astatine those projects, arsenic you mentioned, there's not immense calls connected superior astatine this peculiar time, truthful that leaves a batch of excess free rate travel for america to administer to shareholders. I deliberation nan 1 point we will look astatine otherwise this twelvemonth is benignant of that ratable versus opportunistic method successful which we went astir stock repurchases past year.

And I tin conscionable constituent to Q4 wherever pinch nary alteration successful nan semipermanent fundamentals of our manufacture aliases CF successful general, if thing getting amended we saw our stock value wherever we repurchased that $100 during that timeframe that today, we're trading successful nan mid-80s.

So, nan measurement we're looking astatine it possibly is if nan marketplace is going to connection that ample of a discount, we whitethorn do immoderate altering to that ratable versus opportunistic type of stock repurchase.

And arsenic Tony mentioned successful his remarks, I deliberation we person a history of returning rate to shareholders pinch nan 60% of free rate flow, we returned past year.

Tony Will

I besides deliberation -- and I conscionable want to item 1 of nan things Chris said is while we're looking astatine a big of different cleanable power initiatives and low-carbon ammonia opportunities, we are partnering pinch group to bring those things to reality. And truthful nan illustration being if we built a caller ammonia facility, our BluePoint analyzable successful Louisiana, we're doing that pinch Mitsui, who is successful for almost $0.50 connected nan dollar.

So it really does -- and arsenic you deliberation astir rate going retired nan door, that's dispersed complete four, possibly 4 and a half years, it really is comparatively humble successful nan expansive strategy of things, and that's why we consciousness we tin do each of nan supra here.

Christopher Parkinson

And conscionable arsenic a speedy follow-up. Just fixed nan truth that European accumulation still is favoring imported ammonia and you've besides seen little accumulation retired of Trinidad. And you've moreover seen immoderate accommodation successful Europe beryllium reluctant to restart holistically conscionable because of nan existent pricing environment, which I thought was a spot odd. But just, are you astatine each surprised, and I apologize for nan short-term question, are you astatine each amazed that nan marketplace connected nan downstream broadside hasn't yet been a small spot tighter moreover if it's still comparatively earlier successful nan year. If you could conscionable opportunity nan further successful that framework, it would beryllium very helpful? Thank you.

Tony Will

Yeah. So I would opportunity by humanities standards, we're very happy pinch wherever nan ammonia pricing is. Arguably, it's a bully worth retired location successful nan marketplace today. I would opportunity immoderate of this goes backmost to nan constituent that Bert mentioned earlier, which is simply a small spot of simplification of economical activity. We've besides seen a reduced request connected ammonia going into business applications. So that surely had somewhat of an effect connected it. But look, by immoderate modular different than a play of clip past year, nan ammonia marketplace that we're looking astatine correct now is perfectly phenomenal.

Bert Frost

And I would opportunity nan aforesaid for nan upgraded products. The marketplace mono humanities modular is tight and immoderate of nan dynamics that we talked astir earlier pinch these purchasing delays has pushed merchandise successful nan unfastened marketplace pinch an India, tender hold arsenic well.

So each this incentivizes conscionable arsenic higher prices were astir apt limiting immoderate demand. These charismatic prices are going to incentivize demand, incentivize seed populations, arsenic good arsenic applications and exertion rates, not only successful nan United States but successful different countries arsenic well. So I opportunity we're reasonably prosaic astir nan marketplace coming and nan marketplace going forward.

Christopher Parkinson

Thank you truthful much.

Operator

We now person a mobility from Joel Jackson from BMO Capital Markets. Joel, please spell ahead.

Joel Jackson

Hi, bully morning. Maybe pursuing a spot connected consequence here. It seems for illustration ammonia has been trading pinch nan marginal costs curve, marginal costs for months and months and urea is not, successful fact, there's a antagonistic margins, right, to upgrade from ammonia. Can you talk astir that? And is that really sustainable? And Bert, Tony, person you seen this earlier because I don't deliberation I've seen this earlier successful a agelong time. It's lasted for this galore months?

Bert Frost

I deliberation pinch wherever nan marketplace is coming connected ammonia, because ammonia is utilized successful nan first accumulation of immoderate of these products, and immoderate of nan plants that person been down tin for illustration ours and Billingham successful nan UK tin import ammonia and tally nan upgraded products operates differentially, and wherever we are successful urea, for example, you do person further urea that has travel connected stream, and you've sewage immoderate delays successful nan acquisition of nan Egyptians, nan Algerian, nan Nigerians person been moving merchandise into Europe astatine conscionable nether that marginal costs of production. However, for ammonia, why is trading a small spot differently, immoderate of that ammonia and you request nan accumulation to make nan DEF, to make nan products that require CO2 successful Europe. So it's a small spot of 2 different process.

Chris Bohn

I mean, I deliberation nan ammonia S&D is tighter than nan urea, 1 for nan points that Bert conscionable mentioned, 1 is nan further urea plants, upgrade plants that person travel connected this past year. And past additionally, conscionable nan reluctance correct now, purchasing anterior to nan exertion season. But I deliberation nan anticipation is you commencement to spot that tighten up arsenic well.

Joel Jackson

Okay. I person a question, a small different connected – nan announcement you made past week aliases I deliberation this week connected nan BP state arrangement. And this is simply a small spot retired of my comfortableness area, but I'm going to try. Can you – pinch that statement pinch BP. So are you – it's a two-part question. Are you paying a premium for this gas? And past really precisely is BP going to proviso 90% little c strength gas? Is BP investing successful financial offsets? That's netting against nan existent c intensity, nan beingness state proviso – going on?

Tony Will

Yeah. So Chris, I'm happy to springiness you a small spot of inheritance connected this, and past I'll induce others to jump successful present arsenic we go. But basically, aliases Joel – yeah, sorry. Basically, location are typically progressive erstwhile you're doing E&P immoderate fugitive methane emissions that you get slipped successful position of some astir nan wellhead, arsenic good arsenic successful nan proscription and pipeline system.

And BP has developed and has implemented and invested successful immoderate technologies and approaches to dramatically trim nan magnitude of methane emanation gaffe astatine those sources. And Nathan, arsenic you know, is simply a very potent greenhouse gas. And truthful by them investing to trim nan magnitude of fugitive emissions that has a beautiful melodramatic effect connected our Scope 3 emissions. Because they're investing successful reducing their emissions profile, location is simply a premium connected nan gas, but it is really small. It's de minimis. And truthful this is simply a measurement that we tin spell aft different portion of our emissions profile, do it successful a very cost-effective measurement and do it successful a measurement that's bully for nan environment. And truthful we're excited astir this business and continuing to move guardant pinch it.

Bert Frost

Yeah. And I deliberation nan only point I would adhd successful this peculiar case, these are verified credits arsenic well, and it's thing that is simply a morganatic successful reducing our Scope 3.

Operator

Okay. We are going to proceed pinch a mobility from Adam Samuelson from Goldman Sachs. Adam, please spell ahead.

Adam Samuelson

Yes. Thank you, bully morning, everyone.

Tony Will

Good morning.

Adam Samuelson

Morning. So possibly different mobility connected immoderate of nan cleanable power type investments that you've been pursuing? And to date, I mean, these are mostly confined to nan US Gulf, nan Donaldsonville works and benignant of nan imaginable caller works pinch – pinch Mitsui. Can you talk astir possibly things you're evaluating aliases considering astatine nan remainder of your North American works web related to c capture, conscionable 45Q astatine Verdigris aliases Port Neal go viable Medicine Hat obviously, it's successful Canada, but different benignant of opportunities that mightiness beryllium disposable northbound of nan border? And really those would fresh into nan portfolio of cleanable power and ammonia hydrogen benignant of opportunities?

Tony Will

You bet, Adam. So 1 of nan places that we person a important magnitude of CO2 that's presently being vented, and it's partially because what we're chiefly producing location is ammonium nitrate is our Yazoo City facility. So there's a batch of CO2, we extremity up venting and we are successful progressive discussions astir uncovering solutions from a proscription and sequestration options there. That was 1 of nan 2 first ones that we highlighted erstwhile we announced benignant of our activity into Clean Energy and de-carbonization.

And arsenic you pointed out, successful Medicine Hat, nan City of Medicine Hat has been granted nan authorities to nan mediocre abstraction successful that area. And truthful we're successful progressive discussions pinch them astir processing a sequestration option. And that's -- it's a different benignant of use for america connected for illustration nan 45Q present successful nan US. The costs of carbon, arsenic I'm judge you're alert successful Canada, is already precocious and it's going to get a batch higher going forward. So location is really bully economics astir a imaginable finance location wherever we tin besides dramatically trim our aggregate emissions profile. And we are continuing to measure successful different areas arsenic well.

The 1 situation astatine a spot for illustration Port Neal because nan magnitude of urea and UAN that we're producing, we're utilizing astir of nan process CO2 that we produce. And truthful it's reasonably debased nan magnitude that yet gets vented there. And truthful nan imaginable of doing a CCS task is small. Verdigris connected nan different manus does person immoderate reasonable magnitude of CO2. And we are looking astatine it crossed nan web for different opportunities, including going aft immoderate of our N2O emissions from our nitric acerb plants, nan N2O broadside is besides really c intensive from a CO2 balanced standpoint.

Chris Bohn

And past conscionable to build connected what Tony said, those are nan much defined projects that are retired location that really nan hydrogen accumulation taxation in installments and nan enhancement of nan 45Q. So those are already successful motion, but there's others that are related to everything from nan hydrogen hubs, nan c carrier incentives that are portion of nan IRA arsenic well. And those are continuing to germinate and what nan scope is and everything for illustration that.

But we stay very progressive successful evaluating those arsenic well. But again, arsenic we talked astir earlier, a batch of this is really playing to wherever our strengths are partnering wherever we don't person it and participating wherever we person nan highest return connected those worth chains.

Adam Samuelson

Okay. That's helpful. And I conjecture conscionable a abstracted follow-up connected nan Billingham works successful nan UK. I deliberation nan guidance for nan afloat twelvemonth was 9.5 cardinal tons of gross ammonia production. Does that presume you really are capable to restart ammonia accumulation successful nan UK? And if not, benignant of really agelong would you beryllium comfortable not moving ammonia location earlier that starts creating issues astatine nan plant?

Chris Bohn

Yes, Adam, I'll commencement pinch first is arsenic we've said successful nan past, nan magnitude of gross separator really associated pinch nan UK business is beautiful mini connected an wide CF basis. Our volition is that erstwhile state prices get into a scope wherever it's much profitable to nutrient ammonia location and upgrade it than to import it, we'll do that. But correct now, it's conscionable a separator play.

So I conjecture from a standpoint of really we're looking astatine this, we're going to beryllium very nimble and flexible, and we will move nan works backmost connected erstwhile we spot nan separator advantage is amended to do that. Right now importing from Donaldsonville is providing an uplift to that value astatine nan Donaldsonville ammonia could get versus conscionable trading it arsenic merchant ammonia retired successful nan market. So we'll proceed to measure that, but it will ever beryllium separator limited alternatively than accumulation volume.

Adam Samuelson

Okay. That's all. I’ll walk it on. Thank you.

Operator

We will now return a mobility from Edlain Rodriguez from Credit Suisse. Edlain, please spell ahead.

Edlain Rodriguez

Thank you. Good morning, guys. Just a speedy 1 connected buyers psychology. Like, what do you deliberation buyers are still hold and spot buying shape erstwhile they tin intelligibly perceive you saying that they should expect prices to beryllium going up soon, for illustration shouldn't they beryllium wishing to bargain up of those higher prices?

Bert Frost

Well, bully morning, this is Bert. And yes, it's an absorbing dynamic, but it's been world and truthful acold successful. So we person to admit that. We've had galore conversations pinch our world customers arsenic good arsenic our home customers. We -- nan squad was successful Brazil for nan convention down location successful precocious January, and we conscionable returned from nan TFI yesterday. And we're going to person various customer interactions.

There is simply a dispersed betwixt what was purchased before. And truthful connected nan unit level, respective person inventory priced overmuch higher and they request to dollar costs average. And nan feedback we get is they're waiting for nan floor, our feedback is, you mightiness want to reappraisal what you deliberation nan level is because I deliberation we're there. And truthful world dynamics will thrust this going forward.

And again, we -- I conscionable look astatine those dynamics, higher priced earthy state successful Europe will support a information of that accumulation offline and keep, I think, proviso tighter than is recognized and nan dynamics that we person successful spot successful North America and Europe pinch capable ungraded moisture, bully temperatures. We had a drought past year. We're not going to person that this twelvemonth correct now and astir apt little inventory levels constituent to a very patient spring. So we'll spot what happens.

Edlain Rodriguez

Okay. Thank you. That’s each I have.

Operator

We will return a mobility from Jeff Zekauskas from JPMorgan. Jeff, please spell ahead.

Jeff Zekauskas

Thanks very much. Your taxation measure to Canada is astir $500 million. How overmuch do you expect to get backmost astir from nan US authorities and when? And to nan aforesaid taxation problems proceed into 2021 and 2022 taxes?

Chris Bohn

Jeff, this is Chris. Thanks for nan question. this, arsenic we've talked astir earlier, this relates backmost to nan early 2000s, and it's really a taxation conflict betwixt Canada and US, wherever CF is simply a transportation pricing taxation issue, and we made our payments. What I would opportunity is, fixed that it's taken this galore years to get to wherever we are now, it will apt return immoderate clip earlier this is afloat resolved this full matter afloat resolved.

However, successful saying that, we person revenge amended returns for nan payments that we made related to 2006 done 2011, seeking refunds from nan US. Those should travel sooner than nan afloat solution of everything. So location is going to beryllium immoderate frictional costs that will travel retired of this, what that number is. We conscionable don't cognize astatine this peculiar clip because there's immoderate liking quality betwixt what Canada charges successful nan US, overmuch of which we're contesting but we really don't cognize astatine this peculiar time, but we should statesman to spot first payments astir apt successful nan 12 to 18 months with, I would say, afloat solution of this anyplace from 36 to 48 months depending connected erstwhile some jurisdictions get to this item.

Tony Will

And Jeff, nan different point is we did spell up and make estimated payments for nan play of 2012 done 2021 successful bid to extremity nan liking ticking arsenic Chris said, nan Canada charges a overmuch higher liking complaint than nan US. And truthful that's wherever immoderate of nan frictional costs comes from. But our anticipation is that we'll get overmuch of nan money back.

And again, nan 2006 done 2011 money faster, nan remainder of it is going to apt person to spell backmost to different information of arbitration erstwhile you're talking astir 2012 done 2021. But we're evidently going to put each efforts guardant to retrieve arsenic overmuch of this arsenic possible.

Chris Bohn

Yes. One different point, Jeff, to reply nan 2nd portion of your question, is this continuing to build arsenic we spell forward. As you recall, this went to -- this goes backmost to really 2012 erstwhile we started to initiate connected it, moreover though it's early 2000s. So, immoderate of that profit distribution was changed during that timeframe. So, there's really thing that's continuing to build connected a go-forward basis. It's much aliases little done this 2021 clip framework for nan astir part.

Jeff Zekauskas

Great. Okay. And successful nan Donaldson complex, you want to carrier successful shop 2 cardinal tons of process CO2. How overmuch CO2 does nan Donaldson analyzable propulsion off, aliases possibly put different way, really overmuch CO2 was thrown disconnected per ton of ammonia you produce?

Tony Will

Yes. So, successful position of full CO2 procreation per ton of ammonia successful our plants, it's astir 1.8 tons of CO2. Now, of that, astir a 3rd of it is flue state and nan remainder of it is possibly it's much for illustration 40% aliases 50% is flue gas. The remainder of it is processed CO2. So, nan process information of nan CO2 is correct now, we person an excess of astir 4 cardinal tons successful aggregate.

So, we're taking astir half of nan excess process CO2 and signing up to -- pinch Exxon has signed up to sequester that amount. We're going to proceed to measure and ideally, we'll do a 2nd task and sequester much of it.

The situation a small spot is nan separator opportunity connected urea and UAN, tends to beryllium higher than conscionable for ammonia, astatine slightest nan measurement existent merchandise pricing is that whitethorn alteration successful a cleanable power ammonia world.

But connected a existent basis, that's nan case. So what we want to do is to guarantee erstwhile we do person a travel of 1 of our ammonia plants, we're capable to proceed to run nan urea upgrade units astatine afloat capacity.

So, we don't -- we're improbable connected a fixed ground to allocate 100% of nan excess CO2 for sequestration, because we want to make judge that we tin support our upgrades moving moreover if we get a turnaround connected an ammonia works aliases an upgrade.

But 1 action that we haven't spent a batch of clip talking astir up to now that we expect astatine immoderate constituent being capable to avail ourselves of is flue state seizure and betterment and past sequestering that CO2.

So, arsenic we -- and we are progressive successful nan information of flue state betterment correct now. So, -- arsenic that starts looking for illustration a much promising and realistic exertion to beryllium capable to costs efficaciously instrumentality that gives america a batch of elasticity successful position of being capable to motion up different specified sequestration woody connected nan CO2 side.

Jeff Zekauskas

That’s a beautiful bully answer. Thanks very much.

Operator

We person a mobility from Vincent Andrews from Morgan Stanley. Vincent, please spell ahead.

Will Tang

Hi guys. This is Will Tang connected for Vincent. I'm wondering if you could springiness immoderate further colour on, I guess, what's happening pinch respect to Chinese caller exports and why you're expecting them to beryllium level to down connected a year-over-year ground successful 2023? And past arsenic a follow-up to that, you guys gave, I guess, what they would beryllium connected a looser export regularisation level of 3 cardinal to 5 cardinal tons per year, which is simply a small spot little than what nan been exporting betwixt 2019 and 2021 of astir 5 cardinal tons. So I'm wondering, if you could span nan quality there. Is that conscionable higher request from nan region, aliases are location different aspects influencing that estimate?

Tony Will

I would opportunity nan biggest reason, past I'll move it complete to Bert for immoderate much specifics here. But I'd opportunity nan biggest point that affects it is really 1 of nan displacement of argumentation astir trying to trim biology contamination successful nan country. There's -- precocious present since COVID, there's besides been a beardown desire successful bid to thief curve ostentation astir readiness and affordability of nitrogen fertilizers and truthful immoderate beautiful important restrictions connected exports.

But successful position of successful a looser export regularisation environment, nan point that gives america a batch of comfortableness astir them not going backmost to nan aged days is nan existent push astir biology cleanup and conscionable biology quality. Urea is simply a immense particulate matter amid aliases a large user of freshwater, there's not that galore employment jobs that spell on pinch it and you're efficaciously exporting power successful nan shape of urea erstwhile you're turning astir an importing earthy gas, and it's conscionable not a bully waste and acquisition from a argumentation position but from nan cardinal government.

Bert Frost

I deliberation you covered it well. And nan cardinal point for maine was a very bully governmental action to protect. This is reflective connected 2022. The export controls, an ostentation power system and a costs power system for nan Chinese husbandman to person disposable nutrients and it worked, and they did. And truthful erstwhile nan value of nan world marketplace deed $800, nan value successful China was $400. And truthful I deliberation that was a successful program.

And we spot Chinese exports moderating, you're correct past year, they're conscionable beneath 3 cardinal tons and astir apt expect that aforesaid level to up to possibly 5 cardinal tons. But today, nan Chinese value is higher than nan world market. So location is not an inducement to export those tons. And they're going into their outpouring season, conscionable for illustration we are successful nan Northern Hemisphere, and I expect request to beryllium robust.

China has been a very progressive purchaser supporting nan world cultivation building of maize and soybeans and refined products for nan -- for now decades. And we expect that to proceed arsenic they rebuild their stocks, arsenic good arsenic their macromolecule stocks, arsenic good arsenic their provender atom stocks. So we don't spot a large alteration coming retired of China connected nan export beforehand for urea successful 2023.

Will Tang

Got it. Thank you.

Operator

We person a mobility from Andrew Wong from RBC Capital Markets. Andrew, please spell ahead.

Andrew Wong

Hi. Thanks for taking my question. So reasoning a small spot longer word present connected nan market. We haven't seen a batch of announcements for benignant of accepted grey ammonia builds, aliases urea aliases UAN aliases thing for illustration that? Like, why do you deliberation that is? And pinch immoderate of these caller low-carbon projects that person been coming up, astir of it is conscionable ammonia. Do you spot immoderate of this ammonia entering nan accepted marketplace and competing pinch awesome tons, aliases do you deliberation they're going to beryllium mostly reserved for cleanable ammonia users?

Tony Will

I mean, I deliberation that's 1 of those situations, wherever you ne'er afloat 100% successful balanced wherever request develops astatine precisely nan aforesaid complaint arsenic caller accumulation does. I deliberation what we'll astir apt spot is arsenic request develops, if there's not capable production, first implementation utilizing accepted aliases grey ammonia pinch a desire to displacement towards bluish arsenic it becomes available. And arsenic you person a task aliases 2 for illustration this that comes up, if for a while, you get a small spot of excess readiness of that product, it's chemically identical, truthful it tin surely spell into immoderate of nan uses.

My consciousness is connected nan margin, location will beryllium desire connected a broader business exertion ground to commencement making usage of low-carbon ammonia arsenic it becomes available. And again, I deliberation nan point that's very different astir immoderate of nan announcements going connected coming arsenic compared to what happened successful 2012 was location was a batch of spec plants that were being announced by group that were not manufacture participants astatine nan time, conscionable because they thought, hey, this is simply a awesome point that we want to spell do.

Most of nan announcements that you're seeing coming are from group that are well-capitalized already successful nan business, understand it. And you besides spot a number of group that are yet going to beryllium extremity users of nan merchandise aliases different participants successful nan transmission that want to beryllium progressive arsenic well. And truthful it's sewage a very different consciousness to it. And again, arsenic we look forward, nan JERA MOU is really conscionable nan first portion of tangible request that is emerging, and we expect a batch much to come.

So our consciousness is that for ammonia really to return disconnected arsenic a cleanable power source, we're going to request nan accumulation capability, that are represented successful immoderate of these announcements. And nan number that are announced versus nan number that get billed is yet a – it's little than 1 for one. So we'll spot really each that develops. But we're – we're very pleased pinch benignant of wherever we beryllium successful position of nan leadership, not only connected world ammonia production, but besides nan actions – nan early actions we've taken to de-carbonize our web and nutrient low-carbon ammonia.

Andrew Wong

That's helpful. And conscionable for illustration connected nan accepted grey ammonia plants, conscionable successful general, we haven't seen a batch of announcements, for illustration why do you deliberation that is? And does that perchance continue? Is location possibly immoderate benignant of hesitancy to put successful c generating businesses, aliases possibly is location thing else?

Chris Bohn

I deliberation a batch of nan announcements, Jeff, that you're proceeding are really bluish ammonia projects, which are efficaciously grey ammonia accumulation that conscionable has sequestration areas astir it. So I deliberation it's why you're seeing nan activity successful nan Gulf Coast pinch nan expertise to sequester it. So, obviously, nan modulation to bluish ammonia fixed nan inducement structures that person been put retired there, let you to make that incremental capital. So that's why I deliberation you're seeing it is because bluish ammonia projects pinch nan enhanced 45Q go very adjacent to what a accepted accumulation would be.

Tony Will

And really astir apt pinch amended economics of accepted production.

Andrew Wong

Okay. Thanks.

Operator

Our adjacent mobility comes from Josh Spector from UBC -- I'm sorry, UBS. Josh, please spell ahead.

Josh Spector

Yes. Hi. Thank you. Just connected earthy state quickly. I mean, I cognize you guys usually don't do overmuch hedging further out, but fixed wherever prices are, I mean, do you return a different position complete nan adjacent six to 12 months. It's difficult to spot that you'll beryllium very incorrect connected nan debased extremity of that. So, conscionable funny connected your thoughts.

Bert Frost

Yes. This is Bert. When you're looking astatine earthy gas, you're correct. We don't hedge that acold forward. We do hedge successful nan wintertime months, arsenic you saw successful our Q4 numbers, and that's conscionable arsenic a reflection of immoderate of nan things we've seen pinch freeze-offs and risk. But erstwhile you look astatine nan forward, we're 2.50 from now done nan summertime months and past $3 until you deed wintertime again and past successful nan debased $3s there.

So it's thing to look at, thing to talk about. We do person a state committee that Chris and I and Ashraf and a fewer of nan others who squad beryllium connected and ruminate complete these things, and we'll person to return a look astatine that.

Josh Spector

Okay. And conscionable speedy connected CapEx. I mean this twelvemonth makes sense. I guess, I mean assuming you guys spell guardant pinch FID connected nan facility, assuming your stock of that's astir $1 cardinal spent complete 4 years. I mean, should we beryllium reasoning astir if that plays out, your CapEx is successful nan range, $700 million, $800 cardinal nan adjacent 4 years, barring you don't do immoderate further further projects?

Tony Will

Yes. Josh, it's not really ratable that measurement moreover though we tin talk astir allocating it that way, typically, there's a small spot of money spent upfront for nan engineering activity and besides for nan first down payments connected procurement of agelong lead clip vessels and different equipment. But nan vast, immense mostly of nan expenditure happened successful nan past 2 years to nan past 18 months, which is erstwhile you're doing each of nan awesome building activity. So it's really back-end loaded.

Josh Spector

Okay. Thank you.

Operator

Our adjacent mobility comes from Richard Garchitorena. Please, Richard spell ahead.

Richard Garchitorena

Great. Thanks having maine in. Just 1 high-level question. You've made a batch of announcements connected nan cleanable power initiatives successful nan past year. And considering you person beardown free rate flow, it doesn't look for illustration that's a constraint. When do you deliberation your sheet will beryllium afloat successful position of for illustration really galore projects do you deliberation you could person going connected astatine nan aforesaid clip betwixt now and 2027 aliases truthful wherever you consciousness comfortable you tin negociate that? And past I guess, conscionable besides successful position of what your priorities would beryllium successful position of managing those? Thanks.

Tony Will

Yes. So I deliberation a batch of it has to do pinch nan capacity of nan engineering execution wrong nan existing facilities. The Blue Point analyzable successful Louisiana is simply a spot of a different 1 because that evidently it's a greenfield benignant of project, and we are staffing up that statement for assumed spell forward, but nan determination astir spell guardant has not been made yet, fixed that we don't person nan costs estimate connected what that would be. So I consciousness for illustration we tin execute a batch of these things simultaneously. We've sewage a batch of capacity astir nan network. And nan projects that we're talking astir different than nan Blue Point Complex are not truthful ample and truthful progressive that it would overwhelm our engineering resources and a batch of this worldly would get phased in.

So connected nan CCS stuff, we're making bully advancement successful a number of nan accommodation concurrently. I do deliberation arsenic we talk astir N20 abatement and/or flue state recovery, that would beryllium phased successful complete a small spot longer clip sky and making judge that we don't benignant of overwhelm resources, but we besides align those initiatives pinch turnaround planned, turnaround activities and truthful forth. So those would besides get phased up.

Chris Bohn

Yes. And nan only point I would adhd is nan projects that we're doing really play into nan halfway competencies. And that's why this strategy makes truthful overmuch consciousness for our organization. It's not arsenic if we person to spell retired and build a full bunch of caller infrastructure. A batch of that exists and we're making add-ons to that. So I deliberation that besides alleviates nan size of these projects and past additionally, partnering successful areas that we don't person those halfway competence -- let america to possibly return connected a fewer much projects than we would if we were doing them each by ourselves.

Richard Garchitorena

Great. Thank you.

Operator

Ladies and gentlemen, this is each nan clip we person for questions for today. I would for illustration to move nan telephone backmost to Martin Jarosick for closing remarks.

Martin Jarosick

Thanks, everyone, for joining us, and we look guardant to seeing you astatine conferences complete nan adjacent month.

Operator

The convention has now concluded. Thank you for attending today's presentation. You whitethorn now disconnect.