CF Industries Holdings, Inc.

Good day, ladies and gentlemen, and welcome to CF Industries' first nine months and third quarter, 2024. All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. We will facilitate a question and answer session towards the end of this presentation. If you pose a question at any time, please press star then 1 on your touchtone phone. I would now like to turn the presentation over to your host for today, Mr. Martin Jarosik with CF Investor Relations. Sir, please proceed.

Good morning, and thanks for joining the CF Industries Earnings Conference Call. With me today are Tony Will, President and CEO, Chris Bone, 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 nine months and third quarter of 2024 yesterday afternoon. On this call, we'll review the results, discuss our outlook, and then host a question and answer session. Statements made on this call and in the presentation on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statements. More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available on our website. Also, you'll find the 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. We are an organization that prides itself on unparalleled operational excellence. Our asset utilization and our safety statistics are truly world class. And so it is with great sadness that I have to report in early October we lost a member of our team at Donaldsonville, Louisiana due to a fatal vehicular accident. Our thoughts are with and our hearts go out to his family, friends, and colleagues. This is a tragic reminder about why we put safety first and the importance of not being satisfied, nor becoming complacent with historical performance, but our need to remain focused on the present in everything that we do. I am confident our team will learn from this tragedy as we work together to ensure all our colleagues remain safe every day. Turning to earnings, yesterday afternoon we posted results for the third quarter of 2024 in which we generated adjusted EBITDA of $511 million. This brought adjusted EBITDA for the first nine months of the year to $1.7 billion. Additionally, our EBITDA to cash flow conversion efficiency remained strong, and we ended the quarter with more cash on the balance sheet than we began with, even after returning $580 million to shareholders through share repurchases and dividends. We are very pleased with where our business is today. Our team is operating well, global nitrogen demand remains consistently strong, and we continue to make progress in our strategic initiatives. With that, I'll turn it over to Chris to provide more details on our operating results. Chris?

Thanks, Tony. Our manufacturing and distribution teams managed operations well through an event-filled third quarter as we performed our highest level of planned turnaround activities for the year. We also experienced minor production impacts in Louisiana from Hurricane Francine in September. Our Donaldsonville and Wegman teams did an outstanding job safely shutting down and starting up those facilities, limiting the downtime from the storm. Despite these events, our ammonia utilization rate for the third quarter was 93%. For the full year, we continue to expect to produce approximately 9.8 million tons of gross ammonia. Our strategic initiatives continue to advance. Construction of the dehydration and compression unit for our Donaldsonville carbon capture and sequestration project is on track. Startup for sequestration by ExxonMobil and 45Q tax credit generation is expected in 2025. Additionally, commissioning of our green ammonia project at Donaldsonville continues. Finally, Our evaluation of a greenfield low-carbon ammonia plant is advancing well, with a final investment decision expected in early 2025. We are nearing completion of our auto thermal reforming ammonia plant feed study, giving us greater clarity on the capital required to construct new capacity. Alongside this, we continue to have productive discussions with our potential equity partners, other interested parties that continue to emerge, and prospective long-term offtake partners. We continue to assess where the global nitrogen supply demand balance will be when a new plant would come online. As we look at it today, we expect a tightening global market over the next few years as projected new capacity growth does not keep pace with demand growth for traditional applications, much less for new clean energy applications. With that, Let me turn it over to Bert to discuss the global nitrogen market.

Thanks, Chris. Our team had an active quarter that has positioned us well for the rest of 2024. Our UAN and ammonia fill programs were well received by customers and achieved our targets. We then continued to take new orders as global prices rose, pushing the order book well into fourth quarter. This has resulted in much lower than normal inventory in our system, and we believe inventory is low throughout the North American nitrogen channel as well. Strong uptake in our fill program suggests good demand for nitrogen in the months ahead, including for fall ammonia applications if weather cooperates. Despite US crop prices that are under pressure from projected large harvests, today's nitrogen prices continue to represent good value for farmers. As a result, We currently expect North American planted acres in 2025 across all major crops will be similar to this year. Globally, the nitrogen supply demand balance continues to be constructive. Urea exports from China are 90% lower through September than the prior year, and it is unclear when Chinese producers will be allowed to resume exports. Additionally, lack of natural gas for nitrogen producers in Trinidad and Egypt reduced available supply in the third quarter, at a time when we typically see length in the global market. At the same time, demand has been robust. Brazil and India both appear to have significant urea import requirements to be met through the first quarter of 2025. We also have seen strong demand from smaller importing countries. These include Australia, Thailand, Mexico, and Turkey, among others, that have increased consumption over their three-year averages. Against this backdrop, our manufacturing network remains firmly positioned in the low end of the global cost curve. Forward energy curves continue to suggest substantial energy spreads between North America and Europe, where the industry's marginal high-cost production is located. As a result, we expect attractive margin opportunities globally for our business in the near and longer term. With that, Greg will cover our financial performance.

Thanks, Bert. For the first nine months of 2024, the company reported net earnings attributable to common stockholders of approximately $890 million, or $4.86 per diluted share. EBITDA and adjusted EBITDA were both over $1.7 billion. For the third quarter of 2024, the company reported net earnings attributable to common stockholders of approximately $276 million, or $1.55 per diluted share. EBITDA and adjusted EBITDA were approximately $510 million. As you can see on slide five, our third quarter results benefited from higher average selling prices, which were driven by our ammonia segment, and lower realized gas costs when compared to the third quarter of 2023. Over the past 12 months, Our net cash from operations was $2.3 billion, and free cash flow was approximately $1.5 billion. Our free cash flow to adjusted EBITDA conversion rate remained strong at approximately 65%. This cash flow enables us to return substantial capital to our shareholders through share repurchases and dividends. Since the start of 2024, we have repurchased nearly 15 million shares for more than $1.1 billion, reducing our share count by 7.5% over that time. We have just under $1.5 billion remaining on our current share repurchase authorization, which we intend to complete before its expiration in December of 2025. Based on our current market capitalization, This gives us the capacity to repurchase about 10% of our outstanding shares through the end of next year. With that, Tony will provide some closing remarks before we open the call to Q&A.

Thanks, Greg. Before we move on to your questions, I want to thank the entire team here at CF for their hard work and contributions in the third quarter. In what is typically our seasonally lowest volume and price quarter, their efforts enabled us to generate enough cash to cover capital expenditures return nearly $600 million to shareholders through shared purchases and dividends, and end the quarter with more cash than we began. We remain positive about the near and longer-term outlook for the company. Global nitrogen dynamics remain consistently strong. Longer-term disciplined investments in low-carbon ammonia production provide a robust growth platform for the company. Taken together, we expect to continue to drive strong cash generation and create substantial value for shareholders.

With that operator, we will now open the call to questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. The first question comes from Chris Parkinson with Credit Suisse. Please go ahead.

That one's interesting. So, Tony, guys, you know, when I take a step back and look at the supply-demand dynamics, you know, you've lowered supply out of China, you know, Europe, some gas issues in Trinidad, Egypt, et cetera, et cetera. Demand's pretty solid. You know, Tony, when you take a step back and look at the current dynamics in the 2025 and your perspective cash flow, versus obviously some uncertainty regarding US LNG, Qatar LNG towards the end of the decade. How do you calibrate your own thought process in terms of allocating that capital in terms of the cash you're prospectively generating over the next, let's say, six to 12 months to basically build out your network for the rest of the decade? Just any thoughts that would be very helpful.

Yeah, Chris, I would say we have a bias towards deploying capital back into the business for growth if we find projects that we think can earn a rate of return that's above our cost of capital. And so our bias is definitely toward growth as a first step, and then certainly returning excess cash to shareholders. As Greg said during his remarks, We have just under $1.5 billion left under our share repurchase authorization, and we expect to be able to complete that by the end of next year. And that should drive an incremental approximately 10% accretion in terms of our shares. And so we're excited about both the growth aspect as well as our ability to to take shares out of the marketplace. And both of those things we think will drive value for shareholders.

Got it. And just a quick follow-up, you know, once again, just taking a step back, you know, the first quarter obviously had some winter storms. The third quarter, you know, obviously hurricanes are unavoidable at times in the USGC. You know, when I look into 2025 and, you know, 2026, Do you think turnaround activity will be the same level, slightly lower, in terms of how much more could you have maximized profitability based on the current nitrogen price tech without all those outages and how we should think about that framework heading into next year?

Certainly, our hope is that we don't repeat the winter storm freeze-off that we had in the first quarter or the hurricane outages that we had in the third quarter. But the operations team tries to manage our turnaround activity to be relatively consistent year on year on year. So we're not, you know, throwing the system way up and way down, but we're trying to level load it. Now, that's not always possible because of the timing of when things come. And we do have a couple of larger plants that when they go through turnaround have a a noticeably bigger impact. But I would say we pretty much year in and year out going forward should be producing in the neighborhood of about 10 million tons of ammonia, and then we'll upgrade as much of that as our upgrade system can manage. And then the other piece of it to think about as we get into next year is we'll begin generating on an annualized basis, an incremental roughly $100 million of cash through the 45Q tax credit as we start sequestering CO2. So that's on top of the base business. And again, we're pretty excited about what that looks like.

Thank you so much. Thank you.

The next question comes from Steve Byrne with Bank of America. Please go ahead.

Yes, thank you. Your press release provides this gross margin per nutrient ton for product. It's always very interesting. And the one that just jumps out is your DEF. And I was just curious whether, you know, what your view is on the outlook for DEF and maybe more specifically this problem that occurs with crystallization and so forth. Is that Is that poor quality DEF? Is that all DEF? Does that affect you? And is there a resolution to that down the road?

Good morning, Steve. This is Bert. And regarding your question on DEF and the opportunity for CF, we've continued to invest in that business since we acquired Terra in 2010. And it has been an exciting path and growth vehicle for us. where we're projecting to be close to 800,000 tons of urea equivalent product that trades at a substantial margin increase over granular urea. What we've done is when we looked at our platform, we have capacity in several of our plants, Courtright, Yazoo City, Woodward, and the substantial capacity in Donaldsonville, and which we're augmenting and has added to the system with rail cars. The exciting part about DEF is the dosage rate because when we first acquired this business, it was at a fairly low percentage in what it was cutting out in terms of pollution, where today the projections on dosing rate increases to five and even higher than that percent just looks at the doubling where we're projecting that the DEF demand just in North America could be in excess of 3 million equivalent tons per and that's from zero in 2010. So for us, this is a good platform. It works very well into our system, and we're going to continue to grow with it. Regarding the crystallization, I'll have Chris answer that. Yes, Steve.

Related to that, there's very high specs required for DEF and the product, and we haven't experienced any of that. I think the one thing that we've seen is we've always been very diligent about our testing requirements for that. So The issue you bring up we're not all that familiar with because it hasn't affected any of our products.

Very good. And I'd like to ask a little bit about the Donaldsonville project that you're working with Exxon and with. Do you have any visibility on when they could get a Class 6 injection well? Is that just an unknown and does that prevent you from essentially lining up customers for this? And or do your customers, you know, need to invest on their own sites, either for storage or to use it as a fuel? I'm just curious if something, if this moves forward sometime in 2025, are you going to be in a position where you could start, you know, loading a marine ship? In other words, thanks.

Yeah, so we are confident that in 2025 we'll be, one, sequestering CO2 and, two, receiving the 45Q tax benefit. One of the reasons we chose Exxon as our partner is really just the vast flexibility and alternatives they have. If you recall, their acquisition of the former Denbury pipeline, which is almost 1,000 miles of CO2 pipeline, gives them quite a bit of access to more than a point-to-point storage well. So they could have wells that they have in the queue right now from Louisiana all the way to Texas and all along that route. So our confidence level still remains very high. As I said, we're doing a lot of work on our side of the fence, and Exxon's actually doing a lot of work in piping on their side of the fence to connect. So our confidence level remains high there. As far as being prepared to load vessels and ship out, whether it be to Europe or Asia, we expect that to be occurring next year based on what BERT's team decides is the best use for that particular low-carbon product.

And I would add to that, Steve, that on the system side, we've spent a lot of time and effort putting in place all of the necessary requirements system and controls and accounting procedures to be able to not only get the 45Q credit but be able to accurately score and certify a carbon intensity on our production and so that'll be kind of among the first tons out there with an actual carbon score associated with it.

Thank you. Thank you.

We have Josh Spector from UBS with the next question. Please proceed.

Yeah, hi, good morning. I was wondering if you could talk a little bit about current nitrogen dynamics. There were some comments the other day about warmer weather being an issue for ammonia applications in the U.S. later in the quarter, and some comments that activity today is slow. I don't know if you had any different characterization of the market today And when you talk about tighter inventory in North America, is that something we should expect to materialize in higher prices in the spring? Or do you have any different view about how that impacts the markets? Thanks.

Good morning, Josh. So regarding the current dynamics, they're, I would say, constructive in that when you go around the world, where we are on supply is, as I mentioned earlier, the absence of Chinese tons available to the market is is a three to five million ton pull, which could be up to 10% of global seaborne traded product. And then you go through different places that have experienced gas issues or high cost gas issues like in Europe where we've seen Yara and others take production offline. You have, I would say, an appropriate or limited supply basis right now. And then when you look at demand with India stepping in for another tender, and asking for a million tons to be shipped by middle December, and then continued demand in South America and Brazil and Argentina, then you'll roll into Q1 for the Northern Hemisphere, and we believe that the US and Europe are behind. And so where we are as a company, I mentioned in my prepared remarks that our inventory is limited. It is. When you look at what has been imported and what has been exported for a net balance, And then what we think others lost in production, we think the nitrogen supply and inventories, whether that be with retailers or with producers, is limited. And so that sets up a positive environment as we head into application season for the spring. Now, regarding your question about fall application, that is due to start about now. Fall applications of ammonia are ambient temperature and soil temperature around 50 degrees. We're hitting close to that in the northern tier. We've had a very good season in Canada, and as the weather moves south and gets cooler, we'll see those applications pick up. The commentary about limiting applications possibly has been soil moisture, not necessarily temperature. And so what you need for a healthy ammonia season is appropriate soil moisture for the ammonia to bind in the soil, and that is what we're looking for as these rain patterns sweep across the northern tier in Iowa. then you'll see applications take off. Over the last several years, applications have gone well into December, and if that's the case, our order book, which we believe is in a very good position, and we've positioned product in our terminals, they're ready to go, then we'll have a good season, probably a better season than last year, and we have those orders already in the system.

Thanks. That's helpful context. I'll pass it on.

Thank you. The next question comes from Joelle Jackson with BMO Capital Markets. Please go ahead.

Just a couple questions. First, a little short term, maybe dovetailing with this last question. Typically, you do more sales in Q4 than in Q3. I think it's been five years in a row of a higher Q4 than a Q3. Any reason not to expect that this year?

In terms of how we take orders and then move those tons through the system as sales, each year is different. And so the fill programs tend to take place either in late Q2 or early Q3. This year was early Q3. We built our order book and then continued to take additional orders on top of that fill program. So today, our order book, as I said in my prepared remarks, is healthy through Q4, and we're going to start taking Q1 orders shortly. based on our price expectations. And so regarding whether it's bigger or smaller, Q4, Q3, we don't look at it that way. We look at what we've got, our production rates, our allocations to tons, and we move the tons out in an orderly fashion.

And then on the green-filled blue ammonia project that you're expecting the feed studies done by the end of the year, any color you can give, maybe higher level, you know, what you need to still, uh, to get this approved with your partners, capital running three or 4 billion. Do you think that's still reasonable? Anything sort of pick up the last couple of months, give us an idea of what we could expect early next term, some of your decision making processes.

Yeah. I mean, I, I think, um, the number in the neighborhood of, uh, $4 billion all in is, um, you know, an approximate number. We're finalizing the feed study and that, and that should, narrow the range a little bit to kind of a plus minus 10% range. But I think, you know, as the numbers are kind of rolling up with a bit more uncertainty ranging, $4 billion is where we think it's going to come in. And at that kind of number, we do think that, you know, that it is a project that makes sense, particularly given what Chris was saying about longer term, the projected growth of nitrogen demand, even in traditional applications, exceeds what the new capacity brought online is. And, you know, that's before you get into some of the capacity shutdowns that we're expecting to continue to happen in Europe and some other places. And, you know, the partners that we're having conversations with I think are similarly comfortable being able to invest in a project in that kind of range and look at a return profile that is, you know, is favorable. So for us to get there, you know, we need to finish up the FEED study. We need to try to get the partnership agreements and all of the, you know, ongoing governance and everything kind of put together, and then it's going to be a decision for the board ultimately to make. but we're targeting kind of middle first quarter of next year to be in a position to make that decision.

Yeah, the only thing I would add to that, Joel, this is Chris, is that as we look at our partnership selection, you had brought that up in part of the question, we actually have a lot of benefits related to that. We have our Japanese equity counterparts that we're in discussions with But as Tony mentioned, you know, recently even more industrials, primarily due to some of the energy, you know, issues going on primarily in Europe, are also stepping in to understand the project dynamics. And in all cases, sort of the capital number or range that Tony's putting out there, they all seem ready to move forward with a project as well on those type of capital parameters.

Tony, if I could just fit one more in on that. I may have totally misunderstood that, but are you suggesting that the economics of the plant around $4 billion might be justifiable even if some of the clean ammonia, math, and benefits weren't there? I may have misunderstood that if that's what you're trying to get at.

Yeah, I mean, I think the way that we're looking at it, Chris, or Joel, I'm sorry, is that with a average sale price in the neighborhood of $4.50 a metric ton, along with the 45Q benefit that we would expect to be able to generate, that should earn a reasonable rate of return on the kind of investment that we're looking at making here. And we believe, I mean, if you look at the market today, it's well above that. Now it is you know, it does move around. And when you see a new plant come on, like Gulf Coast ammonia or whatever, there is going to be some lumpiness and some volatility. But as we project forward, we expect a tightening in the S&D balance, even in traditional applications. And we think the market is going to support that kind of a price. And so even before you get to new applications for clean ammonia, you there's an argument to be made that that plant is justifiable. I think if we are successful in bringing on a couple of the potential partners that we are deeply in discussions with that want to take some of that production into brand-new applications, it even justifies it further. So, again, we're very optimistic about the return profile of what this plant looks like.

Thank you.

Thank you. We have the next question from Richard with Wells Fargo. Please go ahead. All right.

Thanks. Good morning, everyone. First question, on the nitrogen market outlook, you pointed out Chinese urea exports basically now expected less than a million tons this year. What do you think is going on there in terms of how the Chinese government is thinking? Is this something that It may be extended indefinitely, and that supports your comments on a much more tighter outlook going forward. Maybe that's the first question.

When you look at China over the last 20, 25 years, we've seen many different Chinas in terms of being the world's largest importer of urea in the 90s to entering the export market in the early 2000s to overwhelming demand the world market with almost 14 million tons of exportable tons in 2015-16 to slowly ramping that down to 9 to 7 to 5 to 3 to 2 and now eliminated, it's been a surprise and something that's not easy to predict because as many things are happening in China, some of those are opaque or governmental decisions. Today, the expectation is, at least from the investor community, has been the next quarter they're coming, the next quarter they're coming. Well, they haven't. And I think part of that's a reflection of what's going on in China. You're seeing growth in demand. Today, it looks like demand for industrial and ag applications are close to 60 million tons. That's 6-0. That's a gigantic consumer of urea. And most of that is produced using coal or imported, domestic coal or imported coal. So I think for the Chinese government, they want to keep that product available for their consumers, their farmers, to make the food that they want to make and make that at a reasonable cost. To me, that's a rational decision-making process when you're exporting for almost zero value, or at least to China, and subsidizing the world with cheap urea. And so another parallel path on this has been the, exported tons of ammonium sulfate out of China that have grown substantially from several million tons to, I think, close to 16, 17 million tons, a lot of that going to Brazil and secondary markets, that's a lot of nitrogen that's still going out of China. And so I think it's, well, the market is seeming to project that they'll be able to export tons in 2025. That remains to be seen, and we'll cross that bridge when we come to it.

Great, thanks. And then as a follow-up, just on the clean energy projects, I was just curious, as you work through the feed studies and you look at the environment right now, what's your view in terms of the announced proposed capacity that's supposed to be coming out from various different companies and startups? The proposed capacity is supposed to be out there for clean ammonia. What do you think is the likelihood that Maybe half that comes online, maybe a quarter. Sorry, any high-level views on that? Thank you.

Yeah. I think as we look at those announcements, you have to look at them and assess probabilities related to them. So it was two years ago, we ran all the projects that had been announced globally that were low-carbon, and there was over 107 projects, of which we thought maybe less than 10 would actually be built. I would say out of that list, I would say it's probably even fewer than that going forward. So those projects, the nice thing about our industry is you have pretty good visibility into new projects starting given the engineering firms that work on them. And then also the timeline to build one is four to four and a half years. So that also provides you an understanding of what happens with the S&D balances that develops. And really what we're seeing between now and when we would have a new project come online is there is limited net ammonia production that's coming online. You're seeing here in the U.S., you have the Gulf Coast ammonia that Bert mentioned, which is not a low carbon, but you have the Woodside OCI plant, which we're expecting early 26. And then outside of that, it's really not until 2028 where Qatar has a project that's announced. Long way to say we don't believe that the true projects that are moving forward is really building that supply side. And that's why Tony talks about, as we see longer term, a tightening in the S&D market just under traditional application, let alone if we add in any type of clean energy demand to that.

Great. Thank you. Thank you.

The next question comes from Ben Thurer with Barclays. Please go ahead.

Good morning, and thanks for taking my question. Congrats on a very strong quarter. Just a quick follow-up as you think about the ammonia segment and the strength that you had in the quarter, which kind of was a little bit of a surprise on the volume side, I think at least versus ours in consensus estimate. So how do you think about just that segment itself, like not the Fervor process, but the ammonia piece and the demand for that as you go into the fourth quarter? And maybe a little bit related to Joel's question, just like the revenue piece that then translates into 4Q and as you move into it. How much volume can you actually produce and sell as ammonia now that you have Vagamon?

Well, I would compare our products, ammonia, urea, UAN, DEF, ammonium nitrate. We love all our children. And so ammonia is one of those segments. And I've got to give a shout-out to the ammonia team of Amanda and Bob and Cello that have done a great job in the rest of the sales team this year. The interesting thing about CF, and I think this is one of the undervalued aspects of our company, is the flexibility we have in our production locations. The flexibility we have with our modes, which is truck, rail, pipe, barge, vessel, and then our distribution system. And so it's by leveraging all those points, then you could become agnostic on the product and focused on the margin. And what product creates the most margin at that time? Because our team is rewarded on the company's performance, we move tons freely between the segments. And if that segment, one segment is profiting more than the other, And that's what you saw in ammonia with good demand globally. So we've been a fairly large exporter of tons out of Donaldsonville. And then that creates, again, optionality for the rest of the team. So our volume, I think it's the exported ton that's the incremental increase. And then as we go into Q4, that is the ammonia application season, and weather permitting, our volume will be higher than Q3. We have a substantial book already built. And those values are in the publications. We're well within those ranges. And I think this year could be a fairly big year for fall ammonia because it's a very good agronomic product for a corn farmer in these dense organic soils of the Midwest. So I think the ammonia position for CF is solid. And how much product can we put in that segment? Traditionally it's been around 4 million tons, but it could be 3.5 to 4 million tons any given year.

Okay, perfect. Thanks for that clarification.

Thank you. The next question comes from Andrew Wong with RBC Capital Markets. Please go ahead.

Hey, good morning. Thanks for taking my questions. So today we look at Europe generally as the marginal cost producer, but we're also seeing some changes in that region There's capacity that's maybe shutting down, and that could reduce how much you contribute to that cost curve. But there's also CBAM that gets implemented in 2026, which raises their cost position. So I'm just kind of curious how you think about Europe as that marginal cost producer as we kind of go forward and look out a couple of years from now.

Yeah. So, Andrew, as we talked about before this past summer, we did a pretty in-depth analysis of what's happening in Europe because we're seeing it much the way you described it, that given the cost of energy and the differential, which now sits at $10 and really goes there through 2026, that it's going to be very difficult for European producers who are not integrated to continue to produce ammonia. And you saw that. last week with one of our peers shutting down an ammonia plant just to do upgrade very similar to what we did with our UK ammonia plants. So we expect that to continue and by 2030 we would see that there would probably be another three to four million nutrient tons of imports required into Europe. Now some of that will take you know, the form of upgraded products. Some of it will be just gross ammonia that's going over there for upgrades through their terminaling system into those products. So we see that specifically with our low carbon because with the CBAM, as you mentioned, if we have a low carbon product and we're competing against conventional, the conventional cost is going to be higher and that will provide us a margin advantage as the CBAM goes into effect at the end of next year. And really, by 2034, you know, where there's no free allowances offered anymore, you could see that differential between someone who has an ATR that's sequestering 95% in a conventional to something that could be $150 per metric ton benefit. So it's that really sort of look. Although we don't build that into our modeling, it is something that provides, as Tony talked about, us being a fast mover and having that carbon arbitrage opportunity as we see Europe begin to contract some on production.

Okay, yeah, that's really helpful in Europe. And then I guess that kind of brings in another question on just how does that global cost look like three or four years from now with the changes in Europe, Chinese exports, impacts from clean ammonia, given how the S&D looks like. How does that change? Because we've seen the changes in the past decade or so. How does that look like three or four years from now?

Well, if price doesn't bid in that higher cost production and there's new demand coming on, you'll see probably a lowering of the cost curve to some extent. And that's really why when we look at our particular project, we want it to be integrated because we think having the lowest OPEX related to some of these projects where you're buying hydrogen and over the fence and then upgrading it later still puts you in the third or fourth quartile of production, so you're no different than a European producer. But we do see that demand growth, so you're going to continue to need to see new supply come on, and we do not believe that new supply meets demand. So some of these high-cost assets that you may think are going away are probably going to remain online until we have some sort of balance between us and these.

Okay, thank you.

Thank you. The next question is from Vincent Andrews with Morgan Stanley. Please go ahead.

Thank you, and good morning, everyone. Tony, just wanted to follow up with you on the prospective Blue Ammonia facility and just get your latest thoughts in terms of what you're seeking in terms of terms. I recall you want to own at least 50% of it, but is anything changing in terms of how many partners you want to bring in, both in terms of the amount of equity they would want to provide or Do you have more of a willingness now maybe to fund it yourself, but just have offtake for a very large percentage of the plant? Or is there anything evolving in sort of your own thought process or what the counterparties are interested in doing?

Yeah, I would say in general, we have more interest than probably percentage of equity to dole out. And initially we were focused on or structured an agreement around 52% equity, I could see a scenario that would have us take less than 50% total equity based on the desires of a couple of the partners we're talking to. We would want operating control and voting control in that kind of joint venture scenario. But it's entirely possible that we would end up kind of at or below 50% of the total equity. I wouldn't want to go too much lower than that because we are putting our organizational expertise and effort to really take on the design and the build and the construction and then the ongoing operation of the plant. So we want there to be enough equity. you know, kind of participation in a project like that to make it worth our while to put all that time and effort into it. But, you know, I think from a standpoint of having strong partners that want the offtake that bring good expertise and capital into the project and reduce our risk profile, you know, we're really optimistic about this project and what it looks like going forward.

Okay.

And just as a follow-up, How are you thinking about Henry Hub prices, you know, not as much the next 12 months, but look out 12, 24, 36 months. You know, you've got all this LNG coming in the U.S. We've got electricity increasing demand-wise from data centers and everything else. Any thoughts there?

When you look at the spreads or actually the strip, you're well into 2026 and you're still at $3.00. And so it's the differential to the world, not necessarily the Henry Hub price, because if the Henry Hub goes to $6 but the spread goes to $10 or continues in the $10 to $15 range, that just makes those other producers that are having to use imported LNG that much more expensive. And so when you look around the world where gas is, where gas is available, and how that gas is going to move, the United States plays a substantial role in that. And we've demonstrated, we as a country, that when it was going from 70 to 90 to 100 to 105 BCF per day of production, that there's additional capacity out there to grow as the LNG demand grows. Yes, LNG is going to go from, let's say, 14, 15, 16 BCF a day up into the 20s. But we anticipate that supply to be there as well. And the cost structure today to tap those wells and to bring that production online is still very attractive. And so, yes, I think energy demand, you're seeing that spread apart or spread across, whether that's renewable or now bringing nuclear back. So it's going to be something interesting to watch, I think, more as we get later in the decade.

Thanks, guys.

Thank you. The next question comes from Jeff Zikoskis with J.P. Morgan. Please go ahead.

Thanks very much. When you think about the Donaldsonville dehydration and compression unit and the 45Q credits that you might get in 25, is your base case that the credits would come from enhanced oil recovery?

So our agreement with Exxon is for CCS, so it is not for enhanced oil recovery. So it's for a class six permit in which it would be sequestered and we had received the $85 per metric ton tax grant related to that. And as I said earlier, we still feel confident that next year we'll be sequestering in class six permits, given the flexibility and really the alternatives that Exxon has across both Louisiana and Texas with different sequestration permits that are in process right now, both with the state of Louisiana, but also with the EPA and the federal government.

So I don't think ExxonMobil has completed any permit filings in Louisiana just yet. So why are you and you know, in Texas, you need EPA approval. And this is just for the permits itself. I mean, there have been no class six permits that have even been issued. Are you really so confident that you can achieve this in 2025?

Yeah, so what I would say is, Jeff, is as you point out, you know, there is in Texas it is federal, and they do have sequestration wells that they have permits put in place for Texas as well. And that's really where the optionality of that almost 1,000-mile CO2 pipeline that Denbury, they acquired from Denbury, allows them to work different areas. different paths and different alternatives to get there. All our discussions with Exxon suggest that they will have Class VI permitting, so that's what I'm basing it on.

And when you contemplate the building of a new blue ammonia facility and you look at an ATR versus an SMR with flue gas capture, are those very different costs? Like, is there a, I don't know, a billion-dollar difference between doing one or doing the other? Or is it much smaller?

It's much smaller by the time you add on potential flue gas capture. I think what you'd end up seeing is numbers that would kind of be in the proximate range of each other. I think one of the big differences that you end up with is – more tonnage of production coming out of an ATR in general than the SMR. You know, the largest onion plant in the world is Donaldsonville No. And even though its nameplate is the same size as a number of other plants that are out there, we're getting about 10 percent or a little over 10 percent additional production above nameplate. And so, that is the, you know, currently the largest plant in the world. and the ATR would be quite a bit larger than that plant even. And so one of the benefits of the ATR is, compared to the SMR with flue gas, is on a comparable capital basis you get more tonnage of production, and all those incremental tons are really at variable cost, and so the return profile looks really attractive against those incremental tons. So that's kind of the direction that we're targeting.

The other part I would add, Jeff, is based on that incremental tons, which could be 10% higher than our ammonia sixes, you're now also capturing probably about 50% more CO2 than you would on a comparable conventional SMR. and you'd be obtaining the 45Q. Whether it be through the Class 6 or an EOR, you'd have a benefit that would be significant over what a traditional SMR plan would be.

Okay, great. Thank you very much.

Thank you. The next question comes from Adeline Rodriguez with Mizuho.

Please go ahead.

Edline Rodriguez, your line has been unmuted. You may proceed with your question.

Yes, sorry about that. Good morning, everyone. Tony, a quick one for you. Can you talk about changes, if any, you've seen in farmers' or retailers' behavior given the more challenging crop prices we have now? And how has that changed? How CF's go-to-market behavior has changed accordingly?

Yeah, I'll give a real quick high-level answer, and then I'll hand it over to Bert to give some additional color. But in general, because nitrogen is a nondiscretionary nutrient, we've seen strong demand for our product globally, even though crop prices are a little more muted today than they were a year ago or two years ago. I think generally where you see farmer behavior looking to be different in an evolving crop price marketplace has to do with some of the other inputs. So whether it's P and K that you might cut back on a little bit or you end up going with a generic seed and chemicals as opposed to some of the ones that are still on patent, et cetera. You see the reduction in costs in other places, but nitrogen really doesn't provide an option for farmers to reduce – Otherwise, you see a direct year one impact on yield. And so that's why, you know, we continue to see very strong demand for our product.

Yeah, I agree with Tony. And some of the interesting things that are going on in the farm community, and we're very well connected with our customers. We don't sell to farmers, but the co-ops that we work with, Growmark, CHS, Winfield, and some of the others, as well as our public companies and private companies, Simplot and ADM and people like that we have a lot of conversations and I think one of the issues is that it needs to be managed on the farmer side is debt and cash management and so you're seeing delayed purchases delayed applicant delayed purchases and positioning for the spring and I think one of the things like Tony talked about all the ancillary issues of products that are used for planting and and growing a crop its land values as well so we're going to watch that over time but for us We focus on what we can control, and that's lowering our costs, keeping our costs attractive as related to the market in terms of our production mix, running the plants very well and efficient, and utilizing the export capabilities that we have. So we're a global participant. We're active in Brazil, Argentina, Australia, and Europe, and that gives us insight into global farming practices and needs. And then we manage our book. We always have a healthy book on. and a manager of the pricing that's available to us so we're capturing a good value, and the gas team and keeping our gas costs low, which they've done a very good job. So in conjunction with our insight in the market, our relationships in the market, our capabilities that we are able to leverage, we're positioned very well. And I think the farmer, with some of the droughts that are going on in Brazil, and some of the demand and low prices tend to help demand increase, the pricing will recover, hopefully, in the forward market.

Okay. That makes sense. And a related question. As we exit 2024 and enter in 2025, again, it seems like the way you talk about the outlook for nitrogen, that's very encouraging. Is there anything that concerns you at all, like anything that – makes you think, keeps you awake?

I sleep very well, but there are things in this market that I do think about, and I'm always looking over the horizon on. I think there are issues with currencies on what countries are devaluing their currency in order to participate. I think some of the things that are coming out of China with export policies, industrial policies, have ramifications into the commodity markets. I think some of the concerns with Europe and gas were a participant or a producer in the U.K., and so we're following that market. We have good customers and what their long-term opportunities are or challenges. And then it's geopolitics or the geopolitical environment that we're currently in with what's going on in the Middle East, what's going on in Ukraine. These have impacts on real people and real decisions on not just how people eat but how they live. And then how do we play in that world? So, yes, there are concerns. I think we always have to be mindful of those things in the energy markets and how we run our business.

Okay. Thank you very much.

Thank you. The next question is from Dimitri Silverstein with Water Tower Research. Please go ahead.

Good morning, and thank you for taking my questions. Most of them have been answered, but I do want to follow up on the more near-term outlook for pricing. We've seen price comping down year over year in the first half of the year, and then you reported a price increase here in the third quarter. How do you look at, given the market dynamics and the tightness in the market that you identified and talked about, what do you expect for pricing as you get into the 2025 negotiating season?

Well, a lot of things that drive pricing drive its supply and demand, its energy spreads. It's, again, some of the issues I just articulated. We did have some weakness going into Q1 and then coming out of Q2 where pricing for urea, for example, fell the NOLA to $290 and then recovered to $230, $235, or excuse me, $330, $335. And we're currently trading around $325. And so the trends in pricing were reflective of the lack of Chinese availability, the lack of North Africans, principally Egypt, and then some other gas-constrained areas. And we see that positive environment continuing into Q2 because of those dynamics are not going away. And so, you know, we have these episodic moments of movements of pricing, but the trend, we believe, through at least the first half of 2025 is positive.

That's helpful. Thank you. And then one final question. You mentioned the modest hurricane impact from Francine. I'm hoping that nothing else was impacted as far as your operation is concerned with the East Coast strike. Anything we should be thinking about in terms of cost deltas going forward as far as logistics costs? The barge traffic in the Mississippi is still kind of slow because of the low water levels. after a couple of years of droughts. Anything that we should be keeping in mind as we look towards 2025 on your gross margin line?

Yeah, so what I would say is a lot of those we were able to mitigate those issues that you mentioned with the port strike and then also the hurricane without really much financial cost related to that. I think just in general with any type of logistics movement, what we're seeing is just the inflationary effects, both from, you know, barge prices or whether it be rail. So that, I would say, is the one area we continue to monitor and look at alternatives. The one thing that we have flexibility that differentiates us from other companies is our ability, specifically out of Donaldsonville, to move product through five different modes, whether it be vessel, barge, truck, rail, or pipe. And that gives us a lot of flexibility to go to alternative transport methods So I would say it's just, you know, Bert's team in the supply chain doing a little bit more thought-provoking just to keep costs down versus what we're seeing inflation-wise.

Understood. Thank you very much. That's all the questions I had.

Thank you. Ladies and gentlemen, that is all the time we have for questions for today. I would like to turn the call back to Martin Jarosik for closing remarks.

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

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.