CF Industries Holdings, Inc. (CF) Earnings Call Transcript & Summary

Thank you, everyone, for joining us for this fireside chat with CF Industries. So very happy to have Tony Will, Chris Bohn and Bert Frost with us. Before we start, I just wanted to remind people submit questions on Pigeonhole. It's on the left-hand side of your browser. There is a link, click it and a browser window will open up with questions. The live stream will continue in the original browser window. And at the end of the session, there is a Procensus poll at the left-hand side as well. They'll appreciate if you could fill out. So with that, Tony is going to do a few -- just a few minutes of prepared remarks, and then we'll go to Q&A after that. Thank you.

Thanks, Jonas. This is actually more off-the-cuff remarks instead of prepared, but we'll call it prepared anyway. So far, the year has been great for us. Unlike the previous several years where the spring was characterized as very wet and late blooming, this spring got off to a pretty reasonable start for us. We had really good movement of product, and ammonia, in particular. It's been one of the stronger ammonia movement years that we've had in the last 5, and we feel very good about it. Acres; we're anticipating for corn this year to be in the kind of 94 million acres, a bit lower than where USDA is at 97 million. But even in that range that provides a really healthy demand for nitrogen application. North American nitrogen being the only nondiscretionary nutrient. Unlike P&K, which can be kind of mined from the soil periodically by farmers, nitrogen has got to be applied every single year. So we're seeing really strong demand for the products. We had a great Q1. Sequentially, we were up Q1 on an EBITDA basis year-over-year from '19 and expecting a really strong first half. Second half carries with it, always the price reset mechanism during the UAN fill program in the third quarter. And this year, in particular, carries with it a little bit more uncertainty than the average year. But we're anticipating strong financial performance in 2020 and really solid free cash flow generation. So with that, we're happy to talk about the demand side of the equation, supply side, cost structure, kind of anywhere people want to go. We've got the right folks on the call to address the issues.

Very good. So you're saying, so far, we've had very strong demand, but we haven't seen that in pricing. And it's a consistent story across pretty much all the fertilizers that demand has been strong in North America, but pricing has still remained weak. So what's your take here? What will it take to get that moving?

Yes. Let me start off, and then I'm happy to have Bert weigh in on this one as well. Part of the issue is that on nitrogen, which also tends to be a highly variable cost product unlike P&K, which tends to be a fairly heavy fixed cost component to them, what you've seen in the global energy deck is a lower and flatter energy prices on a global basis, which means that a lot of product that or a lot of the production sites on a global basis have been able to operate at higher operating rates than in the past. And the resultant supply is coming out on the global market at a lower cost structure than where it would have been. For instance, we're currently paying lower gas cost in the U.K. than we are at our Donaldsonville, Louisiana plant because of the excess LNG cargoes that are floating right now. The result of which is European production and certain other regions, which historically have been at a price point or cost point well above the U.S. are actually fairly competitive these days. And so you've got higher operating rates globally. Supply availability means that pricing is really dictated by the last ton in. In this case, that happens to be anthracite-based coal production coming out of China, which is still supportive of a pretty reasonable price point given that natural gas today at Henry Hub is $1.50-ish, means our margin structure is still very strong. It's just aggregate prices have come down. Bert, other thoughts?

Yes. When you look at the pricing structure for where we've been from spring through to today, it probably started off in Q1 in the $220 range, and it then moved up into the $280 range. So say, on average for the period through April in $255, $260, a very healthy pricing range when you couple that with the gas costs that Tony just mentioned. So what happened? Why we have had a contraction most recently in May was I do think there's the COVID factor and you do have to pull that into the thinking and the risk off mentality that a lot of the market has had going forward. And so that with a little bit more import volume than was expected coming all at the same time, our risk-off attitude by our customers and traders, and there was probably the inability to hold those tons had the pricing down lower than we would have expected. That being said, this was probably around an average fifth number for the year. And so I would expect us to trend at a low level like this or where we are and then start mitigating up or migrating up based on some of the cost structures around the world with healthy demand around the world and not a lot of excess supply around the world.

So how is demand looking across the globe, right? So U.S. demand is strong. We've heard India a very mixed signals. China, we don't really know, it's a big black box. What are you seeing at this point?

I think we're seeing healthy demand in most areas of the world. We're seeing Brazil now start coming into their high demand period. And you're going to see several hundred thousand tons move that direction every month. India, I would also think has had very healthy demand with starting their fertilizer year in April, which goes through March with a tender every month in the 700,000 to 1 million tons per month range. Last year, they imported 9.8 million tons. And this year, we're seeing similar demand type patterns, and that's healthy. So India being the largest import market of the world at 9 million tons, Brazil second at 6 million to 7 million tons and the U.S. third at 4 million to 5 million tons, is all healthy demand. And then you've got what Tony mentioned in terms of production and gas costs going on with, we think, some supply coming off stream in some of the higher costs or constrained markets and so we hope to trend into a positive market for the back half.

Okay. So global price or Chinese price as such is below marginal cost of production in China. And I just find it hard to square the strong demand, and I don't disagree with you. That's consistent with what we've heard as well, but strong demand with persistently low price. Part of that is probably industrial demand has been very weak, but what is your thinking here about the disconnect between the strong demand we're seeing and the global price?

So Jonas, I think that the situation is very much akin to a couple of things. So when oil hit negative $37 a barrel for a period of time, that's clearly below marginal cost of production. Now it didn't stay there long. But similarly, most of the spot cargoes of LNG are based on Henry Hub gas. And when you're paying well north of $1 for Henry Hub gas, then to have to pay to liquefy it and ship it and re-gas it to be paying basically a flat 1$ in U.K., obviously, those economics don't work either. And I think what you're seeing is, in a number of commodities, the difference between what it was produced before and is kind of excess inventory slopping around the system that needs to work its way through versus what replacement economics are. So our view on LNG is that eventually, when the existing cargoes get consumed, then replacement economics to kind of take over and, eventually, Henry Hub has got to be a lower price than the receipt points for the LNG cargoes that are coming out on a slot basis. So the U.K. structurally has got to move up north of Henry Hub. Similarly, with oil price, it's back kind of in a range that makes sense. And our expectation is that China is not being a heavy exporter right now. There's a little bit coming out, but China did not really participate in the Indian tender that just took place. Because, as you said, it was well below what their replacement costs are. And eventually, price will rise in order to bid those tons back into the market. But when you see periods of time where pricing drops below kind of replacement economics and supply working its way through the system as opposed to, structurally the model is broken.

And how long do you expect to take before that works its way through the system as it were.

Well, generally speaking, you're going to need to get back into -- we're kind of in a shoulder period right now, so the Northern Hemisphere has gone through most of the application. There's still a little side dress and some UAN application that's going on. But a lot of that product has been put in forward positions from an inventory standpoint. We need to going to get through the shoulder period and into the application season in Southern Hemisphere for EU to begin, I think, seeing the tightening up of some of that production. But during the interim, I would not expect China to be a significant exporter because, as you said, other than just liquidating positions that have already been positioned in imports, there's no way that you're producing new product in order to be able to export into the marketplace at current pricing. Bert, any other thoughts on that?

We're constructive on what you've just said and that's Chinese anthracite producer is the marginal producer. There are some gas-based producers that are port oriented -- export-oriented that will participate. But we like what we're seeing coming out of China, which is decreased participation in the export market. And the pricing structure today and what's being offered, and we see a rising coal market-driven by government action, probably pushes them further outside of the export market, which would then at least communicate that prices would move up to that level to the marginal producer to be able to participate in the market.

Okay. If I follow-up on the coal comment you just made, so coal has been in free fall for most of the year, it's finally stopped. I hadn't seen it moving up again, and there's more supply coming, but what was the latest Europe things are with coal here?

So Jonas, this is in reference to a comment I made to you earlier, but I had long conversation yesterday with one of our directors, who is the former CEO and current Chairman of Arch Coal. And Arch has made a strategic decision to get away from thermal coal which was why they announced the Powder River Basin JV with Peabody and they're moving into metallurgical coal as the primary product that they want to be in. And he told me that China is putting on some pretty significant import restrictions on coal, not only coming out of the U.S., but in fact, coming out of Australia as well with the desired result to be not only stabilizing, but increasing anthracite metallurgical coal price within China to shore up that industry a bit. And so our view is that's a very constructive overall dynamic in terms of the nitrogen industry because once we get to the place that we're through the sort of the period of time where Chinese product is not being bid into the global marketplace and that product is required, the price signal that, that's going to set is going to be constructive in terms of the industry overall.

Interesting. So we have seen periods in the past couple of years, when anthracite and thermal was disconnected in China. Do you think there is room for this to be a permanent disconnect, upwards for anthracite?

I think that there's certainly a desire to bring coal prices up. And I think because the 2 are not directly substitutable, that certainly is a possibility.

Interesting. Coming back to the U.S. for a moment. What's your plans for the summer fill program in 2020? And is it impacted by COVID at all?

Bert, go ahead.

Yes, I'd say, life has been impacted by COVID in so many different ways. I've been sitting in my apartment now for almost 3 months. [Technical Difficulty] we have life back to normal. So we have a robust fill program, which signals robust demand, that would be great. How [Technical Difficulty] from an economic perspective, not necessarily a volumetric position? And economically, we are in a great place on gas, gas pricing. And as we play kind of a combination between the gas daily and the 4-month purchases, we are in a very, very good place, especially basis with some of the places where we produce. And so looking at the fill program, we do have demand. We've already been in conversations with some customers and at least they're signaling demand. But I think today's price where urea is and where the values are, they're lower than we would anticipate and desire. And that would probably signal that going forward, we would want to achieve probably a better economic return. That would show a smaller fill program than we've done in the past. We've done as small as a month, which was about [Technical Difficulty] tons of production, and we've done 6 months of, when the pricing was right, of new orders. And so we'll evaluate that as we get closer. We still -- as Tony said, we still have spring demand to work through. We haven't even entered June yet, and that's the big peak time for UAN. Last year, UAN applications went all the way into August. I don't think the planting is late -- as late as last year. So probably go into July at some point. And we'll start evaluating it next month and come out once we get our ideas and our customers' ideas together.

Okay. The corn prices have fallen quite a bit. So how concerned are you about farmer economics or at least farmer perception of economics impacting their fill needs? Or there are so many, just...

Yes, there is -- we're always focused on -- our end customer is a farmer, but really are -- we have so many end markets that use corn. So the farmer produces it, but he has an end customer of the protein consumer. He also has an end customer of the ethanol consumer. So we're always looking at the value chain, which is exports, protein, ethanol, processing, all those components to how does that position a farmer going forward. And that then moves [Technical Difficulty] position with our customer. But our customer is the wholesaler, the trader, the retailer, principally the retailer in the United States who offers a whole host of services and value to the farmer. And that's in services, seed, chemical, fertilizer, economic advice. And so when we're looking at the farmer specifically, we're looking at what the revenue-generating capability what he has. And in today's market of $330 December corn, let's say, based on trend yield, it's about a breakeven, slightly positive proposition. But you have to remember that farmers also buy revenue guaranteed insurance called crop insurance. And they purchase that based on their average production history. So if you're a farmer with, let's say, 200-plus bushel acres and you buy 90%, which is possible or 85% of your average production history, you have a baseline because that price was set in February at $3.70. At that level, your revenue is guaranteed if you produce a healthy crop and we'll be in a good position. Then you put on top of that government programs or payments, which have been prolific in this administration in this time on kind of payments direct to farmers. So overall, structurally, I do think farming is in a difficult spot based on pricing, based on protein, based on what type of product you're producing. But with those caveats added back in, it gets into a more positive position. And so we look at this year for what is going to be planted. We're also talking about next year and working with some of our customers and some of their customers to think through what would be the appropriate level of acreage. And we're more constructively positive. And I think the market is thinking. It still got to harvest this crop. You've got, I think, as we get gas demand back into a normal range I think [Technical Difficulty] a lot of people are planning summer trips by car that they were probably thinking by plane. I think gasoline demand gets back up, protein demand gets back up. So we've got some positives to help support the pricing level of the market.

Jonas, one other thing I want add to that story, which is the -- we are absolutely concerned about farmer economics. But if you think about the farmland in North America, and in the United States, in particular, in the corn belt, it's some of the most fertile, most productive farmland there is anywhere in the world. And once you've made the investment in the land and in the equipment, whether you're renting it or you own it, the variable return on variable cost to plant and fertilize the crop is positive contribution margin. So even though in the aggregate, the economics might be difficult, somebody is going to plant their land. And it may not be the cash renter that's on there today, but that plant is not going to sit idle.

But there is still a -- yes -- no, I agree with that. The solution to every farmer's problem is to plant more. But the bigger threat as I see it at least, is shifting acres from corn into soybeans. And so I know the market is concerned about $3 corn. I'm not so concerned myself, but at least as hypothetically, if we're ending up the year with $3 corn, what does that do to planting next year and thus nitrogen application?

I think you have several things to consider if it's just a binary corn to soybean decision. It's a global product, and you've got a lot of competition coming from South America, specifically in soybeans with a devalued currency, significantly devalued in Argentina and now Brazil at 5 -- I think 5.80. So your cost of production for soybeans, which is the principal crops of those places, you've got a high, I think, a harder competitive position against that in the United States plus your demand base with soybeans, 50% of the soybeans are exported from North America. Corn, 90% is consumed in North America. So you have a very healthy demand base in protein and ethanol, and then it's the export ton that moves. So I think there are some natural migrations based on rotations. Those will take place. As Tony said, the land will get planted one way or the other, I think, and you might see the dryland north country farmer migrate to sunflower seeds or canola or different products that -- for a year or 2. But I'm more of where Corteva and some of the seed people are that even if you're in the high 80s to low 90s next year, we've been in that position as a company, as a -- in a corn planting number, and we've done very well. So I think that we'll do fine next year. And also, when you couple in all the structural advantages to our company of terminals, gas price, production and customer base, we'll do well.

Okay. So you mentioned UAN. If I remember correctly, you've started cutting UAN price a few weeks ago. So why did you do that? It looked like demand was strong and we have plenty of demand to come.

Well, we have to be mindful of several things as a producer. And again, going back to your question on the farmer as well as understanding our customer base and our competitive position. And as we've discussed in other -- like with other investors is when you look at the world market for UAN and the changes that took place in the EU, the market dramatically changed. Those effects only went into place last year, October, officially. And so we're still in that transitory stage. And when you look at, again, for a decision-making for a farmer, we cannot have one of the end values too far out of balance to the other end values or when you have competitive product being imported into our market at values lower, we're going to compete, especially in the coastal markets. And so it was a reflection of the team's decision to be competitive in some of those markets, work with our customers on an advantage basis. And we think our pricing is -- our position is appropriate.

Okay. Can we -- on top of UAN, can we also get an update on the EU antidumping rules? Is there any progress?

Only if you're a European producer.

So progress would be something that we know that the Russians and the Trinidadians are contesting. And we have been -- we have participated and will participate in some of those hearings. But they're in place now and for several years, they will be in place. So we can -- instead of going on defense, we're going to go on offense. And we've [Technical Difficulty] in our market with new terminals, new opportunities, new movements and utilizing the advantages of our production system and moat system to position ourselves well in this market.

Okay. On the flip side of pricing, feedstock cost, we're now seeing reduced drilling activity. The forward curve for natural gas, I think, is saying $2.75. There's concerns that it might hit $4. Are you -- well, a, how concerned are you about rising natural gas costs? And are you doing any hedging activity to protect yourselves?

Yes. I mean I think there is a very steep forward contango right now in natural gas. And as every month progresses and you move forward, then the front month comes down. And so instead of all of a sudden front month cash cost going up like crazy in order to get to the $2.75 or $4 range, what you see is the forward curve keeps going compressing at least in the near-term with the out months staying relatively high. And I think storage levels are substantially up in terms of natural gas. Demand is down quite a bit. You didn't have near the energy burn in the first and so far through the second quarter given fairly mild weather. You've got industrial demand that's been off quite a bit. So although production is down, storage is still quite high. And at some point, price is one of those things that cures itself. So if you lose some associated gas production because of where oil is and you do see gas spike up north of $2.50, there are a number of wet gas plays with the associated liquids or even dry gas plays that start becoming economically viable at that point. So we are not overly concerned about $3 or let alone $4 natural gas. And in fact, believe that as we move forward, you'll still see forward price front month and cash cost continue to compress down against the contango and, ultimately, higher price at the Gulf has got to translate into much higher price for LNG on a global basis. So again, I think our view is a little bit longer turnaround. We will still be on in the first quartile from a delivered cost perspective. We don't want to bet against the resource phase in North America and the efficiencies and pickup of engineering on the E&P side of the world. And we're very comfortable that going either cash or front month is much better than a forward hedge position given that your -- if you want to hedge out through the winter, you're talking about numbers that we think are much higher than where cash will ultimately settle. Bert, other thoughts on that, of course?

No, I'm very comfortable with exactly what you've said, and that is our position. And so far, we've done well with it.

Fair, fair. For the plants there in the Midwest, are you seeing any breakdown of the historical relationship between Henry Hub and Midwest gas i.e., the discount?

No, the basis are holding, and we follow that. We are -- again, part of managing natural gas is understanding those basis values. And in the past, we've been paid. Now this is every -- not a very good day, we've been paid to take gas in Medicine Hat, so we need to be aware of these values when they expand or contract. And so today, OGT is still negative to Henry Hub as well as AECO which is in Canada. And then Bend and Dawn and [Technical Difficulty] where we also buy our slightly positive. So we're active in those markets to cover those costs and make sure we're buying the lowest [Technical Difficulty] possible for the company.

Okay. So if we think about longer term, the impact of low crude and well, COVID, I guess the impact of COVID is just low crude here. What does this do to the global supply build? Do we expect -- well, actually, as an example, like the Indian buildout program, they announced 2 years ago that I don't think has actually started, is that even relevant today?

I mean I think it's really hard to get the economics to pencil out on those projects that were announced, particularly given where globally traded prices are with the low energy availability on a global basis. And the fact that these kind of plants don't really employ that many people. So it's not as big, get people working, get them into a job situation, that's not the prime motivator. And so when there's plentiful supply, it's relatively low cost. Capital is at a premium relative to infrastructure improvements, other kinds of challenges that they're facing in India, it just seems like a ridiculous direction to go down because there certainly isn't anything in the way of food security that's at risk there given the plentiful supply of urea. So I would be surprised if you ended up seeing those projects develop. Similarly, given that a lot of the critical equipment is coming out of fab shops in Northern Italy and in Europe, we've seen a dramatic shutdown or absolute halt in some of that production. That's going to push out the time frame for projects that were currently actually being constructed, whether it's Iran or other places by quite a while. And I would expect the forward cascade of those projects that -- a lot of that capacity is at least 9 months to 1 year delay before it starts showing up again.

I think just to add to Tony's point is also, the new projects that have come online in those particular areas haven't really seen an increase in overall production. It hasn't moved the dial much, so what you may see is some of the things where some of the less efficient, higher cost projects running is with the same type of operating efficiency as they had in the past.

Yes. Chris is specifically talking about India, where you've had the Chambal project and the maintenance projects that have come online and yet the total aggregate production in India has remained relatively flat, which is the operating rates then on the naphtha-fed or the other older gas plants dropped. And so there wasn't any kind of net new production in India despite the fact that you had several additional plants start-up.

Okay. And what would you say is the urea price that you need to incentivize a new plant today?

Yes. I mean it's highly variable, depending upon kind of construction cost and where you are and export-oriented, so forth and so on. I mean, I think, in the U.S., what you're probably talking about is something in the $325 to $350 on a fairly consistent perpetual basis because construction cost is so high. And in other regions of the world where you can fix construction rates, you're probably talking somewhere in the -- it depends upon whether you want real capital recovery and what sort of embedded risk rate you're putting against it and whether you actually have options to move money out. So some of the Russians may not be able to put money into foreign investment vehicles, they may need to reinvest it in something inside the country. You can probably justify something more in that $225 to $250 range on the urea price to do a project, if you've got some sort of stranded capital or can otherwise mitigate the risk. And there may be a plant or 2 if you're basically in Iran and have both free gas as well as being able to fix labor that you could easily justify something at $200. But those number of instances are vanishingly small, and they're not broadly available to producers. It's 1 or 2 kind of national oil companies that would have the opportunity to do something like that.

Okay. So is this the time to consolidate the nitrogen industry? When equities are not going to get much cheaper, debt is not going to get much cheaper, will there ever be at a better time?

So there's certainly opportunism that may show up at this point in time. And in fact, if you recall back to the -- during the middle of the financial crisis in 2009 and then it dragged on into '10 was when we went ahead and acquired Terra Industries in the same kind of thinking that the intrinsic value of the assets was much higher than the market cap. And so it was just -- it made sense for us to go do that. And so we went about doing it. So I think that's certainly been a page from our playbook in the past and it's one of those things that we would certainly consider going forward. I think the challenge, a little bit, is we've spent the last kind of 2 years to 3 years repairing our balance sheet and have it in a place that we're very comfortable with right now. If we were going to go lever up in order to do an acquisition, I'd want to make sure that the assets we were buying were equally well maintained and positioned as our own are. And in the absence of being able to find an opportunity like that, I think our shares represent an incredible value, I'd rather buy more of the best assets in the world, which are our own. Given that taking out our shares, our shares are trading at more than a 4% dividend yield right now. That's much more expensive than any of the debt that we have out there. So share repo is actually the best kind of cash preservation mechanism we have. Now it's not to say we wouldn't do it if the right opportunity came along, but it would have to be a pretty special opportunity. What we've seen in a lot of plants out there is that they're not maintained at the same level that ours are, which is one of the reasons we get such high asset utilization. And so therefore, the acquisition price is just the beginning of the checks you start writing because then you've got to do -- take care of a lot of the deferred maintenance that has built up over time. To increase the reliability, you got to invest in people and DCS systems and all kinds of things. And so again, as I think about making that sort of risk move versus taking out what's in excess of a 4% dividend yield, there's a lot to be said for kind of taking care of our own shares first. But your point is well taken, which is, that these dislocations and discontinuities, that's a good opportunity to be aggressive and buy assets below intrinsic value.

Fair enough. I hadn't thought about the dividend yield versus interest rate comparison, but it makes sense. Now that said, how are your priorities looking at repaying debt just to improve your investment -- or sorry, your credit rating?

Chris?

Yes, maybe I'll take that one. When we're looking at really our balance sheet, the capital structure and the work we've done over the last 2 years, as Tony has mentioned, one of our desires was to get our metrics to investment grade and then eventually become investment grade. I think as you're seeing what's happened here with the pandemic is, you're not seeing the rating agencies in a rush to move anyone to investment grade. When you look at our metrics today, they're well within investment grade. On a net leverage, we're at 2.2x. So we had openly, and we continue to say that we'll take out the $250 million stub that's still remaining of the 2021 notes. But that doesn't come due till next December. So I think, as Tony pointed out, the incentive with a make-whole of paying those sooner rather than maybe taking out some of our shares at a 4.5% yield -- dividend yield, probably makes more sense in the near term here to focus on growth and some of the other alternatives that we have bringing in our own share.

Okay. You framed your EBITDA guidance in relation to prior years. Would you say that we're now closer to '17 instead of '18?

No. It was only a couple of weeks ago that we updated our guidance and it was...

3 weeks ago is a lifetime in COVID.

It was fully with the expectation that as we got through the planting process and application season in spring that we would expect prices to modulate like they normally do, and then we would go on with the back end of the year. So the guidance we provided has at least more than 3 weeks' worth of longevity to it. And there's nothing that we're seeing out there that isn't consistent with what we talked about before. Remember, the difference between '17 and '18 was substantial in terms of EBITDA generation. So to remind everyone out there, 2018 was about $1.4 billion, 2019 was $1.6 billion. We started off the year saying we expected this year's results to be bracketed kind of within those 2 and then updated that after the first quarter to say, we're sort of in the range of 2018's results. And no, we're still consistent with that.

Fair enough. So given all this, what would you say are your main strategic priorities for the next couple of years?

Well, I mean, it always starts off with health and safety of our people and maintaining high asset utilization and onstream factor. We continue to look at ways to incrementally improve the asset base, whether, as Bert mentioned, accessing different terminals and giving us different options in terms of distribution points within the markets that are free and open, like the U.S. and like Europe, as well as doing things like the diesel exhaust fluid project we did at Donaldsonville, that's got a fantastic IRR associated with it. So we are looking constantly at whether we expand our distribution footprint, whether we expand our product mix and capability from a standpoint of margin enhancement. And then I'd say we are and continue to be focused on growth. You mentioned appropriately that asset values have come down quite a bit, and that may make some assets incrementally more attractive than they've been historically. And then to the extent we don't find growth avenues that look particularly appealing, we will continue to return capital to shareholders like we have in the past. And with a 4.5% dividend yield, I think that's crying out for attention disproportionately compared to other avenues of potential allocation. That said, this year, I think, has more than the usual amount of uncertainty in terms of the back end of the year. I think it's prudent in times of uncertainty to be a little cash heavier than we ordinarily would. At the time of our earnings call following Q1, we had $500 million of cash on the balance sheet and a completely undrawn revolver of $750 million. So we had over $1.2 billion of liquidity. We're continuing to see strong demand, low gas price, build cash. So we feel very good about the year. But I think we'll probably be a little bit slower pulling the trigger on actually executing share repurchases right now, just given the uncertainty. But it is a topic of conversation that we have frequently and as we start getting a little more clarity in terms of the fill program and what the second half looks like, we can certainly choose to avail ourselves of the open share repurchase authorization we have.

Okay. A little bit higher level and maybe longer time frame, but strategy, in my view, is about making choices. So what would you say is the 2 or 3 biggest choices you expect to have to make over the next couple of years?

Yes. I mean I think the biggest one really is around expansion on a overseas basis as opposed to -- at some level, the DOJ, the FTC who governs our industry is going to limit the amount of further consolidation that can happen within North America. Now phosphate production in North America is extremely concentrated. And Mosaic did not even get a second request when they bought our phosphate operation despite the fact that they have very, very significant relative market share on a local basis because they successfully argued, and I think appropriately, so that's a global market, it's not a local market. We would make the same claim on nitrogen, but would expect there to be, at some level, some kind of resistance. And so I think the big question then and choices we would have to make is, how do we feel about international expansion? Are you able to get the same level of synergy capture and value associated with it? And do you get the same kind of technology sharing and spare parts pooling and other kind of benefits that we got from the Terra acquisition here in the U.S.? And I think in my mind, anyway, that's really sort of the choices and questions that you got to think about further expansion within nitrogen as opposed to other kinds of closely aligned industries for which our skill set and capabilities fit very nicely against.

Okay. So as a tail end here, I just want to talk a little bit about ESG. It's becoming more important. What does good ESG mean for a nitrogen company?

Yes. So this is a topic that we have spent a lot of time on, and I think it's highly misunderstood relative to our particular industry. And let me start with, if part of ESG is, we want to feed the people of the world, right? We don't want people going hungry. Then it says, there's a certain amount of caloric production that needs to take place in order to be able to provide food to the people of this planet. And without use of a nitrogen fertilizer, the number of acres that would have to go into cultivation goes up dramatically. So I think if you look at the WHO and other organizations, they estimate somewhere between 40% and 50% of total food production is made possible by the use of nitrogen fertilizers. So you're talking about massive deforestation, all sorts of other problems if you don't use nitrogen fertilizer. And we have data that suggests that on a net basis, production of nitrogen fertilizer minimizes the footprint. It leads to agricultural intensification, driving yield up, which consumes less acres of land. And actually, as a result, preserves carbon sequestering for us and land use is actually much higher release of carbon than production with nitrogen fertilizer is. And so the first part that I would start on from an ESG platform is our product is actually good for the environment because it means less acres need to be cultivated and planted in order to feed the people of the world. So then you go to the next step and you say, but farmer practices can lead to nutrient runoff and other kinds of volatilization. We're putting a lot of money and effort into the 4R plus programs, events and research as well as education of farmers in order to make appropriate choices in terms of the use of products. So let's start off at the high level, our product is better than -- the world is better off having it than not having it. Use of the product is the next piece, which is we're focused on helping our customers use it in the most efficient best way possible. And then there's a set of things that we are doing to our own facilities and our own plants to reduce our carbon footprint, looking at efficiency projects, looking at other emissions abatement, things that we can do to improve our plant operations and incrementally get better. Now we run some of the most efficient plants in the entire world. And to the extent you'd shut down some of our plants, that means coal production in China-based plants would go up, which, again, if you view greenhouse gas as a global issue, is worse for the globe than shutting down coal-based production and having our plants operate because they're the most efficient plants. And then, finally, we're making investments in other kinds of carbon-sequestering activities. So we're partnering with the One Acre Fund in Africa where we're planting over 1 million trees, and we are involved in a number of other activities like that. So I think if you stop other than just the rhetoric of, "Oh, it's a big carbon footprint, they must be bad," and get really under the covers and explore kind of what's going on here, I think what you'd see is we actually have a stellar ESG kind of record.

The European Commission announced the new budget yesterday, where they included a $30 billion funding for renewable hydrogen. And they particularly pointed out what they call gray hydrogen. So the hydrogen goes into, well, ammonia production in Europe. It seems to me that a U.K. ammonia production facility would be ideally suited for wind power hydrogen. Not saying that you have any of those, but is that something that you're looking into?

So we do have teams that are absolutely looking at the economics of green ammonia production and also blue ammonia. Blue would be where you are sequestering the carbon that is being produced from normal hydrocarbons and then getting rid of it. Or near blue, I guess, which would be you're either otherwise mitigating emissions or buying carbon offset...

Blue-ish?

Blue-ish, right? And what we've seen so far is that the capital intensity of a purely green ammonia plant just doesn't pay out today. The cost is horrific. We can capture and we do in order to make urea, the process part of the CO2 production, which is about 2/3 of the CO2. The other 1/3 of the CO2 goes up the flu in terms of the steam methane reformer, both the primary and the secondary reformer systems. And so there's energy content that is difficult to capture, not impossible, but fairly expensive because it requires a retrofit. So as we're looking at this opportunity because I think it is a market opportunity, I think I would view it as using conventional CO2 capture and then sequestration vehicles for whether it's geological or into pipelines for other activities to get you kind of fairly blue or near blue. And then other activities, either in terms of additional CO2 elimination out of our plants that you could apply the credits toward or purchased credits or like the tree planting process that we're going through in Africa to help get that carb -- that ammonia as sort of certified carbon neutral. I think that's the path that we're on right now. I think it's possible as you get out 10 or 15 years that you'll have technology advancements and cost reductions that make something that's more akin to a true green ammonia plant viable. But I would expect it to be a combination of certain areas where the sun is shining all the time and the wind is blowing hard like the kind of desert in South America or possibly in Australia or a few places like that. I think you're much more likely to see it happen there. And I think you've got the possibility of looking at hydro-based production as well, although that's kind of where Norsk Hydro started off life with hydro, and then they moved away from it because it couldn't really compete with gas-based production. But if there was such a premium placed on green ammonia, you might go back to that kind of approach as well. So something we're certainly looking at. I think it is an opportunity. I think you kind of work your way slowly into it with being close to blue to blue, to long term maybe green.

Let's not forget also that if you replace all the ammonia in Europe with renewable hydrogen, the European beer industry would die.

Exactly. You need the CO2.

We are unfortunately out of time. So on that, thank you very much, everyone, from CF. Thank you people for listening. For those listening, remember, there's a Procensus poll on your left. If you don't mind filling it up, appreciate it. So Tony, Chris, Bert, Thank you.

Jonas, it's good to see you and stay safe.

Thank you.

I'll do my best. Thank you.

Thanks.