LSB Industries, Inc. (LXU) Earnings Call Transcript & Summary

[ Well, I better move. I don't want to get in trouble. It's really great talking with you. Not working. Here you go. ]

Well, good afternoon, and thank you for coming and kind of braving a little bit of the weather. So we have actually a really good turnout. We took bets this morning to figure out how many people would actually come this morning. So as most of you know, I'm Mark Behrman, CEO of LSB Industries. And we have a really good day for you guys today. Hopefully, you really learn more about kind of in the weeds on what we're working on, a lot of upside in the company. And we're excited about a lot of the opportunities that we have. So for those of you who don't know, I'm going to spend 2 minutes on a little bit of history. So I joined the company about 9 years ago, and we were in the middle of a very large expansion project at our largest facility in El Dorado, Arkansas. And quite frankly, when you looked at the company for many years, we were what I would call a collection of assets. So the company got into the nitrogen chemical industry by buying all 3 of the facilities that we have today and really never integrated them. So they kind of ran standalone. There was no consolidated logistics platform or commercial platform, anything commercial related, no head of manufacturing actually at the time. So about 5 years ago, we really set out to start professionalizing the company. And as I like to think about it, yes, it's all about the assets, especially when you're in an industry like ours, a lot of assets, expansive assets, but it's really all about the people. And in my experience, you can take a really good collection of people, and they're going to figure out how to make things work and make them valuable. But if you do the reverse and have really great assets, but mediocre management team, my experience is it doesn't turn out so well. So for me, when I look back over these last 5 years, it was really all about putting together a team and a team that could not only turn the company around, but really a team that could turn it around and then what do we do with the -- the assets and the business that we have today. And so you're going to hear a lot about that. So I'm really proud about the team and everyone that's presenting today. And quite frankly, a number of folks that aren't presenting today, but are on the executive leadership team, and I've said this before, I think we have a management team that can run a much larger company. That's always been the design here. But growing a company while adding value, obviously, is the real focus here. So over the last 5 years, I would say, we've done a really good job of turning the company around and providing a lot of value to shareholders. Now the question is what do we do with it? So how do we continue to provide value and to create a company that's worth more than it is today? Well, everything really starts with, what's the vision? So if you think about it, there's a lot of dynamics that are happening today and that come into play and decarbonization is front and center, blue and green ammonia, e-methanol, low-carbon methanol, I mean, all kinds of things that are going around here. Hydrogen, everyone's talking about hydrogen and the uses of hydrogen. For us, as an ammonia producer that understands ammonia assets and how to produce ammonia, how to handle it, how to store it, the logistics aspect of it. We think we're in prime position to take advantage of that. So the company's vision, and again, you have to have aspirations here and our aspiration over the next 5 to 10 years is to be a leader in the energy transition in the chemical industry with the production of low and no carbon products that build feed and power the world. And you're going to hear throughout this presentation and specifically from Damien Renwick, our Chief Commercial Officer, about where we're going and the vision for some products. Why do we think that we can do that? We can certainly lever our existing business platform and the assets that we have. We have significant manufacturing expertise. I think a lot of folks, and it's our feeling that a lot of folks that are announcing projects are going around talking about they're going to build new ammonia plants. I don't really think they understand the complexities of what it takes to run an ammonia plant and to then move ammonia around the world. We do. We do it every day. Optimize our liquidity position today. I'm happy where we sit today. It's a far cry from where we were 5 years ago. And then we've got a lot of partners that we're talking tom actively engaged with and talking to, and we think everything is going to happen through working with partnerships. We don't expect to do anything by ourselves. We're not smart enough to do that and especially when we're developing a new industry, which is low-carbon products, it's going to take partnerships and people working together to get that done. But I don't want to leave you with the impression that we're just focused on the future. We're focused on the here and now as well. So what kind of value creation initiatives, and I think you guys have heard us talk about some of these that we think we have that can create some really good value without any significant investment of capital. We're going to continue down our path of excellence and excellence in manufacturing that John is going to talk about, 95% operational availability. We want reliable -- consistently reliable assets that run at 95% or better. John is going to go into some detail on that. We've got some margin enhancement projects that aren't necessarily adding production capacity but make us a lot more efficient. Damien is going to talk a little bit about that. Expand our existing production capacities. You'll hear some conversation and -- probably be a lot of conversation about debottlenecking. And what's involved with that, why we think it's important and what it does for the company. Develop a clean energy strategy. It's great that we've got 2 projects that we'll talk about. But ultimately, we need to develop a strategy. So given what we believe is going on and how we think the tea leaves really -- if we read the tea leaves and how do things unfold, how can we take advantage of that. And that will be Jakob Krummenacher will talk a little bit about that. And then last, I get a lot of questions about M&A. Should we look at assets, should we not look at assets? What kind of assets? I'll talk about that a little bit at the end as part of a conversation of capital allocation. We've got presenters here. A couple of things. One, I want to make this interactive. I've sat at a lot of Analyst and Investor Day presentations. People take -- management teams go through presentations. Everyone holds questions to the end. It's kind of boring, to be honest. So I'd rather make it kind of interactive, ask questions during the presentation or if you'd rather wait till the end of a presenter's section and ask them questions, but please don't save them to the end. Let's have a conversation. We're here so that you guys could learn more about our company, our opportunities and the things that we're excited about. So with that, I'm going to turn it over to John Burns. John leads our -- all of our manufacturing efforts.

Can you guys hear me okay? All right. Great. So my name is John Burns. I'm accountable for manufacturing. I come here with a little over 30 years' experience in manufacturing. My background has always been in the petrochemical as well as the nitrogen industry. I spent over 26 years with Coke Industries, which is a large privately held company, where I worked in the refining side as well as the [ rand ] and nitrogen assets for about 8 years for them. One of the things that all of you guys we have in common is we got to work for some really, really good people, right? And so you watch how other people do their business. And as you get older like me, you kind of remember those things. And one of the things I've learned and also Mark stresses as well as Damien and others is we have to run safe, compliant, clean operations. If we're good running safe, compliant, clean operations, the rest of it is going to come, right? The discipline that's necessary for us to do that. And so when you go to the next slide, I guess there's something I'm supposed to do here. There you go. You can see where we do go up and down, but we're trending well from a safety standpoint in our sights. Like we would do anything else as we improved to 95% availability. We're going to do this. We're engaging our workforce. It's not a top-down approach. It's all of us working as one team from the operator to the maintenance craftsman through the leader at the sites, it's all of us working together to improve and that's what's driving this in the right direction. It's training and accountability, no different than anything else, right? People got to know what they're doing, and they got to be held accountable for getting it done. We're doing that directly with our supervisors. And it's really our commitment to protect what matters and it is our people, it's our communities as well as our business. And so again, we continue to focus there as our foundation. What I have found growing up in the industry as well as I'm sure you guys know, it's just the foundation for what we do and everything else that we do. So we have 3 assets. This is, of course, our El Dorado asset, what Mark had up there before. I'm not going to get into a lot of detail on the assets because Damien is going to do that, Cheryl is going to do that as they go forward. But basically, we're running about 470,000 tons of ammonia at El Dorado. 180,000 at Cherokee, Alabama and Pryor's up to 235,000. You can look at the employees. Something that stands out is at the El Dorado site. We have 1,400 acres. And as Jakob is going to talk about, we got the caverns needed in order to put CO2 in the ground. So there are some strategic options there that we can do with that large asset. The same at Cherokee, where Cherokee is sitting on 1,300 acres that we own that is on the Tennessee River, that does have access by barge and water traffic. So each of the sites, again, you look at Pryor, it's part of the Mid-America industrial complex, so things that we can do there, working with GRDA and others. The sites have strategic advantage each of them. Basically, what we do is we take natural gas, and we grab the hydrogen off of it, combine it with nitrogen because our whole process is bringing nitrogen to the marketplace and make ammonia, we're going to convert it to nitric acid, urea depending on what site it's at and then we're going to have our other products or whether it's AN solution, UAN, DEF, CO2, and then at El Dorado in particular, HDAN, LDAN, Prill for both ag and commercial, truck, rail, ammonia, barge to our customers. Each site is a little bit different. And what it does there -- so Pryor, for example, is a UAN producer. It's strictly an ag facility, generally speaking. There is some CO2 that goes out, but that's generally an ag facility. Cherokee, on the other hand, starts getting us over on to the industrial side. So it's both a UAN facility from a standpoint of putting that product out to the farmer, but also taking ammonia as well as AN solution and other items to the industrial side. El Dorado, much more complex facility, doesn't have UAN but also takes that AN molecule and moves it through prilled or solution to either ag or industrial ammonia on the pipeline going up to corn belt. So kind of in the direction that we're headed, we talked about a little bit is you can see where we're continuing to move towards the 95%. So everything that we talk about in manufacturing after safety in compliance with all of our permits is all of our assets need to be running at 95% availability or higher. You can see as we're trending in that direction from the past that Mark talked about to where we are now, definitely headed in the right direction. There's a carrot for us as we continue to grab that additional 5% or so, there's 50,000 tons of ammonia for us to grab and get to the marketplace. And I think [ Damien ] is ready to move that. Some of the things that we'll talk about is we have 2 paths that I go down from a manufacturing standpoint. One is there's a disciplined approach to operations. It's making sure that your operators are properly trained, they have the right procedures and the right tools to do their jobs every time they touch that process. They're doing the right thing and not the wrong thing. The same on the mechanical side, the same on the engineering side. There's that disciplined approach to what we do. The other approach that when Mark and I were talking quite a bit when he was having me come over to the company was, "John, where can you leapfrog forward? What can you do differently that other people really aren't doing?" And some of my experience in my past that we were talking about a while ago, was we can put our data systems to use, I'll call it AI. It's a little bit sparkly. But at least Machine Learning experience that I've had in the past using tools that then watch our data 24/7, utilizing the power of the processor, define those anomalies and opportunities well before the human can see them. That does 2 things for us. One, it allows us to go up the failure curve and do something quickly or make adjustments before the asset is damaged. It also helps us see areas of opportunity going forward, but it also puts the human in a really good spot. Instead of the human trying to watch and do all these trends, the engineers, they can now be problem solvers. They're not looking for the anomaly. The anomaly is there. They come to work every day. We're doing this today. And I'll show you that some more. They now become problem solvers. So now we're elevating everybody's capability, which, again, to me, is where we leapfrog forward in the industry. So to go down that path a little bit further. Six months ago, we had no models running continuously on computers. We now have well over 2,000 models that are running -- what it's Atonix AI. It's a proven platform that moves us into Machine Learning. So that's utilizing the proven tools. We partnered up with MFG Analytic, a group of folks that came off from several different companies that are watching and putting these tools in place. And so on a Friday afternoon, all the site engineers are coming together with MFG. They're going through all the anomalies; they're covering action items and going out there and taking care of those actions. So why do I want to use a third party right now? Because they don't get caught in the storm of the day or the things that occur in plants, they can stay very focused on putting our models at play and bringing our engineers and technical folks along. And then what we'll do is we're going to start building our manufacturing data center in Oklahoma City, so then we can then bring that capability to us internally. And all it's really doing is computer systems are learning as we continue to build those models. As those computer systems learn, we interact with people to say, yes or no, it is an anomaly or not an anomaly. And then you start having anomaly detection, call them up, hey, there's something different here. They look at it, operator goes out, makes an adjustment, which is this true data right here, and we don't damage anything. So again, it's kind of that basic.

[indiscernible]

Absolutely moving towards predictive. And so instead of time-based, for example, vibration on a machine, right? We can do time-based overhauls on our compressors because it's a turnaround, so we're just doing it time-based. What happens when people start touching equipment? We can put a lot of failure into the equipment. So you don't want humans to touch the equipment until humans need to touch the equipment. So then we get to more predictive base and watching those things and then -- it's a condition-based approach to when we touch assets and a plan-based approach to when we touch assets. We know they need to be touched. We know why they need to be touched and how we're going to touch them. Any other questions here? Yes, sir.

[indiscernible]

Absolutely. So you probably saw even before I came on board, where LSB was already talking about increasing duration between turnarounds. This absolutely helps us either pull it in because I have something coming up, it gives me time to plan for it, but maybe I'll need to pull it in based on the failure mechanism that's occurring or we start looking at those conditions and go, "You know what? We were doing a time-based change out of a compressor, right?" So again, if you think about ammonia production, it's heavy on machinery, heavy on high-pressure compression. I may be looking at that machine and Damien doesn't have me doing a new project for a new product or anything, I may look at that. But you know what? Things are looking pretty good. We can move this out versus guessing. Does that make sense?

[indiscernible]

Absolutely. I mean you'll see that Cherokee has already gone to 3-year intervals between turnarounds. And so again, this is the interval between the turnarounds. It's always and again, the data, having the data. So when people ask you, "Hey, can you move this out? Can you pull it in?" We look at that data and say, yes, we can or no, we can't. Also it's big to prepare. So turnarounds when you have an outage, surprises are killers, right? So you get into a piece of equipment and Oh-oh, right? The more we have this in play, the less of those Oh-ohs and better plan in -- it's more of a surgical outage versus let's just open it up and see what we have.

[indiscernible] a little bit of [indiscernible]

Yes. I'll try to lean out there a little bit. So if you look at Pryor, for example, Pryor ran through that cold spell. In fact, was our coldest plant. So I would say that the -- first of all, it was our people. Pryor, we put a lot of solid leadership in play that has been in our industry and understands what needs to occur. So there's a lot of preparation, but is also watching the data and understanding where the people needed to go in that arena. So again, you can see things so much further up the failure curve, little anomalies, little odds and ends. I mean, this one right here was just nothing more than a little bit of a delta P across a compressor that was telling us that the air flow was a little bit off. And because we went and adjusted that air flow, we prevented damage to the assets. So again, it's pretty -- it can be pretty detailed like you're talking about, nuanced that the human may not see. The computer doesn't normally normalize things like a human does. So on a shift-to-shift basis, people just see the same thing, it's like the boiling frog or as the computer is going, hey, hey, hey, this is different. Any other questions?

As far as -- so we'll continue to go. We're well beyond 2,000. All assets now have the foundations in play. We invested in those last year, which is [ OSI PI ]. The foundation is in place, the tools are in place and the people are in place and the cadence of review of the data is already in place. This isn't a future thing. This is happening right now. So really, as just think about one team, one of the things that Mark and the team have really supported us on is we brought in a lot of talent. And so the talent being from the nitrogen industry, so my VP of reliability from the nitrogen industry, my VP of EH&S from the nitrogen industry. So we're bringing in a lot of talent that have worked at a lot of different successful companies coming in here and taking us to what does good look like. People always ask, what does good look like? Well we brought that team in that knows what good looks like and is taking us in the right direction. A key thing for Damien and I to work on Damien, sorry -- is that we can be talking about the future and growth. But my experience tells me I got to be very careful with that because I've been part of companies that do a lot of growing and forget their current assets. And then those assets degrade while everybody is focused on building new stuff because what does engineers want to do? We want to go build something, right? So what we did is we separated our teams. So we have a specific team that is putting capital at play on our existing assets effectively. In fact, we have a great cadence with our leadership team to make sure that, that capital is flowing in the right direction, Damien and I are on each other's hip there every week, working with our team to make sure that our assets get to 95%, and we get that 50,000 tons. We've created a separate team and brought in another expert in large capital investment to assist us in building out that side of it. So as you all will listen to Damien as well as Jakob is when Damien comes and says, "Hey, we're ready to grow this asset," I'm prepared to do that without hurting the base. Or when he comes and says, "We're ready for blue and green," I'm prepared to do and execute those projects without hurting the base. So again, it's all about the team that we've been allowed to put together. And that gets me about towards the end here before I bring Damien on board, is there any other questions from a manufacturing standpoint? Yes, sir.

[indiscernible]

We're going across the 90% spot right now and a lot of it is around our big machines and making sure our big machines are -- the failure mechanisms are understood. We're tracking them and we're prepared for them. And so we're doing a lot of investment right now in spares and making sure our spares are ready for us. And so when those opportunities do come up, we have that opportunity to upgrade, if that makes any sense. Again, it's kind of the blocking and tackling that gets you to the 95%. Also with that, I didn't bring up. Over here, too, is also what we would call creep. So I spent a lot of time in the refining industry, making gasoline. And every time you touch an asset, you want to look at it and go, "Hmm I wonder what I could do to get a little bit more through this?" And so we're taking that approach. And that's really on this side with this team, not on the big step change type of projects. So again, our team is always looking at the machine and going, okay, I'm going to buy a spare -- the spares asset-intensive, what can I do with that spare to try to make it a little bit bigger, a little bit of this, little bit that so we can get an extra ton or 2 out. By the way, having to watch our operating permits and all those type of things that occur, which, again, we've got a lot of great staff on board that's helping us with that.

[indiscernible]

You're right. We have examples. The Cherokee site operated at 96%, urea plant operating well above the mid-90s. So we are starting to see that starting to pop. And again, any time you get an opportunity to touch something, my direction to our team, it's always OEM or better equipment -- original equipment manufacturer or better. We don't touch it unless it's going to be better. And so again, to do that, we had to bring on the talent and we have to have the partnerships with the key contractors such that when we do touch something, it's going to be better.

[indiscernible]

Yes. So on the discipline side of it, so my VP of Environmental Health and Safety Hannah Valmont, when she came in, I asked her to do a quick -- not a quick, she actually did a detailed review of all the sites and where do we stand. And from an operations standpoint, you kind of got this procedure training, procedure training, and we said, go to procedures. We went right to procedures and now we have a cross site one procedure system. I can pull up procedures right here, that the operators and my goal is for every operator, and you hear my folks is an operator needs to go like this, the procedure pops in their hand, it's accurate. And if it's not accurate, they can red line it and it's back and forth back in their hand, because an operator has to have those procedures they rely on. It's almost like a customer looking for that product that really works for them because if it doesn't, they're not going to use it. They're integrated in the process. And today, I think we went through almost 500 procedures last year, getting those procedures upgraded to the same template across all 3 sites. And it's probably one of our first cross-site initiatives besides our personal protective equipment program we put in place right in the beginning. So again, you would be able to come in our sites. I'd be able to pop up those procedures, the operators would be able to talk to you about those procedures and how they utilize them.

[indiscernible] in terms of the onstream initiative and the last 2 turnarounds that you did. Did -- were there any stair-step improvements coming out of those turnarounds?

Yes, the biggest stair-step improvement, I won't say, the biggest, a very big stair-step improvement was how we touch our big machines. So again, getting the expertise on our compression such that we are repairing things right such that they're going to continue to operate as well as be monitored. Even bigger than that was putting in our historian, our [ OSI PI ] historian across all of our sites with the network across all of our sites at first is secure, but allows us to see our assets. So today, with how we're monitoring, we can basically get any knowledge on the globe involved with us directly to help us with issues, whereas 3 years ago, my biggest concern was I can't see anything. I don't know what's happening at this plant. I can't share knowledge with somebody say, Black and Veatch in Kansas City, I can't share knowledge like I was used to in my past. Today we can because we -- during our turnarounds, we were able to put all those projects in play. So again, getting 2,000 models in play over the last 6 months, and our engineers involved every week going through their data and going and making improvements. That was a big step change for us.

[indiscernible]

A little bit well over 5,000 and improving all the time where the computer systems are showing us where to improve, what to monitor. And then also what's happening with us there, too, in those interactions is what additional instrumentation could we put in play that would even give us better data. Getting that instrumentation installed during our turnarounds such that we can do better and actually outside of turnaround because wireless infrastructure for anomaly detection is fine, right? I'm not controlling with it. I'm just monitoring assets. So I can go out there all day long and start putting in wireless instrumentation that will continuously bring in data, such that the operator is not walking around there writing down numbers every couple of hours. So that kind of stuff. $1,000 a pop, you can -- I can bring data in pretty quickly without a turnaround. So again, discipline. No different than we operated in the 50s and 60s and 70s, disciplined operations, but now get the data, give us that big step change and improve our assets. With that, I'm going to hand it over to Damien Renwick. Thank you.

All right. Thank you, everyone, for coming. John talked about us being joined at the hip. I sort of like to think about it as I have to be on John's back all the time. I have to be the monkey on his back because if he's the monkey on my back, that means the tons aren't moving, the product is not moving. But if he's always under pressure operationally, that means there's always a drive to find that next incremental improvement, drive to produce more tons so that we can continue to sell and transact and create value for our shareholders. So yes, I've got a funny accent. I'm Australian. Why am I here? Well, basically, we've got a great value creation opportunity. I've been in nitrogen chemicals for over 20 years. And this business has a lot of low-hanging fruit. It's got a lot of inherent growth potential. And for me, that's really exciting, it's what got me here. And it's what we're all here for, is to try and drive improvement, create value. And hopefully, I can convey really what that's all about. 9 So our assets, you can see them there. Look, the point of this slide is to show you where the assets are, right? We think we've got some really nicely located, strategically located assets that access different parts of the market. So corn belt from all 3 of our primary manufacturing facilities, the Southern Plains out of Pryor, Cherokee really well placed to supply the Eastern corn belt, okay? That's not really the heart of the corn belt. So where all the competition is located, but it's really a nicely niche part of the market where we're able to compete really well, very effectively for pricing as well. So greatly positioned. We've got our Baytown facility. Let's not forget Baytown. We operate a plant for Covestro down in Texas. That all goes into the polyurethane business, but we operate that, have done so for, what, 20 years. So a great partner of ours down there, and we also market the excess nitric acid coming off that. Look, as a U.S. nitrogen producer, we are leveraged to low-cost, very competitive natural gas. It's a huge competitive advantage for the country, and it's also a competitive advantage for us. That's huge. Our assets as well, John talked about how some of our assets are able to move between industrial and ag. That gives us a lot of opportunities as we think about our strategy, and I'll talk more about it, but we can think about where can we find the most value, in which market and those assets are flexible enough to allow us to take advantage of those opportunities. The network, Mark talked before about how we never ran our business in an integrated manner. One of the things that we've really tried to focus on commercially is how can we run these assets collectively as a system, as a network? Our value proposition for us to our customers is reliability of supply. So I can leverage all of those different assets to make sure that the customers are getting the product when they want it. And that from an industrial perspective is very important for our customer base and being able to leverage our assets in that manner really is opportunity for us to differentiate ourselves and create some of that value, okay? I won't spend too much time on this slide, but it gives you a bit of a flavor for where our products end up. And we're a diversified business. And I think that's pretty different to some of our competitors. We -- and I'll show a slide in a second, but we're probably 50-50 in terms of volume into either an ag market to a farmer or to an industrial user for either explosives or to make a downstream value-added product like polyurethane into foam that you all sleep on, on a pillow or your mattresses at home. So we participate in all of those markets. And again, that creates opportunities for us to maximize our positioning, leverage and optimize, choose the best netback opportunity for our business. And that's a huge -- in our mind, a huge value creator for our business, okay?

[indiscernible] vehicles, I mean you talk a lot about the asset utilization and just getting the best dollar over counter the end-to-end product. Do you care necessarily the end markets? Do you think about the world in terms of maximizing -- is it really just we want to get the best value for our product and sell out the plant?

Yes, I'd like to say I'm completely agnostic to where it goes. That's not my job. My job is to focus on driving value and driving the best netback possible. So I don't have any allegiance to a fertilizer or to an explosive product or anything. Again, it's what's the right opportunity? How do we think about offtake ratability and stability? How do we think about counterparty risk, how do we think about seasonality? Lots of factors into all of that, right? Exposure to spot price movements and pricing going up and down, for example. Again, if you hang your coattails too much on one end market, you're going to be blind to other opportunities.

So when you -- when you go to market, do you try to find areas where you consider yourself a partner to these customers to maximize that value and maximize the optionality? Or are you just you can talk a little bit about just this matrix here? And how you think about the go-to-market if at all?

Yes. Look, again, particularly with our industrial customer base, I mean it's very much driven business-to-business transactions, right? And the value proposition to them is you have to be a partner for them. Being a partner creates trust and confidence because I don't want to have to worry about us as a supplier, particularly if you consider our downstream supplier to another chemical plant, right? I just want to be able to run that plant like we do every single day, day in, day out. If they're worrying about their nitric acid or their AN or their ammonia then we're in a lot of trouble because they're focused where their focus should not be. So again, creating that partnership, the trust, reliability, I mean, our striving for 95% on our plants is very important commercially, right? Because it creates that repeatability, that reliability and allows us to make those promises to deliver to our customers. And that's what they value right, particularly again, industrially, yes?

Can you walk us through the pricing dynamics on the CO2 that you currently sell?

Look, I mean, some of those CO2 contracts -- they're what I would call legacy contracts. So they've been priced at a different point in time. How we might think about that today is probably significantly different. So -- yes, and look, some of those contracts, we've got some longer-term contracts. We've got some contracts that roll off very soon, so we'll be able to rethink pricing there. Yes?

[indiscernible]

Look, it's different. Yes. Yes. I mean $85 is a nice little price, I think. So. Yes. Certainly, I'm sure it become part of the conversation sooner or later. Yes?

[indiscernible]

And do you have the capability to capture the carbon too is a factor? Yes.

So you joined at a pretty interesting time in terms of where the market was, but you said you've been doing this 20 years in nitrogen. If we go back 5 years or so, we had a lot of fears over inland premiums and then the whole market collapse. So we didn't really have a great litmus test for what a tight market might look like in terms of inland plants. What were the big surprises for you over the last 18 months or so?

Look, I think just how far the nitrogen market ran, right? Like I don't think I would have ever envisaged seeing a 1,600 [ Tampa ] price. So that, to me, was a really big surprise. And I've seen a lot in this market as well. I came from an old school of thought where Middle East FOB 150 was the long-term projection, right? And we got to [ $16.25 ] or something crazy. So I think -- look, the ammonia market is like any commodity, right? It deals in supply and demand, but it also deals in prevailing sentiment. And it can overshoot some what you would think is the rational high and also the rational low. So over the last 2 years, I think some of those supply shocks and again, to see how the market is settling out now where it's lost a few million tons of Russian material off the global seaborne trade and how it's dealt with that as efficiently as it has. So yes, there's always a surprise around the corner in nitrogen. That's for sure.

With some of the recent headlines in some rail issues, but just generally, when we think about the investment in logistics in this country, I mean how important we're not I don't want to get ahead of the capital allocation discussion, but how important is -- is that to how you think about managing your plants 3, 5, 10 years down the road? I mean, we've built what one ammonia barge in the last 40 years -- [indiscernible] rail just keeps getting more expensive. So how are you thinking about that?

Look, it's been an ongoing challenge over the last, certainly, in my 2 years here. I mean when I joined, trying to even get a truck was a challenge. And so the logistics infrastructure of the country and being able to rely on getting our product to our customers. I think it's something that collectively, as an industry, we've got to really help focus and drive and -- our colleagues at the TFI do a great job of supporting our industry. As we're talking about, for example, rail issues, we've had a lot of challenges over the last 12 to 18 months with rail embargoes, and that's -- that's concerning, right? So yes, it's something that we think about. But again, with our logistics team, their job is to think through, okay, what are our contingencies? How do we think about this? How do we think about creating new arrangements with transport suppliers? So we've -- for example, over the last 12 months or so, entered into dedicated trucking arrangements where we have withdrawn a little bit from that spot market on -- can I get a truck or not? Having a fleet of trucks sitting there working dedicated to us. We can do what we want with them and how we want. And again, that's a little bit of different thinking. So the market requires a bit of sort of mental gymnastics on that front.

So again, let's just give some context to what our business looks like. So the split by revenue, about 60-40 in this example here for 2022 by revenue. On a tonnage basis, it's probably closer to 50-50, but what you see there is the benefit of the spot market pricing in nitrogen and fertilizer is really influencing the share of that segment of our business. But again, like I talked about previously, the industrial part of our business is really important to us because it offers different characteristics. So the offtake ratability and stability, certainty of supply. I'm not thinking about, oh, gee, is it going to rain or is it -- is it going to -- someone going to put fertilizer down or not? Like it's business that's a day in, day out, day in, day out. And we value that, and it's a core differentiator for us. You can see the split by the products. I won't spend too much time on that. And then the balance between how we transact with our customers. So we either transact on a spot basis. So there's no underlying contract or we have a contract, okay? And the advantage of the contract is, it gives obligations on a supply, on a purchase. We have a whole variety of pricing mechanisms all the way from cost pass-through to index-based pricing to some other form of pricing, okay? So it gives us a lot of flexibility in that methodology to really leverage value depending on where you're at in the market as well. My team spends a lot of time when we come up to renegotiated a contract. Are we going to extend? Are we going to look at something else? What are the alternatives and how we think about crowding the best outcome for the business?

[indiscernible]

No. Again, no target, right? Again, agnostic to how we do it. It's about the point in time where do we think the best value lies. And then that -- what happens as a result of that will drive where these donut charts fall out.

[indiscernible]

Yes. Look, I think the contract is probably more focused on some of the industrial or products that go into industrial markets, for example, ammonia, AN, nitric acid, sulfuric acid. So yes.

Hello? Yes, last one is how has that changed in the last few years from a strategy perspective?

Look, from my perspective, I don't really think that much has changed too much. The ag share has probably grown a little bit, but that's a consequence of where pricing has been. Again, there probably is a change in some of the split of products. So we've taken some decisions to perhaps grow market share in AN, for example, and -- so a classic example of that is the Russian AN, which would typically be imported by an explosives producer for an emulsion product. So some parts -- some companies don't want to participate in that -- in those imports anymore. And so we've been able to grow market share there. And so that then is a decision not of product, but of end market, okay? So I am I going into explosives or should I keep that AN for fertilizer use, okay? And again, that decision is around, okay, well, here I can get some offtake contract and ratability and maybe a better price. And I'm going to take that this is the risk of is it going to rain or not.

So our markets. Yes, like it's been a pretty exciting last 2 years in nitrogen, put it that way. Why? Well, I think these 3 charts summarize it pretty neatly. We've had the dislocation for one of a better word in European natural gas costs. You all know the reasons why there. That's really driven some fundamental changes in how the ammonia market works. It has made Europe the marginal cost producer globally, and that then helps to drive where pricing goes. So you can see sort of correlation between that TTF chart on the left and what the ammonia price is doing. Don't get me wrong. All of those markets have their own supply and demand nuances and things going on. But generally speaking, the change in European natural gas cost has really changed how we think about nitrogen pricing throughout the globe and the global supply chain for nitrogen. So if you then were to project out how we think then or what does the next sort of 4 to 5 years look like from a nitrogen perspective in pricing terms, you've really got to look to the TTF futures and where they're at. And currently, they're sort of hovering between $10 and $15 an MMBtu in U.S. dollars. And so that translates into the pricing that we've got in that chart there. So that's not a price forecast by any stretch of the imagination. It's just a translation of where does a TTF at that point, how does that translate to into what are European producers going to need in order to be able to run their plants, okay? So that should put a floor into pricing. Yes, Rob?

In terms of the spread of natural gas in the U.S. and over in Europe, how big of a spread is necessary in order for European demand to show an impact in terms of ammonia prices?

Look, good question. I don't know if there's a scientific answer to that. If I look back even just at that chart and I see TTF, call it, $7.50 in 2018. I don't really think that had a huge influence on global prices because at that time, that region wasn't the marginal producer. However, today, they are. So the next ton that comes out onto the market is going to come from one of those expensive plants. So I don't know if there's a real difference in dollars per MMBtu, Rob, but I think you're seeing it drive today and what are we 3x to 4x on U.S. prices.

Okay. Grain prices as well. Look, here's a bit of a snapshot of what we've seen in grain and farm economics are strong. And they are encouraging of a farmer, not only here in the U.S. but a farmer across the globe, to plant some crops and pricing -- the pricing environment is very supportive of record production. What's been driving that? Really supply and demand, a shortage of the grain across all of the key crops has driven end-stocks globally lower and lower, and that's flowed straight through into pricing. So on that pricing, again, farmers are generally hard to please, but I think they would all be pretty pleased today and the USDA is forecasting 92 million tons for the next crop year, and we think that will drive very strong nitrogen demand. And we think that with the end-stocks where they're at, this environment will continue for 2, 3, 4 years and create -- continue to create very sound demand profile here in the U.S., which we'll be well placed to take advantage of. So in our industrial and mining markets. Look, strong fundamentals across the board really. From a mining perspective, key commodity prices, copper, iron ore, gold, they're great, really relatively recent were trading near record highs across most of those products. What does that mean? Who cares? Well, for us, what it means is that miners here in North America with relatively low cash costs are going to be incentivized to continue to produce and they're also going to be incentivized to continue to explore for the next ore body that they could turn into a mine and add to their reserves and production outlook. So that will continue to drive strong demand especially in explosives. Industrially, look, there's probably some of our customers or industrial producers, there might be some concerns about where -- where their businesses are at or what's happening if there's a recession or something like that. But for us, again, our offtake arrangements and our position and diversity with different customers across different molecules enables us to, I think, give us a bit of insurance against some of those either recessionary or reduced demand situations. And for us, that's a positive thing. So up until now, we've seen very little impact in our key business in the industrial segment. But there's some good tailwinds behind that business at the moment. China is reopening after their COVID lock down. That's very supportive. That will help support a whole range of commodities that impact our business. Obviously, the nitrogen chemicals as well. So that's a good positive for us. I think a key factor here in the U.S. is that resurgence of local manufacturing and trying to onshore or re-sure whatever the wording is, of manufacturing capacity back to the U.S. Again, that's good for us because for some of our products like nitric acid, sulfuric acid, that industrial manufacturing is dependent on those sorts of products. So that's a positive for our business going forward. And then I think, again, on the supply side, particularly into these markets, there's limited domestic investment in supply capacity. So again, that's a good story, particularly as demand starts to grow. So you can see on the right-hand side that our little triangle that my team spends a lot of its time thinking about is, where do I put this molecule, into which space? And we've talked about that. But quite obviously, the last 18 months, there's been a lot of pressure on the industrial side of the equation because ag prices have been so good. So as a producer, we've been incentivized to divert more of our tons into ag at the expense of an industrial customer. So that then naturally draws up pricing or other favorable arrangements in that customer mix. So again, very interesting times in that part of our world anyway.

[indiscernible]

Yes. So the question was around, what's happening in mining with -- from a volume perspective, et cetera? Or is it just price related? Look, I think from a U.S. perspective, it's probably just a price story at the moment. There's a good story to tell on gold and iron ore, but that's really more of a Canadian or perhaps a Mexican story rather than a U.S. story, but that affects us. We supply North America. So there's a bunch of gold projects really in the pipeline under development at the moment. And similarly, for iron ore, there's iron ore expansions being undertaken in Canada. Gold here in the U.S., I would say, is fairly stable as is copper. So it's really a price story there. But what you might want to think about is if the price is kept at a high level for a long enough time, will that encourage the miners to really think about going after some of the ore bodies that they have that perhaps have been uneconomic in the past? So there could be -- and I'd be hopeful there's a volume reaction. Because, again, if the world wants to electrify, it's going to need more copper. It's going to need more gold, and that will be a positive story even here in the U.S. Yes? Sorry, if we can permit it.

Just between industrial and agriculture. Can you discuss the historical price differential, where it was at the peak, where it was the trough, where it is today and why the prices don't over time, normalize?

I think that over time, they don't normalize because you're at different points of the contracting cycle at any one time. So you may have some legacy contracts that are either price really high compared to the current market or the opposite at any one time. So I think that's really the -- a key determinant there. Again, where you price a contract from an industrial perspective will really be a function of where you're at in the current context. So the low probably came 2, 3 years ago that if you were unfortunate enough to be in a position where you had spare ammonia, particularly here in the U.S., you're probably going to price that very competitively. And you'd probably be looking at that contract today, going oh my God, what was I thinking, right? So yes, whereas if you've got an ammonia contract today, you're probably going to be pricing it relatively differently to what you would have 2, 3 years ago even. Yes?

[indiscernible]

Yes. So the question really, why we're at where we are today with nitrogen pricing, particularly for ag here in the U.S.? Look, we care a lot about urea. We're not a player in urea, but it affects a lot of what happens in our market. So we have to have a point of view. I think with where nitrogen pricing got to, it really created a little bit of a disincentive for the farmer to buy. And again, this market is all about moving a huge volume of tons which are consumed in one very -- or a couple of very small time periods, but moving that volume over a number of months. And what you've seen in the dynamic this year is a bit of reluctance from the farmer to really transact and take some tons or even the retailer being very cautious about taking tons and filling their tanks and potentially being exposed from a pricing perspective. So I think that's created some of the bit of standoff that we see today, but we remain pretty bullish that the spring this year when it eventually starts is, and we're hopeful it starts pretty soon that it will be a good spring and there will be constraints on the logistics side of the equation, and that will probably lead to some pricing pressure. So as we think about it, what have we done commercially? And it's all about commercial excellence, no different to John and our operational excellence. But for us, we've got to be excellent commercially. We've got to make the right commercial decisions. We've got to understand our market. So here's -- this is our strategy. And really, we're focused on 3 key objectives. Making sure that we're sold-out. When I started -- Mark, we weren't sold-out when I started here. And to me, it was like my God, how can we not be sold-out, right? Like a chemical producer has to be sold-out because you make all your money on your incremental tons, okay? We have to be focused on the asset creep, debottlenecks, driving more because it leverages our fixed cost base. So again, working with my team and with John to really be focused on that. But that doesn't mean that we're just going to sell tons, right? Our job is still to optimize returns. So how do we do that? How do we maximize the returns? And also how do we drive customer satisfaction? And there's a lot of aspects to that. But the way we think about it, we didn't have when I started a point of view on our markets. We had no internal capability to understand or analyze what the nitrogen markets were doing, not -- let alone globally, let alone domestically here in the U.S. And nitrogen markets -- there is a nitrogen market outside of the U.S. that has a huge bearing on what happens here in the U.S., okay? So helping the team understand what that looks like, what are the ramifications, and therefore, what's our point of view and how does that point of view help us make a better decision. So we've been really focused on that, developing the internal capability to make better decisions when it comes to selling our products. Again, the focus on growth as well, there's a huge amount of opportunity in our assets, and I'll talk about some of those expansion opportunities. But it's, again, very important commercially to drive that focus and, again, work with John and his team to really think about where is our next expansion coming from, where is our next debottleneck coming from? How can we optimize this asset, how can we load this product out of this facility so I can access this better netback? All those sorts of decisions. So in terms of drilling into what that looks like, again, like John, it's been all about the people for me and investing in some talent, again, with a focus on deep industry experience, global thinking, commercial acumen, again, what is it -- I get very insulted when someone internally refers to my team as the sales team. I hate that. We're not about sales. We're about commercial, we're about driving returns, getting the best outcomes for the business, okay? So recruiting people that understand what that means has been really important for me. The analytics capability, again, just like monitoring our machine sets with [ OSI PI ]. We've got to monitor what's happening, understand what the leading indicators are, how do we think about Chinese urea or the next urea tender from India, and what does all that mean for our little business. And then the sales capability, taking opportunities to transact at the right time, at the right price, really important. I talked about being agnostic to the market. And that's really driven a change in our strategy to market or how we think about it internally. And we've pivoted away from an industrial ag structure to a product structure. Why? Again, I think I've got the point of view that, particularly with product like ammonia, you can't sell or market ammonia here in the U.S. without knowing exactly what's going on industrially, globally as well as what's happening on the farm. You just can't. Whereas previously, those functions were separated and that structure, in my opinion, really led to some suboptimal outcomes. So we've fixed that and seeing the benefits of that in how we do business. And then another big one for us, and this was really a pretty straightforward decision in terms of value creation, but assuming the marketing of our own UAN out of Pryor and then also Cherokee. We had the railcar assets. That was a wise decision by previous management. So the logistics equation was pretty easy, straightforward for us. And now we're much, much closer to the market, much closer to our customers. And we can understand what's really going on. We're not hearing it through a middleman and not hearing perhaps a filtered message. So for us, that's a huge value creation for us and allows us to be nimble, allows us to sell into parts of the market that we've never sold before. We've increased truck sales. We're looking at in-terminal -- or in-market terminals as well, again, all these options that weren't at our disposal over many years. So that's been really exciting for our business and so far, has been very well received by the market. Any questions?

[indiscernible]

Yes, I think it would be relatively meaningful. I can't give you an exact number. But single opportunities have delivered us multiple millions of dollars, right? Renegotiations of contracts or deciding to pull out of a supply arrangement in favor of a better opportunity, again, it's been multiple millions of dollars. So that all adds up pretty quickly. So probably at least double digits and the rest. Cheryl, do you agree with that?

Yes.

At least. Yes.

[indiscernible]

Look, let me talk about it from the context of our expansion project, and we can talk about it there, yes. We talked about the margin improvement projects. Here are some examples of where we've gone after some really low-hanging fruit, in my opinion. We've got some UAN expansions that we're considering at both Pryor and Cherokee. A couple of stages at Pryor, but we're really focused on bringing those to the market in short order, help us increase our UAN capacity by over 50%. So that's very meaningful for us. Why we're choosing to do that, because there's an upgrade margin available to us over, say, just selling basic ammonia. So it puts us in a better position. Grows our footprint as well. Our Cherokee acid plant, we're in the process of converting that to 65%. The 65% nitric acid business is meaningful for us. And we're a leading, if not #1 player, in that market here in the U.S. And this conversion, again, gives us additional flexibility and options around how do we participate in that market, how do we provide our customers with additional security of supply, et cetera, et cetera. And then, again, the -- something that's not so sexy, building storage tanks. You wouldn't think that's a margin opportunity, but now it is. When you don't have enough storage capacity, you're very exposed to swings in customer demand, you're exposed to swings in production. And so by having additional ability to store product when we choose to, we can then make sure we don't lose those tons because when you don't make it, those tons are lost forever, okay? So this is really important for us, and we continue to work through our network, looking for opportunities to optimize what we do. These are the 3 examples. Now we've got a huge list of projects and low-hanging fruit that we're working through. If you think of it in capital terms, up to about $10 million, right, hundreds of thousands of dollars for specific initiatives that can generate very strong returns for our business. So we're continuing to work through a very long list. Like I said at the beginning, there's a lot of low-hanging fruit in our company. And some of this is just easy mop up. And we're just working through that list, prioritizing what's going to drive the best returns, all the way through to something that perhaps is a little bit more difficult but still meets our requirements. So it's very exciting. I mean this sort of stuff is fun to do. A lot of fun. Okay. So -- but this is the most amount of funds. So where are we all heading with some of our assets? So in particular, El Dorado. So El Dorado has a significant amount of potential in our eyes. So we've got a very significant debottleneck pathway opportunity in our ammonia plant. That creates opportunities for us downstream to further invest in our AN -- nitric acid AN assets and then creates the opportunity for us to diversify El Dorado into UAN. And that's really exciting for us. This project was the basis of our grant application to the USDA. So it's additive. We believe it meets all of the USDA funding criteria around increasing the availability of domestic fertilizer production. Really, it's a play on import replacement, okay, so offsetting imports coming into the country with -- and leveraging our competitiveness with natural gas. So it's an exciting project for us. It also gives us a lot of flexibility at El Dorado around how we operate that asset and what the product mix can look like, particularly when you then combine it with our AN assets, both our fertilizer-grade and our explosive-grade products in AN. So it's very exciting for us. So we're getting close to completing the feasibility study there. We expect to progress into FEED mid-2023. And obviously, working very closely with John's team on what does this really look like, how do we support this project? The capabilities that we need -- John talked about some recent talent adds that we've made to the business to really support projects of this scale. And this project, as it stands today, has a capital cost estimate of around $400 million to $450 million. So yes, to answer the question, there is an opportunity to leverage some of that CO2 being produced at El Dorado to help diversify our product mix, go into UAN. Not so much granular urea at this stage. We're really thinking about UAN and growing our footprint in that market. We've got the AN capacity already there. So again, it's an optimized expansion pathway for us. And yes, we're very excited about this one. It's great to have this sort of type of expansion up our sleeve. The expansion pathways on the ammonia plant have been done before by some of our friends in the industry. So it's known. And we work on finding ways to make this project really drive significant growth for our business.

[indiscernible]

Pretty much. Yes. We do have some options in there, though, and we're looking at how we think about our AN molecule as well and perhaps what that mix looks like from an explosives versus an ag perspective or some opportunities to perhaps do something different with our fertilizer-grade product. So again, there'll be -- we continue to work through what this mix looks like, but yes. Yes.

[indiscernible]

Yes. So a typical nitric acid plant, you look -- it makes around a 57%, 56%, maybe 58% grade. So you've got to concentrate it up. And you really do that because you don't want to be carting water around all over the place, makes your freight very expensive. So -- and some end users prefer that grade because it optimizes their own production and they don't have to concentrate it themselves. Yes.

[indiscernible]

Yes, I'd love to, but it's in the hands of the government. We've been told sort of late spring timing. But does that happen? I hope so.

[indiscernible]

Look, Cheryl can talk about that. Again, we keep working through in refining our estimates. And of course, market pricing is a huge factor in some of that as well. So -- but Cheryl will talk about the opportunity there, unless you want to chime in now, Chers?

Yes, I'll just [indiscernible].

Can you give us an idea of magnitude of total cost for [indiscernible] and how long projects might [indiscernible]?

Yes. They're both in the $0 to $10 million range. It's probably closer to the $10 million for each of them, the first stage of Pryor and the Cherokee expansion. The second stage of Pryor, which is a much bigger expansion for us, we're yet to get estimates on what that looks like. But I dare say it will be sort of in that maybe $10 million to $30 million range, something like that.

[indiscernible]

Yes. Okay. Well, I think at a break now, are we, Fred?

Let's resume at 2:00. [Break]

Everyone, are we ready to get going?

Hi. If we could all just get seated so we could resume. We've got a closing bell to ring here. So we've got to stay on schedule.

Can we delay the closing bell a little bit, no?

All right. Welcome back. My name is Jakob Krummenacher. I lead Clean Energy for LSB. A little bit about my background, I'm a chemical engineer by training. I spent the first 12 years of my career in the oil industry. I worked for BP all that time as an oil trading analyst products. Last 4 years in my time at BP, I was the lead analyst in the Marine Fuel bench. In 2017, I changed careers, changed commodities in reality. So I went to CF Industries, which happened to be 2 miles from my house. So it was a nice and easy commute that went from an hour each way to like a 5-minute drive. For the first year at CF, I was leading the markets research team. But then very quickly, the conversation of hydrogen and ammonia as potential clean fuel started. And when you're the only energy guy in a fertilizer company, you're automatically employee #1 of the Clean Energy Solutions team. I was -- I started under business development, and then that morphed into the Clean Energy Solutions team that CF has today. So I joined LSB in September of 2021. And the main reason why I joined is because I believe that the vision of the executive team and the leadership of Mark in the sector of clean energy is very valuable, very palpable and real. So that's why I decided to join. And as you can see, in less than a year, we have a couple of projects going. So first slide is a reminder of why we're doing this, right? The world, whether you go and look at the Kyoto Protocol or the Paris Agreement, they're all talking about these problems. We have a 40-gigaton CO2 problem. That's a net releases of CO2 globally every year. The 2 charts that I'm showing here is the sources of those releases. The one on the right is by country. You can see pretty much China and the U.S. are responsible for almost half of it. So any protocol that wants to move forward and then doesn't have China and the U.S. in it is going to have a hard time doing anything on the 40-gigaton number. The chart on the right (sic) [left], it shows you the sources by industry of those CO2 emissions. And you can pretty much say that about 80% of it are related to energy. You can see industry there has 21%. That's where ammonia production falls. Ammonia production is actually 1.2% of that pie. But the industry, you're really using Nat gas and other chemicals and fuels to generate heat to drive chemistry. So indirectly, it's also an energy source type of emission. Agriculture here shown as 24%, that includes everything related to agriculture from the emissions generated by the diesel-driven tractors and combines; emissions generated from fertilizer application into a CO2 from urea; and cattle and farming and everything, land use. So GHG emissions from cattle is about 4% of that pie. So next time, when you hear somebody say, well, the real problem with GHG emission is because we eat too much red meat, you can pull this chart out and say, oh, no, no, no. It's all about energy. We are using way too much energy. We use -- we have an energy-intensive population. We like our houses cool in the summer and hot in the winter. We drive our cars as opposed to using public transportation. We all flew here in diesel-driven or jet fuel-driven planes. So that all adds up, and that's how you end up with these kind of numbers. So since energy is the problem, then energy needs to be the solution to the CO2 problem. Energy, if you think about energy, there's only 3 main things that energy provides to society. There is heating, power & light and mobility. And as you can see here, where we are today, we spent the last 130 years or so on developing a global infrastructure based on carbon-based fuels. You're looking propane, coal, gasoline, diesel, jet fuel, bunker fuel. And we're being slowly moving towards cleaner and cleaner fuels, renewable energy for the most part. Some places use biomass, biofuels, ethanol, biodiesel. But in order to get to completely clean energy, you're going to have to see hydrogen and ammonia be part of the whole picture. Ammonia today is being thought of as marine fuel. So in the mobility section over here, there are several companies working on that. In fact, MAN ES and Wartsila, the 2 largest marine engine manufacturers in the world, they have about 65% market share. Both of them have ammonia engines under development today. MAN ES in fact, is retrofitting an oceangoing vessel in a shipyard in Denmark. It's expected to be done in late summer, early fall. And at that point, it's going to be completing a route in the Baltic Sea, going Norway, the U.K. and Denmark in a place where they can refuel ammonia easily. Wartsila similarly is doing a marine fuel -- a marine engine run on ammonia. They're going to retrofit it on a vessel that is going to be off the shore of Norway servicing windmills that are offshore windmills, and that's going to be running on ammonia, our ammonia-electric type of combination. So in terms of demand and what people are saying, I mean, you can get a certain numbers of entities or agencies trying to forecast demand -- oh, we have a question?

Yes. I mean, marine application and just fuel in general and -- how are they progressing on NOx emissions and oxybate [indiscernible]?

So there is a couple of things. When you're looking at ammonia as a fuel -- oh, so the question is how is -- how are they progressing on the NOx emission in the marine engine applications. So there's a couple of things. Ammonia as a fuel has an advantage that it doesn't ignite, it won't explode. But it's a disadvantage when you want it to explode but still in there of an internal combustion engine. So you need a primer fuel. In the case of MAN ES, they're using diesel -- a small diesel tank and injecting 2% diesel into the cylinder in order to get it burning. What it does is that it helps ammonia reach the initial temperature, reach the flame speed to get a more of a complete burn. And then the NOx amount that you can get at the exhaust is low enough that you can catalytically convert it, similar as a car. And Wartsila is doing the same thing, but they went the other route. Instead of using a small diesel tank, they're using compressed natural gas. And they're doing about 3%, 3.5% injection into the cylinder. So that's how they're controlling for NOx. {:MDA/> So in terms of demand, 2020, hydrogen production globally was about 74 million metric tons. As you can see there, half of it was consumed in refineries primarily to remove sulfur from crude oil and to be a hydrocracker feed. Every time you're trying to chop that long hydrocarbon molecules of oil, you're going to be in a deficit of hydrogen. So you need hydrogen to make diesel, gasoline and other products. 1/3 of the ammonia in the world is completely made and consumed by ammonia plants, and it represents the 187 million metric tons of ammonia, which today is roughly 80% ends up in the fertilizer market, either as ammonia or downstream products and 20% ends up into the industrial markets, either as ammonia, AN or some urea as well. In terms of future growth, the expectation is that conventional users will continue to grow at 1% to 1.5%, like they've been doing for the past 10, 20 years. But now people are forecasting an incremental 20 million metric -- 12 million metric tons of ammonia demand for new applications by the year 2030. It's roughly 7 million power generation, mainly in Japan. Some tons are expected to go into South Korea as well as those contracts are looking to retrofit their current coal-fired power plants to run on ammonia. And then there is about 5 million metric tons for marine fuel applications. As the IMO tightens the regulation of reducing your carbon emissions by 25% by the year 2030, marine fleet owners are facing how can we reduce that. So one the ways they're trying to do that is to improve fuel efficiency. Right now, most vessels, the engine is attached to a propeller. And you want to go faster, you burn more fuel. So they're looking to retrofitting with gearboxes so that then you can go at a faster speed with a lower RPM and improve your fuel efficiency. In addition to that, they're looking at methanol and LNG as potential fuels that can help with the 2030 mandate. Once 2030 comes in, the Net Zero kicks in by 2050, they're going to have a complete carbon-free fuel, which today ammonia is being thought of as that potential fuel. Now if you go further along, 2050, you're looking to almost doubling ammonia production. Today, you have 100 million metric tons in marine fuels. I put a little bit into the hedge carrier and then you get 30 million metric tons into Japan and South Korea for power generation. So how are we going to make all these low-carbon products and it all comes -- low-carbon ammonia? It has to do with hydrogen, right? You have to make hydrogen before you make ammonia. So how would you make hydrogen? People around the world, particularly in Europe, they came out with these color scheme based on what process you're using, right? There is gray, conventional hydrogen that you make out of natural gas. Most of the hydrogen in the world today is made that way. There is blue hydrogen, which is the exact same thing as gray, where you take some of the carbon and you permanently sequester it. It doesn't say how much you need to capture and sequester in order to call it blue. So long as your process captures some of the carbon sequesters, then you can call it blue. Then there is green hydrogen, which is electrolytic hydrogen. It's a process entirely without carbon. And then there is turquoise hydrogen. It's a process where you separate the carbon from the hydrogen without any oxygen. So you end up with no CO2, but you end up with Carbon Black. Carbon Black is the primary raw material for tire manufacturing, for example. So there is thought that there is a certain timeframe where that carbon is being captured in the form of tires. And then there's more, there's pink, yellow, white, brown. Brown is made out of coal. That's mostly in China. The bottom line here is that the color scheme doesn't really tell you what the carbon intensity of the product is, right? You can end up blue hydrogen, where you capture 60% of the carbon or you can have blue hydrogen, where you capture 10%. So the world is moving away from this, and it's going to be quoting the actual carbon intensity of the product. How many tons of CO2 per ton of ammonia, how many tons of CO2 per ton of hydrogen that you're going to be generated. So the process is kind of good to know. That's how it is being captured because some of them are more permanent than others. But the key is the carbon intensity of the product itself. So this chart here is my attempt to kind of say why are we talking about these low-carbon products and why low-carbon ammonia in particular is a key product for helping to decarbonize the energy sector. The great portions of this chart are the CO2 emissions -- or CO2-equivalent emissions generated on a grams per megajoule basis for the various fuels as you are using them when you burn bunker or marine gas oil or diesel fuel, for example. When you burn diesel fuel on truck, about 80% of the emissions are generated on board of that truck on the tail pipe. And only 20%, the blue portions of these bars, are generated where you're actually manufacturing the product. So when you're making diesel fuel at a refinery, only 20% of the total CO2 or the diesel fuel is generated at the refinery. So one advantage that ammonia has right here and liquid hydrogen, for example, is that the emissions are generated at the manufacturing facility. So you can potentially do something if you have the technology for capturing and sequestering those. While diesel, bunker or coal, they're generated somewhere else or moving vehicle, and it becomes a much more difficult proposition to do. So Japan -- take Japan, for example. They have coal-fired power plants. Japan is net importer of energy, a heavy net imported of energy. It doesn't have any natural resources. So they rely on coal imported mainly from Australia, also from Indonesia and Colombia in order to generate their electricity. So they're looking to decarbonize, and they're saying, well, I can go and if I use conventional gray ammonia, there's really not that much of an advantage. I'm going down only 30 grams of CO2 per megajoule. But if I go all the way down to blue ammonia, let's say you made blue ammonia, like the project we want to do, where we're capturing about 60% of the CO2 emissions, then you'll get down to 40%. Now that's a big difference. And that's kind of the first step that they're saying, okay, maybe the first 10 years of this, we are okay with blue ammonia, where 60% of the CO2 has been permanently sequestered. And then you go from 132 grams all the way down to 40 grams. Bunker fuel, the marine industry, as I mentioned earlier, is doing a similar thing. They have a mandate. They want to go 20% reduction by 2030. On a fleet basis, so not every vessel, has to go at 20% reduction. It's on a fleet. If you own 10 vessels, then you have to combine and reduce 20% of those emissions. So they're looking at LNG and gray methanol. If you look at that, they go from 112 grams to 80 grams to 81 grams. That does it. If you -- in addition to that, you retrofit some of the vessels, and they become more efficient with gearboxes and idling speeds and all that. They can get there through the 2030 mandate. So they're not really thinking too much about ammonia by 2030. But the IMO has another mandate. In 2050, they want you to be at net zero. That means that any fuel you use cannot have any carbon on it or at the very least, if it does, that carbon has to come from the atmosphere, either direct or capture or something, you make the fuel and then it's released back out. So then you can call that a closed loop of carbon-neutral fuel, which is similar to what the Sustainable Aviation Fuel is all about, which means then to get to the 2050 mandate, they're going to have to rely more on blue and green ammonia with lower carbon intensity than the 40 grams. Essentially, 0 will be the ideal case. Now once you get to 0, if you're able to make blue ammonia, let's say, somebody developed the technology to capture Flue gas, you can make it all the way down to 0 or you can make green ammonia, who has 0 carbon emissions per megajoule or green hydrogen will have 0 carbon emissions per megajoule. So once you make -- since you have to make hydrogen before you make ammonia, then why don't stop at hydrogen and let's use the hydrogen instead of ammonia. Well, hydrogen has a little bit of an issue, too. That table that I'm showing there in terms of energy density per gallon, ammonia has 2.5x the energy density. That means an ammonia already has half of the energy density of marine gas oil. So that means if I'm going to run a big vessel that runs on marine gas oil, I'm going to put ammonia on it, I'm going to get half the distance or I'm going to have to refuel twice as often, which in the marine world is not that big of a problem because you have -- take a look at the very large crude carriers that load -- crude oil from Saudi Arabia, bring it to the refineries in the U.S. Gulf Coast. They actually refuel once every 3 months, and they have a 2.5-week voyage one way. So they can go up and down, up and down, and then they refuel 3 months later. So with ammonia, you're going to be doing it every 1.5 months because you have half the energy density. With hydrogen, you're probably going to need another vessel behind you with a hydrogen tank, and that will be your fuel for the voyage. So that becomes complicated. Another problem with hydrogen is that you really need it in the liquid phase because if you ship around compressed gas, the energy density is not there. So you really need liquefied hydrogen. How do you do that? Minus 423 Fahrenheits instead of minus 27 for ammonia. So it's much more difficult to keep in the liquid phase. In fact, Kawasaki Industries of Japan build the first-ever liquid hydrogen carrier. They take hydrogen from Australia to Japan, coal-based hydrogen by the way, that's made out of coal. They load it in the vessel, and they take it to Japan in a 2-week voyage or 2 weeks and a couple of days voyage. They lose about 2% of the cargo because you just can't keep it under pressure for such a long time in order to keep it all together. The vessel costs 4x the price tag of an LNG carrier. The walls of the tanks are yet thick in order to prevent hydrogen from leaking, right? And it only carries 1/3 of the energy that an LNG carrier can carry. And then on top of all that, a couple of months ago, it caught fire, leaving out of Australia. And the thing about hydrogen is that when it burns, it's clear, smokeless. You don't know you're on fire unless you have temperature and pressure sensors on board. And they had a heck of a time trying to put it out. So there are still some issues with hydrogen. I mean I'm not saying that hydrogen won't have a place in the clean energy front, but it's going to be limited. You cannot ship around hydrogen long distances. It's going to be confined to where you have pipeline infrastructure. Initially, you're going to have to blend it with natural gas and reduce the covering intensity of the gas in that way. Eventually, you might have to retrofit some of the pipelines and be able to put more hydrogen into it, but it's going to be a matter of time and cost. But I don't think hydrogen is going to be the fuel that can be shipped around the world. I think ammonia can do a much better job at that. All right. So what is LSB doing? I mean you heard Mark mention about our vision as a company. And this is the first time, by the way, that anybody outside the company see these. We're going to be publishing these over the coming days. These are our sustainability goals. Last year, we released our sustainability priorities, which is the things that were identified that we are impacting and we can do better at. So here is, in particular, the E of the ESG, which is, as you know, it stands for environmental. I happen to believe that it should also stand for economics because nobody is going to go broke doing any of these projects and that I believe the U.S. government understands that. And that's why they have all these programs, like the 45Q, the 45V and the hydrogen hubs in order to accelerate this. And then eventually, we'll be able to live on its own kind of like the solar panels and the windmills are doing today. The key thing here to mention is we're committing to reducing our Scope 1 and Scope 2 emissions, CO2-equivalent emissions by 25% by the year 2030. One thing to notice here, we don't have a pledge to net zero by 2050, like many companies do. It's impossible to know how or what you need to do in order to get there. I think as we get closer to the 2030, we're going to be releasing what our goals is going to be for 2040. And as we get closer to 2040, we're going to release what our goals are going to be by 2050. Maybe, maybe not. It will be at net zero some point in time along that journey. But the bottom line is this is going to be a long journey. I mean we spent 130, 140 years developing carbon-based fuels around the world. You cannot turn that off and go to clean energy overnight. It's going to take a long time to transition, particularly when you're looking at developing countries that's going to take even longer. And then there are other things that we're looking to do as well, like toxic releases. We're striving to make those zeros, any incidents. We're looking to do a better job at our water usage, make perhaps some more recycling. Water usage per ton of product made, those things are important. Also, when we talk about the social and governance, we also have targets as well. We're looking at net zero API Tier 1 releases. We're looking at a total net zero recordable injuries. I mean those are goals that every company should have. And then, obviously, some community engagement and improvements and corporate behaviors and ethics as well. What are we doing at LSB today in order to move forward towards these low-carbon products or clean energy front? Our first project we announced it in April of last year. It is the carbon capture and sequestration project out of El Dorado, Arkansas site. That's our largest ammonia plant. And we make about 450,000 tons of ammonia, and we're going to be capturing about 450,000 tons of CO2. That's not all of the processed CO2 because some of that is currently being sold for the food and beverage industry in order to make dry ice. But at the end of the day, we assume the 60% rate that Japan is willing to accept initially, then we're talking about 375,000 metric tons of blue ammonia at a 60% [ carbon ] capture rate. When we're looking at economics of a project like that, there are 3 main things that drive cost of carbon capture. Number one is the quality of your CO2. If your CO2 Flue gas, then you have 7% to 12% concentration, very difficult, very expensive to capture. So it happens on the process side of ammonia makes CO2 naturally at 96% with the balance being water. That's a different proposition to capture that type of CO2. Then it's the volume of the CO2. We don't have a huge volume here for 150,000. The higher the volume, you get the benefit of the economies of scale. So your cost goes down, the more likely the project is to be viable. We don't have the volume here, but the third component is the distance between your emission point and your sequestration site. Pipelines of CO2 are very expensive. They're high-pressure lines. It goes between $2 million and $3 million per mile. So you can pretty much say that if you have a 50-mile line between the 2 points, that project might not be viable. So it happens in our case, we're going 0.7 miles through our facility, crossing the parking lot, going to the south and having an injection site right on our property. Between 3,000 and 6,000 feet below the surface, we have 4 injection zones of suitable sale information that we identify, our partner Lapis Energy identify. And we can store up to 50 million metric tons of CO2. At this rate of 450,000 a year, you're looking at a 100-year storage capacity. That's all within our 1,400-acre property that John showed us at the beginning today. So that means that we're going to have to pay very little money to our neighbors to secure their subsurface rights, their mineral rights because most of the CO2 is going to be stored under our property. So those 2 things, the distance, the short distance of the pipe, despite the lower volume that we have, but no need to acquire surface rights, that make this project hugely economical for us to the tune that we're going to be generating about $15 million annual EBITDA. Cheryl will show you more in detail later. So is that it? Are those the economics of a carbon capture project? Anything else? Well, what about this? You're making low-carbon ammonia. Shouldn't you get a premium for that product? Shouldn't it be more valuable to somebody that cares about carbon intensity. Yes, do we know what that is? Not yet. Do we think we're going to know by 2025? Maybe, maybe by 2030. But if we don't -- when this project starts up in '25, maybe early '26, maybe middle of '25, if we don't, we have options. Another thing we can do in order to monetize the carbon capture is we can register the carbon tons that are being abated or sequestered in the voluntary carbon offset registry. Last year -- sorry, in 2019, they usually publish data a little bit in arrears. But in 2019, carbon capture and sequestration projects went on average for $14 a ton. So you can get an incremental $14 a ton on these 450,000 tons of CO2 that you're putting away now. If we're doing that, then we cannot say that we're reducing our carbon footprint because we're essentially selling those attributes to somebody who's going to buy it. Perhaps Google, Google was the main buyer in 2019. So they're going to offset their emissions of their facility by buying that sequestered carbon, which means that we are essentially releasing it. We're not sequestering it. But that $14 a tons and 450,000 tons, it could be another $4 million to $5 million of EBITDA, at least for a few years, okay? Yes? :qa/>

[indiscernible]

Yes, that's a very good point. So our partner, Lapis, the way that we structured the deal with them is that they're going to build the capture facility, they're going to build the pipeline and they're going to build, develop, monitor and be responsive for the sequestrations well, which means that the -- according to the tax code, the owner of the capture facility, which is simply compression and dehydration is the entity that receives the 45Q. So Lapis Energy will receive the $85 a ton. They will have to monetize it somehow, either through their balance sheet or getting a tax equity investor involved. And then they will pay us a fee for every ton of CO2 that gets sequestered. We -- in the contract, we retain the rights or the environmental attributes of that CO2 ton that is sequester. So we have the right to do anything we want with that ton, which is register and sell it or attach it to our blue ammonia and then command a premium on that.

I would say that when we started the conversation, there was a lot of talk about increasing the 45Q from $50 to $85, but it wasn't set in stone. So at that time, we thought we'll let them put up all the capital. And we'll have return on 0 capital commitment. Now that it's $85 , I think we're in discussions with them about it doesn't make sense for us to own the capture facility. And are the economics better for us? And it's really a delta between what we can get without putting up capital versus the difference that we -- what's the difference of the incremental EBITDA that we can generate by putting up the capital, and I think we're taking a look at that now.

Good. So in terms of timeline, as you can see here, this is a timeline chart. The expectation is to have injections of CO2 starting somewhere in the first half of 2025. We recently submitted last month the Class 6 permit application. Lapis Energy did a great job engaging with the EPA. They had I think, 4 meetings before the full application went into effect in order to get feedback on how the data gathering was going and the modeling was going. At the end of the day, they submitted an 1,100-page application to the EPA, which -- it doesn't mean that they're going to now go away and wait 2 years and see if we're approved. No. I mean, you have touch points along the way. And depending on how the touch points are going, that gives Lapis Energy certain certainty on the outcome of the permit and they can start ordering long lead items of equipment like compressors of CO2. Apparently, they don't make a lot of them. So you need to wait to get one. But in this chart here in this timeline that we have, looking at the first half of 2025, we are estimating a 2-year timeframe for the EPA to approve the Class VI permit. Now it's going around maybe around 18 months right now, at least that's what people say. I don't know if they -- anybody has been approved. I think Denver is the one that has the most wells in the permit, I think they have 4. But none of them have been approved other than the one in Southern Illinois that got done a while back. So I think it's pretty optimistic that we can do better on the permit application, but we're just being cautious on the timeline here. So still banking somewhere in the first half of 2025. Now moving on to our second project, and this was announced in May last year, and we're looking to retrofit our prior Oklahoma plant so that a portion of the hydrogen instead of coming from the SMR is going to come from electrolyzers. Why Pryor Oklahoma? Well, because there is wind and solar facilities nearby. So you have potentially a better cost renewable power available than in any of our other sites. And we did a feasibility study of what it would take to retrofit the facility, how much of hydrogen can we do. And at the end of the day, it got determined. I think it was like 5.2 million, 5.3 million kilograms of hydrogen that can come in from the electrolyzer. So a combination of 10 megawatts of solid oxide and 20 megawatts of alkaline fit that kind of profile. We got a feasibility study completed in November of last year. We're now getting other engineering firms to provide quotes for the cost of this project. And then we're going to have to make a decision. So we're expecting over the next 3 months or so once we have all the data in hand, we'll make a decision on how and what shape and form we're going to move forward with this type of project. In terms of the economics of the project, right now, the expectation is that the carbon intensity will be so low that it would qualify for the full $3 per kilogram of hydrogen on the 45V tax credit. And that pretty much covers the cost of natural gas. So you still need to cover the cost of water and some of the cost of the -- I mean the gas will be covered from the electricity to hydrogen, but you still need to cover the cost of water and the actual cost of making the kind of ammonia because you still put this hydrogen through an ammonia loop. Now there are other incentives that we're looking at. We're heavily involved with the Halo hydrogen hub, which is the hydrogen hub with the 3 states of Louisiana, Arkansas and Oklahoma. We don't know yet whether the hub will get funded or not, but they're looking at -- if it gets funded, then it will be providing some dollars that can go towards the CapEx of the cost, and that can make the economics much better. Look, I mean, the bottom line is that this is an expensive type of project and the government knows it, that's why $3,000 per ton of hydrogen is a big incentive to give, but that's what they need to do if they want to accelerate these. Electrolyzers are expensive because companies make 1 every 3 months. There are not that many that can make it. So if you accelerate these, then they can potentially streamline production, lower the cost and eventually be competitive in the real world. But what I think is that for the next 10 years, particularly in the United States where there are many areas with suitable saline formations in the subsurface, I think blue ammonia is more viable than green ammonia at this point. If this evolves with the government help and the streamline of production of electrolyzer increases and the renewable electricity costs come down, then 10 years from now, you could see these being competitive. But right now, it works because there are government incentives out there that you can do. Similarly, like the blue ammonia project here, we are not emitting about 2.2 tons of CO2 that you make on a conventional ton of ammonia. You can register that in the current voluntary carbon markets. And you can collect again another $14 to $15 a ton, which the expectation is that by 2025, by 2030, that number can only get bigger. I mean there was a study done by McKinsey and they said there are about 700 companies that have net zero pledges between the year 2030 and the year 2050. I'm pretty sure none of them are going to be able to sequester all of their carbon, so they're going to end up buying offsets for some amount of their emissions. And that's only going to make this market more in line with Europe that is trading at EUR 100 today on the carbon exchange market emission trading scheme in Europe. So what's next? We went through the 2 projects, the blue ammonia project. Oh, we have a question.

A quick question on the [indiscernible] slide, so the 36 kt of CO2 for the 30 kt of green ammonia, I guess what's the [indiscernible] why isn't that number 60 CO2? Is it that [indiscernible] less efficient or something like that?

Very good question. That is a low estimate that we put in there. The number could be higher, but we are comfortable with that number. What happens is that you are going to reduce the amount of natural gas that going in the process side because now you need hydrogen from another source. That is a net benefit. The nat gas that you're burning to generate the heat, it is unclear how much of a reduction you have for 2 reasons. Number one, you still need to keep things at temperature, regardless of how much hydrogen you got, so it might not be a one-for-one reduction. There is some reduction benefit, but we couldn't quantify it just yet. You need an engineering study to be done before you do that. And then more importantly, we're now looking at an option that was not done at the feasibility study level and that is that another product that the electrolyzer make is oxygen. Can we do something about it? And one of the ideas is that, well, you can route that oxygen into the inlet of the furnaces and essentially pump oxygenated air with natural gas in order to generate the heat that you need. And if that's the case, then you're going to back off on the amount of nitrogen that you're going to unnecessarily heat essentially reducing your nat gas consumption. So the number is a conservative estimate that can be bigger, but we're still unsure how much bigger it's going to be. On the nitrogen front going into the furnace, you cannot reduce at all because you also need some convection to carry and be able to heat up the process. So there is a limit to that, too, but that's something we're working on.All right. So clean energy developments besides the 2 projects, green ammonia and blue ammonia that we're working on, were also started in August of last year, purchasing about 10% of our El Dorado facility power needs from solar energy via the green promise program in the state of Arkansas. We're expecting that to increase over time. We're also expanding our N2O abatement in nitric acid production that will further reduce our Scope 1 emissions. Some other developments that we are still working on, one of them is to continue to increase the purchasing of renewable electricity, particularly if we -- as we move forward with the green ammonia project at Pryor, can we buy a lease? We're going to need to buy a lease with what the electrolyzer needs are, but can we buy the entire facility, power needs from renewable electricity? Another potential use -- or potential front that we're working on is the use of renewable natural gas. And by renewable natural gas, I don't mean that digestive bacteria or waste product that is $25 an MMBtu. Here we're thinking beyond that. We're thinking about options like there are companies that are looking to turn wood from the lumber industry, wastewood into bio oils that then can be refined into sustainable aviation fuel. So those processes have a natural gas waste stream. And they're running the processes to make money on the sustainable aviation fuel. So the natural gas is sort of like a waste product that they need to deal with. So some of the idea is that can we utilize some of that and run it on our facility. And if we do enough of it in addition to the carbon capture and sequestration then the facility can turn into a net sink of carbon potentially because that natural gas, you consider carbon neutral because it comes from plants. And then as Mark mentioned earlier, this year, we're going to be working towards a clean energy strategy. What can we do and how are we going to develop into these new markets. You saw there's a ton of new ammonia plants being announced, particularly in the U.S. Gulf, none of them have a committed end user for the product. I particularly don't think that, that's a very smart strategy, build it and they will come. Some of those projects will not happen. Some of them will be delayed. But nevertheless, it is a risky move to have something done without an offtaker on board. And that's all I had. I'm happy to take any questions you might have.

So Jakob you gave us a sort of good idea of how ammonia competes with hydrogen, but if you look at some of those other fuels on Slide 2 that you put up, how does ammonia compete with biomass or biofuels or [ some ] of these others?

Volume. If you were to make, let's say, marine fuels out of biomass, there's not enough forest in the world. Ammonia, you can have the volume. You can have the industrial capacity to produce. It will take time to develop. Like I said, it's going to be a transition, it's not going to be overnight. Then the carbon-based fuels are probably going to end up being more on the sustainable aviation fuel front. So if you can convert biomass into a fuel, it makes more sense to go sustainable aviation fuel, simply because the energy density that a jet engine needs is not there on ammonia. It's not -- it is there on hydrogen, but I don't think many people will want to fly a hydrogen plane. So you're going to be allocating these carbon-neutral sustainable aviation fuels for the aviation industry. And it's a much smaller market compared to the marine industry in terms of total tonnage of fuel use. Another development that I forgot to mention is right here, happening right here in Brooklyn. There is a company called Amogy. They have a device that they can turn ammonia into hydrogen, through a PEM solid oxide fuel cell into electricity with a 45% efficiency. They retrofitted a John Deere tractor last summer and the tractor rose up and down with -- powered by ammonia on the field. They retrofitted about 3 months ago a semi-truck same way, running on ammonia. Now they're working on a tugboat. Why a tugboat? Because all of the marine traffic up and down the Mississippi River are all tugboats that are taking barges up and down. And the idea is that if this works with ammonia, then up and down the Mississippi River, what else do you have? Plenty of ammonia terminals that you can refuel at these various locations. So this is a nice idea of how you can transform this internal industry on -- from one field to another. It would be more ammonia electric type of power units as opposed to burning the ammonia. Yes.

[indiscernible] that 60% capture rate [indiscernible]?

The question is that if there is a limit on the 60% capture rate of the blue ammonia? And if we go to this slide here, there you go. So you have natural gas coming in from the -- on the process side, this is where you re-strip out the hydrogen to make your ammonia. That CO2 ends up being high purity with a little bit of water, 96% purity. And that's the process CO2 that we're going to be capturing. That's 60% of the ammonia plant. The other 40% is actually the nat gas that's being burned to generate heat to make the chemistry happen, and that ends up in the flue gas, which in an ammonia plant is about 7% to 8%. There are a ton of companies working on capturing that flue gas because that will be an incredible game changer. If you can capture that CO2, then this whole thing becomes 0 carbon, and all a sudden, you're back to using conventional fuel, at least for industrial applications, not the ones that you're moving around like a diesel truck. And then you can continue and do this and no need for new infrastructure, no need for new fuel and you're still meeting the CO2 abatement requirements that you have -- that you want.

So what should be done today? It's just cost, right?

It's just cost. That's correctly. But I mean, this year alone, I've spoken with 7 companies that have different kinds of technology. I mean most of them are in small scale. There's a couple of them with a pilot plan that they're going to capture 20,000 tons of CO2 a year, still very small for our needs, but it's coming. All right. Thank you very much. And now Cheryl will continue with our financial statements.

Good afternoon, everyone. I'm Cheryl Maguire. I have the pleasure of at least, I think, knowing most of you guys and have had several conversations with many of you. So it's really nice to actually meet you guys in person rather than over the screen and on video and Zoom and all of that. So just a little bit about my background. I've actually been with LSB for 7 years, almost. I've been here for a while, and it's been quite a ride. I joined from LyondellBasell. I know many of you were there this morning. I was with LyondellBasell for several years. And then before that, I was actually with a refining company in Switzerland. So I've got over 20 years of experience and started out as a CPA. So I've moved around a lot and have done some exciting things. But I can say I've had the most fun here so far, although the earlier years were a little stressful. So here's where we are today. This is our financial position as of the end of 2022. I can tell you this is very, very different from when I joined in 2015. Hence, it was kind of stressful in the beginning. We had a very overlevered balance sheet. We were -- as Mark talked about, not known to be particularly reliable with our operations. And we've come a long way with the restructure of the balance sheet in 2021. So this is a pretty exciting place to be with sufficient liquidity, low leverage, and we're in a really great position to take advantage of a lot of the low-hanging fruit that you've heard the team talk about today. So that's a good place to be because we were not in a position to tackle any low-hanging fruit even 2 years ago. So if you think about our free cash flow generation, prices have come down. They were very, very high last year. But I think it's -- if you think about where we are today and we're looking at $500 or $600 Tampa, $250, $300 UAN, we're still in a very good position to generate substantial free cash flow this year. And again, that's going to further help us take advantage of some of the opportunities that we have in front of us. So we're not a cash taxpayer. We don't expect to be for at least a number of years. And so again, anything over CapEx and interest is helping to fund return to shareholders or some of these growth opportunities that we have. And so what does that all look like? Because you've heard the team talk about a lot of different opportunities. And so let's talk about what it looks like beyond 2023 and the potential earnings power that our company has? And so if you sit here today and we do nothing, our base case mid-cycle EBITDA, let's call it, $200 million, okay? This is based on $500 Tampa, $260 UAN and $4 gas. Ballpark $200 million if we do nothing. But we're not going to do nothing. So you heard John talk about the improved production rates and going from 90% to 95%. And all of the fantastic things that John's team has done with data analytics and predictive maintenance. And all of the technical talent he's added to help drive this incremental EBITDA. You heard Damien talk about a whole pipeline of margin enhancement opportunities, expanding UAN at Pryor and at Cherokee, expanding storage capacity and conversion of nitric acid at Cherokee and what that does in terms of EBITDA. And then you heard Jakob talk about blue ammonia at El Dorado and the EBITDA that we already have locked in from selling the CO2 to Lapis and the additional opportunities that we have there. I've not assumed any premium in this number. So based on the things that are in place today, there's about $50 million to $70 million of incremental EBITDA from those 3 categories. So that's really exciting. But then we talk about debottlenecking. And you heard Damien talk about the opportunities that we have at El Dorado. And that's another $50 million to $70 million of potential EBITDA from that project. And the reason I separated it out on this slide is because these are already in play. The teams are already working on them, and we are comfortable that these are going to move forward. We feel really good about this, too, but we've not made the decision to move forward because we're still waiting on the feasibility studies, and those are due to us kind of middle of this year. So we have not officially made a decision to do this. So I think it's just exciting to see kind of where we've come from and then the opportunities that we have. Because the team that's here today is the team that is going to help us -- that kind of got us from where we were, and it's the same team that's going to help us move forward here. So it's a pretty exciting place to be.

One quick question the capital program [indiscernible]?

So how to think about the $60 million to $80 million? We've got about $50 million to $60 million of our basic CapEx that's driving environmental health, safety and reliability. So that's here. So that's kind of $50 million to $60 million. Then we have $10 million to $20 million earmarked for margin enhancement projects. And those are the projects that Damien talked about. So those base level CapEx numbers of $60 million to $80 million are what's driving behind some of this.

So I mean, I know it's a little early to get into a lot of details on debottlenecking. But think about what the heck [indiscernible]. So if you think about just the returns on debottlenecking the ammonia, it feels like there's an awful lot of maybe half of your CapEx budget on that is associated going all the way from UAN. And it feels like the return on that might be a little bit lower than if you were to just start with ammonia, right? So the ammonia call it, $200 million and it's all incremental EBITDA. But then you have to build a little bit more [indiscernible] capacity. When you think about that project, are you thinking about making 2 tiers starting with ammonia and [indiscernible] when the USDA number comes in?

So -- and I'll let Damien jump in. This is a commercial decision, right? Because we sit here and talk very much about where is the best commercial opportunity. And yes, we'll start with ammonia, but then you've got a lot of free ammonia to sell. And how does that compare to flexibility that we would have if we went to UAN? And is there a better overall return for that. And those are some pretty active discussions in our company. But Damien, anything you'd want to add there?

Yes. I think the other way to also look at it, yes, we can modularize some of these expansions or stage it out. And you don't necessarily also need to do the ammonia expansion first either. Because like you said, that's going to be the most expensive in terms of capital. So you could -- we could upgrade to UAN today, and we've got spare ammonia today that's being exported out of that facility. So there's a pathway there. So we're evaluating all of that and it really comes down to where is the best return, what's the best profile, what's the lowest risk and we go from there.

Will the USDA entertain [Audio Gap] parts with UAN without that [indiscernible] increase?

So Fred, I just remembered I was supposed to repeat the question. And the question was would the USDA entertain UAN without ammonia? I think that was the question, right? I believe the answer is yes because their first -- what they're trying to do is increase fertilizer production in the United States. So as long as you can get over that hurdle, I don't believe that there's any preference as to what product.

Two tons of UAN roughly for every ton of ammonia or an increase in the fertilizer available for sale. [indiscernible] In the end we believe that if we went that route [indiscernible] ?

Correct. Hey Josh.

[indiscernible]

So I would tell you, we discussed a lot of that maturing [indiscernible]. Next slide about capital allocation. So I think when you think about our smaller projects like fuel and margin enhancement projects, we've got a burn rate of 16% because they're smaller project, but they take time and effort, resource and the internal [indiscernible] of the resources. When you think generally about these projects whether it's new plants or ground field [indiscernible]. You are going to sink generally speaking, you're going to have some lower returns. You're thinking about any long life assets and have, generally speaking, a smaller return in some of these smaller projects. So if you're at say 11% versus what else could we do with the cash, whether it's buy back stock or buy back debt or [indiscernible]. So I think those are the things that you talk about in a second. But I do think when you think about the secure returns, especially for someone like us, we need to think about what gave us flexibility and what other say non easily tangible benefits that you have in a facility, and what gives the commercial team a lot more flexibility by helping make money so we can make sense of some on that. But that is something [indiscernible] will probably be wrong, it won't be better.

[indiscernible] $15 million for Lapis [indiscernible] ?

So yes, it's about $15 million for Lapis. And then as Jakob talked about, there's some -- also some potential on selling the CO2 credit. And right now, that's trading around $14. So we could do that as well. So it's going to be a discussion around selling that credit or what kind of premium we could get on the product. But I kind of look at it as selling the credit kind of sets a base floor on that. So that's how we're thinking about it.

If we sold the credit, we'll probably add another $4 million, $5 million to the $15 million [indiscernible] We could sell the credit [indiscernible] we could actually [indiscernible] for a number of years until a more [indiscernible] ammonia premium or some other product which is where I think we're more focused on than just selling [indiscernible].

One thing to keep in mind is our emissions reduction target is [indiscernible] Hopefully, there will be a low carbon ammonia alternative before then. [indiscernible].

Two questions. On debottlenecking, I think you said [indiscernible] carbon capture on the incremental side?

It does not, sorry, Fred. The $50 million to $70 million does not include anything on the carbon capture credit.

There could be.

There could be.

The second thing I was going to ask is was on the margin enhancement project, I think Damien talked roughly $20 million. That's only encompassing [indiscernible]. What should we expect for 2024 including [indiscernible]?

So we've earmarked $20 million for this year for the margin enhancement projects. There could be some of that, that carries over into next year. So it's just a question on timing.So in terms of how we're thinking about capital allocation, this is a question that comes up all the time. Should we be buying back stock? Should we be investing in our assets? Should we be doing capacity expansion? So this is how we're thinking about it. And it's really a balanced approach in terms of reliability, growth and return to shareholders. And so first and foremost, we're investing in our assets. That's $60 million to $80 million this year. That's in our CapEx numbers. That's what we're using to go forward with some of those margin enhancement projects that's driving the reliability and making the investments that we need in the assets that we have. So that's the first 2 buckets. Then we get to capacity expansion. And we've talked about debottlenecking at El Dorado costing $400 million to $450 million, we don't fully know yet. We are waiting for the feasibility studies and after that the FEED studies to really understand what that cost is going to be. And at that point, that's when we'll either green light the projects or not. But to return a whole lot of cash or go buy back some debt right now without fully understanding what that cash requirement is going to be, I -- we don't feel it would be a really good idea. So first and foremost, we want to figure out what the total cost is of the capacity expansion and decide whether or not we're going to move forward with it. And then we get into clean energy. There hasn't been a lot of capital requirements to clean energy at this point. We talked about Lapis, and they're fully committed to the capital requirements for El Dorado. So at this point, there are no capital requirements to that project. And then we get to green ammonia. Again, we don't know yet. As Jakob was talking about, we're working on the studies and the costs there. And so we have some further work to do. So I guess the key message here is we're trying to figure out all of these different items and what the capital requirements will be before we move forward on share repurchases or debt reduction. We do have a stated target of debt reduction to be less than 2.5x levered over the cycle. So we are interested in reducing debt and the first call date on our bonds is next year in the fall of 2024. And we are committed to reducing debt. Again, though, we have 6% debt on the balance sheet and to go get that same debt today would be a lot more expensive. So again, we need to make sure we understand fully what the cash requirements are going to be of the business. Question?

You have cash and some investments [indiscernible]?

They're in T-bills. Andrew?

Your mid-cycle debt, [indiscernible]?

Yes. If we're sitting at 2.5x in this cycle, in a low price [indiscernible]. After years of operating [indiscernible] low pricing environment [indiscernible] higher that I think really felt like [indiscernible].

All right. I guess if that's no more questions, we'll turn it back over to Mark. I'm sorry, what?

[indiscernible]

Well, no. We have a lot of conversation internally about that. And you're never right. So you're either going to be right/right or right/wrong, right? And so we went back actually over the last -- was it 4 years or 5 years to look at what decisions did we make? And how did it all play out? And when you look at it, we were in the net positive. So all the decisions we made were positive, but obviously, years could be down and years could be up. So we keep -- we don't like to be wrong. In the fourth quarter of last year, I think we said on our earnings call that we took a hit and natural gas was averaged higher and it will be the same in this first quarter. And then we took a step back and said, okay, what are we doing now? And we keep hearing from all of you guys and other investors. Look, if we wanted to play natural gas, we can go and buy E&P companies. We don't need to buy a nitrogen chemical producer. So we took the position I'd say, what, a month or 2 ago before prices really dropped here in the States that we're going to just make sure that we're locked in at the beginning of every month, about 90% of all of our gas needs, right, because you have some fluctuation. You don't want to be 100% locked in because if you have even a blip in a plant, you've got to sell it back and it may be at a loss. So we took that position at gas at $2.50, we actually locked in a whole bunch of gas for the rest of the year at what we think are really favorable prices. And we got a lot of support. In fact, we had a lot of shareholders calling us saying, why don't you lock in gas at these prices. The risk of being wrong on the downside is so much less than the risk of being right on the upside. So we did that. So we're pretty much locked in, what's the percentage for the rest of the year?

We're pretty well locked in around 90% for the rest of this year.

For the rest of this year at less than $4.

$3 to $4 in the winter of next year.

Any other questions for Cheryl?

[indiscernible]

Yes, exactly. So we're locked in for the first quarter at much higher prices, $6.50 ballpark range, if I recall correctly. And we also had some gas locked in in that $6.50 range. 25% of it was locked in for Q2 and then 10% for the balance of the year. We did just do, as Mark mentioned, another round of locking in gas, which is going to put our average below $3 probably in the summer months and then in the back half of the year in the winter months closer to, I would say, $4. So we should average around $3.00, $3.50 for the balance of the year.

[indiscernible].

Mark is going to talk about that right now.

So look, we want to grow, right? I mean, we'd like to -- if you look back now, so we've turned the company around, both on the manufacturing side and commercial side and the balance sheet recapitalization. So now we want to grow, and we've got a lot of exciting opportunities that we talked about both internally and even -- well, they're all internal, but existing projects that we're working on and then the debottlenecking that we're taking a look at now. I think it would be -- it wouldn't be prudent for us to not look at other assets. I'm fully cognizant of where we're trading at and what our multiple is versus buying assets at higher prices. Now no one buys assets in this industry and pays full multiple on high prices. And then no one sells at multiples when prices are low, right? So people generally try and figure out what's mid-market pricing, what do I think the average price is going to be and try and pay a fair multiple. So I think we look at assets. We looked at an asset last year -- or several assets last year. We got actually really close, and we pulled away. We're very disciplined in how we look at assets. It's not just do we think they can operate or the price we pay but it's also about the terms and conditions of how you're buying. And so the seller in this case decided that they wanted to change the way that they've -- liabilities in the assets, and we're not going to take on any excess liability so we walked. But we'll do that, but I think it's important for us to take a look at assets and see if there are ways that we can pay for and/or structure purchases of those assets. I'd say the other thing is we don't have to own 100%. We have to own, I think, 51% or more to control it, to operate it and to consolidate it. But we're not opposed to having partners for owning some of the assets. You see that a lot in our industry, and there's a lot of partnerships. So you won't see us -- when you think about types of companies, I'm not a believer in diversified chemical companies get full multiples. They don't. And I think that's been proven time and time again. So you're not going to see us buy a company that's going to be the third or the fourth or the fifth leg of the stool because it's just -- it's too much to manage. And there's not enough -- not really many synergies between those businesses other than corporate services. And it's a lot to manage because they're all in different markets with different products. So we're going to stick to our knitting we're going to look for -- if we were to acquire something, it would probably be right down the fairway for us. So it'd have to be another ammonia plant, another nitrogen complex, maybe they don't make ammonia today, but they buy ammonia, and we can figure out how to lever that or some ammonia derivative. But it's going to have to be complementary to our existing business.

[indiscernible]?

Yes. So I think the answer is yes. When you think about the landscape in the U.S. today or in North America, so most of our competitors have either partnered with folks or in the case of OCI, they're going to go at it alone. Because they're going to wind up exporting most of their ammonia to the European facilities so that they can use the product there or selling it throughout Europe. So that doesn't leave a lot of other partners to partner with in the States. And I think you've heard throughout the presentation, certainly throughout Jakob's presentation. Ammonia is not easy to -- ammonia plants aren't easy to run. They're not easy to handle -- store, handle, anything logistics-related. And then, oh, by the way, you can run an ammonia plant, but any plant has ups and downs in how you handle the commercial aspect of it, you can have an offtake agreement with someone, but what if the ship doesn't come? What do you do then? So you're going to turn down the rate of the ammonia plant because your storage is full. And so having the commercial acumen and understanding that -- the markets today is important. And I think people will start to realize this when they really getting down to final investment decision on these projects before they get there, I think they're going to realize it's a lot more complicated than just building a plant. So a long-winded way of saying, we have been approached by a number of parties about partnering with them. And I think if the situation was right for us, we would consider doing that. Any other questions on M&A. Great. I'm not going to go through, again, company vision and value creation incentives. I think we talked a lot about that. I want to thank all of you guys for coming today and braving the weather. We really appreciate that. Hopefully, you've learned a lot during the conversation. Any other -- got a question here.

[indiscernible]?

Well, not necessarily, again, we could bring in partners. So I mean, we could put up equity ourselves. We could have a partner put up equity and then we absolutely, if we had an opportunity to purchase or even build something, we could put it in a separate subsidiary, right, and have that a nonconsolidated -- or we could have it not as part of our existing loan collateral package. So we could have standalone financing in that subsidiary, project financing, maybe. So I think -- again, I think we have to get creative but there are ways to get creative and make sure that it adds value, right? Again, we're not going to buy an asset just for the sake of buying an asset. Some folks here know us pretty well, have known us for a lot of years. There's no ego here. We're not looking to just run a bigger company. We're looking to run a bigger company that's more valuable.

[indiscernible]

Yes. I mean. So they did 2 secondary sales. They're down to about 25%, although we bought back some stock, so maybe it's slightly higher just because the number of shares outstanding is lower. They are -- we have an agreement with them that we negotiated when we did the exchange of preferred for common stock. We all knew that we had a large NOL opportunity for us that we would like to utilize. So they agreed at all times to protect that NOL. Now we could let them out of it, but they don't have the ability contractually to sell down so that we would be severely limited on the use of the NOLs. That -- in our calculation, and again, it's fluid, but they really can't sell any stock until October of next year. After that, I think there is some availability to sell some additional stock, and I would expect that they would do that. Any other questions?

[indiscernible]?

'24, October of '24. Great. Well, thank you, guys. Everyone, travel safe.