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Operator: Ladies and gentlemen, and welcome to CF Industries’ First Quarter of 2024. All participants will be in a listen-only mode. [Operator Instructions] I would now like to turn the presentation over to the host for today, Mr. Martin Jarosick, with CF Investor Relations. Sir, please proceed.

Martin Jarosick: Good morning and thanks for joining the CF Industries earnings conference call. With me today are Tony Will, CEO; Chris Bohn, Executive Vice President and Chief Operating Officer; and Bert Frost, Executive Vice President of Sales, Market Development and Supply Chain. CF Industries reported its results for the first quarter of 2024 yesterday afternoon. On this call, we’ll review the results, discuss our outlook, and then host a question-and-answer session. Statements made on this call and in the presentation on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that are difficult to predict.

Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statements. More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available on our website. Also, you will find reconciliations between GAAP and non-GAAP measures in the press release and presentation posted on our website. Now, let me introduce Tony Will, our President and CEO.

Tony Will: Thanks, Martin and good morning everyone. Yesterday afternoon, we posted results for the first quarter of 2024 in which we generated adjusted EBITDA of $460 million. Our performance reflects a challenging quarter for our production network plant outages caused by severe cold in January as well as other unplanned downtime, resulted in a significant loss of production and maintenance activity. Even with the production outages and associated expenses, our business generated strong cash flow for the quarter. Net cash from operations from the first quarter was $445 million and free cash flow was approximately $200 million. Longer term, we expect the global energy cost structure to continue to provide a significant margin opportunities for our North American production network and for clean energy to provide a growth platform for the company.

As a result, we expect to have significant free cash flow available to both invest in growth and return capital to shareholders. We remain focused on disciplined investments in clean energy that offer returns well above our cost of capital. These include decarbonization projects within our existing network and potential new low-carbon on capacity. We also remain committed to returning capital to shareholders through our dividend and share repurchases. In the first quarter, we returned $445 million, including repurchasing 4.3 million cars. We have approximately $2.2 billion remaining on our current share repurchase authorization, which we intend to complete by the end of next year. With that, let me turn it over to Bert, who will discuss the global nitrogen market conditions in more detail.

Bert?

Bert Frost: Thanks Tony. The global nitrogen market has experienced rapidly changing dynamics throughout 2024, including in North America. The spring application season began earlier than normal in late February with demand for ammonia applications brought forward from the second quarter into the first or weather at the end of March, subsequently stalled field work and fertilizer purchases with the region now on a normal application and planting pace. Overall, we expect nitrogen demand in North America to be positive with approximately 91 million acres of corn planted. Good soil moisture supports higher application rates than in previous years, and farm economics remain constructive, but weaker than the record highs from previous and recent years.

We believe the spring ammonia season will see fewer tons of ammonia applied this year. However, total ammonia application volumes for the fertilizer year, which runs from July 2023 through June 2024, should be comparable to previous years, given the strong fall ammonia season. As the pace of spring application season has normalized, the lineup urea and UAN imports for the region has grown. These tons will be necessary to meet expected demand, given low inventories in the region to start the year and production disruptions in January. Even with the imports, we expect that inventory in the North American nitrogen channel across all products will be low at the end of the season. This activity is occurring as the global nitrogen market supply position has loosened, leading to lower global prices than we saw earlier this year.

Lower imports of urea to India, including the impacts of lower volumes taken in the recent tender, lower-than-expected deferred demand in Europe and other countries and good production from the era Gulf in North Africa all played a role. We did not believe demand during the spring season in North America will resolve the length in the global nitrogen market by itself. As North America hits its traditional pricing reset in the summer, Brazil, India, and China will provide the most important signals regarding the state of the market. We project that urea consumption and imports in Brazil will grow in 2024, maintaining that company’s status as the world’s largest importer of urea. India will remain a major importer urea, though they have lower requirements today, reflecting their commitment to increase domestically produced urea.

China continues to prioritize lower fertilizer prices for their farmers with export restrictions playing a significant role in that effort. We expect China sold export approximately 4 million metric tons of urea this year, but actual volumes will depend on the timing and duration of when exports are allowed. Even with these sources of near-term uncertainty, North American producers remain firmly positioned on the low end of the global cost curve. Forward energy curves continue to show spread between North America and Europe, which is home to the industry’s marginal high-cost production remaining wider than historical averages. As a result, we expect attractive margin opportunities for our network in the near and longer term. With that, let me turn the call over to Chris.

Chris Bohn: Thanks Bert. For the first quarter of 2024, the company reported net earnings attributable to common stockholders of approximately $194 million or $1.03 per diluted share. EBITDA was $488 million, and adjusted EBITDA was approximately $460 million. The production outages that we experienced earlier this year affected our results in two significant ways. Maintenance expenses were approximately $75 million higher in the first quarter of 2024 compared to the first quarter of 2023. Additionally, we had approximately 160,000 fewer tons of ammonia available to upgrade in the quarter compared to the same quarter last year. This equates to approximately 275,000 tons of urea that we would otherwise have been able to produce and sell at higher margins.

The production issues were continued through the first quarter, and our network is operating at our typical high utilization rates today. We believe we currently project that growth ammonia production for 2024 will be approximately 9.8 million tons, which reflects normal asset utilization rates moving forward. Our forecast for 2024 capital expenditures remains approximately $550 million. Capital expenditures were higher in the first quarter of 2024 compared to the first quarter of 2023, primarily due to a large planned turnaround event. We are making continued progress on our clean energy initiatives. Commissioning activities for our green ammonia projects are nearing completion. We intend to purchase 45 compliant renewable energy certificates to pair with the startup of the electrolyzer to enable green ammonia production and maximize the value of the hydrogen production tax credit.

Additionally, construction of the carbon dioxide hydration and compression unit at Donaldsonville is progressing well. We believe it will be ready for start-up in 2025, at which point our partner, ExxonMobil will be to begin transportation and permanent frustration of up to 2 million tons of CO2 from the facility per year. This will not only significantly reduce our carbon emissions, but also enable low carbon ammonia production and generate substantial 45Q tax codes. Our evaluation of low-carbon ammonia capacity growth continues with potential partners and offtakers. We have made additional progress on our auto re-thermal reforming ammonia plant and flu gas capture FEED studies. These should be complete before the end of the year and will be an important component of our final investment decision.

We continue to emphasize a disciplined approach based on the return profile of new capacity, the technologies needed to meet customers’ carbon intensity requirements and the global demand outlook. With that, Tony will provide some closing remarks before we open the call to Q&A.

Tony Will: Thanks Chris. Before we move on to your questions, I want to thank everyone at CF Industries for their hard work during the difficult first quarter of 2024. In particular, the team did an outstanding job for storing our network to full utilization rates and most importantly, doing so safely. Our 12-month recordable incident rate at the end of the quarter was 0.36 incidents per 200,000 labor hours, significantly better than industry averages. Despite the challenges we faced earlier this year, we believe CF industry is well positioned for the years ahead. In the near-term, the global energy cost structure remains favorable to our North American production network. Longer term disciplined investments in low-carbon ammonia production provide a robust growth platform for the company.

Taken together, we expect to drive strong cash generation and continue to create substantial value for long-term shareholders. With that, operator, we will now open the call to your questions.

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Chris Parkinson with Wolfe Research. Please go ahead.

Chris Parkinson: Good morning, everyone. Tony, it’s been a while since I think anybody has asked you this, but what are your latest thoughts across the organization on the global cost curve? I mean, obviously, it seems things have very much normalized in Europe. It seems — obviously, you have this back and forth debate in terms of timing on Chinese markets. And then obviously, there’s been a lot going on in India as well. So, when you put all these things together, once again, I don’t think anybody is really focused on this for years and years, what’s yes, latest and greatest on how we should be thinking about this over the next year or two? Thank you.

Tony Will: Yes Chris. I think that we believe, going forward, there are some significant challenges for a number of the production facilities in Europe. And our expectation is that utilization rates there will continue to be challenging. And we would expect some of those assets to permanently close. So, I think that the combination of some challenges in Europe and other places in the world. Trinidad is both running out of gas and with gas cost climbing as each of the existing contracts roll off, you’ve got challenges in parts of Asia and Latin America as well. You look at all of that and you see somewhat of a tightening out of the existing production network — you combine that with the fact that there is not enough new production under construction at the moment to meet the traditional growth in normal applications.

And we see a tightening of the S&D balance going forward with Europe and Asia being at fairly high end of the cost curve. And so there will be periods of time where we need to bid some of that production in just to meet global demand. So, I think it provides a very constructive backdrop for our North American focused production network. And we remain excited about what the long-term holds for us and even the near-term, for that matter.

Chris Parkinson: Got it. And just a real quick follow-up, and I apologize for the ultra-short-term question, but obviously, your organization has gone through a lot during the first quarter. Can you just give us kind of a — just one additional update on just how we should be thinking about where you stand operationally? I assume Bert’s team had to move a lot of products sub-optimally towards the end of the quarter. When we think about the process back normality, are we basically already there yet, and we can — you can see the confidence that we should just be focusing on market pricing right now? Or how should we be ultimately thinking about your pathway forward for the remainder of 2024? Thank you.

Tony Will: Yes, I think as you look at the first quarter, as Chris said, there was kind of 2 primary factors that impacted us. One was because we had significant outages both weather-related and other downtime We ended up with less production of ammonia, and we have existing industrial ammonia contracts that obligate us to kind of meet those needs first. And Waggaman was one of the facilities that experienced some downtime in the quarter. And so we had to make sure that we were meeting the customer commitments out of that facility and other industrial customers as well. And so what that math was, as Chris mentioned, there was ammonia that we were producing that normally we would have upgraded to urea and/or UAN that we needed to ship out as industrial ammonia, which generally is at a bit of a lower margin than agricultural ammonia or ag-based urea.

So, the loss of production was both the opportunity cost of loss of absolute tons, but also the opportunity costs associated with being — not being able to upgrade product for higher-margin urea than we normally would. As Chris mentioned, we were able to go ahead and get the plants back up and running and have been running sort of that normal operating utilization rates since the beginning of the quarter. And so we’re back to kind of normal operations, and therefore, I think what’s been transpiring in the way of spot pricing is appropriate for — and our volumes as appropriate for the second quarter.

Chris Bohn: Chris, the only additional thing I would add to what Tony said is not only that it was discrete production issues contained but also where the product mix was and being produced, we had incremental distribution costs that went over and above. The margin loss that Tony spoke about and also the $75 million approximate higher maintenance expense. So, it was a pretty tough quarter from that, but all of that, as you said, is sort of in the rearview mirror and our distribution and production assets are back to their historical levels.

Chris Parkinson: Thank you so much.

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

Joel Jackson: Good morning. Just a couple of things you can maybe ask — sorry. Are you really open for Q2 here for gas? Maybe talk about — we’ve seen obviously, prices come down a level of — where are you standing there for Q2 into Q3? And then you talked about 9.8 million tons of gross ammonia production 2024. What is your view that what you can do in 2025 for gross ammonia production with hopefully some improvements at Waggaman and these issues from Q1 behind you?

Bert Frost: Hey Joel, good morning this is Bert. And on gas, yes, we are wide open, and we do have fixed contracts that are gas-based that will fix in the beginning of the month. And we do have basis that we’ve covered in place is more of a winter item. We’ll have some Q1 gas purchases trail into Q2. But in effect, the gas values that you’re seeing and through the various hubs, you can bleed into your model, and that’s what we’re doing.

Chris Bohn: Yes, from a production standpoint, Joel, I think you can look at 2025 and going forward similar to what we had announced earlier this year at sort of the circa 10 million tons of ammonia, gross ammonia production. And then based on where the margin potentials are that’s going to change the product mix related to the total product that we do. But give or take, 100,000 tons on either side of that is generally where we look to produce.

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

Andrew Wong: Hey good morning. Thanks for taking my questions. So, my first one is really on BluePoint. I understand the plan is to go with mostly sales that are based on like a fixed margin type offtake. Just curious, how does the ammonia market pricing effect or thinking on the investment decision there?

Tony Will: Well, Andrew, as you know, once we make an investment decision, if we decide to move forward with it, it’s going to be approximately four years between when that decision is made and when production commences. So, what’s happening in the very near-term ammonia market from a pricing perspective, is an important starting point. But what you really need to do is project where we are for years going forward and take a look at where we think the S&D balance will be at that time. We do expect the S&D balance to tighten as I talked about earlier, both in terms of existing production capacity that will not be running at historic utilization rates, principally in Europe and some in Asia and Latin America. But also because the new capacity that is currently under construction doesn’t meet traditional growth of, call it, 1.5% to 2% within the nitrogen markets, let alone any new applications for clean ammonia going into either electricity generation or into marine fuels or some of the other applications that are beginning to develop.

So, as we look forward, the development of those new markets is an important input as well as just our assessment of where the S&D balance is going to be on a global basis. And so again, where we are today is a starting point, but it’s not really that useful in determining what the future is going to look like four to five years out.

Andrew Wong: Okay, that’s fair. And maybe just going on to clean ammonia market and demand. It’s been a few years here now since you started to talk about it and feels like things have started to develop over the past couple of years. So, as we get closer and closer to some of these use cases that are maybe later 2020 into 2030, do you have a sense on to quantify that demand, let’s say, by the time we get to 2030. And what would be the primary use cases by then? Would that still be co-firing in power generation, maybe marine is coming up a little bit faster? Just curious.

Tony Will: Yes. So, there have been — I believe it’s five power stations in Japan that have been kind of approved for conversion to be co-firing ammonia. Those include two from JERA and three others. And so the assessment of the volume of ammonia that would go into those applications, assuming only a 20% dosage rate is about 2 million tons a year. So, that’s a pretty sizable increase in terms of demand, and that would be expected to be online by, call it, 2030, if not before. Additionally, we see demand beginning to develop, both in terms of marine, but also Bert can talk about some of the things that we’re seeing in the way of using a decarbonized fertilizer product for certain applications in ag, not only for CPG companies but also to develop a traceable sustainable aviation fuel as well as ethanol that will meet the California low carbon fuel standard.

Bert Frost: That’s exactly that, Tony. In terms of the low carbon value chain we see developing for ag and the pull-through that will take place from the CPGs and consumers. But when you look at whether that be corn or wheat the principal consuming crops for nitrogen, as a low or no carbon ammonia is passed through corn to the ethanol plant, which is decarbonized. You have a very good upside for a decarbonized product coming from that corn value chain of starch, ethanol, fructose and the same thing with the wheat value chain. So, we’re working on that with several players and more to come.

Andrew Wong: That’s great. Thank you very much.

Operator: Thank you. We have the next question from Adam Samuel — sorry, that’s Adam Samuelson with Goldman Sachs. Please go ahead.

Adam Samuelson: Yes, thank you. Good morning, everyone.

Tony Will: Good morning Adam.

Adam Samuelson: Maybe picking up on that last topic, Bert, there was earlier this week that the treasury department issued kind of the rules for the new 40B tax credit for sustainable aviation fuel, that tax rate will change next year, but the rules that would presumably be somewhat applicable. And one of those requirements for ethanol to Jet was the requirement to use climate smart agriculture, of which one of the requirements was the use of enhanced efficiency nitrogen fertilizer by corn growers. And I would just love to hear your perspective on kind of how kind of disruptive that could be to the existing domestic nitrogen market and how available enhanced efficiency nitrogen fertilizer. I know there’s a bunch of things that fall under that. But how — what is that — what could that do to domestic demand by product or form both opportunity and risk as you think about the CF network?

Bert Frost: I don’t view it as a threat. I view as an opportunity because of the first mover with low-carbon ammonia as the largest ammonia supplier to corn production in North America, that’s just right up our wheelhouse. And so working with the co-ops, CHS and Land O’Lakes and others as well as the ethanol producers, [Indiscernible], ADM, CHS. Those are the people that will drive through their management area in our area, the responsibility is as we started with decarbonized product. But we have the pipeline through a terminal, it’s traceable, it’s producible, it’s manageable. And so each of these steps were getting tighter and better and that time frame that I would have thought was longer dated is, I would think being pulled closer.

And so there is some more development. We’ll be communicating this over the next quarters and years. But that’s where I see this going. And climate smart agriculture, regenerative agriculture, precision agriculture. There’s a lot of names for this. A lot of this is already being utilized. Some of it incorporating obviously, the seed companies and the crop protection. So, our whole industry is working towards this future that’s coming, and we’re going to play a vital part of it.

Adam Samuelson: That’s helpful. And if I could just ask a follow-up on the spring demand here. Obviously, the ammonia side of things is more complete. Can you talk about kind of where we are on UAN from side dress and top-dress perspective and kind of when you start to think that in-season pull will really start to materialize?

Bert Frost: So, we’re just getting started as we talked about planting and product movement and field work did start early. It was a surprise in February and early March, and then the rainy cold weather came through in March, delaying again. field work and applications and planting. And now I would say we are on a normal — a good pace with very good soil moisture from the Texas Panhandle up through into Canada. So, the UAN season really hasn’t started and where we’ve been positioning product, utilizing our logistics team with additional toes of UAN through our terminals and our customers’ terminals, and we expect that, and I would say, now going forward. And it should be fairly heavy because the opportunity, the upside, the pricing structure of where UAN is today, compared against the price of corn on the forward for December, let’s say, 460, 470. It’s attractive. And we would expect with the lower volume of spring ammonia applied, that will then move to UAN.

Adam Samuelson: That’s really helpful. I’ll pass it on. Thank you.

Operator: Thank you. The next question comes from Steve Byrne with Bank of America. Please go ahead.

Steve Byrne: Yes. Thank you. I’d like to continue that discussion there, Bert. You had production issues this year. You had less imports into the U.S. China’s exports of urea first couple of months or almost zero. We were thinking that there was going to be some strength going into the application season, but yet over the last month, pricing has fallen. Just curious what you think of that? Has there been less application rates of nitrogen than maybe you expected? Or was there significant ammonia application in the fall that may have reduced some of the near-term demand? Or is this a shift towards curious of your view of where that price trajectory on Slide 8 goes?

Bert Frost: Yes, welcome to my confusing world because that is exactly that you’ve listed the dynamics that we deal with every day that really were confusing. And then just pointing to the CF system of what Tony and Chris articulated with the difficulties with the weather and the production and the maintenance issues that created on the sales side or at least the commercial side, different product allocation and movements. And I give a lot of credit to our logistics team for moving that product around, but yes, the — when you look at the overall market, and I would have expected what you thought coming in a strengthening market or at least a firm market, but a lot of work has gone into detail this. And you’ve really had some pullback in demand in some areas.

I would say the EU when you look at Italy, Germany, Belgium, France on this year basis and on a fertilizer both a fall in demand along with Mexico, Philippines and then there’s India tender that took place where they had a tender, had 3 million tons put into the tender announced 750,000 tons of purchases with LOIs issued and then canceled that would not cancel, but cut it to 350,000 tons the traders and producers that had positions allocated towards that then had to move that into the market and got aggressive. And that, coupled with some additional production coming on in different places, but also India, Russia, Iran, and Nigeria coming back on production because several places were limited on gas. Probably overwhelmed a little bit the second quarter market.

And so what we would have thought was tight inventory is probably looser inventory and the U.S. won’t resolve that long, but lower prices tend to incent additional demand. So, as we work through Q2, I think we’ll still be in the state of where we are today with pricing probably a line plus or minus where we are today. and work towards the back half of the year.

Steve Byrne: Okay, thank you for that. And just a question on the green ammonia plant that you’re commissioning. Just curious if you’ve signed any contracts for that product and any of your partners in Japan or South Korea interested in bringing green ammonia into their facilities? Or do they really prefer the blue?

Tony Will: Well, the volume is not really sufficient to be able to meet the application for co-firing. We’re only going to be able to make about 20,000 tons a year. And even the smallest of the power stations is going to require somewhere in the neighborhood of 350,000. And because that is a part of a broader program with some incentives provided by the government, they are going to be, I think, focused on the most economically available decarbonized product. And so that’s going to be a blue product as opposed to green. But we are in conversations with a number of companies, particularly some companies in Europe that are focused on the extremely low carbon attributes of the green product. And we need to begin making it and very likely building some level of inventory for probably half a year before we’ve got sufficient volume to be able to ship.

So, more to come on that, Steve, but we’re excited about being able to both start that plant up as well as what the future holds for us.

Bert Frost: And we’re looking at two options. Like Tony said, as we build inventory, that could be for a vessel to a customer that wants only zero carbon product. or it could go up to one of our terminals, which our terminals are about that size, where we can isolate an area with zero carbon ammonia, again, back to the corn value chain. So, working on several different fronts at this time.

Steve Byrne: Very good. Thank you.

Operator: Thank you. The next question comes from Josh Spector with UBS. Please go ahead.

Josh Spector: Yes, hi. Good morning. So, I wanted to ask on all the projects you guys are evaluating. So, particularly, I guess, with JERA, converting to a JDA, how many separate plants are you now considering at this point? And I guess, as you look at all these separate agreements, could that combine together to be more offtakes from a smaller number of plants? And would CF be interested in a very small stake and maybe more of an operator role? Or do you see yourself as requiring majority control over the facilities you built?

Tony Will: Yes, Josh. While we’re evaluating a couple of different projects, principally, what we’re looking at is different technology pathways to get us to a very low carbon intensity solution. And realistically, at least at this time, we’re focused on one plant as opposed to multiple plants and doing the evaluation, as I said, should that be just a straight SMR, should it be an SMR with flue gas capture? Should it be an ATR, Kind of what’s the right technology to deliver on both an OpEx and CapEx basis the most competitive returns for us and our partners. And on the second question about the role that we would play. I think we’re — we are open to a variety of different structures, some of which would have us with a majority control and other structures might have us on equal footing or even, as you say, more of an operator of the asset, but with a smaller equity participation.

So, we’re pretty open to different ways of structuring the agreements. And we’re in those discussions at the same time as doing the technology evaluation, but we’re really only looking at building one plant initially and seeing how the market develops, then we’ll make some decisions as that continues moving forward.

Josh Spector: That’s helpful. I guess just to clarify on my part. I guess I’m thinking about the Mitsui JV announced earlier now JERA, JDA are those just different tranches of the same plant, those aren’t two separate plants you’re looking at then?

Tony Will: Initially, they were different based on the type of technology but certainly, it’s our hope that we can find a way to have all of our partners participate in the same project, and that would be something that we can combine together and aggregate demand so that we’re — have a home for more rather than fewer of the tons coming off of that project.

Chris Bohn: I would also say, Josh, that all three of the FEED studies that we have ongoing, the SMR, the HR and then the flue gas all the partners that Tony just spoke of are all participants in that even though the JDAs and the MOUs may look different. So, all the partners are working collaboratively to determine what we need to do from a carbon intensity standpoint, how does that influence the technology we choose, and as Tony said, and then really the contract for difference and the economics not that in the end.

Josh Spector: Understood. Thank you.

Operator: Thank you. The next question comes from Ben Isaacson with Scotia Bank. Please go ahead.

Ben Isaacson: Thank you very much and good morning. Just one question from me. Tony or Bert, can you talk about the situation in Russia when it comes to nitrogen supply? If we break down ammonia urea and nitrates, where are we right now in terms of supply? Where have we come from and where are we going? And I’m also referring to the pipeline that’s being built right now? Thank you.

Bert Frost: Yes, Ben, good morning. This is Bert. And the situation in Russia is as cloudy and clear as it’s ever been. So, that’s a little bit of a dichotomy. But it’s difficult because — there are some places in the world that will not accept Russian product. And so there are places that are. And the largest happens to be the United States, which is surprising with where we are geopolitically but the other is the EU. And so what has happened over the last year since the invasion has been just a reorganization of the distribution channel for Russian product. So, a lot goes to Brazil, a lot goes to North America or not even Canada, actually just the United States and then to Europe. And so with the recent restrictions on ammonium nitrate, a lot of that was stored in St. Petersburg and are probably a decision as a reflection of some of the capabilities of the Ukraine to cause disruptions.

They have canceled some of that movement or all of that movement out of those ports and reorganizing how they’ll be able to export. That has created a little bit of a shortage of ammonium nitrate in some markets. And with ammonia, you’re right. The — but the pipeline that used to go through Ukraine was stopped during the war and has been stopped and probably is not operable today, that was there usually. And so they have developed a new export corridor through the Port of Taman, and they’re working to get the Togliatti tons out through that. That’s a black seaport and that we expect to happen probably in Q3. And so going from, let’s say, 0.5 million tons of exports out of the Baltics, we’ll probably convert to a couple of million tons 1.5 million to 2 million tons probably over the next year and probably positioning that product in the Mediterranean and Morocco and different places.

Urea and UAN, a lot of that UAM they produce comes to NOLA and the East Coast. as well as Europe. And that’s probably on a — looking at the statistics for United States, UAN imports from Russia are up from Trinidad, they’re down. but that balance of UAN is probably okay. And that’s about it. I think what we’re going to see out of Russia is trying to get those tonnes out. They put out some export restrictions but I think those are manageable, and we’ll see what happens going forward.

Tony Will: Yes. I mean to tag along on that one just for a second. It’s kind of shocking and I think actually, JERA made mention this as well in their call. But what’s kind of shocking is that there’s been all of this focus on not funding the Russian war machine and not buying Russian gas and yet the U.S. is arms wide open to take urea and UAN coming out of Russia, which is effectively just natural gas that’s been converted. And so it’s — the U.S. it’s funding the very war effort over there that on the one hand, it’s condemning. So, it’s absolutely shocking, but I think that’s not surprising given the political climate over here and the fact that we’re in an election year. But you see some of that going on, I’d say, in Europe as well where there’s a lot of Russian nitrogen that’s planning its way into Europe, and it’s just supplanting what used to be gas.

Ben Isaacson: And maybe just a quick follow-up on that. Can you talk about Ukraine? I mean before the invasion, I think, in 2014, Ukraine was a major exporter. And where do they stand right now? Are they self-sufficient for the net importer?

Bert Frost: So, it’s actually when you take into account the acres that are planted and applied and harvested against probably the previous — let’s go back, maybe not 2014 as far back, but before the war, you’ve got a loss of acres, obviously, in the contested area, especially, which is good agricultural, land but you have several plants that are offline and [indiscernible] plant in Odessa that has been — they’re trying to — I just read they’re trying to bring that back up.

Tony Will: Although that one was struggling economically even well prior to the war. So, that one has always been sort of up and down again.

Bert Frost: So, there are gas questions on gas supply. And yes, they have imported product. And so it’s a question of why I think getting through the current crisis to see where we are coming out of it.

Ben Isaacson: Thank you very much.

Operator: Thank you. The next question comes from Ben Theurer with Barclays. Please go ahead.

Ben Theurer: Good morning and thanks for taking my questions. Just wanted to follow-up a little bit on the global dynamics and thanks for all the comments on Russia, but coming back to China and India to a degree. So, in your press release, you kind of alluded to China probably going to be back exporting some 4 million tons also India being a little more aggressive on the internal supply, and you’ve talked about the tender and the implications. So, if you think about it those two markets, coupled with what you just said on Russia. How does that kind of level set the pricing? How do you think about pricing going forward in the medium term when if cost curves stick where they are right now, just given that potential supply out of China and India on top of the Russian you just mentioned?

Bert Frost: Well, the good thing is it’s a global market. And you have — in a global market today, a lot of production in dispersed countries and also a lot of consumption in dispersed countries. And in a growing population, a growing need to feed the world and the benefits of nitrogen for pollution control, which are growing, not only in DEF but in power generation and with clean energy, you have demand. So, today, let’s just take urea. Today’s urea market is about 55 million tons of globally traded on a vessel out of about 190 million tons of production. And so when you look at China and our number of 4 million metric tons of possible exports, that’s less than 10%. If you look at India, and India has been a major player in the importation of urea and the support of the global urea price, but they’re falling from imports of 7 million to 9 million tons, and we’re projecting 5.5 million to 6.5 million.

So, that is being taken out of that global trade but the countries that are growing and Brazil is growing significantly, we project them to be 8 million tons. Just 15 years ago, that was around 3 million tons. So the countries that are increasing, Argentina, Australia, Brazil, Ethiopia, South Africa, Turkey, Thailand, those countries have grown this year in their urea consumption. The price of urea today at around $300 is highly attractive for agricultural and production control. The challenge, I think, for India — or excuse me, for China going forward is the export controls that are in place. And the new controls are such that you have to have prepayment, a shipment date, a destination, a product price and all that set up in a contract before applying for the CIQ application.

And then prepayment has to take place before the cargo moves to port. So, that’s a very difficult transactional structure to have China, I think, even hit the 4 million tons. And so I think we’re a little vague in our comments because it’s a little opaque right now in the market on how it’s going to develop. But China, I think, will play in the international market once the spring season is over. And then we’ll see how the pricing develops from there.

Ben Theurer: And then just a quick follow-up on that industrial versus agriculture use, the impact you had in the first quarter that shift towards the lower profitability on the industrial use just because of fulfilling those contracts. Has that already normalized now that we’re like early May. So, that was really just like kind of a onetime? Should we think about that volume balance to be more normal and not as skewed towards the raw ammonia because of the industrial needs?

Chris Bohn: Yes, as we talked about, a lot of the issues that occurred in Q1 were discrete to Q1 and that those are passed us both from a production and also a sales perspective. But as you mentioned, we did take 167,000 tons of what would normally have been upgraded to urea, which, as I said in my remarks, would be about 275,000 tons of urea. So, you see the urea decrease in sales and the increase we had in ammonia. But when you put that on a nutrient margin basis of what the quarter was for the industrial ammonia versus the ag urea, you’re looking at something that was almost about a $30 million margin impact. And that, combined with that $75 million of approximate maintenance expense really is what set the quarter back. But again, can emphasize enough that those are discrete items to Q1.

Ben Theurer: Okay, perfect. Thank you very much.

Operator: Thank you. The next question comes from Richard Garchitorena with Wells Fargo. Please go ahead.

Richard Garchitorena: Great. Thanks for taking my questions. I just wanted to ask about Waggaman. You mentioned that the facility had some downtime from weather in January. I was wondering if you can give us an update in terms of how the ramp-up has been since you close the acquisition, integration of that asset into your facilities? And have you been able to get utilization rates up to sort of typical CF average levels as it was maybe lower than that prior to your ownership?

Tony Will: Yes, you bet. So, we had an outage and we took that opportunity to conduct the turnaround that was kind of scheduled for later in the year. And so we were able to take advantage of that downtime. But prior to that and in fact, post turnaround we’re operating at rates that reflect north of what nameplate capacity has been on that or is on that unit. And so that reflects kind of more traditional operating rates for CF across our network. And I’d say the integration has gone remarkably well. The team at Waggaman has worked extremely well with the rest of the CF network. And I think it’s that kind of partnership and coordination that has led to some of the improvements we’ve made in terms of onstream factor and operating rate at the location.

So, we couldn’t be more happy about the acquisition and in fact, particularly at the value of it, given where new assets look like they’re trading and what the cost of new construction is. So, we’re really pleased with adding Waggaman into the portfolio.

Richard Garchitorena: Okay, great. And then just on the press release on the JDA with JERA. I’m just curious in terms of — so if capacity ends up being 1.4 million tons, or procurement of 500,000 tons. So, how should we think about that available 900,000 tonnes? Is that given JERA can then be taking potentially a 48% stake did they get sort of percentage of that amount as well? Are you looking at as potentially merchant sales or are you looking to lock that up? I know you had said earlier that you basically have four years from decision to production. So, maybe how you think about how much you want to get locked up before you get into that sort of development of that project? Thank you.

Chris Bohn: Yes. So, I think just starting the encouraging thing is that about 0.5 million tons as a home already for it. And as you mentioned, with the next 4 years, and that provides a lot of opportunity to find basically sales for the remaining amount, along with keeping a little bit for merchant. But the one thing with JERA is that $500,000 is just for one particular unit at their coal plant facility. And they have multiple units they’re looking at in addition to that, as you look at what’s going on with the JERA test right now, which is a commercial test going on, which is performing to expectations. You could see other areas that JERA has within Asia, also converting to a 20% ammonia injection into the coal along with some other additional players that are looking at it that Tony mentioned within Japan as well.

So, I think we’re just on the first few innings of where that demand side goes. But I would say that we’re very encouraged that we have a large portion of it already taken. Additionally, as Bert mentioned, you’re just seeing more and more activity come along, whether it’s through the power gen, the marine or the sustainable aviation fuel or even just on the legacy agricultural business, where decarbonized product is going to have a home from a supply standpoint. So, we’re pretty encouraged by what we have and what we’re seeing going forward.

Operator: Thank you. The next question comes from Aron Ceccarelli with Berenberg. Please go ahead.

Aron Ceccarelli: Hello, good morning. Thanks for taking my question. I wanted to ask you, in the scenario where you go ahead with both the Mitsui plant and the JERA 1 or, say, a combined one, how should we be thinking about your capital expenditure phasing for the next three to five years? Thank you.

Tony Will: Yes. So, I think as Chris mentioned in our last earnings call, the FEED study for an ASMR steam methane reformer, kind of a copy of ammonia 6 at Donaldsonville was about $2.5 billion, and then there would be roughly another $500 million for scalable infrastructure that could be leveraged against additional plants on site. So, all in for the first one, it would be circa $3 billion. Now that does not include if it was required, flue gas capture. And we are still in the middle of a FEED study to evaluate what it would look like to do an autothermal reformer or an ATR. And so more to come in terms of what the cost of a different approach or different technologies are. But if we had both, let’s say, JERA and Mitsui and CF kind of all aligned on one particular project, and it was a third, a third, a third.

That would be kind of $1 billion per company to do the SMR spent over, call it, 4-ish type of years. Now if it’s 50% for us and 50% for somebody else, then that increases to $1.5 billion. It just kind of scales appropriately. But it’s in that order of magnitude, and it’s spread over 4 to 5 years of cash outflow. So, while it’s a meaningful amount of cash compared to the amount of free cash that we’re generating, We still have plenty of free cash available to be able to return cash to shareholders in the form of dividend and share repurchases. So, it’s not going to impede us from being able to execute our return of capital program and other incremental growth opportunities that we have.

Aron Ceccarelli: Thank you very much.

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

Martin Jarosick: Thanks everyone for joining us today. We look forward to seeing you at upcoming conferences.

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