LSB Industries Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 6, 2024

There are 10 speakers on the call.

Operator

Greetings, and welcome to the LSB Industries 4th Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr.

Operator

Fred Bonacore, Vice President of Investor Relations for LSB Industries. Thank you, sir. You may begin.

Speaker 1

Good morning, everyone. Joining me today are Mark Behrman, our Chief Executive Officer and Cheryl McGuire, our Chief Financial Officer. Please note that today's call includes forward looking statements. These statements are based on the company's current intent, expectations and projections. They are not guarantees of future performance, and a variety of factors could cause the actual results to differ materially.

Speaker 1

On the call, we will include references to non GAAP results. Please see the press release in the Investors section of our website, lsbindustries.com, for further information regarding forward looking statements and reconciliations of non GAAP results to GAAP results. As a reminder, we have a stockholder rights plan to protect certain tax attributes. Please see the Investors section of our website atlsbindustries.com for further important details. At this time, I'd like to go ahead and turn the call over to Mark.

Speaker 2

Thank you, Fred. Turning to Page 4 of our presentation. While 2023 had its challenges, particularly in the form of product selling price headwinds, when it came to aspects of our business within our control, we were very successful. This was particularly the case with our safety performance. For the full year of 2023, our total recordable injury rate was 0.33, a significant improvement over 2022.

Speaker 2

Protect What Matters is a fundamental company core value and I'd like to thank our employees for continuing their efforts to attain our goal 0 or 0 recordable injuries. We know this is possible to achieve as 2023 was the 8th consecutive year without a recordable injury for our Baytown nitric acid plant team. This site has continued to strive for excellence and represents a model what we believe all of our manufacturing operations can achieve. In addition to our safety performance, we were also pleased with how our ammonia plants ran over the course of the year. With respect to our Q4 financial results, adjusted EBITDA was lower compared to the record Q4 of 2022.

Speaker 2

This was largely due to a decline in market prices for nitrogen products relative to the prior year, which was the case for each of our quarters during 2023. As we discussed on our last earnings call, in early October, we announced our collaboration with Impex, Air Liquide and Vopec Exelon Houston to develop a world scale low carbon ammonia production and export facility on the Houston Ship Channel. This project represents an important step in the emergence of LSB as a leader in the global energy transition and is potentially transformative to our growth profile as demand for clean energy increases. Since commencing this collaboration, we've reached some key milestones in the development of the ammonia loop, which is our section of the project. Lastly, in 2023, we repurchased $125,000,000 of our outstanding bonds and repurchased approximately $29,000,000 of our stock for a total return of value to shareholders of approximately $154,000,000 Page 5 of our presentation illustrates our ammonia production trend for the past several years, pro form a for turnarounds.

Speaker 2

This steady progress reflects the investments we've made in our facilities and the operating culture change that has occurred across our manufacturing facilities as we strive to be a top tier operator of our plants. Ultimately, we believe these efforts will allow us to consistently operate at 95% capacity, which will equate to a full year ammonia production level of 875,000 tons. Our profitability is further enhanced as we will look to upgrade ammonia into higher value downstream products. And in 2024, we will be intensifying our efforts to maximize the production of our downstream plants, while optimizing the mix of those products to capture the highest margins possible. Relative to the production capacity of our facilities, over the course of 2023, we evaluated several potential expansion projects at our El Dorado facility with the goal of materially increasing our capacity to produce 1 or more key products.

Speaker 2

After assessing the current commodity market conditions, coupled with the rising cost of construction and access to the required technical capabilities, we determined that our best course of action at this time is to delay the expansion. Balancing our resources to successfully execute on the multiple growth initiatives we have underway is something that we are very focused on as well. Lastly, as we've stated in the past, preserving the health of our balance sheet is one of our top priorities and we believe that our decision to delay the Eldorado expansion is consistent with that goal. We remain very interested in the El Dorado expansion and will continue to evaluate its feasibility and timing. Importantly, despite the delay, we will continue to work with the USDA on timing and eligibility for a potential USDA grant of up to $80,000,000 towards the funding of this expansion project.

Speaker 2

On Page 67 of our presentation, we provide a current overview of our end markets and several commodity price dynamics that are important to our business. On the fertilizer demand side, while the corn stock to use ratios have been increasing, which has historically been a signal of potential pressure on grain prices, The price of corn has remained resilient as evidenced by the December 24 corn price of approximately $4.60 per bushel. At these levels, we believe farmer incomes are healthy and that strong incentive exists to maximize corn yields through the application of nitrogen fertilizers. As a result, we expect nitrogen fertilizer demand to be strong for the spring planting season, supporting robust fertilizer prices. In our industrial business, overall demand remains steady as U.

Speaker 2

S. Production remains stable, U. S. Single family housing starts have rebounded and mining commodity prices remain stable. Specifically to the products we sell, demand for nitric acid continues to be supported by the resilient U.

Speaker 2

S. Economy, while demand for ammonium nitrate for mining activity has been strong, driven by the infrastructure related production of aggregates as well as metals mining to supply electric vehicle production and other applications. Lastly, on the cost and competitiveness of our business, the left hand chart on Page 7 shows the price trend for the TTF, the benchmark for natural gas prices in Europe, relative to the price for Henry Hub, the benchmark price for natural gas in the U. S. European gas prices spiked during 2022 and have come down significantly in 2023 due to a combination of a warm winter and heavy LNG imports.

Speaker 2

However, what is important to note is that gas prices in the U. S. Continue to remain a fraction of those in Europe. The key takeaway here is that this represents a significant competitive advantage to U. S.

Speaker 2

Producers and is one that we believe will remain for the foreseeable future. Putting this all together, we believe that fundamentals for nitrogen producers are attractive and that demand and pricing trends should allow for solid profitability and cash flow for the foreseeable future. Now, I'll turn the call over to Cheryl to discuss our Q4 results and our outlook. Cheryl?

Speaker 3

Thanks, Mark, and good morning. On Page 8, you'll see a summary of our full year 2023 financial results. We generated adjusted EBITDA of $133,000,000 and EPS of $0.37 for the full year. These results were down from 2022 which was a record year for us due to the strong selling prices for our products. With respect to our 2023 Q4, page 9 bridges our $25,000,000 of adjusted EBITDA to our record $105,000,000 of adjusted EBITDA for the Q4 2020 2.

Speaker 3

The story for the Q4 was much the same as the full year. The impact of weaker selling prices for our products relative to the prior year is the major factor in the year over change in EBITDA. Page 10 provides a summary of our key balance sheet and cash flow metrics. Despite the pricing headwinds, for the full year 2023, we generated approximately $138,000,000 in cash flow from operations with approximately $68,000,000 in capital expenditures translating into approximately $70,000,000 of free cash flow. Given our strong cash position and in light of our decision to put the El Dorado expansion on hold, we are reevaluating our capital allocation strategy in order to proceed in a manner that balances return of value to investors with investment in our manufacturing assets.

Speaker 3

As our stated goal is to maintain our leverage at approximately 2.5 times debt to mid cycle EBITDA, we will opportunistically reduce debt and repurchase stock both while continuing to invest in our assets to improve our reliability and efficiency. Page 11 summarizes the key considerations with respect to our expectations for full year 2024. The table in the upper left shows our estimated ammonia production and sales volumes for the year. We expect that our ammonia production will be down by approximately 34,000 tons as compared to 2023 due to the turnarounds we have scheduled at Pryor and Cherokee. Despite the turnarounds, however, we expect sales volumes for our downstream products to be up year over year as a result of operational improvements and the completion of margin enhancement projects that we have underway at our Pryor and El Dorado facilities.

Speaker 3

The right side of the slide covers a range of variable and fixed plant expenses as well as SG and A and other expenses for 2024. Our expectations for fixed costs reflect investments we've elected to make in plant reliability as well as overall inflation. We expect our effective tax rate for the year to be approximately 25 percent. However, we do not expect to be a material cash taxpayer in 2024 as we continue to utilize our NOLs. In the table at the bottom right of the slide, you'll see that we expect to invest approximately $60,000,000 to $80,000,000 of CapEx in our facilities during 2024 with approximately 80% for investments related to plant reliability and safety and the remaining 20% earmarked for margin enhancement projects aimed at increasing production volumes, additional storage capacity for downstream products and improving the efficiency of our operations.

Speaker 3

Two projects that we're particularly excited about are the expansion of our urea capacity at our Pryor facility and the construction of additional nitric acid storage at our El Dorado facility. The prior urea expansion will enable us to produce an additional 75,000 tons of UAN per year, giving us the ability to upgrade more of the ammonia we produce at that facility into a higher margin product. At El Dorado, the addition of 5,000 tons of nitric acid storage allows us to better optimize our product mix, ultimately translating into incremental profits. With respect to our outlook for the Q1, Tampa ammonia currently sits at $4.45 per metric ton, down from $6.25 in late 2023. NOLA UAN is currently around $2.40 per ton.

Speaker 3

Factors weighing on global ammonia prices include a heavy ammonia application by U. S. Farmers this past fall that could limit spring pre plant application, the impact of lower natural gas feedstock cost in Europe relative to early last year and sluggish nitrogen demand from Asian and European industrial producers. Urea prices on the other hand have been rising in the U. S.

Speaker 3

Due in part to an absence of Chinese imports rendering supply relatively tight ahead of the spring planting season. We have recently started to see this flow through to UAN prices, a trend that we believe will continue. With respect to natural gas feedstock costs, we expect a significant decrease relative to last year when we had gas pricing locked in for most of the year. We are currently locking in gas at the beginning of each month for 1 month ahead, as well as layering in forward gas purchases in line with our forward sales of product. We expect this to allow us to capitalize on the current low prices, which should enhance our margins.

Speaker 3

For the Q1, we expect our cost of gas to average approximately $3 per MMBtu, which includes the higher cost gas used in December production that was sold during the Q1. Based on current pricing levels and volume trends, we expect our Q1 2024 adjusted EBITDA to be lower than the Q1 of 2023 when the average Tampa ammonia price was more than 55% higher than the average for this year's quarter. With that said though, we do expect a healthy increase in adjusted EBITDA for Q1 2024 relative to the Q4 of 2023 representing a solid start to the year highlighted by strong ammonia demand, improved downstream production and lower natural gas costs. And now I'll turn it back over to Mark.

Speaker 2

Thank you, Cheryl. Pages 1213 highlight the 2 low carbon projects that we currently have underway. Page 12 represents our project with Lapis Energy at our El Dorado facility, which is on track. The main gating factor is the approval of our Class VI permit application from the EPA that will enable Lapis to begin construction and then capturing and permanently sequestering more than 450,000 metric tons per year of CO2 that we produce at El Dorado. While the timing of the Class 6 permit approval is largely out of our control, we are in regular contact with the EPA and their indications are that we are on track to receive the permit during 2025 and begin sequestering CO2 in early 2026.

Speaker 2

With that said, of course, this timing is subject to the EPA's review process. As a reminder, Lapis will receive the 45Q tax credit of $85 per ton of CO2 sequestered since they will own the capture facility, but they will buy the CO2 from us. At the same time, we will be producing more than 375,000 tons of low carbon ammonia annually, which we believe we will be able to sell at a premium. All combined, this should equate to an estimated $15,000,000 to $20,000,000 in annual incremental EBITDA for LSB. We've been pleased with our commercial team's ability to leverage this project as part of our new business development efforts as we have been receiving strong expressions of interest in potential long term offtake agreements for the low carbon products that we will be producing at El Dorado.

Speaker 2

Page 13 is our current expectation of the timing of our Houston Ship Channel low carbon ammonia project with significant milestones. As a reminder, the project entails design and construction of a world scale ammonia plant that will produce approximately 1,100,000 metric tons of low carbon ammonia. The plant will be constructed on Vopac Exelon's Houston Ship Channel ammonia terminal, which currently is equipped with storage and handling infrastructure and multiple deepwater berths. LSB in partnership with Impex, Japan's largest E and P company plans to build and operate an ammonia loop using low carbon hydrogen produced by Air Liquide. We'll be handling the carbon capture and sequestration.

Speaker 2

Air Liquide will also be supplying our nitrogen needs. Since announcing the project several months ago, we've taken some meaningful steps in its development, including our selection of KBR as the provider of the technology, licensing and proprietary engineering design for our ammonia loop. Additionally, we have selected an engineering firm to perform a pre FEED that will refine the cost estimate for the ammonia loop, which we expect to be completed during the Q3 of this year. At the same time, we are working to secure offtake customers for the anticipated ammonia production. Based on our ongoing conversations, we expect offtakers to come from Japan and South Korea.

Speaker 2

More recently though, we have had potential European offtakers and are encouraged as we now believe Europe to be a viable target market as well. While we are in the early phases of this project, we are encouraged by the progress we've made thus far and by the level of engagement, commitment and cooperation of the companies we are partnering with in this leading edge endeavor. 2023 was a significant was a year of significant progress for us in the transformation of our company. While product selling price trends were unfavorable, we were still able to generate meaningful cash flow and maintain our strong financial position. We achieved a solid increase in ammonia production volume and we did it while significantly improving our overall safety performance.

Speaker 2

Combined, these accomplishments are a clear indicator that our ongoing safety and reliability initiatives are taking root. Additionally, we positioned ourselves to be a leader in the production of low carbon ammonia products that we believe will be a critical enabler of global energy transition. During 2024, we expect to make even greater strides in enhancing the earnings power of our manufacturing assets through the capital investment and increased will will enable us to significantly reduce our company's carbon footprint, while also representing a source of meaningful bottom line growth and increased value for our shareholders over the next several years. Before we open it up to questions, I'd like to mention that we will be participating in a Granite Research Management Conference Series on March 20 21st. That concludes our prepared remarks and we will now be happy to take any questions.

Operator

Thank you. Thank Thank you. Our first question comes from the line of Josh Spector with UBS. Please proceed with your question.

Speaker 4

Yes. Hi. Good morning. So I wanted to ask on a couple of things around UAN and some of your comments during the prepared remarks. I think you commented that you're starting to see pricing move up.

Speaker 4

We're not really seeing that yet in a lot of the data that we track. So just curious if first if you could comment on maybe why it's lagged of the inventory dynamics relative to urea? And then also what you're seeing now and what you view as the potential price catch up potentially for UAN?

Speaker 2

Good morning, Josh. I would say that we've seen urea lead the pack. And so urea is up $75 to $100 from its low. We've seen UAN lag a little bit. And the reason I think UAN has really led the pricing increase just happens to be less imports coming into the U.

Speaker 2

S, especially with China putting an export ban on urea and really being out of the market. UAN has lagged a little bit. I think potential buyers probably are in a or at least were in a wait and see and believing that maybe urea prices would come back down and then therefore, UAN wouldn't follow it. We're now in a position where inventories are really tight on most fertilizers. A lot of that has to do with lack of imports plus some of the storms that we had earlier this year took some production out and therefore lower inventories.

Speaker 2

So as we sit here today, we're really confident that inventories are really low out in the field. We're starting to see UAN pricing move to be more in a traditional relationship with urea. And we're encouraged by the buying patterns right now and of course early

Speaker 4

spring. Okay, thanks. And I also wanted to ask just on your decision around the El Dorado expansion. I mean, I think it makes sense given the current environment, but I'd just be curious if you could share what you were evaluating if you got to the point of saying what the cost would be for X tons, X what the credit is, so we can think about kind of what options are on the table and maybe you'll be evaluating again in the future?

Speaker 2

Yes, we're really excited about the project. So I'll start with that. It's not a question of, we looked at the economics and we can't make them work. We think we can make the economics work. And when we look at the project, we actually look at the project without the USDA funding, right, because we don't have that in hand and we don't know what the requirements are to give us that grant.

Speaker 2

I think when we took a step back, we said prices are a little bit lower, so the market is a little bit soft in general. We've got 2 turnarounds coming up this year, which are extremely important to our reliability going forward. We've got our Houston Ship Channel project, which quite frankly we think will add a lot of value to the company as a whole. So, a lot of initiatives going on and really from a resource standpoint, we thought it just best to put that project on hold right now. And hold doesn't mean it's gone forever.

Speaker 2

We have a lot of flexibility because it's a project that we can do at any time, since it's debottlenecking existing assets. So again, we're excited about the project. We think it makes sense. I think the USDA, I don't want to speak for them, I think they're pretty excited about the project and would like to see us do it. I think the timing has to be right for us.

Speaker 4

Would you be willing to share what the cost was versus the tons?

Speaker 2

No, I think we've talked about somewhere in the neighborhood of $400,000,000 to $500,000,000 for the full project, but there are 3 pieces to it and we don't have to do a full project. We can do it plant by plant. So as a reminder, it was debottlenecking our ammonia plant. So adding about between 6,075,000 tons a year of annual production. It was expanding our large nitric acid plant and it was also building a new urea UAN plant to produce about 600,000 to 700,000 tons of UAN on an annual basis.

Speaker 4

Got it. Thanks, Mark.

Speaker 2

Yes.

Operator

Thank you. Our next question comes from the line of David Begleiter with Deutsche Bank. Please proceed with your question.

Speaker 5

Good morning. This is Anthony Marcandetti on for David. I'd just like to get some more detail on what you're seeing so far from the pre spring planting season. Mark, would you say demand is below in line or above your expectations so far to start the year?

Speaker 2

Well, I'd say, one, it's starting earlier. The weather is really cooperating. So, we're starting well, we're not starting. We're seeing product kind of fly out of inventory. So I would say that it started earlier and it's even probably a little heavier than we would have anticipated.

Speaker 5

Okay. And then appreciate the insight into Q1. We're about 2 thirds of the way through the quarter now. And again, just given those comments and what you're seeing on demand, how should we think about the ramp into Q2 as we get into really the heart of the spring planting season here?

Speaker 2

I think Q2 is always our best quarter because it's the heart of spring. If we continue to see tightness in the marketplace from a supply standpoint, I think we'll continue to see some upward movement of pricing, at least that's our expectations. We're pretty open as far as what we've sold for the Q2 for the most part. So we think we have opportunities to take advantage of higher pricing during the Q2.

Speaker 5

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Adam Samuelson with Goldman Sachs. Please proceed with your question.

Speaker 6

Yes. Thank you. Good morning, everyone.

Speaker 4

Good morning.

Speaker 6

Good morning. So Mark and Sheryl, I was hoping to maybe take a step back. You did at Investor Day about a year ago now. At the time, you'd set a mid cycle kind of EBITDA target of about $200,000,000 which assumed a $500 ton Tampa ammonia price, dollars 2.60 UAN and $4 gas. Those happen to be pretty close to the full year averages for 2023 and on the gas side close to what you realize in your COGS even if Henry Hub was lower.

Speaker 6

The EBITDA was $133,000,000 Can you help us think about do you still think like under that set of pricing and operating conditions the company is capable of doing $200,000,000 before the benefits of some of the debottlenecking and growth actions? Or has kind of inflation on labor and plant costs and all the other variable expenses kind of eaten into the total company performance?

Speaker 2

Yes. No, it's a great question. So it's one I asked about a month ago to my staff. I'm sitting there thinking the same thing and quite frankly I'm really comfortable saying that we're still around $200,000,000 under those assumptions. So when we look back at 2023, I look at, I think we're pretty transparent about it and I think it's been certainly published that we locked in gas at higher prices than we would have liked to.

Speaker 2

So a lot of it though has to do with that $200,000,000 is us running our ammonia plants at 95%. And as you can see in our earnings presentation, our target is to add another 60 or so 1,000 tons of ammonia production per year. So that probably gets us another at those pricing levels probably another $35,000,000 to $45,000,000 And then it's pretty documented. We had some issues with our downstream plants, namely our nitric acid plants, which really did not allow us to upgrade as much product as we would have liked. So I think those two things would factor into the balance of pushing us back up to that 200,000,000

Speaker 6

dollars Okay. And maybe on the ammonia point because I was reflecting on the outlook kind of guidance details you gave for 24 and going back to the 2023 actuals versus what you said a year targeted a year ago and your gross ammonia production for 2023 came in below what you targeted. And I know there was issue with the nitric acid plant, but I don't recall any major kind of unplanned downtime at the ammonia plant. So can you talk about kind of what still has to happen to get that ammonia utilization up to where you want it to be?

Speaker 2

Yes. I mean, it's I'd say the continued maturation of our operating practices. It's not significant capital. Most of the capital that will be required is typically within our and S and reliability in our annual maintenance capital, which is about $60,000,000 could take us a little bit of additional capital. But I just think it's I think if I look back 5 years ago, quite frankly, we were probably a bit devoid of technical talent.

Speaker 2

And we've worked really hard to bring on a lot of really high quality technical people that we are really comfortable with. And when I look around the industry, I think we have got comparable people to what a lot of our competitors have today. So I think it's just it's really a lot of blocking and tackling to really focus on the right operating procedures, the right maintenance procedures, be predictive and be predictive in our maintenance rather than wait for things to happen, right? I mean, that's never good. And I think our expectation would be that over the next 18 to 24 months, probably more like the 24 months that we're at that 95% rate.

Speaker 2

Okay. And if

Speaker 6

I could squeeze one more in, you alluded to an earlier comment around weather in January impacting industry production and one of your peers publicly has commented to that effect as well. Did you have any issues in terms of your operating rates with weather in January? Or you kind of ran as expected and didn't impact your plants and your output?

Speaker 2

Yes. We had a power outage down at El Dorado or El Dorado site. So that caused some downtime, but we also don't assume that we're going to run it 100% either.

Speaker 6

Okay. All right. That's all helpful. I'll pass it on. Thank you.

Speaker 2

Thank you.

Operator

Thank you. Our next question comes from the line of Laurence Alexander with Jefferies. Please proceed with your question.

Speaker 7

Good morning. This is Dan Rizzo on for Laurence. Thank you for taking my question. Is it possible I know you said I think you said industrial demand is somewhat stable. Could we see a restock cycle there now or later in the year just given some of the low inventories that probably presumably your customers have?

Speaker 2

It's always possible. I actually think that our customers are taking what we expected or more today. So I'd be surprised if it's got much of an impact on us. Most of our non fertilizer business is contracted. We do leave some spot tons available.

Speaker 2

So, on those spot tons, maybe we could see some firming of price. I don't think it's going to be demand.

Speaker 7

Okay. And then, has with the delay in Eldorado, some of the expansion there, I was wondering how much your expected ROIC has changed in the last 12 months just given the changing macro environment and how much that's playing into your thought process now and then going forward?

Speaker 2

Are you talking about kind of our return profile?

Speaker 7

Yes.

Speaker 2

Yes, I don't think the return profile has changed. I think that generally speaking, our hurdle rate is going to be a 15% IRR or better on any project. So would we consider a lower return on a project if we think it's got long term sustainable long term benefits of the company? We'd have to take a look at that. But generally speaking, our overall return profile hasn't changed.

Speaker 2

All right.

Speaker 7

Thank you very much.

Operator

Thank you. Our next question comes from the line of Andrew Wong with RBC Capital Markets. Please proceed with your question.

Speaker 8

Hey, good morning. So maybe just higher level, I'm kind of curious how you feel about your sales mix on ag versus industrial sales. I think in the past, you've mentioned like industrial sales does tend to give you a little bit more stability and that maybe you don't get some of that volatility that comes in the ag markets. And as that lapis project comes online and it sounds like there's more industrial demand for low carbon ammonia, could your sales shift towards industrial side a little bit more?

Speaker 2

That's a really good observation. Yes, I think that as we focus more on being a leader of low carbon products and given that the U. S. Farming community might be one of the last adopters of paying for low carbon products. I think you could and probably will see us skew more towards the industrial side.

Speaker 8

And would the return profile on that be any different? You get more stability or is it still just looking at those mid teens returns, but it's just a different cadence?

Speaker 2

Yes. I mean, that's again a great question. So if we're able to sort of contract our feedstock costs in a way that we can also hedge out that cost from a selling price perspective. And so therefore, we have kind of a locked in profitability providing that we run at certain operating rates. What we then created is more of an annuity, right?

Speaker 2

So it's a stable base of earnings. And so for that, on a long term asset of some significance or size, I think we'd have to take a step back and really consider a somewhat lower return profile, but nothing significant.

Speaker 8

Okay. All makes sense. And just maybe just one quick one on Houston Ship Channel. I understand it's ATR that's being considered for the technology. Would the JV also consider using SMR with flue gas?

Speaker 8

And should that if that's the case, like should that work kind of run-in parallel?

Speaker 2

No, I think we're committed to an ATR. And remember, it's not a full ammonia plant. It's just we're going to own the ammonia loop. So Air Liquide is going to sell us under a long term supply agreement, both hydrogen and nitrogen. And so the technology that they've chosen is they've got their own internally developed ATR technology.

Speaker 8

Right. So a

Speaker 2

lot of benefits to ATR technology, right? You can capture, economically 95 plus percent of the CO2 generated, we're in an SMR. You can economically capture about 60% of the CO2 with 40%, which is generated during by the use of flue gas in that process. It's uneconomical to capture today. Now, I think we fully expect based on technologies that are being developed at some point in time, we will be able to capture that flue gas or the CO2 generated in the flue gas process, economically, but we're not there yet.

Speaker 8

Understood. Thank you.

Speaker 4

Yes.

Operator

Thank you. Our next question comes from the line of Rob Maguire with Granite Research. Please proceed with your question.

Speaker 9

Good morning.

Speaker 2

Hey, Rob.

Speaker 9

Can you update us on when the margin enhancement projects are expected to be completed in 2024? And just an update on the expected EBITDA from them as well?

Speaker 2

Yes. So, the first project would be the installation of several nitric acid tanks down at El Dorado. In fact, I was just down there about a month ago to see some of the construction going on. We would anticipate that kind of the July timeframe. How much we should see on an annual basis?

Speaker 2

Probably $3,000,000 of additional EBITDA somewhere in that neighborhood. The second project is up at Pryor. It's an expansion of our urea plant from about what was 3 85 tons a day to about 4 85 tons a day. Although today we're running that plant a bit higher than 3 85 teams are really doing a good job to push rates. So that will provide about 75,000 tons of additional UAN.

Speaker 2

So we'll make the margin difference between selling ammonia and then selling UAN and it's about $5,000,000 of annual EBITDA addition.

Speaker 9

Thanks, Mark. And then shifting to the Houston Ship Channel, how should we be thinking about the potential EBITDA generation for LSB on this project?

Speaker 2

That's a great question. I mean, if you could tell me what the cost is, we're only in pre FEED now. But if we used an $800,000,000 cost and I'm not suggesting that that's the cost, I think we really need to go through our engineering. And we look at the types of returns that we would want. I would guess that for a very stable and steady stream of income, it's probably somewhere in the neighborhood of $150,000,000 annually.

Speaker 9

Thank you. And then just lastly, if I may, on a question. In terms of the delay of El Dorado, how long can you retain that USDA grant before USDA decides that they'd like to give that to someone else or is that is there a window there?

Speaker 2

I don't really have an answer for you because we don't we haven't been approved for the grant. So where we are is, we were asked to do an environmental assessment, which took us about 4 or 5 months. And as I said before, it's not a traditional environmental review. So, we submitted that. They've acknowledged that they've received it.

Speaker 2

I believe we're in a 30 day comment period right now or heading into a 30 day comment period. We don't anticipate many comments since we didn't have really any comments in the first comment period we had. At that point, then they'll come back to us and tell us presumably that we are awarded the grant and what the terms are. We don't even know what those terms are that we would have to meet. Assuming though that we get to that point, I think it's really probably a negotiation with the USDA.

Speaker 2

The original outline although it was very high level was, you had 5 years once you were approved for the grant. So if we stuck to that, I think we've got a fair amount of time to really get our project done, should it make sense for us to do.

Speaker 9

Thank you, Mark.

Speaker 2

Sure.

Operator

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Bilerman for any final comments.

Speaker 2

Well, again, thank you for all the questions and interest in LSB Industry. And we appreciate everyone's support and look forward to speaking to you next quarter.

Operator

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Remove Ads
Powered by Quartr
Earnings Conference Call
LSB Industries Q4 2023
00:00 / 00:00
Remove Ads