CF工業控股 (CF) 2014 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the fourth-quarter 2014 CF Industries Holdings earnings conference call. My name is Bridget. I will be your coordinator for today.

At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of the presentation. (Operator Instructions).

I would now like to turn the presentation over to the host for today, Mr. Dan Swenson, Senior Director of Investor Relations and Corporate Communications. Sir, please proceed.

Good morning and thanks for joining us on this conference call for CF Industries Holdings Inc. I'm Dan Swenson, and with me are Tony Will, our President and Chief Executive Officer; Dennis Kelleher, our Senior Vice President and Chief Financial Officer; Bert Frost, our Senior Vice President Sales, Distribution and Market Development; and Chris Bohn, our Senior Vice President Supply Chain.

CF Industries Holdings Inc. reported its fourth-quarter 2014 results yesterday afternoon, as did Terra Nitrogen Company LP. On this call, we will review the CF Industries results in detail and discuss our outlook referring to several of the slides that are posted on our website. At the end of the call, we will host a question-and-answer session.

As you review the news releases posted on the Investor Relations section of our website at CFIndustries.com and as you listen to this conference call, please recognized that they contain forward-looking statements as defined by federal securities laws. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including those detailed on Slide 2 of our webcast presentation and from time to time in the Company's Securities and Exchange Commission filings. These forward-looking statements are made as of today and the Company assumes no obligation to update any forward-looking statements.

Now let me introduce Tony Will, our President and CEO.

Thanks, Dan, and good morning everyone. Last night, we posted fourth-quarter and full-year results for 2014. For the fourth quarter, CF Industries generated EBITDA of $501 million and net earnings per share of $4.82. This brought our full-year results to an EBITDA of $2.7 billion and net earnings per share to $27.08. After adjusting for the sale of the phosphate business, full-year EBITDA was an impressive $2 billion and operating cash flow was $1.4 billion, even in a year marked by volatile and high cost natural gas and basis differentials, record high crop production and associated pressure on grain prices and all-time record high urea exports from China pressuring global nitrogen prices.

If anything, our performance in the face of those challenging conditions conclusively demonstrated the resilience and strength of our business.

2014 was a year of significant accomplishment and progress for the Company. We established a new, best ever mark for safety performance, set an all-time record high for ammonia sales, closed the sale of the phosphate business for $1.4 billion, issued $1.5 billion in long dated investment-grade debt, increase the dividend 50% to $1.50 per share per quarter, bought back almost 14% of the outstanding shares of the Company, and delivered a total shareholder return of 20%.

Finally, we made good progress on our capacity expansion projects and are within six months of having the first production unit online. Speaking about capacity expansion projects, I want to provide a bit more detail on them before handing the call over to Bert to discuss the market.

As we have said before, our capital authorizations are intended to be accurate to within plus or minus 10%. Therefore, we regard the projection of the projects as being on budget as long as they remain in that range, plus or minus 10% of the original authorization of $3.8 billion. As a result of now having finalized plant designs and receiving final engineering documents, we have been able to generate a much more accurate and detailed estimate of the cost to complete the projects. Based on this projection, the estimated total cost is just inside the plus 10% level at roughly $4.2 billion. Even though our best estimate is still technically within budget, in the spirit of transparency and full disclosure, we felt it important to provide this update.

While we have much greater clarity today on the expected total cost for the projects, based on our construction experience to date and the finalized engineering documents, there does remain some areas of uncertainty. However, even though there are certain unknowns and things outside of our control, most notably weather, we fully expect the final total costs to land within plus or minus just a few percentage points from this latest estimate.

The increase in cost is primarily attributable to the expansion at our Port Neal, Iowa complex due to increases in materials and the corresponding labor needed to fully winterize the plants in Iowa, and also an increase in the wage rates and per diems associated with attracting and retaining skilled labor in the northern Midwest. The Port Neal project remains on schedule with the ammonia plant expected to start up in mid-2016, and the urea plant following in the third quarter of 2016.

The Donaldsonville project, which does not share any of the Port Neal specific issues, remains right on track for both cost and schedule. The urea unit is expected to be operating in the third quarter of this year, roughly six months from now. We plan to have the UAN plant online in the fourth quarter, and the ammonia plant in the first quarter of 2016. The projects are still expected to generate internal rates of return well into the teens and significantly above our cost of capital.

Now let me hand the call over to Bert to discuss the recent quarter and our outlook for the first half of 2015. Bert?

Thanks Tony. Global nitrogen markets had attractive pricing conditions as we came out of the third quarter and into the fourth quarter of 2014, driven by restocking activities to replenish depleted inventories and tight supply dynamics in ammonia and urea driven by third-quarter outages. A record crop last year meant that the soil was significantly depleted of nutrients. That combined with our projected 90 million acres of corn planting in 2015 created the backdrop for a strong fall ammonia application season. However, harvest progress was well behind the five-year average and even behind the fall of 2013. In those areas where the crop was taken off, ag ammonia demand was strong.

We saw good ammonia movement in October and early November, particularly in the northern regions. The slower than usual harvest in Iowa, Nebraska and Illinois created an issue when very cold weather and wet weather descended upon the upper Midwest in mid-November. The result was although there was significant farmer interest in ammonia, actual shipments did not materialize because farmers were not able to get into the fields for application.

Our ammonia segment had an increase in revenues due to the inclusion of our sales to Mosaic and the favorable pricing conditions versus last year's fourth quarter. We had good price realizations as we sold against our order book and took advantage of what spot sales opportunities existed. While we did have lower domestic sales volume in the shortened application season, we expect the demand was simply pushed into the first half of 2015.

The tight urea supply conditions of the third quarter continued into the fourth quarter with turnarounds and outages continuing at a high level until midway through the quarter. Regions of gas supply constraints, including Egypt, Pakistan, Trinidad and Bangladesh, continued to see curtailed operating rates as well.

Urea prices, particularly in North America, compared favorably to last year even though we saw a record volume of urea exports from China. These record exports of nearly 15 million short tons were required due to both the urea outages and a high level of Indian demand. We estimate that India is on track to purchase over 9 million short tons of urea for their fertilizer year versus the five-year historical average of about 8 million tons.

The healthy international urea market and the purchasing activity in North America as retailers and distributors restocked inventories led to a quarterly average urea price of $358 per short ton, which was 7% higher than a year ago. Our sales volume was 6% higher in the fourth quarter of 2014 compared to 2013 as we chose to sell into this market throughout the quarter rather than build inventory.

The UAN market was active during the fourth quarter with preparations for the first half of 2015. As the fourth quarter developed and the industry saw the ammonia application season curtailed, interest in UAN orders increased as retailers and distributors anticipated it would be needed in the spring to cover overall nitrogen demand.

Our UAN segment had a decrease in sales volume in the fourth quarter of 2014 compared to 2013. In 2013, we chose to export some volume of UAN in order to balance our overall inventory system. In 2014, we had a lower level of inventory in our system with the expectations of more attractive conditions for the first half of 2015 we chose to build inventory and keep UAN here for domestic sales which we booked during Q4 for delivery in the first and second quarters.

Our other segment had solid topline performance as we experienced an increase in AN shipments and a continued significant growth in DEF along with a notable decrease in DEF prices versus last year -- increase in prices, excuse me.

As we move through this winter and towards the spring of 2015, we are very pleased with the order book we have in place and the demand we expect to see this year. We continue to project that US farmers will plant about 90 million acres of corn. With less fall ammonia applied in 2014, we anticipate healthy demand this spring for all three major forms of nitrogen.

We have a good order book in place for ammonia and confidence in our business prospects going into the first and second quarters. We estimate that only 60% to 70% of the normal ammonia volume went to the ground in the fall. Given the demand expected this spring, we have been working to produce and position ammonia across our distribution system. Additionally, we do think some ammonia demand will migrate over to UAN and urea and we are preparing for that as well.

In the fourth quarter, we anticipated that urea prices would trend down as they recently have, so we made the decision earlier this winter to build our 2015 urea order book for delivery out into April.

We are also pleased with our UAN order book. UAN prices have been at a premium to urea and ammonia on a nutrient ton basis. We anticipate that UAN demand will be strong as farmers in some areas will need UAN to complement or replace ammonia so that they can get the full nitrogen application needed for maximizing their crop yields.

I would note that we have not seen any significant decline in nitrogen prices as a result of the significant drop in global oil prices. Urea in particular continues to trade at the prices that are determined by the cost structure of Chinese manufacturers utilizing coal as their primary feedstock. There is very little relationship between international coal prices and coal prices -- or oil prices and coal prices in China as oil is primarily a transportation fuel and Chinese coal is produced and consumed locally, primarily for power generation and other uses. We have seen stability in Chinese coal prices and therefore in Chinese urea cost structure in the latter half of 2014.

Additionally, we know that the Chinese government is rolling back subsidies for urea producers in a number of areas, most recently in the freight rates offered to inland producers. These factors further support our confidence in the stability of the floor pricing structure within the nitrogen industry and therefore our prospects for strong cash generation even in a supply driven nitrogen market.

Now let me turn the call over to Dennis to discuss our financial results.

Thanks Bet. In the fourth quarter of 2014, we generated EBITDA of $501 million and earnings per diluted share of $4.82. Included in these results for the quarter were $67 million of pretax expenses for selected items listed on Slide 19, which had an $0.84 impact on net earnings per diluted share.

For the full year 2014, our EBITDA was $2.7 billion, including a $750 million pretax gain on the sale of our phosphate business. We had operating cash flow of $1.4 billion.

Our natural gas costs for the quarter included a realize loss on derivatives of about $5 million. This loss primarily reflects the expense of option premiums paid for the derivative instruments as NYMEX natural gas prices settled within the band of our hedge collars for most of the quarter.

We are very encouraged by trends in the natural gas market. While the collars we have in place for the first quarter are above the price where gas settled for in January and February and well above the current price for March, we have no hedges in place beyond the first quarter.

Natural gas production in the Lower 48 was on average almost 5 Bcf per day higher in the fourth quarter of 2014 than in 2013. Higher production combined with lower-than-expected natural gas consumption so far this winter has led to industry projections that the natural gas storage balance will be above the five-year average at the end of winter and significantly above by November of 2015. As a result, Nymex futures prices have decreased and are currently below $3 per MMBtu through the latter half of this year as compared to our full-year 2014 average cost of $4.25. We are closely monitoring this market and assessing if or when we would hedge our gas exposure beyond the first quarter. At this time, we are comfortable participating in the spot gas market.

It is notable how the entire forward NYMEX strip has moved down since November of last year with annual futures prices not breaking the $4 per MMBtu level until 2022. We believe that future gas prices in 2016 and beyond have fallen for several reasons. Near-term, the marginal cost of new natural gas production will continue to fall as the cost of rigs, materials, and other field services deflate with the reduction in oil directed drilling and development activity making it less costly to bring on additional gas wells.

We believe longer-term demand-side impacts are also coming into play. As global oil-linked LNG prices have decreased, investment in future US LNG export projects becomes less attractive. Similarly, new investment in olefins productions from US ethane has to account for the lower margin umbrella provided by more competitive naphtha-based ethylene production.

We finished the year with total cash capital expenditures of $1.8 billion consisting of about $500 million for maintenance and sustaining items and $1.3 billion expended on the expansion projects. This brings the project to date total cash expenditures for the expansion projects to $1.8 billion.

Our capital expenditures are projected to be in a range of $2 billion to $2.5 billion in 2015, including $1.5 billion to $2 billion for the expansion projects and approximately $500 million for all other items.

During 2014, we increased our quarterly dividend by 50% from $1.00 to $1.50 per share. This is part of the commitment we have to increasing the dividend through time and using it as a means to return cash to shareholders. However, our share repurchase program has been and continues to be our preferred means of returning cash to shareholders.

As of January 31, 2015, we had 47.9 million shares outstanding. This is the lowest number of shares outstanding ever for CF Industries as a public company. It is the result of our returning $5 billion of cash to shareholders by repurchasing more than 25 million shares since the Terra acquisition in 2010. In the process, we have increased the potential future cash flow available per share as represented in our nitrogen tons per thousand shares metric as shown on Slide 8. This figure has increased from 53 prior to the Terra acquisition to 140 today, an increase of 165%. And with the capacity expansion projects, the 140 is well on its way to being 175 nitrogen nutrient tons per thousand shares with additional upside from potential future repurchases.

With that, Tony will provide some closing remarks before we open the call to Q&A.

Thanks Dennis. We are proud of our performance in 2014, particularly given the challenging market conditions we face. And I want to thank all of our employees for their contributions to the success.

As we look forward to the first half of 2015, we are encouraged by the market demand for our products and our healthy order book. We see gas costs that are substantially below last year, which will have a direct impact on our profitability. We are also excited about the new production we will be bringing online at Donaldsonville in the second half of the year.

As we look farther out, we again see a forward gas cost that is substantially lower than previously expected, as Dennis mentioned, not reaching $4 per MMBtu you for a full calendar year until all the way out to 2022. We also see our production increasing more than 25% over current levels as first the Donaldsonville expansion project followed by Port Neal come on stream. We are excited about our future and the very significant cash flow generation we will be able to deliver to our shareholders.

With that, we will now open up the line to answer your questions. Operator?

(Operator Instructions). Chris Parkinson, Credit Suisse.

Perfect. Thank you very much. Given just the increasing costs versus the original $3.8 billion number, can you give us a little more of an idea on the degree of confidence you have on both timelines as well as any key remaining construction benchmarks you have over the next six to 18 months depending on the project?

Yes. Let's start off and kind of go operating unit by operating unit. When we talk about D-ville urea being online in about six months, realistically that means we need to be mechanically complete there in about three or four months. So when we do our next conference call, we should be either mechanically complete or within a week or so of being there. So I think everyone will get a very good indication of exactly how we are tracking against production schedule at D-ville, and we feel very good about that. We've got a team executing that project that built and commissioned Urea 4 an UAN 2 at Donaldsonville back in the 1980s. They've done it before and they know what they are doing and we feel very good about that.

Following that is UAN and again, I think people should be able to hopefully take some confidence where we are three months from now in our next call on urea that should translate into UAN.

The one that's a little bit further out, obviously, is Port Neal. And we've got another winter to get through. Weather and uncertainty and so forth can affect that a little bit. But we are not trying to be anything more specific on Port Neal than somewhere in the middle of 2016 before that ammonia starts up, and then urea in Q3. And we feel very good about that.

So barring something really unexpected, if we get torrential rains and soupy conditions in one of the areas where it's tough to get some work done, we end up with a river flooding, we end up with something again that's well outside the norms of what we would expect, we feel very good about the projection on schedule.

And we've done a tremendous amount of cost work. And again, we now have very detailed finalized plans and issued for construction engineering documents a line item what they call takeoffs which gives you the labor content for all of the operating units. And the number racks up to $4.2 billion or in that range. So we feel very good about it within the scope of what's within our controllable universe.

Perfect. And just a quick follow-up on your order book going forward. As you mentioned, UAN prices have been pretty solid, while on the urea front you're seeing some divergence actually between oil prices and then like Mid-Continent and Canadian prices. Can you just give us some additional color -- I know Bert hit on some of this -- on your forward order book and how you're targeting to maximize profitability, including any opportunities, particularly for the second quarter? Thank you.

Good morning. And we do have a number of opportunities when we come into the quarter and how we look at the forward opportunities available to the company, what products we choose to produce, whether we're favoring urea or UAN and sometimes even maximizing ammonia. But you have seen a correction in urea that's taken place over the last several weeks. Part of that is reflected in the international market. You're seeing a lack of demand in a number of the Southern Hemisphere areas that would pull, principally Brazil, and a lot of markets stepping out of the purchasing activity, some of that in Europe also, waiting for Europe to take off. And so North America becomes a destination for extra tonnage and that has taken place. We had that as a possibility in our market outlook, and so because of that, we built our order book and it's selling all the way into April in the fourth quarter in anticipation of what we believe due to the commodity disruptions and market disruptions that were taking place in Q4 and early in Q1. So for that reason, we feel very good about where we are and our possibilities and the opportunities available to the Company when you role in the lower gas costs that are available starting in Q2.

Perfect. Thank you very much.

Don Carson, Susquehanna Financial.

Thank you. Bert, I want to go back to this issue of demand shift from Q4 to spring of 2015. In a normal year, how much nitrogen do farmers put down in the fall, and how far below that -- I know you gave us the number for ammonia. And then would you think that in calendar 2015 that nitrogen shipments could actually be up in the US given this shift from spring or from fall to spring and your forecast for 90 million acres of planting?

Good morning. Looking at the demand shift, we did have the weather issues, so I think the farmers were -- where we were seeing in terms of prepurchases and planning for applications in Q4, we were planning, I think the market was planning for full applications throughout the Midwest. Generally, farmer is applying less than he used to. It used to be 180 pounds all applied in the fall of ammonia. Today, that's probably closer depending on if you're doing variable rates with fall and spring applications which correlates very well to the 4R program that the TFI is advocating. You're seeing a lower level of ammonia in the fall, so 100 to 120 pounds per acre.

I do think some demand has shifted. Actually we know it has because when we go around and survey our retail customers in high application states like Iowa, Illinois and Indiana and also Nebraska, that a lot of demand that was not fulfilled due to weather will be applied in the spring. That being said, it's a shortened season and when you take in weather risks, getting all of that ammonia down in the spring is probably a little bit harder, and so that's why we shifted more of our attention and customers did also to UAN for sales into Q2.

We are pretty positive on the 90 million acres of corn. There have been projections a little bit lower, but in discussions with, again, with the retail segment that we do business with as well as other participants in the value chain, seeds and chemical people, we believe that it's going to be a very healthy corn planting season with good nitrogen demand to follow.

And just a follow-up on the increased capital expenditures, roughly $400 million or so, does that mean that you will be -- there will be less free cash flow this year that you will devote to share repurchase? How do you see that impacting the rate of return of cash to shareholders in 2015 and 2016?

I wouldn't link it necessarily directly to the projects, but obviously our priority is getting the projects done. As you know, this is Dennis. My guess is looking at it right now between now and sort of the end of second quarter, it is unlikely that we will be in the market buying very many of our shares back. As we get to midyear, I suspect we will take a look at where things are. We will have greater clarity on a number of items and then we could be back in the market later this year repurchasing shares.

Our view is that our shares today represent a good value, even up near $300, and our appetite for buying into those shares to increase the nitrogen nutrient tons per share metric and cash flow generation capacity per share is a good thing for us to be doing.

Thank you.

Vincent Andrews, Morgan Stanley.

Thanks and good morning everyone. Could you talk a little bit about the way you are thinking about natural gas going forward? And I guess I don't just mean in a vacuum in terms of your view on gas, but I'm also kind of asking in terms of you've got Dawsonville just about to start up. You've talked about leveraging the new assets up. So how do you triangulate the opportunity to maybe lock in the cost side of the ledger with the ability to maybe borrow potentially upon startup of the facilities rather than waiting later on in order to -- you just said you think stock is attractive at these levels and presumably the stock will go up as your earnings go up. So how do you think about sort of the risk-reward associated with maybe hedging and maybe borrowing some money to buy stock back?

I'm going to take a first crack and then I'm going to turn it over to Chris Bohn, who heads up all of our supply chain logistics and gas behind it to give you his thoughts as well. But I think people have continually asked us this question over the past few years, which is you've got all this new capacity coming online, don't you think you should lock in your cost structure? And had we done it any time up to this point, we would be way out of the money.

We are big-time believers in the resource base of gas in the United States, the ingenuity of people here to find lower and lower cost ways to extract that gas out of the ground. And as a result, the long-term very low cost environment that we are operating in is reflected in the NYMEX strip, which is below $4 all the way out to 2022. And so we are delighted to be spot buyers right now, and really think about hedging as a way to get rid of seasonal volatility as opposed to some long-term concern with the cost structure of gas in the US.

Now, it doesn't mean that we wouldn't entertain something, but I think we feel very comfortable with the supply response in the US. When gas got up to $5 in the first quarter of last year on average, you see a production increase of 5 Bcf a day on a demand base of, what, 67 Bcf? So it's a huge percentage increase in production. And costs of bringing new wells online are only decreasing as time goes on. Chris, do want to --

Yes. Just to build on that, Vincent, as Tony mentioned, at this time, we are fine being spot buyers. When you look at 2015, last week's storage report shows that we are over 0.5 TCF greater in storage than we were last year at this time. Production continues to be strong where we are 5 to 6 Bcf greater per day in production than we were last year. And really based on this, we view 2015 as a significantly oversupplied market. And as a result, as Dennis mentioned in his comments, you're going to start seeing the conversation shift to the fall for storage containment issues.

And as Tony mentioned, it's really illustrated in the strip right now where we are having one of the coldest Februaries we've ever had. And you have March trading at sub $2.80 and the rest of the strip not above $3 to November. So it's not to say that we wouldn't move into some sort of position to mitigate weather or any other demand response, but right now we're pretty happy being spot purchasers.

I would ask Dennis just to comment on the debt piece.

I think we talked about this maybe on the last call. But obviously we are mindful of the fact that as the projects come on, we will have significant additional debt capacity. We are also mindful of the fact that we have a commitment to our bondholders and to our Board of Directors which they support to remain ourselves -- to keeping ourselves as an investment grade credit. That having been said, though, obviously as we get to the latter half of this year and we start seeing units start up in Donaldsonville with a view, a very close view, to the ammonia that is starting up there in the very beginning of next year, we are going to be in conversations with the rating agencies over what is the exact timing and amount to bring on additional debt.

What I would say is we are very mindful of the fact that our shares don't have the value fully baked into them associated with the capacity expansion projects and we are very mindful of the fact that we will be having significant additional debt capacity. It's just managing all those things within the parameters to keep ourselves on the straight and narrow with our BBB rating.

And just as a quick follow-up, did you have a sense of if you wanted to go out further on the gas strip, how far out there's meaningful liquidity for you?

There's liquidity probably three to five years out that we could go for certain tranches of that. I think you've seen some of our competitors late last year mention that they've gone out through 2018 with a three-year portion of the tranche. It really would just be us looking at what we believe, to Tony's point, that we think the overall natural gas cost structure is going to be lower, so it's just a decision on that point.

Okay. Thanks very much for all the answers.

Adams Samuelson, Goldman Sachs.

Good morning everyone. Maybe just following on about the capital discussions, on the return side, and I know in the prepared remarks, I'd not sure if it was Dennis or Tony alluded to dividends being an important component of the future returns but shareholder -- but share repurchases being more important. As the capacity expansions come online, how do you think that dividend component of the cash return mix changes, or how does your thinking evolve there as you move out to 2016, 2017 and you have your fully loaded on capacity?

Good morning. I would say as long as we think there is a meaningful discount in our shares versus what we believe to be something approximating intrinsic value, we're going to have a strong bias towards aggressive share repurchases because we think that will generate superior returns for our longer-term shareholders. And as you see that discount disappear, I think you would see us go heavier and heavier up on the dividend.

Now, that said, we do have a desire to grow our dividend over time, and we think that's an important signal to the marketplace, and it does provide a bit of a floor for our shares to constantly trade above given what the yield desires are in the marketplace. So, I think there's a place for both of them. I don't think it's exclusively one or the other, but as long as we see opportunities to continue to drive really significant value for our shareholders by buying in cheap shares, we're going to want to do that.

Okay. That's helpful. And then maybe switching gears to the market, can you talk a little bit about the situation in India and if it ties into the pace and magnitude of urea exports out of China last year and what's expected this year? India is going to have a new budget shortly, and there's discussion about changes in the urea subsidy there, obviously an important consumer of Chinese urea. And how do you risk-adjust kind of the potential changes in Indian demand this year and the impact of global supply demand balances?

This is Bert. They have a huge impact on the global supply and demand balance, importing almost 9 million tons as we mentioned in the prepared remarks, above the historical average of 8 million. That being said, they consume over 30 million tons and a lot of that is produced we believe at high-cost levels. So when you have a country that is consistently experiencing brownouts and a lack of energy but directing that energy resource base to fertilizer rather than to building out the energy infrastructure, I think that is where India should or possibly could go as we move forward. We saw that last year with the naphtha-based urea plants going off-line.

So, I would say, for longer-term looking forward, at 30 million tons, maintaining that consistent demand base, I would expect to see more imports from China and Iran coming to India and less domestically produced product as those older plants go off-line due to other, whether that be, again, being 30-, 40-year-old steel as well as a high cost of energy. And so that's why we are fairly positive.

If a lot of the prilled urea in China goes to India, it doesn't have too many markets internationally anyway. So either that product needs to stay in China, go to India or a few other low-quality markets in the world. Not much granular that comes out of China goes to India. That goes to more of the Western Hemisphere as well as into -- a little has gone into Europe.

But Adam, I think, relative to China, we also would expect that, over the next year or two, there to be a significant amount of urea production, particularly the gas based urea production in China that will likely be coming off-line because gas just won't be allocated for that use. And so we really think that kind of the high watermarks for Chinese urea export sort of last year maybe into this year and then we see a trailing off as we go forward.

Okay. That's very helpful. I'll pass it along.

Kevin McCarthy, Bank of America Merrill Lynch.

Yes, good morning. A question on urea. If we look at the US benchmark prices, there was a fairly significant sequential decline moving from the third quarter into the fourth quarter, and yet your realized prices held exactly flat. I'm just wondering if you could talk through how you were able to accomplish that. Did your mix change, and what your outlook would be given your order book for the first quarter?

In this type of market, we are always analyzing the options available to the country, whether that, again, be production options, market options, export options. And so we -- during Q3, we saw some of the positive opportunities and Q4 that were available to the Company. We executed against those. These markets, they do oscillate up and down. We have different pricing structures whether that be a forward sale, an index sale, a spot sale. Again, we utilized all three as well as interior sales to achieve our -- which we are very pleased with -- our UAN price realization.

Coming into Q4, or coming out of Q4 into Q1, the correction that we are currently experiencing right now didn't start until January and we have seen an international movement, just a little bit of a decline in urea. But we expect a lot of that demand is being pushed into later either into Q1 or into Q2. Times like this happen, a lot of demand is pushed forward when people try to buy at the bottom and the correction is actually fairly steep because a lot of that demand comes in at the same time. So I would expect that urea prices would trend up going into Q2, and we'll capture some of that price appreciation when it's available.

Okay. And then as a follow-up if I may, would you comment on the financial impact of the outage at Woodward, Oklahoma in the quarter?

We had fixed plant write-offs during the quarter. They were approximately $10 million, six plant write-offs. And then I don't have quantified what the EBITDA loss was but I don't think that it would've been substantial in the quarter.

Okay. Thank you very much.

Matthew Korn, Barclays.

Thanks for taking my question. Tony, I wanted to follow up a little bit on the statements you made about the Chinese urea production. As you cited in your presentation, the Chinese have been enacting a number of policies in an attempt shore up their struggling domestic coal industry. It would seem that with volume of exports so high that we would be breaching fairly deep into the Chinese supply curve to source all the exports. Are there any indications today that feedstock availability is affecting any of these urea producers, be it straightforward coal import limits or coal quality limits or new environmental controls? Anything you're seeing there?

No. What we do track pretty carefully is the price for anthracite lump, both in terms of RMB and then on an exchange rate basis, what that looks like in USD and a dollar per MMBtu equivalency. And it did sort of come down and hit a low point as we got into kind of August-September of last year. And then it kind of started rising again. And where we were in the January and now is more similar to where we were at the kind of June-July timeframe, which is a stronger cost and therefore higher price or higher cost urea. But it doesn't move dramatically. It's been fairly small movements, kind of $0.20, $0.30 per MMBtu equivalency.

We haven't seen -- given just the sheer volume of coal mining activities, we haven't been made aware of any kind of difficulty securing feedstock there, so that has not shown up. Now, there have been a few smaller kind of more privatized plants that have been -- I think about 2 million tons worth -- that have been permanently taken out of production just because of the economics didn't work. But we haven't seen supply of coal really being a challenge.

Thanks. Let me follow-up I guess on some of the CapEx questions. You mentioned that the cost inflation you're seeing for the projects now don't really change your view on the cost side like locking in any of the cost of natural gas. Does it increase any incentive to lock any margins with more indexed or cost plus contracts for Donaldsonville or Port Neal, kind of what you've done with Mosaic or some of the AN product you had -- you've done before?

Matthew, as we think about indexed or kind of cost plus contracts, most that tends to be for more industrial based customers. So Mosaic we view absolutely as an industrial user of ammonia because it's an input into their process. The situation we have with Orica on the supply of AN similarly is an industrial application.

It starts getting tough for us to allocate big chunks of our volume on a cost plus basis to agricultural customers because the minute you start going that way with one, everyone wants a piece of that action. And so I think what you might see us doing would tend to be more on a market index kind of basis and allocating volumes to certain customer requirements that can be priced off of an index basis. But cost plus is not really the direction, generally speaking, that we want to take the business. And part of the reason for that is we sit in a very, very advantaged location on the global cost curve. And it is a global commodity that's priced off the highest-price producers, which in this case is Chinese-based anthracite coal. And we want to capture the spread between our cost position versus the high cost producers. We don't want to give that away to other people in the industry.

Thanks Tony. Good luck this spring.

Jeff Zekauskas, JPMorgan.

Good morning. If you had to allocate the $40 million in marked-to-market losses across your segments, how would you do that?

Typically what we do, when we think about that, if you had to allocate them, you'd basically be allocating on a gas usage basis. So if you think about ammonia sort of 33 MMBtus per ton of ammonia, that would be a logical way to do it.

Yes, almost all the gas use sits in ammonia, and then it's only another kind of 3.5 to 4 to get it to urea, and very little on the AN and other product side. So almost all of the gas consumption goes into initial ammonia production.

Okay. And then for my follow-up, so this year, you will bring on Donaldsonville and maybe Orascom will bring on its facility. Do you think that, in 2016, nitrogen pricing will be affected by the capacity expansions in the US, or do you think it would be unaffected?

I think any time you end up with lumpy chunks of supply coming on, there's going to be a short-term settling out period as the market absorbs that. But because it is a globally traded commodity and things move pretty quickly to find the best possible netbacks, I don't think it's going to be a prolonged issue. I think it's one of those situations that traders will start moving tons back and forth if they can make $5 or $10 and cargoes that have found their way over to the US could quickly find themselves being moved someplace else if there's margin to be had by doing that. The international global trade is pretty efficient at finding ways to make a little bit of an arbitrage here or there. So these things have a way of balancing themselves out.

And I would say longer-term, Jeff, the US today or North America today imports roughly 40% of its total nitrogen requirements. And even with all of the projects that are currently in flight coming on stream by the end of 2016 and into 2017 for some of those other projects, North America will still import about 20% of our total nitrogen. So we will still be an import marketplace where the price is determined by bidding product away from the international market. And so we don't see the projects that we have in place as having a negative kind of permanent overhang on the pricing environment in North America.

Okay, great. Thank you so much.

P.J. Juvekar, Citigroup Global Markets.

Good morning. A couple of questions on China. You talked about urea being unaffected by oil prices, but recently Chinese coal prices have been declining in the last few months. How confident are you that the flow on urea cost curve will hold in China?

And then secondly on China, I think you said that Chinese exports of urea will be at a minimum of 11 million tons. Are you saying that Chinese exports will decline this year?

Let me handle the first part of that question and then I'll turn it over to Bert and talk about the export volume. So the data that we have on anthracite lump coal -- and I'm going to go back to beginning in sort of August of 2014 -- it was about 800 RMB per ton. And it dropped a couple of RMB in September, 798, and then it went up to 802, then in October it was back to 798 -- or December topped all the way up to 819 and where we were in January was 8 29. And if you look at the exchange rate, it hasn't moved that much. So on a dollar per MMBtu equivalency, we are actually fairly high again right now relative to where we were through the second half of all of last year. And this is based on an average of 15 different locations across China in terms of price points for anthracite lump coal.

So I'm not exactly sure where the data that you're looking at is coming from in terms of the cost coming down for coal, but that's not what we see and it's not what's reflected in terms of pricing for the urea coming out of China. You don't see a precipitous drop in what the trader cost structure looks like. So I think it would support sort of our view of what the internal cost position is on Chinese production.

Bert, you want to handle the volume issue?

Our projections and what we stated was we are expecting a minimum of 11 million tons -- it could be bigger than that -- to come out this year. But you have a different market and construct coming into 2015 than we had in 2014. With a different tax structure and the need not to build inventory in anticipation of the export season happening as it did in 2014, I think you'll see a more ratable volume coming out per month from China. Currently, they are having to build their internal inventory for their spring demand, and we are not seeing the movement coming to the ports except for Indian tenders that have been fulfilled.

And so when you look at the market and where the Chinese product can go, there are some quality discounts that the market takes when they purchase Chinese product, and then the need not to build inventory in that May, June and July time period for their previous export period. We're fairly confident that urea exports will be lower than 2014, and that's where we said a minimum of 11. But it could be in that range of 11 to 15 short tons.

Okay, thank you. And then second question, you talked about dealers replenishing inventories. So where do we stand in terms of dealer inventory? And do you have any sort of ballpark rough estimate on where we stand in terms of farm level inventory?

Yes, it differs from product to product. I'll only focus on nitrogen. You can talk to the other guys about P&K. Ammonia sits with the producers. That's why our ammonia distribution system is so important to what we do and how we do it. We are able to safely move our product up through and into the Midwest through the Neustar and the Magellan pipeline as well as with our barge system and then backfill only a little bit through rail. So we are currently preparing for that.

Our inventories were fairly low coming out of Q4, but they were low coming into Q4. And so we are in the buildout stage for probably starting -- it looks like we could have a little earlier application window based on what's happening in Texas and Oklahoma.

And then UAN and urea, we believe that a lot of the UAN inventory was so low coming really into Q3 and through Q3 because a lot of it got put down on the ground late last year, and you can see that corresponding to the high yields that were achieved in corn in 2014. And so we believe UAN inventories had to have been be built up to meet spring demand and then coupled with a drop in ammonia that may not be made up in the spring, you're going to need additional UAN or urea most likely. And so you've seen a higher level of imports. We think those are balancing the market quite nicely, and so we are pretty positive for UAN.

For urea, we have had also a higher level of imports but almost the same situation of UAN where inventories were low and a lot of product went over top of the corn late in the growing season last year. So, we think inventories are adequate for all three products, and we should do well this spring.

Thank you.

Mark Connelly, CLSA.

Two things. First, to just follow onto that comment, CF has obviously done a good job managing logistics but the logistics issue is still out there. And I'm just curious if you think it's still affecting the way producers are thinking about the spring and positioning product into the spring.

And then the second question, when you look at the new cost estimates for your nitrogen expansions, you listed changes in scope and changes in labor. I'm trying to get a sense of how much that might be impacting some of the other projects that are out there, if you have any view on how much of it was just CF related changes in scope and how much of it is labor and other things that other people are going to feel too.

Good morning. I'm going to handle the cost escalation and then I'll ask Chris Bohn to handle the logistics piece.

On the cost stuff, the increases that we have seen are largely a function of building a plant in the upper Midwest. And the changes in scope are differentials versus the projected model that we got initially from Uhde, ThyssenKrupp, because they haven't built that many of these plants in the northern clines recently. Most of them have been built in Middle East, North Africa and other places. So they have a model of what this plant is and then they try to put a weather package on it to put it in a northern tier. And what we found is that the actual amount of steel went up pretty substantially and the amount and depth of the number of pilings, the depth of the foundations and platforms, everything was quite a bit higher than what the original estimate was coming out of the engineering firm. And part of that is because you've got to get well below the frost line. You've got huge wind loading on these big buildings and exterior structures that are covered. That beefs up the amount of structural steel that you need, which again adds more concrete to the platforms. And as a result, there's this sort of escalation factor that was not originally accounted for when we got our original estimates from Uhde. And so those are factors that are going to hit anyone building in whether it's Illinois, Indiana, Ohio, up into Quebec and into the Dakotas. They are going to be faced with those same challenges that winterization package driving increases in material scope.

In addition to that, the cost of getting skilled labor to come out of the Gulf region and move into the northern area, particularly during the brutal winter, you've got to pay the per diems, you've got to pay shift rate differentials, 60 hour work weeks and so forth. And again, those are the same costs that anyone building in the northern tier is going to face. And so that's why you see almost all of the cost increase, or in fact all of the cost increase, happening in Port Neal as opposed to D-ville, which is exactly where we thought it was going to be. And those factors are directly applicable to anyone building a northern tier plant.

Chris, you want to handle the --

From a logistic standpoint, Mark, I can only speak for CF, but we've had a very manageable winter. The logistics team has done a great job of positioning our product. The railroads, for the most part, we've been happy with the performance so far due to positioning of our cars and our plants. So I think, for the most part, with the exception of a little disruption with the potential or the CP strike for the day and a half and some of the rivers with this colder weather here getting a little more ice on it than what we have had for the previous part of the winter, we've been in great shape. So there's not much that we are seeing as a bottleneck on the logistics side.

That's super. Thank you both.

Joel Jackson, BMO Capital Markets.

Thank you. Good morning. I had a couple of questions. The first question is looking at your non-gas cash costs for all of your segments, they were higher on your new segmentations, so they were higher in Q3, Q4 and in 2014 versus the prior-year periods. Can you talk about what's going on there? Were they higher than normal this last couple of quarters or were they -- is this the right run rate?

Yes, as we look at the whole year-to-date, we've got a few things going on. Let me just sort of talk about they're sort of almost sort of one-time-ish in effect. We had a pension settlement which rolled through cost of goods sold of around $9 million this year. We also had some higher storage and logistics costs during the year. And as I talked about earlier, we had some fixed plant write-offs during the year of about $15 million. And then there's just a laundry list of a bunch of other items that add up to it, so there's nothing really systematic in any of it. It's just that this year, going through our cost of goods sold, we had some significant other items.

To add to that, the pension settlement, we sold the phosphate business. All of those employees all of a sudden became former employees, and we had the opportunity to offer a bunch of them lump sum settlements, which turned out to be a great thing for us. It derisked our pension plan, but there was an impact that rolled through the P&L. And then when we had the protracted outage at Woodward. There was just an awful lot of costs that got absorbed into the P&L that wouldn't normally be there. And you would also see more production and more sales that would help absorb some of that and spread it around. So as Dennis said, I think there's nothing systemic in terms of our cost structure. It was just some one-time events.

With the 2013 numbers that you've disclosed so far, would that be more of the right numbers to use in 2015 or something in between the two years?

I don't know, Joel. I haven't thought about it. I wouldn't want to give guidance on 2015. I think we're planning on running our plants well this year, and you will take your own view on natural gas.

I meant, sorry, on the non-cash non-gas cash costs, sorry.

Yes, I don't see anything unusual happening this year. We'll have a turnaround schedule. We will take turnarounds and that will attract certain costs, some of which will be expensed, and then we will also continue to have expenses associated with the capacity expansion project, but really there is sort of nothing in 2015 that is sort of out of the ordinary.

Okay. And finally, at our investor presentation, you has some disclosure, you expected sustaining capital to be $450 million this year and $350 million thereafter. You've now updated that to say $500 million this year and you haven't said thereafter. Can you talk about what's going on in sustaining capital and what you would expect after 2015 as you ramp on the extension? Thanks.

Yes, so, one of the things that we've been doing with sustaining capital is we have been kind of going through and systematically bringing the legacy Terra plants up to the standard that Donaldsonville and Medicine Hat have been kept to. So that means we don't let single point failures in an ammonia tank take the entire site down because we have a redundant ammonia tank storage. We have DCS control systems on all of our production units. We don't have pneumatic or single loop control systems. There's a whole series of things that we have been doing to, again, systematically upgrade and make the plants more reliable, and we are getting near the end of that process. We are doing a couple of major DCS upgrades, including one right now with Verdigris and one later in the year I think at Woodward.

But as we look forward, that kind of big spike will have worked its way through the system and will be returning to what we view as a more normalized maintenance CapEx, which is back in kind of the $300 million to $400 million range. And it's going to vary one year to the next based on the intensity of turnarounds, but that's a pretty good average number.

As we demonstrated back in 2010 and 2011, if need be, the plants have an ability to sort of tighten their belts and run on a lower rate than that, but that does have long-term consequences. And we would rather keep them running at the appropriate sustaining rate to maintain high onstream reliability and safe operations. And that's really kind of still in that $300 million to $400 million a year range.

That was very helpful. Thank you.

Charles Neivert, Cowen & Co.

Good morning guys. Two quick questions. One, in terms of Donaldsonville and the new ammonia plant when it starts up, does that trigger the startup of the Mosaic deal? And of that production that's going to come online assuming it's running full-bore day one, but how much of that new production is committed to Mosaic once it starts up?

And then on a follow-up, with the decline in oil pricing, and I don't know what you have for an assumed oil price going forward, does that mean or do you think that India will in turn then keep on those naphtha-based urea units because now it's a lot cheaper to produce than it was six, eight, 10 months ago?

On the Mosaic side, Charlie, we already are moving our Trinidadian tons to Mosaic in Tampa, so that contract or that piece of the contract has already begun. The rest of the contract officially starts January 1, 2017, but there is an opportunity for us to supply them tons ahead of that if both parties agree. And one of the challenges of course you have when you're shipping anything intra-US is you need Jones Act vessels and they are in the process of constructing their Jones Act vessel. So the tight shoe on this one is going to be more their ability to arrange transport as opposed to our ability or willingness to sell the tons. But that contract officially kicks off January 1, 2017 unless both parties agree to an earlier date.

It's an earlier date, would it be at the same contractual deal as the 2017 start or would that have to get -- would there be some adjustment there?

No, we would keep the same pricing mechanism in place that generates a nice return for us on our plans.

On the oil price, your point is a good one, which is the naphtha-based production is more competitive than it was six, eight months ago. And those plants might have a little bit more of a runway from a limp-along standpoint.

I think most of the people that we talk to in the energy space suggest by the time you get to the end of this year, you are in the sort of $60 a barrel range. You get into next year, you are more $65 to $75, and then it could go up from there unless you see some meaningful new production coming online. And as oil continues to kind of creep up in terms of costs, those naphtha-based production units become less and less economic and we are back to the world that Bert described. So could they hold on for a period of time longer? Certainly possible. Do we think those are long-term producers and part of the overall supply curve? We don't view those as being a meaningful part of global production.

I think it's important -- this is Dennis -- that you keep in mind that, at $60 oil, you're still talking about $10 per MMBtu. And although that may be "more competitive" than it was at $100 per MMBtu, it is still not competitive in an absolute sense when you think about people like ourselves who are paying today somewhere between $2 and $3 per MMBtu for energy to produce product.

Okay. Thank you.

Michael Piken, Cleveland Research.

Good morning. I just wanted to circle back with respect to your expectations for this spring and kind of how the dealers are positioned. If we get a really early spring like we did in 2012, is there a potential for the Midwest market to rally by maybe a higher amount than people are thinking right now? Or do you think there's been so much product already bought that that type of run is not possible?

Whether we have an early spring or a late spring is still to be determined. We have seen some very positive early activity in Texas and Oklahoma, as I mentioned earlier, regarding UAN movement out of our Oklahoma plants in preparation for their season there. If we were to see an earlier spring as we saw in 2012 where we saw demand consistent every month and then much earlier where March was taxed at least through the distribution system, I do believe you would see a price rally similar to 2012 when we went from $430 to $740, I doubt that. I think we would be pleased to see something in the upper $300s. But who would probably capture that would be those who have inventory in position or are able to put product in position such as CF, because it's difficult. When those price disruptions take place, it's generally a freight issue or a product availability issue.

Okay, great. Then my second question just relates to kind of the summer field program. I know it's a little early. But with kind of more capacity coming on, specifically the Orascom facility potentially up and running by next spring, how do you sort of think about your approach to summer fill and I guess in terms of both from a pricing standpoint and an ability from a timing perspective to get the dealers to buy in. Thanks.

Regarding summer fill, we work in conjunction with our customers to make sure that we are supplying their needs and expectations. Summer fill is very important because UAN, focused on UAN, you're shipping so much product. Demand is around 13 million tons, 14 million tons in North America and you have to ship that every month and utilize your logistic assets because you can't just receive it all in two or three or four months in the spring. And so there will be a fill program.

The other producers that are bringing on additional capacity, they are actually going to come out with ammonia first. We don't see that UAN coming on stream until at best late in the first quarter 2016 and probably Q2 2016. And so that's too late to impact fill and probably too late impact the spring season. Our UAN at Donaldsonville will be brought up late Q3, Q4, and that will be a part of our program.

Okay. Terrific. Thanks.

Tim Tiberio, Miller Tabak.

Good morning and thanks for taking my question. I guess with regards to your comments on the Q2 hedging position around natural gas and those collars really rolling off starting in the second quarter, can you kind of give us a historical reference point of how much of your Q2 sales are typically produced in Q1?

You're basically asking what do have in inventory typically at the end of Q1 for sale in Q2? And I think the answer to that is that varies by year. So, as we look at our inventory -- as I look at inventories and I look at them every quarter because it's part of what we do to prepare for these calls, every quarter it's going to be very different and it will vary by product depending on what's happened the quarter before. So there's really -- there's not really a lot of insight to be gained from that.

But generally speaking, Tim, I would say our desire is to come out of the end of the second quarter with sort of the warehouses and the tanks empty, if possible. And so very little of what is produced in Q2 stays in Q2 -- goes into inventory. It's maybe half a month or at most a month. And so all of the sales in Q2 and Q1 are really the product that has been produced.

So, if you're thinking about how to view the lag of how gas is going to work its way through the P&L, part of it, back to Dennis' question, is do we get an early spring, which it doesn't look like looking out the window this morning and it being zero degrees here in Chicago. But you know, do you get a big ammonia season in Q1 and get those sales right now, or do they drip over into Q2 and so forth? But certainly in the first half of the year, all of that gas is going to work its way through the P&L.

Okay, great. And then my second question, back to your point about the cost inflation from winterization, I guess probably some of that has to do with your urgency of trying to get these projects done. But with some of the major CapEx reductions that we've seen in the oil patch being announced over the last couple of months, do you see that structurally changing, though, if at some point some of that labor may structurally have to move back into the North? And does that change your view on some of these projects that have kind of been seen as more marginal from a returns basis?

I think it's a good question. Obviously a strong dollar versus the euro means that your engineering and some of your procurement costs are a little bit less. And if you see a bunch of the LNG and other kind of projects canceled, do you end up not having to bid up labor quite as much? I think those things are good questions. But I think, generally speaking, the skilled trades are still Gulf area-centric people, and because of new construction and turnaround activity, there's, generally speaking, plenty of that work to keep them gainfully employed in the Gulf region. And so our view is to attract the scale of people that are required to build a nitrogen facility. You're not going to see a substantial discount in labor rates versus what we are experiencing today. Again, a strong dollar means you might get a little bit of benefit on some of the engineering and procurement side.

But the other thing that's important is to recognize is the economics available to anyone coming after this are diminished relative to us for a couple of reasons, one of which is we've got sort of the first mover advantage and we're going to have at least three years of production of these projects versus anyone else and anyone else that comes after this. The S&D balance is something that just doesn't favor those projects from a price realization standpoint to the same extent as our projects.

The other thing is we have an entire network and logistical asset base that we're feeding our production into. And as a result, we believe we can generate better netbacks than anyone else out there can. And so if you are operating a single facility with operation without benefit of all of the terminals and rail assets and barge fleets and everything else, you are really operating at a pretty significant disadvantage. And again, the economics on that are pretty challenged. So our view is it doesn't keep someone from doing something stupid, but we just don't think that there is a compelling economic story there for people to be building a lot of new plants.

Great. Thanks for your time.

Sandy Klugman, Vertical Research.

Thank you for fitting me in. So you discussed import requirements falling to about 20% over the next several years. But looking further out, I was wondering. What do you expect our import requirements to be by 2020? And where do you see capacity coming offline as the global cost curve shifts to the left?

We believe that North America will continue to be an important marketplace out through 2020. We just don't think there's going to be enough new projects built that are going to change the macro S&D balance.

And the other thing that we have the ability to do is to influence that to some extent because Donaldsonville, in a lot of ways, could be considered an export plant or an -- it's not an interior plant. Our costs are about the same to move that product into Latin America as they are to move it into the Corn Belt. So we have an ability to just ourselves influence kind of this notion of whether the interior is an importer and exporter imbalance.

In terms of the overall marketplace, nitrogen demand continues to grow at about 2% to 2.5% per year. Some of that is industrial, like DEF growth and other things. It's also intermediate chemicals and so forth.

So as you look at global demand growing at 2% a year, you have to bring on kind of four to five worldscale plants every year just to satisfy demand. So while we do think there will be some production coming offline in the very high-cost regions, I don't know that it's going to be as dramatic as some people are suggesting.

Also, as you look at global production, there continues to be gas curtailment in a lot of production regions. Egypt is seeing pretty significant gas curtailment. Even Trinidad has seen 10% to 15% gas curtailments with no immediate end in sight there. So I think the notion that the industry has got to rationalize a whole bunch of additional capacity in the next year or two might be overstating it a little bit.

Okay. That's helpful. Thank you. But as a follow-up, shifting back to natural gas, I know you said that you are primarily exposed to the spot market. But the question is does this imply that you're not even locking in gas to match orders in your forward order book, which has historically been the Company's practice?

So we have historically done that, and generally speaking, it's something that made sense when you go back to when the Company became a public company back in 2005 and 2006. So at that point in time, North America had some of the highest gas costs. We were the marginal producers. When we sold forward, we wanted to ensure we were locking margin that was actually positive margin.

We live in a very different world today where we are some of the lowest-cost production on the planet, and we are not concerned about margin going upside-down on us. And so our view now is much more informed by what's our view of gas as opposed to needing to "lock margin".

Now, today, our forward order book is covered by our current hedges and our inventory, which is the way that we have always operated in the past. But we are actually evaluating that policy and dogma as to whether that is something important for us to maintain or whether we want to have a little more flexibility in our approach to that going forward.

Thank you. That's helpful.

Andrew Wong, RBC Capital Markets.

Thanks for taking my questions. So we started to see some UAN exports from China last year. Can you just talk about how you expect that might evolve over time and how might it impact UAN or urea pricing?

Yes, we did see some exports out of China to the United States, to Mexico and to Australia. But when you look at the total exports that came out of China, it's still relatively small. We have been there. We have looked at the structure that is in place to support that export capability, and it's de minimis. There are a few tanks at the port. They have to truck product into the port, and small storage, now that can all be built out, but it's really not prepared for the export capability like we have in Donaldsonville where the tank is right next to the dock. We can load oceangoing vessels of various sizes.

And so I think what the Chinese were doing last year was getting accustomed to moving product. I think over time, as you see capacity come on in the United States, that would be at best a rare occasion. And so its impact, we don't see it as being that impactful. And their cost structure is high enough that it doesn't really impact us there either.

Okay. And then maybe just switching over to capital allocation and share repurchases, could you reconcile your comment earlier regarding slower repurchases through the first half of this year? Was your view that shares are currently well below intrinsic value?

Our issue is at the moment our focus is 100% on bringing our projects online, and if we need to husband capital a little bit here in the first half of the year to ensure that we do that, then that's pretty easily done. It doesn't change our view on the attractiveness of our share price. It's simply just a short-term issue, and as Dennis said, as we get by the end of the first half, D-ville urea should be done and starting off with some cash flow coming back in off of that. We will have that much better visibility into what's going on with schedule and timing on the rest of the projects and be in a really good position to be able to make that decision at that time. But again, this is in a spirit of much more open transparent communication about our intentions maybe than we have ever been in the past month, just saying hey, look, our priority right now is getting the cash flow coming in the door on these projects. So if you're looking for a big repurchase, don't look for it probably in the first half of this year.

Great. I Appreciate your comments. Thanks.

I'm not showing any further questions at this time. Please proceed with any closing remarks Mr. Will.

Thank you. That concludes our call for today. As always, I'm available for any follow-on questions. Thank you, everyone, for your time and interest.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a great day.