CF工業控股 (CF) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. And welcome to the CF Industries Holdings, Incorporated's third-quarter earnings conference call.

(Operator Instructions)

As reminder, today's conference may be recorded. It is now my pleasure to turn the conference over to Dan Aldridge, Director of Investor Relations. Sir, the floor is yours.

Good morning, and thanks for joining us on this conference call for CF industries Holdings, Inc. I'm Dan Aldridge, Director of Investor Relations. 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 of Sales, Distribution and Market Development; and Chris Bohn, our Senior Vice President of Supply Chain.

CF Industries Holdings, Inc. reported its third-quarter 2015 results yesterday afternoon, as did Terra Nitrogen Company LP. On this call we will review the CF Industry's 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 recognize 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 this 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. I'd like to start by acknowledging the outstanding effort our people -- of our people to keep themselves and each other safe. Our safety performance, reflected in our reportable incident rate, has continued to improve, and at the end of the third quarter was a new all-time best rate of 0.80 incidents per 200,000 work hours. Safety is a hallmark of operational excellence and something we focus on every day. It is a critical component of our implied license to operate, and it is gratifying to see our team continue to improve our performance.

This is notable in itself, but all the more remarkable because in addition to our regular operations, we have thousands of extra people on our sites working to complete our capacity expansion projects along with several scheduled plant turnarounds. I would like to thank all of our employees and contractors for the focus and safety leadership they've demonstrated to contribute to this great result.

CF Industries reported EBITDA of $256 million for the third quarter and over $1.4 billion for the first nine months of 2015. The third quarter is seasonally our slowest quarter of the year, and this year in particular had a lot of noise running through the numbers. Looking a bit more deeply into our results, you'll see that the EBITDA for the third quarter was remarkably similar to third quarter of 2014 after giving effect for certain distinct items, most notably unrealized mark-to-market losses on natural gas hedges, transaction costs related to the deals announced during the quarter and gains from the remeasurement of GrowHow, along with a few other items.

As you can also see from the data on slide 21, EBITDA for the first nine months of 2015 is largely unchanged from our nine-month results for 2014 after normalizing for the nonoperating item noise in both periods.

I'll now turn the call over to Bert and Dennis to go through the details of the quarter. And then I will wrap up with an update on our strategic initiatives. Bert?

Thanks, Tony. The global fertilizer market has continued to be very competitive, and the supply of fertilizer has been heavily impacted by new exportable global production and lower ocean freight rates. During 2015 and through the third quarter, the devaluation of multiple currencies only exacerbated this situation.

Chinese government devalued their currency during the third quarter. This devaluation, along with less expensive coal and ocean freight, helped to push the international price of urea lower. However, over the last few months China has been reducing its exports. This decline has also been evidenced in the last three India urea tenders, which saw lower Chinese producer participation. Additionally over the last few weeks several large curtailments of urea facilities have been reported in China.

The weak ruble continues to give incentive to Russian nitrogen producers to export rather than to supply domestic Russian demand. The prices are higher outside of Russia and payment in dollars is more advantageous than in rubles. The Brazilian real also continues to decline during the quarter, and has had a negative impact on the urea market, where Brazilian imports are down nearly 38% year over year.

In North America the third quarter is traditionally a lower demand quarter, as farmers focus on the fall harvest and manufacturers build their inventories in anticipation of the fall ammonia application and spring fertilizer seasons. This year was no exception.

While all these factors have led to a depressed pricing environment, we believe pricing is beginning to stabilize and that we have reached the seasonal floor of anthracite coal-based production in China at around $250 a ton delivered to the US Gulf.

Sales volume for the third quarter was 3.2 million tons. Production volume was heavily impacted by the turnaround and refurbishment at our facility in Woodward, Oklahoma. The facility was offline for 75 days during the quarter, impacting year-over-year production by approximately 200,000 tons combined of UAN, ammonia and DEF. We enter the third quarter with adequate levels of ammonia inventory after a very robust first six months shipment pace.

The new Donaldsonville urea plant was expected to start production in the third quarter, and therefore consumed most of the excess ammonia inventory position. However, the urea plant will come on later than expected. Coupled with the previously scheduled downtime of upgrading capacity at Donaldsonville, these drove higher levels of net ammonia than usual, and we made the decision to sell spot ammonia into lower-priced export markets.

During the third quarter we completed the successful UAN field program that was launched late in the second quarter. We were able to book over 3 million tons for the campaign at healthy netbacks.

Ammonium nitrate continued a trend of lower demand that began in 2014. The third quarter is normally a slow demand for AN in North America, and 2015 has proven to be especially challenged. However, we were able to maintain an adequate ammonium nitrate production rate in Yazoo City by utilizing the export channel.

In the United Kingdom, AN is also experiencing slow demand, but is more of a seasonal issue and we expect there to be good agricultural demand going forward. We are optimistic about the future of North American AN, given our supply agreement with Orica that will be starting in 2017, as well as continued growth in the United Kingdom.

The fundamental demand characteristics for nitrogen are strong. In North America, nitrogen fertilizer demand is expected to be slightly higher in 2016, with about 15.7 million tons of consumption. The harvest is progressing. Ammonia applications have begun, and the current returns for the 2016 crop, based on new crop futures, favor corn plantings. As a result CF now expects 2016 plantings to be 90.5 million acres, which is 2.1 million acres higher than the current year.

We have an appropriate level of inventory of product that we believe is well positioned to support our customers' needs for the fall ammonia application and spring season. Along with stabilizing prices and lower imports, this could lead to better than expected pricing for the fourth quarter. We expect to be well positioned to sell all that we can produce.

Now let me turn the call over to Dennis.

Thanks, Bert. Beginning this quarter we've changed our segment reporting, moving from four segments, ammonium, urea, UAN and other to five. Ammonium nitrate will now be reported as its own segment. Prior to this change ammonium nitrate was part of the other segment. This is as a result of its greater role in our portfolio with the addition of the former GrowHow assets in the United Kingdom.

In the third quarter we generated $256 million of EBITDA on sales of $927 million. This compares to $338 million of EBITDA on sales of $921 million in the third quarter of 2014.

As Tony discussed, EBITDA results were lower than the prior-year period due to a few distinct items. First, our cost of goods sold was affected by an unrealized mark-to-market loss on our natural gas hedges of $126 million.

Second, we incurred $37 million in costs associated with our acquisition. Third, we had approximately $15 million in costs related to the expansions of our Donaldsonville and Port Neal facilities. And finally, these were partially offset by a gain of $94 million related to the remeasurement of our investment in GrowHow.

During the quarter we also recorded approximately $30 million in other expenses for certain items. These items included $17 million in fixed cost absorption related to the turnaround and refurbishment in our Woodward, Oklahoma facility. There were also approximately $6 million in costs related to the financing of the OCI deal.

The expansion projects are progressing well at both Donaldsonville and Port Neal. We announced an increase in the projected capital cost of roughly 10% versus our previous assessment of $4.2 billion. The main factors driving the estimate up are the finalization of engineering drawings later than we anticipated and the productivity of our contractors.

As engineering has been completed, we have found that the actual construction quantities required to complete the projects exceeded earlier estimates provided by the engineering contractor. Increases in quantities result in more labor hours required to complete the job. And because we have placed a priority on schedule, that also means more craftsman, more extended shifts and lower productivity than originally expected.

However, we now have virtually all the engineering work completed so the uncertainty going forward, at least with respect to quantities of materials, has been significantly reduced. Weather and labor productivity will continue to be variables in the equation, but we are beginning to see the finish lines, particularly at Donaldsonville.

Including the estimated cost increase, the projects are still expected to generate after-tax returns in the mid-teens, which is well above our cost of capital. This is because our initial financial forecast assumed a forward gas strip much higher than the gas strip available today. Additionally when we did the original project economics we used a conservative nitrogen price forecast for the first several years of project operation.

For the full year 2015 we expect our total capital expenditures to be approximately $2.6 billion. This consists of approximately $2 billion for the capacity expansion projects and approximately $600 million of sustaining and other capital expenditures.

In the third quarter the Company repurchased 358,000 shares for approximately $22.5 million, bringing shares outstanding down to 233 million as of September 30, 2015. Including shares repurchased during the first two quarters, this brings the Company's year-to-date share repurchases to 8.9 million shares for approximately $527 million.

During the quarter we completed a $1 billion private placement of senior notes. We intend to use the proceeds to fund our capital expenditure programs and for general corporate purposes.

In the third quarter of 2015 the average realized cost of natural gas purchased by the Company from North American operations was $2.77 per MMBtu, a 37% decline year over year. The average realized cost of gas purchased by the Company in the United Kingdom in the third quarter was $6.43 per MMBtu, and gas in the United Kingdom continues to trend downward as the effects of lower oil prices filter into liquefied natural gas prices and long-term gas contracts indexed to oil. The overall realized -- the average realized cost of natural gas purchased by the Company in the third quarter was $3.07 per MMBtu.

During the third quarter of 2015 we did not enter into any additional hedges for the balance of 2015, but added to existing hedges for 2016 and 2017, in addition to initiating hedges for 2018. These hedges and the fixed basis differentials we have in place for our Port Neal and Courtright complexes have taken significant amount of cost risk off the table. For additional detail on the Company's natural gas hedges, please refer to the natural gas table in the appendix of the earnings release.

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

Thanks, Dennis. Our performance financially has been very solid in 2015, particularly so given the significant headwinds we have faced: a challenging global market where abundant supply has pressured product prices, currency exchange rate moves that have either helped some foreign producers become more cost competitive or made it more challenging for some importing countries to buy product, and concerns over the commodities sector in general.

Even in the face of these difficulties, our results for the quarter and the first nine months of 2015 were essentially unchanged from our 2014 results after normalizing for a few nonoperational items. This continues to demonstrate the strength of our business model and the enduring advantage we have from plentiful low-cost North American natural gas.

If you refer to slide 11, you will see a table that shows various EBITDA outputs for the standalone CF business after our capacity expansion projects come online as a function of our realized cost of natural gas and our average realized selling price of nitrogen products on a urea equivalent basis. You can clearly see that we remain highly profitable over a very wide range of market conditions. On a trailing 12-month basis, our average realized gas cost was $3.07 per MMBtu and average realized urea equivalent price was $343 a ton.

What this shows is even with the challenging market conditions of the past 12 months, this business is very profitable and generates a significant amount of EBITDA. Regardless of all the noise going on around us and the fears in the market, those who take more than just a cursory look at our performance will recognize the following incontrovertible fact: our business continues to run well and we continue to deliver the EBITDA.

I would now like to pivot from the quarter and speak about the bright future ahead of CF Industries. Over the last few months we've announced several strategic moves which will deliver significant growth in our cash-generating ability. The completion of the capacity expansion projects, along with the three major transactions we've announced, is expected to increase the production capacity of CF 65% by the end of 2017. All of these initiatives have very attractive individual return profiles with unlevered after-tax returns well above our cost of capital. And when taken as a group, these initiatives are unmatched in our industry and represent an opportunity for significant near-term shareholder value creation.

On Tuesday we announced that the OCI deal has cleared US antitrust review process. This is a major step forward in closing this deal, and upon completion this transaction will give us the premier global footprint in the nitrogen fertilizer industry and allow us to fully leverage our global assets. We continue to expect that we will close the OCI transaction in Q2 2016.

Our transactions with CHS are groundbreaking and should be highly accretive to our shareholders. The product supply agreement provides us ratable off-take from a premier agricultural cooperative with which we've had a long-standing and productive relationship.

The deal provides CHS with up to 1.1 million tons of urea and 580,000 tons of UAN at market prices. CHS' $2.8 billion equity investment in CF Industries' nitrogen LLC provides them an opportunity for achieving manufacturing economics via dividends, and has validated the strength of our business model and the value it can create. In essence, a highly knowledgeable market participant values the standalone CF Industries business at an effective enterprise value of over $30 billion, even before giving effect to the OCI transaction.

On the capacity expansion front, we are pleased to announce that the granular urea plant at Donaldsonville is now mechanically complete and in the process of being commissioned. We will make an announcement when the plant has achieved stable production performance.

The Donaldsonville UAN plant is on track to start up in the fourth quarter of this year, and the ammonia plant to follow in early 2016. Port Neal is also progressing well, and we continue to target a startup in mid-2016.

Finally, we completed the acquisition of the remaining 50% equity interest in GrowHow which has made CF the largest nitrogen fertilizer producer in the United Kingdom. These operations are well-positioned in an import-dependent region, and we are delighted that they are now fully part of the CF organization. Taken together, these initiatives represent significant opportunities for our Company and our shareholders.

Before I close I want to reiterate that our philosophy and approach to capital allocation remains unchanged from what we have said and done in the past. As you can see on slide 12, we expect that over the period from 2016 to 2019 we will generate significant excess cash that is unallocated.

Our first call on that capital remains investment back into the business when we can find projects within our strategic fairway that have a risk-adjusted rate of return well above our cost of capital. Beyond that, excess capital belongs to and will be returned to our shareholders, just like we have done consistently in the past.

I would like to thank our entire team for getting us to this point. Many people have worked tirelessly over the preceding weeks and months to move our initiatives forward. We have a very bright future ahead of us, and we're just at the beginning of the journey.

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

(Operator Instructions)

It looks like our first question in queue will come from the line of Chris Parkinson with Credit Suisse.

Thank you very much, and good morning. Your realized ammonia price during the quarter was still slightly lower than many expected, including us. Could you quickly comment on any differences in selling patterns here that affected your netbacks? And also if you expect to benefit at all from the recent increases in the Midwest ammonia prices?

Good morning, this is Bert.

Thanks for the question. You are exactly right, the ammonia price was lower. When you look at ammonia in the third quarter, it is a non-agricultural application ammonia quarter. We had a little bit that might bleed in from Q2 just for some side dress, but it is predominantly an industrial quarter and that was reflected in our result.

When you look at what drives many of our industrial contracts, that would be Tampa-based pricing, which was $460 in July and August, and then $445 in September. So for an average, let's say, of in the $450s. Taken to a short ton that get you pretty close to $400. And that reflects a lot of what was driving our numbers, as well as gas-based contracts when you had gas in the $2.20 to $2.70 range during the quarter. That drove the pricing realization lower.

Now, we've exported, as we mentioned in our comments, exported or sold into the spot market around 18% to 20% of our volume, and that came at those numbers. When you roll that up, we are in line with what the international markets were, actually higher, but lower than I think what you all expected.

Perfect, thank you, and just a very quick follow-up. In addition to some of the increased costs you incurred during the quarter, it still looks like some costs on some line items were still fairly bloated in addition to the downside -- the downtime at Woodward. Is there any comment on how we should think about your margin per ton production going forward, and any additional color? Was there anything else that was nonrecurring in the third quarter that we should be parsing out?

Chris, remember that unrealized mark-to-market losses on the gas hedge positions roll through those numbers. So there's almost $130 million of nonoperational nonrecurring costs that show up in those numbers. That's one thing you have to back out.

We also had $17 million of fixed cost absorption, which rolls through as well, Chris, during the quarter. If you step back from it, Chris, our plants run with the same efficiency they've always run. Gas costs what it costs, and our gas price profile is very good. And the overheads and stuff associated with the plants aren't really any different today than they were before.

No, there hasn't been margin deterioration. If you look at SG&A it is up a little bit in the quarter, but it's about exactly the same for the year. And that reflects the addition of largely the addition of the GrowHow assets on a consolidated basis during the quarter. The other operating net line, you see that that moves up and down, but that is mostly just ForEX movements for the most part. And then costs associated -- or expense items associated with the expansion projects. So no, there's really nothing in there of much of a story.

Perfect. Thank you very much.

Our next phone question in queue will come from the line of Vincent Andrews with Morgan Stanley.

Thanks, and good morning, everyone.

I just want to clarify the return calculation on the new projects. You mentioned that obviously gas prices are lower than probably the last time you stated what the return profile was. But, I also remember back from the July 13 Analyst Day that in that return calculation you were assuming some improvement in urea prices down the road because you thought the Chinese cost curve was going to go up. Could you help us reconcile what gas price you're assuming now versus before? And maybe what sort of break-even into the Gulf you're assuming now versus before?

Let me step back and talk about where we sat in 2012 when we made the decision to move forward with these projects. At the time the forward curve was above $5.50 per MMBtu. That dramatically changes what the profitability of the output of these plants are. We did anticipate at that time, based on the number of projects that had been announced and were in flight in Middle East, North Africa as well as in China, that 2016 was going to be the low point in the pricing curve.

We had put forward, as Dennis mentioned in his comments, a pretty conservative view of where nitrogen was going to trade over the coming years before it started recovering at the back end of 2017 and into 2018. Nothing really that happened in the marketplace is all that dramatic, other than the fact that overall the global cost inputs for all hydrocarbons have shifted down.

But if you look at the effective impact on the margin that we're realizing, it is not that dramatically different. As such, there has been a little bit of deterioration, particularly in Port Neal because that is where the brunt of the cost increases have occurred. But the Donaldsonville project is still pretty darn close to where we had made the original calculations for a return on that. And so as a result both projects end up solidly in the mid-teens return.

Okay. That's really helpful. Can I ask you separately? Post this whole thing with Volkswagen, does anything change about the diesel exhaust fluid opportunity set over time?

Actually it's going to be positive, although we're still following that and we just participated in the Integer Conference here in Chicago. And what the implications mechanically will be for these engines that are out, already in the market that will be recalled, and then for changes to the existing structure of the power unit going forward. So we do see that as a positive step for DEF.

DEF continues to grow in the 30% to 40% range per year. We are actively participating, actively growing, actively growing our production as we already announced for Courtright and Donaldsonville. And that is a very positive light for us going forward.

Okay. Thanks very much.

Our next phone question comes from Steve Byrne with Bank of America.

Thank you.

Can you quantify how much ammonia and UAN you have sold forward and how are those pricing outlook compared to current spot prices?

Good morning.

We normally don't give exact numbers, although I did say 3 million tons was done in the second into the third quarter for the UAN field program. The field program is at the end of the season and then that pushes us through generally November/December. We've continued to take sales after the field program. So we had a very healthy order book for the UAN -- for our UAN position going forward, and are continuing to participate in the domestic, as well as the international market.

As you can see from our price realization at $241 relative to today's NOLA prices that are published in the publications, we think that is an incredibly positive position. And we are going to continue to build on that.

For ammonia, the fall season is just starting. We had a pretty good day yesterday with shipments out, but we're adherents and advocates for the 4R program that the TFI and other industry participants are advocating to farmers. And the crux of that is applying ammonia when the ground temperature is 50 degrees. Today as we sit in sunny Deerfield it is supposed to be 70. So we look at the ammonia season as being delayed. But we've got a lot of products sold forward and ready to be applied in November.

If you look at the 30-day forecast, which we tend to follow probably every hour these days, you've got positive temperatures in the 50s during the daytime into the first week of December. So we think we've got a lot of runway still to go and product is positioned. And I think this gives the advantage to CF.

Because of our terminal system, we are able to be supply and be fully supplied when that condensed time does take place. And I think this year it could be a week to 10 days that the majority of our ammonia goes out. We are prepared and price realization we think will be positive.

The other benefit, Steve, is it looks like the crop is coming off the fields in about the normal timeframe, or in fact largely off. And so there looks like a pretty good runway here in front of us for a really strong application season in the fall, given the mild temperatures. We are really pleased with where we are positioned.

If we can roll forward a year in anticipation of the OCI deal closing, what fraction of Donaldsonville production do you think you might be in a position to export with higher net-backs, and how might that vary seasonally and by what product?

Steve, I think as we sit here today, based on the dock configuration we are able to export approximately 50% of the D-ville production. We have enough dock space down there where if that looks like something that we want to increase for a not that dramatic cost, we can dredge the channel a little bit, do some instruction improvements and increase our export capacity. So we have got a fair bit of flexibility in terms of export capability there.

I would say initially we're going to continue to ramp up versus where we are. But a lot of it has to do with what is the net -- we're not really thinking about it from a net-back margin perspective anymore. We are thinking about it from a net-back after-tax cash flow perspective. And what we are going to be maximizing is a little bit of a different calculus than what we've done in the past, which was focus on EBITDA and margin. We're going to look at what's the best possible after-tax cash position. And that might on the margin lead us to tapping into international opportunities if they look attractive. But it's really going to be an at-the-moment decision based on the different global market conditions and where we can maximize our cash returns.

Very good, thank you.

Next in line is Don Carson with Susquehanna.

Bert, I'd like to ask you about your urea outlook. You commented that you think prices have bottomed here and perhaps stabilized. A year ago we were at $312. Now we're at about $245, $250 NOLA urea. You hit the trough earlier. Do you see a bounce quicker? Last year we didn't get much of a bounce until early April. Just wondering what -- I mean, are you seeing enough attractive forward sale opportunities in urea to put together a decent forward book there?

Right now, you are right. NOLA has been hovering in the $240s, $250s. We've been realizing a different range of price structure based on where we are selling and how we are selling. But I do see some positive things coming, as I mentioned in my comments, with the situation today in China, what we expect profitability or lack thereof is for the marginal producer, the anthracite coal producer. When you look around the globe, we do believe there is sufficient supply available and the cost curve has moved a little bit lower.

So we may be stabilizing in the $250 to $285. But I do expect to see some spikes because there is, as we can see from the inventory chain, not a lot of inventory is being built in North America, as well as in Europe. And we expect demand continue to be strong in India. So there are some good demand points.

I don't see Brazil coming back this year. I think, as we said, 38% down year over year. I think that we are entering their higher demand season; October, November, December, January for the second crop corn. I would say we'll stay in a range, a little bit range-bound this year due to capacity. And then as Tony mentioned, we are fairly positive going forward in the out-years what can take place.

Thank you.

Shifting to a different subject. On your gas hedging strategy, you're basically 100% of your needs are locked in for 2016. Is that the philosophy now, to lock it all of your needs, or do you ever want to have some exposure to take advantage of a potential dip in pricing?

Don, we haven't really changed our philosophy at all in terms of the forward hedge. As we sat earlier in 2015, we looked forward and we could lock most of 2016 as basically $3 flat. We've been historically criticized for being too slow to lock in gas, because people have said it takes risk off the table. When we saw a forward price at $3 for the year, we thought this actually makes a fair bit of sense. And we didn't do it all once. We stepped into it over a couple of different tranches.

But over the long run we think $3 is a pretty darned good cost. And generally speaking if you're drilling in dry gas fields, we think that is still below the replacement cost of new production. It may be lower than that, or substantially lower than that in some of the wet plays, but in the dry gas area. That was part of the rationale as we thought about locking that position in.

As we look forward, we think the 2017 and 2018 curve is under pressure a little bit by where the current storage position is in the US, and we would expect demand to continue to increase. While the positions we are sitting in in 2017 and 2018 are underwater relative to where the market is trading today, I don't think they were bad decisions to enter into in hindsight.

The other thing I want to point out is we have not hedged the gas associated with the OCI production. Between the Beaumont facility and the Weaver facility, there is a fair bit of increased gas consumption that we have in North America. And that remains completely unhedged in 2016, 2017 and 2018, as well.

Thank you.

Next in the queue comes from Joel Jackson with BMO Capital Markets.

Good morning. Thanks. Following on that, I don't know if your hedged for any gas at GrowHow UK. Can you maybe talk about that and what your strategy for that would be going forward? Thanks.

Good morning, Joel. We currently have not hedged gas in the UK. It is something we are spending a fair bit of time looking at and evaluating. Similarly, we haven't done any kind of forward hedges for the gas that we are going to be needing at Geleen in the Netherlands as well. Gas currently in the UK is trading in or around $6, and it's up to $6.50 on the forward. It is relatively flat. As we look at that, it is attractive relative to historical. There's good margin to be had at that gas price. And it is something we are looking at but we haven't jumped into that so far.

Okay. Just following up on something I think Bert was talking about. The big thing this year has been that NOLA urea is really not trading at any premium to China. Can you really talk about why that is this year, and as the expansions come on in the US, when you talk about the $250, $285, your view, that's the trading range for urea over the next year, as opposed to sort of a floor level? Thanks.

It's an interesting conundrum as we look and watch these markets develop. I think you're just seeing we are in a time of change, and a lot of product has come on and more product will be coming on, and we have to find a balance in the markets. There are times when NOLA has traded below international parity, and obviously we watch that with interest. And when it's above we want to participate at a greater share. And so there are some tactical moves we'd like to make internally with where we position product, where we sell and how we sell.

I think today with -- and you look at the paper market and you look at what the forward markets are offering, we seem to be range-bound at least through 2015. And I think some of the other changes will come as a result of inventory decisions, buying decisions. But I do see, like I said earlier, some positive points moving forward with demand coming out of -- I think increased demand coming out of India. I hope in 2016 we see a return to Brazil, that plant that's in Mato Grosso do Sul will not be operating for years. So the 5 million tons of demand out of Brazil will probably be there, and a return to some other markets.

I don't think the Chinese anthracite coal producer can continue at their current rate of production, and we're see that reflected in operating rates in China. When you look at the 13.6 million tons exported last year, we're estimating 12 million tons this year, I expect that to slowly wind down to probably an acceptable rate in the 5 to 10 million tons longer term, which sets of available options for CF.

The other point, Joel, that I'd like to bring up is as you rewind the clock, you can look forward and see there was this ongoing tale of new plants that were coming online in China and Middle East/North Africa. That pail by the time we get to the middle of next year is largely empty from there going forward. The US plants will be online. Most of the Chinese plans will be completed and operating.

So there has been a pretty significant build that has left this overhang of capacity. And the marginal stuff swings on and off, depending upon where price is. And as you say, it puts a relative cap on where prices get to before the marginal producer swings back into production again.

The global nitrogen demand is growing about 2% per year, and that requires four to five world-scale ammonia complexes being brought on every year just to meet what the demand is. As we look forward and the existing capacity get absorbed into the marketplace, any rebound in the Chinese economy with an attendant increase in coal prices there all of a sudden makes this marketplace shift into a different dynamic from a really overly heavily supplied position to one where there is some price appreciation. We think this is the tough area to get through, but even at these ranges we are highly, highly profitable and as we get into a recovery mode we will participate in that very nicely.

Thank you very much.

Next in queue is Adam Samuelson with Goldman Sachs.

Thank you. Good morning, everyone.

Maybe a question on the ammonia market. Wanted to get your thoughts on what would happen as you get into early 2016 if Iranian sanctions are lifted and you start to see some more Iranian ammonia onto world markets? And maybe in a related topic, how you're thinking about availability from the Black Sea and Trinidad over the next 6 to 12 months? Thanks.

When you look at -- that is an issue we're following, when the sanctions are lifted. We have already seen exports out of Iran increase by, I think, a million tons, and that could possibly be a further 1 million tons of urea, not necessarily ammonia. There are discussions we know with some Indian producers to look at possibly putting up a new plant, it'll probably be three to four years down the road. But Iran sits on a lot of gas and it make sense for them to monetize that gas, and they will be a competitive producer and participant. But I think the ammonia would stay more in the Asia marketplace.

And does that push back Black Sea product or Ukrainian production? Not much of that is going there today. So looking at the second part of your question, what happens to Black Sea and Ukrainian production, a lot of that's that depends on what goes forward with some of the geopolitical issues there. But I do think that gets backed out and I think Trinidadian supply continues to move into Florida, into Europe and maybe even into South America with some of the movements that are taking place today.

Ammonia as well. We've hit a low point in the market where Tampa is positioned today. And so we are continuing to watch that and participate and use the benefit of our terminaling system and able to score product, move product and participate at a greater degree of the agricultural markets in Q4 and Q2 of next year.

Adam, as we look at Trinidad going forward, we continue to think that gas is going to be in the neighborhood of 10%, 15% curtailments, end of point leases, like it's been over the last year or so. We don't really see any kind of catalyst for additional production coming online in Trinidad.

Given how low ammonia price is and most of those gas contracts are end product linked, that the net realized price to NGC and back to the gas producers is lower than the incremental costs of bringing on new production there. There is not a catalyst to bring on new production. We think those plants are going to continue to run well below what their rate is capable of running. That certainly helps from the standpoint of an overall S&B balance.

Okay, that's helpful. Maybe on a related point, do you think that as the new capacity in the US gets built out, as Mosaic starts to source a meaningful increment of their ammonia needs from you as opposed to, say, Tampa or the Black Sea, that US Gulf has to reflect freight from the Ukraine longer term?

I think there are a lot of things driving. That was also a point of change for the industry. Tampa has always been a price-setting mechanism for this hemisphere. And you're right, there will be changes. We have almost 1 million tons supply with -- combined with our Trinidadian contract for Mosaic. But you have to remember that OCP is also increasing production with their diammonium phosphate, monoammonium phospate production.

So a lot of that ammonia can be sourced from either Ukraine or shooting over from Trinidad. There've been some of our colleagues in the industry have already signed some contracts for that ammonia supply. I think that longer term yes, that when our contract starts in 2017, and actually some of our other contracts that position CF well, being Orica and CHS, we think that all those are part of our strategy to position ourselves in what we think is going to be a good market for CF in all four products.

Okay, that's helpful. I will pass it along. Thanks.

Next up is Jeff Zekauskas with JPMorgan.

Thanks very much. When you allocate your mark-to-market losses for gas hedges across your segments, does one segment or another segment get disproportionately affected? Or how does one think about distributing the mark-to-market losses across the segments?

The way we look at that, Jeff, just I think a good way to think about it is it's basically -- if you think about it around $40 a ton. So for this quarter if you think about the mark-to-market that is embedded in the cost of goods sold for each of the segments, it varies by segment but if you look at it across the whole business it is about $40 per ton. And it's going to be based effectively on -- if you look at the gas content in each of the products.

Obviously most of that goes into ammonia, and then as ammonia rolls into the upgrade it carries that additional cost with it. So as Dennis says, it really goes as a function of the nutrient content, or the end content in each of the products. So ammonia is going to carry the biggest proportion of that on a per ton basis. And then it's going to work its way down.

I think Bert was commenting at the beginning of the call that maintenance capital expenditures were around $600 million. I thought that previously you had spoken of maintenance CapEx as $500 million. Is there a reason why there has been an alteration, or these are just round numbers?

Generally speaking, the system that we have today runs on a sustaining CapEx. This is just keep the lights on basis, of about $350 million a year. What we spend above that, generally speaking, are things that are improvements. We are putting about $60 million into the Yazoo City facility in order to be able to convert ag AN production into industrial grade in order to serve the Orica contract and make sure that we have got that plant fully loaded going forward.

We are doing some DEF expansion projects in Courtright and in Donaldsonville so that we can add capacity for DEF. We're doing some DCS implementations to improve our controlled environment and safety in a number of our facilities. Those things are on top of it.

By the way, a lot of those projects have pretty significant positive return profiles associated with it. So the $600 million that we are spending next year is all that stuff bundled together outside of the capacity expansion stuff, of which $350 million is keep the lights on. The rest of it has a pretty good return profile to it.

Okay, great. Thank you so much.

Next up is Michael Piken with Cleveland Research.

Good morning.

Just wanted to discuss a little bit about your thoughts on the demand by region, particularly for this fall. I understand the Midwest volumes are probably going to be good with the weather windows, but maybe if you could talk about the Delta, the Southwest and some of the other areas where they've had a little bit more weather issues?

When you look by region, generally the Q4 application season is ammonia-focused and we start in Canada and then move south as the weather cooperates. And we've had an adequate season in Canada out of our three terminals, as well as our plants moving that product to the ground. I would expect, like I said earlier, we've had a pretty good day yesterday, but we're still not at full shipping rates out of the terminals. And so you'll start seeing the Dakotas and Iowa and Nebraska, places like that kicking off here shortly.

Then the Kansas/Oklahoma/Texas region already had part of their ammonia season go in Q3, which was focused on wheat pre-plant. That is more of a July/August/September application. As we mentioned, our Woodward plant was down, so we were unable to participate in a lot of that shipment season.

In Texas and for some of the corn acres, they've had a lot of good moisture. And we're pretty pleased to see with some of the rains that have come through. That's also good for the Midwest, which allows ammonia to set. And so we've had a good moisture profile in the soil that allows your applications to move forward.

In the Delta -- I can't really comment too much in that region. We're getting ready for ammonium nitrate in the Southeast in the Delta region. Other than that, that's pretty much all I can comment. Then we'll look to Q1 and Q2.

All right, terrific. If we do end up having a bigger ammonia run, as you anticipate nationwide, how does that impact your thinking on what UAN volumes might look like in the first half of next year? Thanks.

When you look at ammonia over time, it is fairly consistent. We are projecting 4.7 million tons. It has been a little over 5 million in years past when we were -- and we had some higher acres numbers. But we see acres recovering into the 90 million range, 90 million, 91 million.

I think with the pricing structure that's available to a farmer and through the retail system, it's pretty attractive to apply ammonia. But we have to think of all the three major products in conjunction, or together on an end value. You can't get too distanced from what ammonia is for urea and UAN. We are mindful of that and we are keeping our pricing in line with historical averages. So we are fairly positive on UAN demand and what will take place for Q1 and Q2.

Okay. Thank you.

Next question in queue comes from P.J. Juvekar with Citi.

It's Dan Jester on for P.J. Given the comments today about a bit more inflation in your project costs as you get closer to the finish line, has OCI informed you of any cost increase or delays to their project in Iowa or the methanol plant in Texas? And if so, who would be responsible for addressing those higher costs?

The contract that we have with OCI puts an absolute dollar limit cap on the amount of costs that gets transferred to us from the completion, actually of both of those facilities. We know what the ceiling is in both cases. At least with respect to Weaver, my understanding is OCI has a fixed dollar cap limit for the construction piece with the construction company that they are using.

It really, at this point, is kind of on the contractor's nickel once they -- there is a little bit of cushion that once they're through that cushion, it is all on the contractor's nickel. We are dollars-certain in terms of at least the top end of the costs. If it comes in lower than that, it will be a favorable surprise to us. But we are anticipating and modeling it assuming that we're going to bear the ceiling on those costs on those projects.

Okay, great. I think we've touched on it a couple of times on the call already, but I just wanted to clarify, is it 12 million tons of Chinese exports that you're thinking about this year for urea, is that a good run rate to think about going into 2016, or is there a possibility that could come down again? Thanks.

When you look at China, every year is an anomaly. When you see the numbers ramp up from [024], 8 million tons, 13 million tons and we are modeling this year coming down to 12 million. I think based on, again cost structure, market, optionality and how we see the market developing, I think that is a declining run rate. But I'm not comfortable giving you a specific number.

Okay. Thank you.

(Operator Instructions)

It looks like our next question will come from the line of Andrew Wong with RBC Capital Markets.

In the prepared remarks I think you mentioned OCI's close expectation is mid-2016. Is that any different from prior expectations? Can you talk about what needs to be done after that for that transaction to be closed? And when the transaction closes, does that mean you can start doing the repurchases right away?

Andrew, we've got the antitrust clearance now in the US. We filed our final filing for European antitrust clearance. And so, really the long pole in the tent on this whole process revolves around the SEC process forum, getting the S-4 offering document through the SEC review period -- process and having an effective document that we can send to shareholders.

As soon as that goes to shareholders as effective, we can post our annual meeting date, we'll -- or our special meeting date. We will have the meeting for the vote on both the OCI and the CF side. And then according to Dutch law, there is a 60-day wait period following the approval of the shareholders for a reduction in capital in the OCI business that gives their creditors a chance to be notified appropriately.

It's really the wait period between noticing of the shareholder meeting, having the shareholder meeting and then the 60-day creditor notice that pushes us out, we think likely, into the Q2 time horizon. Part of that depends upon on how quickly we can get through the SEC review period on the S-4. But we are certainly working very diligently on trying to expedite that process as much as possible.

And then once we are closed, as long as we are not in the dark window or the blackout window around a quarter between the quarter closing and announcing results, that type of thing, the window is open and we will be able to go ahead and initiate share repurchases at that point.

Okay, that's great. Switching gears a little bit over to Woodward, I think in the past you've done a really good job minimizing the disruptions from the normal plant turnarounds. But impact from Woodward seemed to be a little bit more material than expected. Was the turnaround longer than anticipated? And going forward, can we expect any sort of guidance around the extended maintenance, more than the usual type stuff?

On Woodward this year it was a pretty major turnaround. This was really the first opportunity that we've had to go in and convert the plant over to the CF standards for doing things. So we implemented a full DCS system in the Woodward plant.

We did a complete re-harp of the reformer. And then there was a fair bit of found work from things that in the preceding period before we owned the plant had not really been kept up to our standards. So, as a result of the found work, it did extend a little longer than what was originally planned and the costs were a bit higher. That led to, then, the fixed cost absorption that we had to go through.

But our focus is, make sure the plants are safe. Make sure we can get high onstream and reliability out of them. And we feel very good about the state of that plant now on a go-forward basis. So we will be able to run it hard.

Any potential for guidance going forward on a like extended turnarounds?

We, generally speaking, don't provide a lot of turnaround information. Part of that is because we've managed very carefully what our inventory position is and how we satisfy our customers' requirements. And we don't think it necessarily helps to give all of our competitors that detail around how to plan for what our production looks like.

Okay. No, that's fair. Thank you.

At this time, that does conclude our time for questions. I'd like to turn the program back over to Dan Aldridge for any additional or closing remarks.

Thanks, Jerry. That concludes our call for today. I'm available for any follow-up questions. Thanks everybody for your time and interest.

Thank you presenters, and thank you to all of our participants for joining us today. This will conclude our call. Thank you, and have a wonderful day.