OCI NV
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OCI NV
Earnings Call Analysis
Q2-2024 Analysis
OCI NV
OCI Global is undergoing significant strategic changes. They've announced agreements to divest their stakes in Fertiglobe and Iowa Fertilizer Company (IFCo) to ADNOC and Koch Industries, respectively. These transactions are expected to crystallize around $9.5 billion in gross cash proceeds. A portion of these proceeds will be used to prioritize debt reduction, allowing OCI to enhance its capital allocation strategy, including potential further capital distributions. Moreover, an extraordinary shareholder return of at least $3 billion has been promised for 2024 upon transaction completion. Additionally, the largest growth CapEx project, Clean Ammonia, is fully funded by these transactions, financially positioning OCI for future growth【4:0†source】.
OCI reported a mixed financial performance for the second quarter of 2024. The company achieved revenues of $1.211 billion and an adjusted EBITDA of $296 million. However, these figures represent a year-on-year decline of 12% in revenue and 9% in adjusted EBITDA, primarily due to lower nitrogen pricing globally. Despite these challenges, OCI managed to mitigate some of the impact through improved operational performance and a reduction in natural gas prices in Europe and the U.S. The company's net profit stood at around $5 million, reflecting its resilience amidst volatile market conditions【4:0†source】.
The ammonia and methanol markets are exhibiting positive dynamics. Methanol prices have risen due to seasonal demand and supply constraints, with contract prices for August reaching $697 per tonne. The outlook for OCI's methanol operations remains strong, attributed to improved production economics and recovery in methanol-to-olefin (MTO) operations. On the ammonia side, prices have also seen a recent uptick, with the August Tampa settlement increasing by $60 per tonne to $475 per tonne. Supply tightness and sustained demand, particularly in industrial applications, are expected to support these trends 【4:10†source】.
OCI's operational performance has shown notable improvements. The company achieved a 90% average utilization rate for its ammonia lines in Europe and a 96% utilization rate for both ammonia and methanol lines at OCI Beaumont. After a successful turnaround at Natgasoline, the plant is now running at nameplate capacity. This high level of operational efficiency underscores OCI's ability to achieve its mid-cycle EBITDA targets and maintain robust cash flow generation【4:10†source】.
OCI continues to fortify its market position through innovation. The company has introduced products like Melafine bio-melamine and UAN plus ATS, which provide superior environmental benefits and improve nutrient absorption efficiency. These premium products enhance OCI's exposure to non-agricultural and value-added markets. Furthermore, OCI has expanded its capabilities in low-carbon feedstocks, partnering with Waga Energy to include landfill gas in its production portfolio. These strategic initiatives align with OCI's goal of reducing reliance on fossil fuels and supporting customer decarbonization efforts【4:0†source】【4:10†source】.
OCI reaffirms its strong commitment to maintaining a safe and efficient operational environment. The company has been proactive in navigating market dynamics by continuously optimizing production and import strategies. With its strategically positioned facilities and innovative product offerings, OCI is well-equipped to capitalize on market opportunities. The firm expects continued progress in its manufacturing improvement journey, which emphasizes reliability and efficiency【4:0†source】【4:10†source】.
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Hello, and welcome to the OCI Global Second Quarter 2024 Results Conference Call. My name is Carla, and I will be coordinating your call today.
[Operator Instructions]
I will now hand you over to Sarah Rajani, Vice President, Investor Relations and Communications, to begin. Sarah, please go ahead.
Thank you. Good afternoon, and good morning to our audience in the Americas. Thank you for joining the OCI Global Second Quarter 2024 Conference Call. With me today are Ahmed El-Hoshy, our Chief Executive Officer; and Hassan Badrawi, our Chief Financial Officer. On this call, we will start by addressing this morning's announcement of the sale of OCI's Clean Ammonia in conjunction with an update on OCI's strategic review, followed by a discussion of OCI's key operational events and financial highlights for the second quarter as well as our usual observations on outlook. We will end the call with Q&A.
The results, press release and presentation are available on our website at ociglobal.com. We will be referring to slides in the results presentation during this call. I'd like to remind you that any forward-looking statements made on this call involve risks and that the actual results could differ materially from those statements. With that, let me hand over to Ahmed.
Thank you, Sarah, and thank you all for joining us today. We'll start the call with this morning's announced sale of our groundbreaking Clean Ammonia project in Beaumont, Texas to Woodside Energy as well as providing an update on the previously announced divestitures of IFCo and Fertiglobe to Koch and ADNOC, respectively. We will then turn our focus to the Q2 performance and market outlook. Before that and as for every quarter, we start by reaffirming our strong commitment to safety, which remains our top priority.
On Slide 4, you can see our 12-month rolling recordable incident rate was 0.40 incidents per 200,000 working hours at the end of June. We continue to work tirelessly on operational and process safety and strive for 0 industry -- 0 injuries throughout the organization, which we believe is also a key indication for overall manufacturing excellence.
Turning to Slide 6. This morning announced the sale of 100% of its equity interest -- of OCI's equity interest in its groundbreaking 1.1 million tonne Clean Ammonia project in Texas to Woodside Energy, a global energy company listed in Australia, following a competitive process. The purchase price consideration of $2.35 billion is on a cash-free, debt-free and tax-free basis.
OCI will receive 80% of the purchase price at closing of the transaction expected in the second half of this year, with the balance payable at project completion, defined as completion of the plant according to certain agreed terms and conditions. And that is anticipated in the second half of 2025.
Transaction closing is subject to customary closing conditions and receipt of OCI shareholder approval at an EGM to be set at a later date. OCI's Board of Directors has approved the transaction and has recommended that its shareholders approve the transaction.
As a reminder, this is the world's first blue ammonia plant with early-mover advantages in the growing low-carbon ammonia market. The project incorporates optionalities to accommodate a second identical line at lower costs with necessary infrastructure and utilities already in place and permitting expected to be received before year-end for that second line. OCI will continue to be responsible for plant construction and delivering a fully staffed and operational facility by project completion. This includes the continued direction of contractors, facility commissioning and start-up, including successful completion of performance tests.
For the avoidance of doubt, this transaction does not change OCI's original scope, which is a 1.1 million tonne plant. It's operational with OSBL and infrastructure investments already in place to suggest and support a second line in the future.
We are extremely proud to have put this pioneering project in motion with first production expected in less than 12 months. The project is a high-quality and sizable blue hydrogen addition to Woodside's portfolio, leveraging its scale and distribution platform to unlock and create future value and supporting Woodside's hydrogen competitiveness and decarbonization goals. We're confident that in Woodside, we have found an exceptional steward for this landmark asset and its talented employees. We are reassured that under Woodside's leadership, OCI Clean Ammonia will continue to play a key role in the global energy transition.
Before handing it over to Hassan, I want to spend a few minutes reflecting on the robust performance and some operational highlights from OCI's continuing operations during the quarter. We are particularly pleased with the sustained momentum in manufacturing efficiency gains achieved whilst continuing to successfully prosecute our global decarbonization strategy. Notably, OCI benefited in the second quarter from sustained improved asset reliability across the business, with OCI Beaumont achieving a 96% average utilization rate and OCI Nitrogen seeing both its ammonia -- European ammonia lines running at approximately 90% asset utilization rate during the quarter.
At IFCo, where we continue to receive cash flows until the transaction closes, the ammonia line achieved an asset utilization rate of 100% in Q2. This positive performance has been achieved notwithstanding the planned turnaround at Natgasoline in the quarter, where we successfully replaced catalysts and completed a number of other identified operational improvements. Natgasoline operations resumed successfully in June with the plant today running at nameplate capacity. We expect continued progress in OCI's manufacturing improvement journey in both reliability and efficiency metrics during the second half, underscoring our conviction in OCI's ability to comfortably achieve its mid-cycle EBITDA targets, notwithstanding the pricing environment.
In European nitrogen, we continue to diversify our strategically differentiated assets, leading integrated nitrogen platform with additions of the Melafine bio-melamine and UAN plus ATS, the latter of which provides sulfur nutrition on top of nitrogen and increases nitrogen use efficiency. Following the successfully executed expansions of AdBlue DEF earlier this year and CAN successfully late last year. These premium products further increase OCI's hydrogen exposure to attractive non-agricultural and/or value-added markets, decoupling from the cycle and offering significant price premiums over urea.
In our bio-melamine offering, we will replace 20% of the feedstock used to produce Melafine with biogas, resulting in a cradle-to-grave production carbon footprint of reduction of 9% or 0.5 tonne of CO2 equivalent per tonne of Melafine and over a 50% CO2 reduction versus Chinese imports.
Of course, our European facility is strategically positioned to decarbonize with direct access to Rotterdam ports for blue ammonia or low-carbon ammonia imports and multiple avenues for feedstock decarbonization, which we're evaluating. At OCI HyFuels, part of our methanol business, we have just supplied our first green methanol fuel to one of 14 dual-fuelled hybrid green methanol vessels ordered by X-Press Feeders. We've also expanded our low-carbon feedstock to include landfill gas through a strategic partnership with Waga Energy, which we will see biomethane produced at a strategically located site in Beaumont, Texas area.
All these commercial initiatives align with our strategy of reducing our reliance on fossil fuels and contributing to our customer decarbonization goals while creating value for shareholders. I'll now hand it over to Hassan to provide an update on the strategic review, progress on previously announced transactions, and further detail on the second quarter financial and operational performance.
Thank you, Ahmed, and welcome to everyone. Starting with Slide 7, picked up in December 2023, OCI announced agreement to divest our stakes in Fertiglobe and Iowa Fertilizer Company to ADNOC and Koch Industries, respectively, as part of a strategic review. OCI continues to make good progress towards closing both transactions. At Fertiglobe, almost all antitrust approvals have been received with only a couple outstanding. At IFCo, we continue to make constructive progress with the FTC and have been working diligently to address all questions in a timely manner. We remain confident of closing all transactions in the second half of the year.
A few important notes. First, the IFCo, Fertiglobe and Clean Ammonia transactions cumulatively crystallize around $9.5 billion of gross cash proceeds, subject to completion and sales and closing adjustments. These proceeds will be used to prioritize gross debt reduction at OCI with future capital allocation to be determined, including further capital distributions. Also note that our largest growth CapEx project, Project Clean Ammonia, is entirely funded by this transaction.
Secondly, whilst we have paused our regular dividend policy, we have announced an extraordinary shareholder return of at least $3 billion during 2024, following completion of the IFCo and Fertiglobe transactions specifically and their respective receipt of proceeds. Note that the financial resources afforded to the company provides us with the flexibility, potentially deliver a higher dividend quantum in the future.
As a reminder, we received unanimous shareholder approval in April for both the Fertiglobe transaction and an initial extraordinary cash distribution of EUR 4.5 per share or approximately $1 billion. The distribution is expected to take place following the completion of the Fertiglobe transaction later in the year. And we'll be completing through a repayment of capital or at the election of the shareholder as a regular cash dividend, subject to Dutch rules. OCI has subsequently proposed a second extraordinary cash distribution of up to EUR 10 per share or the equivalent of approximately $2.3 billion, which is subject to the completion of the sale of the company's 100% stake in IFCo to Koch Industries and subject to a voting resolution at a second EGM on the 21st of August.
The amount that will be repaid to shareholders has not yet been determined and remain subject to the discretion of the company's Board of Directors, provided that the amount that will be distributed is a second distribution and the second distribution not exceed EUR 10 per share. Going forward, OCI will provide updates to the market if and when it is appropriate to do so in regard to any future strategic actions.
Turning now to Slide 9 and a summary of our Q2 financial results. On a total basis, including discontinued assets, OCI reported during the second quarter of 2024 revenues of $1.211 billion, adjusted EBITDA of $296 million, and an adjusted net profit of around $5 million. Modest year-on-year declines of 12% and 9%, respectively, in revenue and adjusted EBITDA reflected lower nitrogen pricing globally, partially offset by a reduction in natural gas prices in Europe and the U.S., notwithstanding the impact of our existing gas hedges as well as notably improved operational performance, which Ahmed referenced in his earlier remarks, and as can be seen here in the increase of -- in the increase of own-produced volumes.
On a continuing basis, excluding the discontinued assets and adjusted for realized gas hedge losses, continuing adjusted EBITDA would have reported a profit of $80 million compared to $38 million in Q2 2023. Based on natural gas future prices today, the future value of hedge losses within the continuing business, including Natgasoline, remains the same as reported in the first quarter at around $135 million. The actual cash impact of these hedges on net debt is projected to be circa $75 million. This is compared to $57 million that we mentioned in Q1. For the remainder of the year, current future prices suggest a $35 million adjusted EBITDA impact with a similar impact on cash.
Turning to Slide 10. This shows our net debt bridge on a continuing basis. The $2.2 billion reported as of 30th of June 2024 includes outstanding bonds at OCI N.V.-level undrawn bank facilities. During the second quarter, OCI received its share of Fertiglobe's second half 2023 dividend of $100 million as well as upstream cash from IFCo, which OCI is entitled to until deal closing. These items partially offset an operating free cash outflow.
This outlook was reflecting an increased working capital due to accelerated payables in Natgasoline during the turnaround, a temporary increase in interest costs, and one-off expenditures mostly related to ongoing -- to the ongoing transactions, in addition to growth capital expenditure, primarily related to OCI Clean Ammonia. Including discontinued operations, our total net debt position on a consolidated basis as of the end of the quarter was $3.9 billion.
Turning to Slide 11. This slide shows the year-on-year bridge for adjusted EBITDA on a continuing basis for OCI's European Nitrogen and Methanol segments. The increase in continuing operations adjusted EBITDA from $5 million to $54 million year-on-year was driven by a confluence of factors, but most notably the following: at our European Nitrogen business, we saw a material year-on-year benefit from higher volumes this year, including a 39% increase in own-produced melamine sales, where additional Chinese anti-dumping regulations are currently under review by the European Commission. Improved average utilization rates as well as positive margin contribution from the commercial decision to produce rather than import ammonia in the second quarter of this year. Segment also benefit from lower European natural gas pricing, as CTF was 11% lower in Q2 of this year at just over $10 per MMBtu versus just under $11.5 per MMBtu previously, in addition to decreased realized hedge losses.
As a reminder, in 2023, high gas prices and low ammonia prices lead OCI to substitute part of its domestic ammonia production with imports through its Rotterdam terminals to maintain economical downstream nitrate production. In Q2 of 2024, it was more profitable for OCI Nitrogen to produce rather than import ammonia volumes. This ability to continuously optimize between our production of ammonia and import is a key competitive differentiator for OCI as is our ability to convert ammonia into the highest-margin products or molecule.
At OCI Methanol, the increase in adjusted EBITDA year-over-year reflects the import -- the impact of higher ammonia and methanol pricing, lower natural gas pricing, continued operational improvements, reflecting the leadership's focus on renewing manufacturing excellence. While total methanol output decreased year-on-year due to the scheduled 50-day-plus turnaround at Natgasoline, manufacturing enhancements and improved utilization rates at OCI Beaumont largely mitigated the impact of these reduced volumes at Natgasoline.
Turning to Slide 12. This chart shows the continued positive trajectory of operational improvement and the positive impact on adjusted EBITDA for our OCI Methanol business. Notably, excluding loss reduction efficiencies, on the catalyst issues as well as lost volumes from the Natgasoline turnaround, adjusted EBITDA for the OCI Methanol segment after adding back realized gas hedge losses would have reached $98 million. OCI's Methanol business on a run rate basis is rapidly progressing towards our mid-cycle scenario of just under $400 million before any pricing considerations.
Of further note, while OCI's biofuels contribution was relatively low in the second quarter due to the timing of certain sales, we expect volumes in this business to double in the next quarter as this anomaly reverses. With FuelEU Maritime rules coming into force in 2025 and the number of delivered dual-fuel vessels expected to increase at least five-fold in the next 2 years, we expect to see a paradigm shift in demand from the marine sector.
Moving to Slide 13. This slide demonstrates the superior profitability and operational resilience of our European Nitrogen facility on an absolute and relative basis. Over the past few years, we have made considerable progress in driving manufacturing excellence at OCI European Nitrogen to help us sustain our competitive advantage as one of the most gas efficient producers in Europe. We have previously highlighted the premium pricing and earnings stability afforded portfolio additions, including CAN+S, AdBlue and bio-melamine. These products provide superior environmental benefits for our customers as well as enhanced yield in the case of CAN+S.
We have also introduced to the market UAN plus ATS, a product that provides sulfur nutrition on top of nitrogen, as Ahmed mentioned. The addition of ATS increases nutrient absorption efficiency, thereby minimizing environmental impact. And we continue to produce low-carbon ammonia for COMPO as part of a 3-year contract for the specialty NPK fertilizer.
Product visibility with a diversified end market exposure allows OCI to efficiently respond to market dynamics and to calibrate and maximize overall production volumes and margin contribution. For example, the production of AdBlue allows OCI to utilize spare urea capacity. Similarly, CAN+S production offers further upside by allowing OCI to capitalize upon spare urea granulation capacity. It requires less ammonia and nitric acid to produce a tonne of CAN+S compared to regular CAN tonne, thereby maximizing our overall production volumes.
Moving to Slide 14. This slide highlights the sustained or improved profits and operating performance as measured by asset utilization rates across OCI's continuing business year-on-year. In Q2, we saw strong performance across both OCI Beaumont and European Nitrogen, with the ammonia lines at European Nitrogen averaging circa 90% average utilization rate and OCI Beaumont averaging 96% across both their ammonia and methanol lines.
I'm pleased to say that after the successful turnaround in Natgasoline, the plant is running at nameplate capacity, while we have another quarter of exceptional -- while we had another quarter of exceptional performance at IFCo. With that, I'll hand back to Ahmed for commentary on the market outlook and some additional remarks.
Thanks, Hassan. I'd like to now close by spending a few minutes talking about the markets in which we operate, starting with methanol on Slide 16. Methanol markets tightened during the second quarter due to growing seasonal demand and global supply constraints as a result of plant outages and gas curtailments in certain regions.
Spot and contract prices rose both on a quarterly basis and versus the comparative period last year. Most recently, contract prices have continued -- have seen continued monthly increases as evidenced by the August U.S. Gulf benchmark contract price reaching $697 a tonne, which is $50 higher than the average for Q2. While MTO operating rates have been range bound at lower levels in recent months due to economic and, more impactfully, operational outages, increases in olefin and polyolefin prices, together with the resumption of operations at 2 MTO facilities in Q3, should encourage MTO operating rates to move upwards from the 60% they're at today.
Overall, MTO rates are reflecting improved production economics with production costs today below naphtha-based olefin production. A note on the supply and demand dynamic between now and the end of 2028. We've seen the recent start-up of Geismar 3, a new Malaysian plant that's expected to start up later this year, and further supply additions in Iran and China are due to come on stream in the outer years. But notwithstanding these capacity additions, demand for traditional end markets is still expected to outpace net supply growth by about 4 million tonnes per year during this period. Including the potential demand from new fuel applications, this gap could be as large as 13 million tonnes per annum. Much of this demand is coming from the marine sector, where we expect to see 127 vessels on the water by the end of 2025 compared to 27 at the start of 2024, supporting our HyFuels business with deliveries being fulfilled to Maersk, among other container vessel manufacturers -- operators.
Moving to nitrogen markets on Slide 17. Although nitrogen prices were slight -- were lower through Q2 due to delayed demand and reduced India urea imports, markets have tightened as of late, as evidenced by recent increases in both ammonia and urea prices. The latest ammonia Tampa settlement for August saw a $60 per tonne increase to $475 a tonne or a 14% month-over-month gain and reflects the tightening conditions West of Suez, where prolonged production outages at some export hubs are limiting product availability. This is also providing price support in the Western Hemisphere, despite what would normally constitute a summer low. European delivered markets are currently achieving the highest prices around $550 CFR as of the beginning of August, with some publications referencing others up to $575 per tonne.
Consultants expect continued support through Q3, given recent supply curtailments and outages and bridging us into the fall ammonia period in the United States. We're also seeing signs of improved import demand across several key ammonia markets, reflecting strengthening economic conditions as well as growth in industrial uses for ammonia. An uptick in industrial profits in China suggest a continued recovery there on the back of strong policy support and improvement in market demand. We're also seeing the resumption of production at some plants in China, which is gradually feeding in through increased operating rates.
Collectively, these dynamics support a period of relatively price stability, and we expect the money markets to remain firm and broadly balanced through year-end, notwithstanding new merchant supply anticipated to come onstream from the U.S. Gulf and the Taman exports later in the year.
In the medium to long term, we see accelerating incremental demand from new applications for low-carbon ammonia, such as fuel for power generation, as a maritime bunker fuel, and as a clean hydrogen carrier. Consultants forecast incremental investment from these new applications reaching approximately 22 million tonnes by 2030, which is more than doubling the quantities rated today, globally upgrading.
Regional urea pricing has also recovered in recent weeks from following lows in May. Egyptian urea has reached $365 a tonne, while pricing in Brazil are approaching similar levels based on July loading cargoes. The continued absence of Chinese urea exports, production outages in Asia and gas curtailments globally are likely to weigh on production levels over the summer period. Chinese urea exports fell 87% in the first half of this year compared to the same period last year, reaching record lows. Exports are expected to remain at low levels below the 2 million tonnes for calendar year 2024 compared to the 4.3 million tonnes we saw in 2023 due to strong domestic demand for both agricultural and industrial applications, combined with low urea inventories in the country. This is an area that the market will obviously continue to monitor.
Consultants expect a balanced market in the coming months, supported by renewed appetite for urea imports into the U.S. and Europe following the summer low, a new India tender in the coming weeks, and a degree of urea -- of European price support given underlying cost pressures, the continued absence of China from the export market, and a slower pace of new urea capacity additions. These factors collectively suggest more balanced markets in the short term and potential further upside from outstanding purchases from Brazil and a pretty heavy turnaround season during the summer -- late summer here of the urea plants.
Longer term, growth of 12 million tonnes is still expected to materially outstrip additional capacity growth of 9 million tonnes by 2028. Slides in the appendices of this -- of the results presentation provides an overview of OCI's continuing asset profile following today's transactions and an overview of our markets. I don't propose to talk through these slides but welcome questions at the end of the call to the extent there are any.
In closing, we are very excited to announce today's transaction with Woodside on our landmark Clean Ammonia project, and I wish to extend my thanks to the entire OCI team for their valued contribution and ongoing commitment to safety and manufacturing excellence. With that, we conclude our prepared remarks, and we'll open the line for questions.
[Operator Instructions]
Our first question comes from Aron Ceccarelli from Berenberg.
Congratulations on the announcement this morning. I have 3 questions. So the first one is on the remaining CapEx for blue ammonia. As of the end of June, you spent around USD 650 million. If I remember correctly, you were planning to spend around $1 billion. It looks like these figures probably has increased a little bit. So I would like to understand how much do you think you need to spend here. And also, how do you think about your free cash flow generation for the remaining part of 2024?
My second question is about RemainCo. I would like to understand what are the synergies that you guys see on running a mainly U.S. methanol business and the European nitrogen one together? Or in other words, is the strategic review completed now?
The third question is on IFCo. So it is now 8 months since you announced the deal. It's a similar time line to the CF-Waggaman transaction that happened in 2023 before it was completed. So I would like to understand, what's your thinking here in terms of time line? And what should be different compared to the CF-Waggaman transaction from an antitrust point of view? Thank you.
Thanks for those questions. And with regards to your first question on the investment cost, you're right. So we previously guided that the investment cost will be north of $1 billion in total. We shared with the market that we spent already $650 million through the end of June. But notwithstanding that first-mover advantage we've had and large installation we've had from the increasing cost pressures in the U.S., given we started the project a couple of years ago, we're not immune to the inflationary pressures as we signaled earlier this year.
So we do see that the investment cost for what we need to deliver to Woodside for next year will be north of $1 billion. And in terms of the disclosure that Woodside shared today, they said that they target FID readiness for the second line, which as you know, is a much smaller scope because of the infrastructure and utilities already in place for the first line. They expect CapEx -- capital expenditures of $1.2 billion to $1.4 billion if they FID that project in 2026. So our total cost for line 1 would likely be kind of north of this figure for what we need to deliver for next year. I also want to highlight that the investment costs we have doesn't include any financing costs as this project was fully equity financed, and that allowed us to move quickly a couple of years ago to move for this project.
Woodside and others through this competitive process realized this is a major advantage for the project and allows it to move swiftly forward. And it obviously saved us several hundred million dollars of interest during construction and easily over $200 a tonne of ammonia of debt service, which really allows this equity-financed project for Woodside to benefit from that early-mover advantage and lack of debt service crippling or pushing you to the right-hand side of the cost curve.
And lastly, obviously, our development and EPC experience has helped bring the project to the stage. We're well over 70% complete. We look currently to partnering with Woodside to complete this project going forward. And I guess that answers the first question.
Your second question was around synergies, I believe, between RemainCo's assets with MetCo and OCI Nitrogen, should there be no further divestitures. So we -- so as you recall, methanol and ammonia are both kind of the big syngas derivatives, right? So while the production generally sits in different continents, our methanol business in Texas does have a 350,000-tonne ammonia line. It has the ability to decarbonize that ammonia line over time. And we'd like the ability to have both methanol and ammonia for offering into the industrial markets where we have a lot of similar customers and the newly emerging marine fuels market where we can, out of the Beaumont area, which is close to Houston, bunker marine fuels in the future and distribute them globally. And we have the Rotterdam terminal, which can import ammonia into the Dutch facility.
In terms of your third question, which is regards to IFCo, I'll hand it over to Hassan in terms of where we stand. I think he shared some detail in the prepared remarks on where we stand with the approval process.
Like we mentioned -- like I mentioned earlier in the call, we have been highly engaged with the SEC in responding to all information requests. And on that basis, things have been progressing well. We don't foresee any impediments towards reaching sort of the -- a closing, and hopefully, in the second half of this year. But we can't really provide any more specific time line commentary at this time.
Yes. I'd further add, and we discussed this on prior calls, I mean it's a globally traded commodity. You made the analogy the CF-Waggaman transaction. CF started with over 60% market share in ammonia before this transaction added a further 10% with the addition of Waggaman. With our transaction with Koch, they're a #3 player. They stay a #3 player and they have much lower market shares to begin and end with, with the addition of IFCo. Our engagement with the FTC has been very constructive. We've shared a lot of information with them and is moving forward, as expected, from our side. I think you had a few more questions. Is that it?
Maybe how you think about free cash flow generation for the second half of the year?
I mean, we don't provide specific guidance in that respect, as you know, from our previous results. However, we continue to focus on free cash flow conversion in our business. The transactions that we've announced effectively deems our current projects funded. And lastly, the operating performance of our platform, combined with some of the improvements in pricing and the premium products that we're adding to our portfolio, I think that we're moving positively in the direction of what we guided to as a mid-cycle scenario. And I think we continue to make positive progress in that regard.
Our next question comes from Christian Faitz from Kepler.
Also, congrats to the deal. Actually, most of my questions have been asked already. But I just want to confirm that really, the $2.35 billion proceeds from Woodside will also be completely tax-free? If that's correct, what I read in your presentation.
Yes, that is correct. It's the same structural advantage that we have from the previously announced -- similar to the previously announced transactions.
Our next question comes from Chetan Udeshi from JPMorgan.
I have actually 4 quick ones. So first one, can I just follow up? Maybe I have it, I probably caught it, but I just wanted to confirm. So are you saying the CapEx for the blue ammonia for OCI for the first line is now going to be higher than $1.2 billion to $1.4 billion that Woodside suggested that they will spend for the Phase 2? Is that right?
The second question, just more broadly, for the RemainCo. Are you still looking for any strategic alternatives? Or for now, it's -- this is the structure that you envisage going forward?
Number three, maybe this might be for Hassan. In terms of stranded costs, do you think there will be material stranded costs post these transactions? I know you talked about the corporate cost line. But given that the blue ammonia business now probably will go at some point as well, do we need to think about some stranded costs that kick in for 2025, '26 before you try to get rid of them?
And last question, what is the intention of the cash that you will get from blue ammonia? Do you plan to do the same thing that you've done so far with the 2 transactions that have been already announced? Essentially meaning, return most of it to shareholders? Or do you plan to have other things in mind?
Can you repeat the second question on the strategic side? I'll probably take the first 2 questions, and Hassan will take the latter 2 questions.
Yes. Just on strategic review now for the RemainCo once the blue ammonia business is gone, is there anything else in the pipeline for the remaining -- the methanol assets or the European Nitrogen business? Or is the structure as it stands now likely to continue? Or are you pursuing any more transactions for the RemainCo?
Right. So with regards to the first question around investment costs, yes, it has the potential to exceed the $1.2 billion to $1.4 billion, but we'll provide guidance in coming quarters around where we're at, given some of the inflationary pressures that are there. That's just putting that as a data point for you.
With regards to the second question, as Hassan said during the prepared remarks, we're going to provide any updates when it's appropriate in regards to any future transactions when it is they would happen. To your question, yes, I mean we -- and to the synergies question before, we are very pleased to see the performance improvement here. We just get a preview of it in Q2 on our MetCo and OCI Nitrogen assets. As Hassan just said, being able to get these assets up to a more respectable run rate on both utilization and efficiency is very welcome.
And one of them -- one of those assets has been Natgasoline, and we're very pleased with the performance we've seen since we completed the turnaround in June to be running at nameplate capacity. This has significant operating leverage on what Hassan mentioned was a very strong free cash flow conversion capabilities given where these assets sit, our tax profile, our maintenance CapEx profile as well, which can help us get to that mid-cycle, both EBITDA and free cash flow generating perspective. So we're -- we definitely have that as an option as well.
Yes. In regard to your question on the sort of corporate cost run rate going forward, we had given some -- previously some guidance around the number that we felt was appropriate in the $30-plus million sort of category or zone. I think for the time being, this number doesn't change. However, we will -- as we move forward with the transactions, with the newly announced transactions, there could be some recalibration. And then in terms of the use of proceeds, as I mentioned during the prepared remarks, big picture, we're talking about $9.5 billion of...
Yes. So I understood that our line cut probably while I was speaking. Did you hear the answer to the first part of the question with regards to investment costs?
Yes. I think we heard you. We heard Hassan until stranded costs. I think he was answering the fourth part. Cash at the...
We apologize for that. I was -- in regard to the fourth question on the use of proceeds, I was saying that the gross cash proceeds of $9.5 billion that we will be prioritizing gross debt reduction. We've already announced the capital repayment targets that we have on the basis of the first 2 transactions. I think we're going to be communicating in the near future on further -- on our plans for further capital allocation in the appropriate time. That's all I can share at this point. But obviously, with this transaction and with our CapEx cost funded, the -- our ability to make greater capital repayments is now has been bolstered.
And just with regards to the second question, because I'm understanding from the team that we may have been cut off, on the RemainCo strategy and the ability to continue to run the business on a RemainCo basis if one of the outcomes is that we stay with the status quo. The Methanol business is a sizable top 5 player globally in its own right. It is a leading -- the leading green methanol player globally. And I'd mentioned kind of the operational improvements both on the methanol and the OCI Nitrogen side that we think will be very supportive of very strong free cash flow generation over the medium term, given the improvement on the operating side and the manufacturing improvement plan results that we're still in the midst of harvesting.
Our next question comes from Lisa De Neve from Morgan Stanley.
Congratulations with the release. I have 4. My first one is really on the CapEx, which you've sort of discussed with your other analysts for the Clean Ammonia project. I mean can you just detail why there is now about $400 million to $500 million of inflation in the project? If that estimate of $1.5 billion is correct? And my second question is, is that number then finite? Or could there be incremental inflation for that project as we near completion target for the first half of 2025? That is my first question.
The second one is on capital allocation. So how do you think about your debt positions versus these 3 transactions, assuming they complete? I mean, do you have a view on what will happen to the notes outstanding for 2025 and 2033?
And then my third question is on the special return distribution. And apologies for my ignorance here upfront, right? So as per your release on Friday, shareholders will be able to opt to receive announced dividends, assuming all necessary approvals are received between payment out of the capital or profit reserve. I just want to understand if there's any difference in tax implications for the shareholder there. So any details on that would be very helpful.
And then lastly, do we now assume that your strategic review is complete? And should we assume that RemainCo, the 4 remaining assets as such, that that's now being run on a continued basis? Or are you still open to any further discussions?
Thanks, Lisa. I mean I think there have been a few questions on investment cost and kind of shared some answers with regards to that. So I don't really have much more in terms of specific guidance I could give you at this time. And we obviously have shared some of those thoughts so far. But I'll hand it over to Hassan on the second and third question.
Yes. On the debt position, like I mentioned, Lisa, we've -- from the get-go, we'll be consistent in our direction of travel, that we're going to be prioritizing gross debt reduction for the company. At this time, we don't want to delve into what are we going to do with any specific instrument. But the overall, the direction of travel is obviously prioritizing the deleveraging as we maintain a disciplined financial policy approach and comply with all the outstanding obligations that the company has.
In regard to these -- to the estimated capital repayments or capital distributions of around EUR 14.5 that have been announced on the basis of Fertiglobe and the IFCo transaction, which we position as potential capital repayment or cash dividend at the election of the shareholder, I believe for the vast majority of shareholders, the capital repayment is a more tax-efficient mechanism for distribution. However, this may be neutral for some investors based on their own respective tax position. And therefore, we offer the optionality for shareholders to make this determination for themselves going forward. It's something that is purely mechanical.
And with regards to the strategic review, and as we said, we're going to provide any updates to the market when and if appropriate.
Our next question comes from Andrew Keches from Barclays.
Congratulations. Just to put a finer point on that last question on treatment of the debt. In one of the prior calls, I forget which quarter it was, but you expressed the view that these transactions or the transactions at the time, Fertiglobe and IFCo, did not constitute in all or substantially all for the purposes of the debt covenants. Does this transaction change your thinking around that? In other words, do you think you need to retire the notes or not?
And then the second question is just around in the past, you gave that -- I want to say it's $600 million to $700 million of normalized RemainCo EBITDA. Can you give us just an update on where that stands, excluding Texas Blue?
No, it's a good question. I mean the business that we've announced with [ Salesforce ] is a project, so it has not been part of our operating results. If anything, it reduces a substantial CapEx. It removes a substantial CapEx burden that the company would have had to fund going forward until such time as the plant ramps up. So the answer is no, that this does not change -- it doesn't change the interpretation. Sorry, I missed the second part of your question.
Yes. The second question was just on the normalized RemainCo EBITDA now with Texas Blue, obviously, not in the forward pipeline for EBITDA.
Yes. I mean the -- sort of the normalized mid-cycle guidance that we have given before was in the area of $500 million. That hasn't changed going forward. And of course, in the business -- the operating rate improvement that we've seen is going to be a significant contributor to getting up to that as a lot of the catch-up we had to do is volume driven.
Our next question comes from [ Ye Wu ] from Invesco.
You've covered a lot of what I had or have to say already, but maybe perhaps just to finesse it slightly then. In terms of ratings and your view on current ratings, given that you said you're deleveraging but you've not said anything in terms of the actual debt instruments how -- the treatment. But can you maybe give us some color in terms of where you stand on current ratings, given that you're on credit watch negative?
Yes. I mean we are continuously in touch with the rating agencies and updating them on our plans proactively. Obviously, the -- we've gone through some -- we've announced now a few transactions that have an impact on the business. However, we will continue to engage with them and see how things pan out in that respect. And like I mentioned, we -- this particular announced transaction, which was not part of our results, operating results was mainly CapEx for the next year plus has now been deemed funded, and that has a positive effect on the balance sheet. Notwithstanding that the business that remains is still a substantial business and represents 40%, 45% of revenue on produced volumes of -- that these divestments that we've announced, if you look at it on a proportionate basis, including the fact that we own only 85% of MetCo as we divested 15% stake earlier, that helps us with the deleveraging. I hope that answers your question for now.
Well, perhaps maybe just a further clarification, I guess. So in terms of your commitment to an IG rating, does that have a bearing on your considerations for the use of proceeds in terms of shareholder returns versus actual debt -- gross debt reduction? Maybe that's a better way of asking it.
Yes. As we go through this transitional period, I mean, we haven't really been fully committed to the IG rating yet. However, we are committed to a very prudent and conservative financial policy. We mentioned earlier in the year that we would end up in a net cash position. So it's about really having a constructive dialogue with the rating agencies as they digest the change in the profile of the business, and we balance that and mitigate it with our conservative financial policy. And that is sort of what is within our control at this time.
Our next question comes from Lanka, Sashank [ Venkatarahana ] from Bank of America Merrill.
I have 2 questions from my side just with regards to the transaction announced this morning. Do you see any potential regulatory antitrust hurdles? That's the first one.
And the second one is we thought of the Clean Ammonia project in Texas providing some synergies with the import terminal in Rotterdam and positioning for the energy transition in Europe. So just wondering what's the outlook for the European Nitrogen business here? And how should we be thinking about the import terminals over the longer term?
Yes. So to your first question on the regulatory and antitrust, we don't see any requirements from a regulatory antitrust perspective in terms of filing. So as we mentioned earlier, we're just going to have customary closing conditions and a shareholder approval requirement from the OCI side to close. And that's why I anticipate to close later this year.
With regards to the second question on Clean Ammonia and kind of synergies with the OCI Nitrogen side, one, these entities or -- these entities, both Clean Ammonia and OCI Nitrogen largely operate on an independent basis to allow for a transaction like this to happen. Obviously, we're going to be partnering with Woodside over the next year to deliver this project to completion from the OCI perspective. But also, they're getting a great blue ammonia platform with this production that they're going to have of gray and blue ammonia in '26. And I can personally vouch for the team that they're getting.
But we do see future opportunities to potentially cooperate because while we uniquely had a blue ammonia project coming on in Texas, we also uniquely have a terminal in Rotterdam that's directly accessible not just to our OCI Nitrogen facility but also through our ammonia distribution capabilities throughout Europe, which are one of the top in Europe to be able to access that Western European market.
As you know, we've been ramping up the import capacity through that terminal. And we see that option to potentially with Woodside or others on the low-carbon ammonia side potentially procure that from other jurisdictions and efficiently deliver it into our operations as well as those of others who have the ability to flip and import when it makes sense to do so from a natural gas pricing perspective.
Our next question comes from [ Ram Shankar ] from [ BBG ].
[Operator Instructions]
I will now hand over to Sarah Rajani to go through the webcast questions.
I can confirm that all of the outstanding webcast questions have already been answered, and there are no further questions at this time.
And that concludes the question-and-answer session. So I will hand over to Ahmed El-Hoshy for any final remarks.
Yes. Thanks, everybody, for joining this call. Thanks for the good questions, and looking forward to our next discussion. Thank you.
Thank you.
This concludes today's call. Thank you for joining. You may now disconnect your lines.